Audit quality and classification shifting: evidence from UK and Germany

Muhammad Usman*, Jacinta Nwachukwu, Ernest Ezeani, Rami Ibrahim A. Salem, Bilal Bilal, Frank Kwabi

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)
35 Downloads (Pure)


The authors examine the impact of audit quality (AQ) on classification shifting (CS) among non-financial firms operating in the UK and Germany.

This paper used various audit committee variables (size, meetings, gender diversity and financial expertise) to measure AQ and its impact on CS. The authors used a total of 2,110 firm-year observations from 2010 to 2019.

The authors found that the presence of female members on the audit committee and audit committee financial expertise deter the UK and German managers from shifting core expenses and revenue items into special items to inflate core earnings. However, audit committee size is positively related to CS among German firms but has no impact on UK firms. The authors also document evidence that audit committee meetings restrain UK managers from engaging in CS. However, the authors found no impact on CS among German firms. The study results hold even after employing several tests.

Research limitations/implications
Overall, the study findings provide broad support in an international setting for the board to improve its auditing practices and offer essential information to investors to assess how AQ affects the financial reporting process.

Most CS studies used market-oriented economies such as the USA and UK and ignored bank-based economies such as Germany, France and Japan. The authors provide a comparison among bank and market-oriented economies on whether the AQ has a similar impact on CS or not among them.
Original languageEnglish
JournalJournal of Applied Accounting Research
Early online date1 Aug 2023
Publication statusE-pub ahead of print - 1 Aug 2023


  • Audit quality
  • Classification shifting
  • Corporate governance
  • Earnings management

ASJC Scopus subject areas

  • Accounting
  • Economics, Econometrics and Finance (miscellaneous)
  • Information Systems and Management


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