Critical Factors Influencing Accounting Misstatements: Evidence from Malaysia

• Published in: Accounting, Finance, Sustainability, Governance and Fraud
• Main Author: Hussain A.R.M.; Hasnan S.; Sanusi Z.; Mahenthiran S.
• Format: Book chapter
• Language: English
• Published: Springer Nature 2024
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-85188801111&doi=10.1007%2f978-981-99-9145-7_7&partnerID=40&md5=9a30aea0056815ddfdedfc1d6edf2bfd

This study examined factors associated with accounting misstatementsAccounting misstatement in Malaysian publicly listed companies. Seven management motiveManagement motive (both financial and non-financial) factors (financial distressFinancial distress, market-related incentiveMarket-related incentive, related party transactionsRelated party transactions, earnings managementEarnings management, stock option-based compensationStock option-based compensation, abnormal change in employee number, and political connectionPolitical connection) and six internal and external governanceGovernancemonitoring mechanismMonitoring mechanism factors (board effectivenessBoard effectiveness, founder on boardFounder on board, managerial ownershipManagerial ownership, family ownershipFamily ownership, audit qualityAudit quality, and foreign ownershipForeign ownership) were hypothesized to have a critical influence on the occurrence of accounting misstatementsAccounting misstatement. The sample comprised 97 restatement and 97 non-restatement firms, listed on Bursa Malaysia, encompassing the 2005–2013 period. The results show that two management motiveManagement motive factors, namely, stock option-based compensationStock option-based compensation and political connectionPolitical connection, and one monitoring mechanismMonitoring mechanism factor, namely, poor audit qualityAudit quality, are positively and significantly associated with the occurrence of accounting misstatementsAccounting misstatement. This study provides useful insights for Malaysian firms to mitigate accounting misstatementsAccounting misstatement to improve public awareness and trust. © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2024.