HUBUNGAN TRANSAKSI DENGAN PIHAK-PIHAK YANG MEMILIKI HUBUNGAN ISTIMEWA DAN KUALITAS AUDITOR DENGAN PRAKTIK MANAJEMEN LABA

Abstract

This research aims to answer two questions. First, whether related
party transactions relate to earnings management and, if they do, which
transaction, among those reported, that correlate with earnings
management? Second, since those transactions are characterized by their
complexities and those complexities, then, relate to information
asymmetry, does auditor quality can mitigate earnings management
practice?
We choose non-financial related firms as our samples. Those 45
chosen firms were listed from 1996 to 2006 on JSX. We conduct tests
based on full samples and split samples. Samples are divided based on
the size of their accounting firms. Results show that two out of six related
party transactions measures are statistically related to earnings
management. Moreover, samples audited by bigger accounting firms have
higher abnormal accruals than samples audited by smaller accounting
firms. This result implies that the earlier manage their earnings number.
Even though our results are not consistent among different
measures of related party transactions, we, however, can conclude that
opportunistic managers can take advantage of the transactions
complexities. We argue that standards must be reconsidered how those
transactions should be disclosed to public. Auditors must be made aware
of the consequences to them of not being aware of this opportunistic
behavior.