Title The quality of internal audit and its role in reducing the practice of earnings management

research motives This research is an extension of previous research by the researcher of address the quality of internal audit and its role in activating the corporate governance. Where it appeared to the researcher during the implementation of his previous research, that there are recent studies published in 2009 linking the quality of internal audit and all of the earnings management and transparency of financial reporting. Because much of the information on the independent variables are for the previous research which can be used in this research, so the researcher had the motive for the implementation of this research.

Research Problem Study of the relationship between the quality of internal audit and the quality of accounting earnings number according to an accrual basis. Is there a relationship between the quality of internal audit number and quality of accounting earnings number prepared in accordance with the accrual basis? What is the nature of this relationship? What are the most influential factors on the quality of internal audit linked to the quality of accounting earnings on an accrual basis?

Research Objectives The main objective of this research is to examine the relationship between the quality of accounting earnings number according to the accrual basis as a dependent variable and the level of internal audit services in the Saudi joint stock companies as an independent variable. Thus to have a conclusion of the effectiveness of the role of internal audit to the reduction of management practices for the management of the profits. This fundamental objective includes the following objectives: First Objective: To study and evaluate the factors affecting the quality of internal audit in Saudi joint stock companies. Second Objective: to examine the relationship between the factors affecting the quality of internal audit services and the quality of accounting earnings number according to the accrual basis. Third Objective: to know the factors affecting most the quality of internal audit services; influence or linked to the quality of accounting earnings number in accordance with the accrual basis.

The importance of research the research keeps pace with the current developments in the area of accounting research, since the field of earnings management - as one of the areas of research and the role of internal audit in achieving transparency in financial reporting, as one of the fundamental objectives of corporate governance - seen as one of the most accounting research areas at the present time.

Research boundaries The applied study will be implemented on the Saudi joint stock companies. The applied study will rely on two types of data: The first type: is the data related to the advertised accounting profits, and this type is obtained from the published financial reports. The second type: is the necessary data about the quality of internal audit services, and this type will be obtained through the personal interviews and the distribution of questionnaires. The first type assumed that would be with high accuracy as it is subjected to review. For the second type, the degree of accuracy depends on the integrity and credibility of sample vocabularies. Therefore, the possibility of circulating the results of this study depends on the integrity and credibility of the data provided by the vocabularies of the sample, and this is something that the researcher can not guarantee.

The applied study The variables and assumptions: The dependent variable: The dependent variable is the practices of earnings management (quality No. of profits prepared in accordance with accrual basis) and this variable will be measured by the change in the proportion of Mille  WC / CFO The change in working capital / cash flows from the operating activities, where Miller ratio is based on that the companies involved in the earnings management, the change in Miller ratio from time to time large, while is considered steady ratio on other times is an evidence of the absence of earnings management practices

The imposition of a lack of management earnings (  WC / CFO)t-0 – (  WC / CFO)t-1 = 0 The imposition of a management earnings (  WC / CFO)t-0 – (  WC / CFO)t-1 ≠ 0

Independent variables The independent variables are: The Competence It is expressed by the following variables: professional certification, practical experience, training, and the size of the internal audit section OBJECTIVITY It is expressed by the organizational independence and the non- participation in an executive work. QUALITY OF WORK PERFORMANCE It is expressed by the existence of internal audit manual, a plan to evaluate the performance, and the volume of work associated with the financial reports.

Methods of measuring the independent variables Competence the percentage of auditors who have professional certification to the total number of auditors who work in the department. Professional certification the average number of years of experience of the auditors working in the department. Practical experience the ratio of the number of training hours, to the number of annual working hours of the internal auditors Training the ratio of the internal audit department’s staff to the total number of employees of the company The size of the internal audit section

Methods of measuring the objective independent variables. Organizational independence descriptive variable; its value is equal to one in the case of whether the internal audit reports submitted to the Audit Committee, and is equal to zero in the case if the reports submitted to the Department. Organizational independence Descriptive variable value: is equal to one in the case of whether internal auditors are not involved in executive work, and equal to zero in the case of whether internal auditors are involved in executive work. Methods of measuring the independent variables Not to participate in an executive work

Quality of implementation of tasks descriptive variable value: is equal to one in the case of evidence of internal audit, and is equal to zero in the absence of evidence of internal audit There is evidence of internal audit descriptive variable value: is equal to (two) in case of the availability of assessment to the quality of the internal audit performance services from outside the company, and is equal to one in the case of the existence of a plan to assess performance from within the Internal Audit Section, and is equal to zero in the absence of any performance appraisal system. A plan to assess the quality of performance the ratio of working hours spent by internal auditors in works related to the financial reports to the total annual working hours. Impositions Volume of business associated with the financial reports

Imposition of overall research The original Imposition: There is significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to the quality of the internal audit performance. Alternative Imposition: There is no significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to the quality of the internal audit performance.

Professional Certificate The original Imposition: There is significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to the professional certification for Internal Audit Department personnel. The alternative Imposition: There is no significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to the professional certification for Internal Audit Department personnel.

Training The original Imposition: There is significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to the average number of training hours for Internal Audit Department personnel. Alternative Imposition: There is no significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to the average number of training hours for Internal Audit Department personnel.

Years of Experience the original Imposition: There is significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to the average number of years of experience of the Internal Audit Department personnel. Alternative Imposition: There is no significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to the average number of years of experience of the Internal Audit Department personnel

Organizational independence the original Imposition : There is significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to the organizational independence of the internal audit. Alternative Imposition: There is no significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to the organizational independence of the internal audit.

Non-participating in the executive work the original Imposition: There is significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to non-participating of internal audit personnel in an executive work. Alternative Imposition: There is no significant inverse moral association between the manipulation of the prepared number of earnings on the basis of accrual (Miller ratio) to non-participating of internal audit personnel in an executive work.