The relationship between internal audit function quality and earnings quality: the moderating effect of CEO power

Abstract

AbstractThis study investigates the relationship between internal audit function quality, Chief Executive Officer (CEO) power and earnings quality and how CEO power moderates the relationship between internal audit function quality and earnings quality. The study is correlational, cross-sectional, and perception-based that obtained 136 usable questionnaires from regulated firms in Uganda. Data was analyzed using Statistical Package for Social Scientists, Smartpls software, and Jose’s Modgraph. The results show that internal audit function quality is positive but not significantly related to earnings quality. The results revealed that internal audit function quality is negatively related to CEO power although the association is not significant. CEO power is significant and negatively related to earnings quality. The interaction effects of internal audit function quality and CEO power on earnings quality are significant, according to which the greater the power of the CEO, the lower the effect of the IAF on earnings quality. The current study adds to literature of internal audit function quality, CEO power and earnings quality and consequently, moderating role of CEO power in the relationship between internal audit and earnings quality. This study is relevant to policy makers and regulators who need to consider these results to identify the needed changes in their regulation of accounting practice and governance in Uganda.