Please summarize within 200 words, While keeping the important points

Effects of Audit Quality and Audit Committee Characteristics on Earnings Management During the Global Financial Crisis Evidence from Australia

Literature Review

The theory of 'big bath' offers a suitable foundation to indicate that income control in times of financial crisis can improve. Bad macroeconomic outcomes without raising issues about managers' success will attribute deprived firm performance. The economically exogenous shocks of the GFC can lead managers to downsizing earnings and attribute reduced earnings rather than poor managerial success to macroeconomic shocks. Moreover, the consumer may be more likely to accept bad production and motivate managers to manipulate revenue downwards during an economically exogenous shock such as the GFC. Involved businesses can also decrease reported earnings for debt servicing during financial crises. This is due to infringements of loan pacts or inability to satisfy debt commitments and constitutes an attempt in the restructuring process to obtain compromises. In order to win government support for debt restructuring, Malaysian companies managed profits over income reduction accrued during the AFC. Securing funding from government can also encourage managers to handle income decrease, as it was observed in the 1997 AFC in the service-oriented Singapore companies that increases the phenomenon of revenue decrease. This is because Singapore's government around the AFC has future financial support and incentives. Finally, it may also be a motivation for revenue declining earnings management for the purpose of obtaining compromises during renegotiation by defining the company as badly troubled.

Managers may however also be encouraged to manipulate profits during a financial recession (or income smoothing) to prevent falling share values that may negatively impact the wages they pay. In order to fulfill analysts' forecasts and to stop earnings drops administrators often have salary incentives. Companies record accrual restructuring reversals in order to improve investor expectations, prevent net losses and also avert reductions in profits. Any infringement of the debt agreement will also motivate the management of revenue. There is no conclusion as to the impact of the GFC on the behavior of companies in terms of earnings control. Auditors will face new litigation problems during an economic-related exogenous shock like that of the GFC where third parties demand incompetence by the auditor, causing damages associated with the financial crisis. There is thus a potential opportunity for auditors to be vigilant in their audit procedure in a financial downturn. In accordance with the GFC, auditors requested higher audit fees for enhanced audit efforts, and auditing standard in Australia was improved during the GFC, articulated in terms of concern. The auditors are likely to have a detrimental relationship to the point that it restricts managements' income control, audit efficiency and profit management.

Empirical analyses offer a mixture of proof of the impact on revenue control under standard economic circumstances of the audit committee's characteristics. For eg, earnings control declines, as the audit committee becomes more independent. Moreover, the audit committee's corporate governance, including the independence of the audit Committee, has been generally acknowledged as a constraint in earnings management during usual (non-crisis) times after big corporate collapses in the US and European Union (e.g., Enron, WorldCom, Parmalat).