1- Research problem and questions:
The current study attempted to explore to extent Saudi commercial banks manage earnings and determine their quality, and study the impact of the determinants of internal auditing activities quality (qualification, professional qualification, experience, and the size of the internal audit department, and organizational independence, evidence of internal audit work, and evaluating the quality of its activities) on management practices and quality of earnings, and the impact of the quality of internal audit activities in achieving the relevance and reliability of the financial statements, depending on these the following questions were established:
1- Do the Saudi commercial banks manage their earnings? Are the published earnings characterized by a high quality?
2- What is the impact of the determinants of the quality of internal audit on the management practices and quality of earnings of Saudi commercial banks?
3- What is the impact of the quality of internal audit activities in achieving relevance and reliability of financial statements of Saudi commercial banks?
2- Research Objectives:
The main objective of the research to identify the impact of the quality of internal audit activities on the management practices and quality of earnings of Saudi commercial banks as an approach to achieve the relevance and reliability of the financial statements. The main objective includes the following objectives:
(A) Identify to what extent do Saudi commercial banks practice earnings management, and to what extent is the quality of their declared earnings.
(B) Examine the impact of the determinants of the quality of internal audit activities on the management and quality of Saudi commercial banks earnings activities.
(C) Examine the impact of the quality of internal audit activities in achieving the relevance and reliability of the financial statements of Saudi commercial banks.
3- The research importance:
The importance of research from the scientific pointof viewis its focus on the strategic role of internal audit as a value adding activity in reducing earnings management practices and improving their quality as well as trying to establish indicators by which to infer the quality of its activity.as well as its importance from the practical point of view that the results of the study may provide important information for the users of the financial statements of Saudi commercial banks, in providing them with information on the extent of the practice of banks to earnings management practices and the quality of earnings from one side which promotes the right direction for a betterinvestment decision, also it provides from the other hand, to the banking management an indicators on the quality of the internal auditing activities, and its role toachieve relevance and reliability on the financial statements of commercial banks.
4- Research hypotheses:
a) The variation in the earnings management practices in Saudi commercial banks effects the quality of their accounting profits.
b) The determinants of the quality of internal audit activities affect positively the earnings management practices and quality of Saudi commercial banks' earnings.
c) Thequality of internal audit activities affects the achievement of the relevance and reliability of the financial statements of Saudi commercial banks Arabia.
5- Research Methodology and model building:
To achieve the objectives of the research the researcher used the Content analysis method by which he analuzed the financial reports of all listed commercial banks in the Saudi stock market which are (12) banks, also he relied on the survey to collect data on the determinants of the quality of the internal audit activities, as well as identifying the sample views of the internal auditors, members of the audit committee, and auditors in the impact of internal audit activities in achieving the relevance and reliability of the financial statements, the researcher used the method of linear regression to test the relationship between the determinants of the quality of of internal audit activities and earnings management practices and improving its quality.
6- The research plan:
The Research is divided as follows Section I: General framework of the research, Section II: the relationship between the quality of internal audit activities, andearnings management and quality of earnings, Section III: the impact of the quality of internal audit activities in achieving the relevance and reliability of the financial statements, while Section IV: extrapolation and evaluation of previous studies and building hypotheses, and section V analyzes: research methodology and model building, and Section VI: research design, section VII: analyzing the results of the applied study, and Section VIII: findings, recommendations and areas for future research.
7- Findings, recommendations and proposals for future
7.1 Results:
The most important results of the study are as follows:
1. The quality of internal audit and effectiveness of its activities on the reduction of earnings management practices and improve their quality are based over several determinants most important are the educational level and professionality of the internal auditor his experience about the nature of the entity's business, ongoing training, the size of the internal audit department, its administrative and technicalindependence, and the availability of an evidence regulating its workprocedures, and evaluating the quality of internal audit performance, and the availability of logistical support from the management.
2. Saudi commercial banks vary in their practices in earnings management, which affects the perception users of financial statements for the quality of its earnings, as their practices may be in order to increase or decrease income, banks accounted for practicing earnings management(66.51%) compared with (33.48%), banks which aren't practicing.
3 it was showed by the descriptive statistics for the quality of the internal audit activities of Saudi commercial Banks the commitment of a large number of banks (67%) to having a working directory that regulates the procedures and responsibilities of the internal audit, and (73%) of the banks are concerned with the achievement of managerial and technical autonomy of internal audit, as well as its commitment to periodicalselfevaluation for its activities, which refers to the availability of adequate control by the Saudi Arabian Monetary Foundation, also contributes to the interpretation to not exercising of many of the banks the earnings management practices during the study period.
4. There is a positive relationship between the size of the internal audit department and management practices and the quality of earnings, but it is not statistically significant, no conclusive evidence is available that theincreases of the size of the internal audit department reduces the earnings management practices and improve quality.
5. There is a statistically significant impact for each of the qualification and professionality of internal auditor, and his experience and the availability of administrative and technical autonomy, and the presence of a working directory identifing responsibilities, continuous evaluation for the quality of internal audit performance in earnings management practices, on improving the quality of financial reports, and that is reflected positively on the degree of relevance and reliability on the financial statements of commercial banks.
6. The activities of internal audit have an effect on the reduction of earnings management practices, improving their quality, examining the quality of accounting information and transparency of financial reporting, verification of internal control and risk management in the degree of relevance and reliability of the financial statements of Saudi commercial banks.
7. The study sample confirmed that the most internal audit activities impact on the achievement of relevance and reliability of financial statements, is the examination of the extraordinary items and reviewing of the accounting estimates made by management, and reporting all earnings management practices to the Audit Committee and the follow-up to what was done by management of corrective actions , as well as the internal audit department adaptation of the modern approaches and philosophies, such as: (the approachof continuous improvement, the positive approach, and the creative thinking and innovation approach), and doing objective assurances to verify the reliability and integrity of the information, and the study and evaluation of internal control system and the study of the risks facing the bank and their follow-up on a regular basis and conducting risk-based audit plan.
7/2 recommendations:
In light of the results that have been reached in both theoretical and applied study, the researcher recommends the following:
1-enhancing the quality of internal audit activities of Saudi commercial banks activities through controls to choose the internal auditors, who has qualifications such as the bachelor's or more eligiblity qualifications, and to get professional qualifications and the availability of appropriate experience, which qualifies them for the detection of earnings management practices, reducing them and improving its quality.
2-The usage of the proposed determinants to infer the quality of internal audit activities and stand on its role in the reduction of earnings management practices to achieve the relevance and reliability of the financial statements.
3-The authority responsible for issuing the internal audit standards in the Saudi commercial banks has to issue a standard that regulates the internal audit procedures and reponsibilities, and ensures the achievement of true independence that has to be mandatory applied.
4-The imposition of the Saudi Arabian Monetary Foundation a tough sanctions on banks that perform earnings management practices, in order to contribute to the reduction of such practices and achieving the relevance and reliability of the financial statements.
7/3 future proposals:
The Researcher finds in the light of what has been reached from the results that there are many areas that can serve as a basis for future research, including the following:
• A study of the impact of outsourcing of the internal audit functionson reducing earnings management practices, and to achieve the relevance and reliability of the financial statements.
• The role of internal audit in IT risk management.
• A study of the relationship between the quality of internal audit activities and audit fees.
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