Financial scandals around the world led to a number of investigations on the effectiveness of corporate governance. An important part of an entity‟s corporate governance is its internal audit sourcing. This study attempts to provide evidence from the Sultanate of Oman on the impact of internal audit sourcing to constrain earnings management. This study uses 370 observations obtained from annual reports of the 74 companies listed on Muscat Securities Market (MSM) for the years 2008-2012. The panel data is analyzed using fixed effect model for the purpose of this study. The result shows that the relationship between internal audit sourcing in house and discretionary accruals or discretionary revenue is negative and statistically significant. These results suggest that internal audit in-house is more likely to detect earnings management due to internal auditors have in-depth knowledge of many aspects of a company and are able to devote more time to the company‟s operation.
Volume 12 | Issue 1