PRACTICING FRS AND AUDIT QUALITY SUPPORT FINANCIAL SUCCESS OF CONSTRUCTION FIRMS IN MALAYSIA
Abstract
Prior research findings on the effect of financial reporting and audit quality on firm performance were mixed. The current study therefore, sought to examine the impact of audit quality and FRS practices of firms on their financial success. Samples firms listed on Malaysian stock market were selected from the construction sector for the period of 2010 to 2013. Data was collected from the published annual reports and notes to the financial statements. To assess the level of compliance with the regulations and provisions of the Financial Reporting Standard (FRS) in Malaysia, content analysis was carried out. Firm’s engagement with established audit firm is used as a proxy for audit quality, and return on assets is used as a measure of firm performance. Panel data analysis was employed in analysing the data and testing the stated hypotheses. The use of panel data reveals that practices of FRS by firms is significantly and positively related to their financial performance. The results also indicate that audit quality has a significant positive impact on business financial success. The study therefore recommends that the management of listed construction firms improve their practices of FRS and employ the service of established audit firms in support of financial success. Regular training may be organised to provide construction companies with practical guide for better compliance with the FRS in Malaysia.
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