Do Audit Quality, Audit Tenure, and ESG Disclosure Enhance Earnings Quality? The Conditional Role of Firm Risk

Maulina Diyah Permatasari; Vista Yulianti; Lutfia Dhiya Ulhaq

doi:10.55606/jumia.v4i3.4448

Authors

Maulina Diyah Permatasari Universitas Pelita Bangsa
Vista Yulianti Universitas Pelita Bangsa
Lutfia Dhiya Ulhaq Universitas Pelita Bangsa

DOI:

https://doi.org/10.55606/jumia.v4i3.4448

Keywords:

Audit Quality, Audit Tenure, Earnings Quality, ESG Disclosure, Firm Risk

Abstract

This study investigates whether audit quality, audit tenure, and Environmental, Social, and Governance (ESG) disclosure enhance earnings quality, while examining the moderating role of firm risk. The research is motivated by the increasing demand for reliable financial reporting and growing concerns over earnings management practices that undermine the credibility of corporate financial statements. Although previous studies have explored the individual effects of audit quality, audit tenure, and ESG disclosure on earnings quality, limited evidence exists regarding their combined influence and the conditional role of firm risk. This study employs a quantitative explanatory research design using panel data from non-financial companies listed on the Indonesia Stock Exchange (IDX) during the 2021–2025 period. Secondary data are collected from annual reports, audited financial statements, and sustainability reports, and analyzed using panel data regression with moderation analysis. The findings indicate that audit quality, audit tenure, and ESG disclosure significantly improve earnings quality by reducing discretionary accruals. Furthermore, firm risk significantly moderates these relationships, suggesting that the effectiveness of audit mechanisms and sustainability reporting depends on the firm's risk profile. The study contributes to the accounting and corporate governance literature by providing an integrated framework that links audit characteristics, ESG disclosure, and firm risk in explaining earnings quality. The results also offer practical implications for regulators, auditors, corporate managers, and investors in promoting transparent financial reporting and strengthening corporate governance practices.

References

Adams, C., & Abhayawansa, S. (2022). Connecting the COVID-19 pandemic, environmental, social and governance (ESG) investing and calls for ’harmonisation’of sustainability reporting. Critical Perspectives on Accounting, (Query date: 2025-08-01 16:43:11). Retrieved from https://www.sciencedirect.com/science/article/pii/S1045235421000289

Adeneye, Y., Fasihi, S., Kammoun, I., & Albitar, K. (2023). Does earnings management constrain ESG performance? The role of corporate governance. International Journal of Disclosure and Governance, 21, 69–92. https://doi.org/10.1057/s41310-023-00181-9

Alharasis, E., Alshdaifat, S. M., Almarayeh, T., Hasan, E., & Al-Hamadeen, R. (2025a). Audit quality moderating effect on the relationship between earnings management and ESG reporting in the Jordanian banking industry. Discover Sustainability, 6, 973. https://doi.org/10.1007/s43621-025-01803-8

Alharasis, E., Alshdaifat, S. M., Almarayeh, T., Hasan, E., & Al-Hamadeen, R. (2025b). Audit quality moderating effect on the relationship between earnings management and ESG reporting in the Jordanian banking industry. Discover Sustainability, 6, 973. https://doi.org/10.1007/s43621-025-01803-8

Aly, S. S., Diab, A., & Abdelazim, S. (2023). Audit quality, firm value and audit fees: Does audit tenure matter? Egyptian evidence. Journal of Financial Reporting …, (Query date: 2025-08-19 19:39:24). https://doi.org/10.1108/JFRA-04-2023-0203/1253141

Amara, I., & Khlif, H. (2020). A review of the influence of political connections on management’s decision in non-US settings. Journal of Financial Reporting and Accounting, (Query date: 2024-03-18 14:06:55). https://doi.org/10.1108/JFRA-03-2020-0075

Ani, M. A., & Chong, H. (2021). Interplay between accounting conservatism, auditing conservatism and quality of earnings in Oman. … , Management and Accounting, (Query date: 2025-08-03 15:16:55). Retrieved from https://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/827

Apriani, R., Herawaty, N., & Friyani, R. (2024). The Influence of Audit Fees, Audit Tenure, Company Size and Managerial Ownership on Audit Quality. Indonesian Journal of Interdisciplinary Research in Science and Technology, 2(7), 1065–1082. https://doi.org/10.55927/marcopolo.v2i7.9747

Cao, T., Lin, B., & Wang, Z. (2025). Earnings Quality and Corporate ESG Performance: Evidence from Mandatory Environmental Disclosure Policies. Scientific Journal Of Humanities and Social Sciences, 7(11), 43–49. https://doi.org/10.54691/wez42s94

Gaio, C., & Pinto, I. (2018). The role of state ownership on earnings quality: Evidence across public and private European firms. Journal of Applied Accounting Research, 19(2), 312–332. https://doi.org/10.1108/jaar-07-2016-0067

Ghaisani, C. A. (2025). Earnings Quality and Its Determinants: An Analysis of Profitability, Liquidity, and Investment Opportunity Set. E-Jurnal Akuntansi. https://doi.org/10.24843/eja.2025.v35.i04.p04

Hashed, A. A., & Ghaleb, B. A. A. (2023). Sustainability reporting and earnings manipulation in Saudi market: Does institutional ownership matter? Cogent Business & Management, 10(3). https://doi.org/10.1080/23311975.2023.2259607

Herdina, T. A., Hadiwibowo, I., & Azis, M. T. (2023). Earnings Quality Determinants: Evidence from Transportation and Logistics Companies. Journal of Auditing, Finance, and Forensic Accounting, 11(2), 88–103. https://doi.org/10.21107/jaffa.v11i2.22334

Kamarudin, K., Ismail, W., & Ariff, A. (2021). Auditor tenure, investor protection and accounting quality: International evidence. Accounting Research Journal, 35(2), 238–260. https://doi.org/10.1108/arj-07-2020-0179

Kim, P., & Son, M. (2024). Auditor tenure and non-GAAP earnings. Managerial Auditing Journal, 39(4), 344–369. https://doi.org/10.1108/maj-05-2023-3928

Lee, H., & Jeong, S. (2023). Economic policy uncertainty, audit quality, and earnings manipulation. Asia-Pacific Journal of Accounting & Economics, 31(2), 269–299. https://doi.org/10.1080/16081625.2023.2228836

Lee, J. H. (2021). Earnings quality, foreign investor and dividends. Journal of Derivatives and Quantitative Studies: 선물연구, 30(1), 58–72. https://doi.org/10.1108/jdqs-07-2021-0018

Mwangi, J. (2024). Effect of Audit Quality on Earnings Management Practices. American Journal of Accounting, 6(1), 1–12. https://doi.org/10.47672/ajacc.1783

Nuhu, M. S., Ahmad, Z., & Lim, Y. (2024). The Influence of External Audit Quality on Discretionary Accruals and Real Earnings Management Practices: An Analysis of Malaysian Firms. Asian Academy of Management Journal, 29(2), 211–241. https://doi.org/10.21315/aamj2024.29.2.8

Saona, P., Muro, L., & Alvarado, M. (2020). How do the ownership structure and board of directors’ features impact earnings management? The Spanish case. … Financial Management & …. https://doi.org/10.1111/jifm.12114

Verma, D., Dawar, V., & Chaudhary, P. (2023). Do audit attributes impact earnings quality? Evidence from India. Asian Journal of Accounting Research, 9(1), 25–34. https://doi.org/10.1108/ajar-12-2022-0428

Widianto, R., & Astuti, C. D. (2024). Pengaruh Enterprise Risk Management, Kualitas Audit Eksternal, Dan ESG Disclosure Terhadap Nilai Perusahaan. Journal of Economic, Bussines and Accounting (COSTING), 7(3), 4307–4318. https://doi.org/10.31539/costing.v7i3.9125

Yanti, L., & Wijaya, M. (2020). Influence of auditor switching, audit fee, tenure audit and company size to audit quality. ECo-Fin, (Query date: 2025-08-11 19:12:16). Retrieved from https://jurnal.kdi.or.id/index.php/ef/article/view/150