Audit Quality Dimensions and Their Impact on Mitigating Aggressive Accounting Practices: A Comparative Study of Family and Non-Family Firms in the GCC Market

Abstract

This study examines the dimensions of audit quality and their impact on mitigating aggressive accounting practices through a comparative analysis of family and non-family firms in the Gulf Cooperation Council (GCC) markets. The study is grounded in a conceptual framework that views audit quality as a multidimensional construct encompassing auditor independence, expertise, audit firm size, audit fees, and audit committee effectiveness. It further argues that the effectiveness of audit quality in constraining opportunistic financial reporting is contingent upon ownership structure and institutional context. The study employs a quantitative approach based on panel data analysis of publicly listed GCC firms over the period 2014–2023. Multivariate regression models, interaction effects, and subsample analyses are utilized to capture the differential impact across ownership types. In addition, robustness checks and endogeneity controls are applied to enhance the validity of the findings. Aggressive accounting practices are measured using both accrual-based and real earnings management proxies. The findings reveal a statistically significant negative relationship between audit quality dimensions and aggressive accounting practices, supporting the disciplining role of high-quality audits. However, this effect is not uniform across firms; it is significantly stronger in non-family firms and relatively weaker in family firms, where concentrated ownership appears to reshape governance mechanisms and limit the effectiveness of audit processes. Moreover, ownership structure is found to act as a critical moderating variable, while certain dimensions—particularly auditor independence and audit committee effectiveness—exhibit stronger influence than others. This study contributes to the accounting literature by advancing a multidimensional perspective of audit quality and integrating it with ownership structure within the GCC context. It also offers a deeper interpretive and ethical perspective on auditing, positioning it not merely as a verification mechanism but as an institutional actor involved in shaping the meaning of financial reporting.