Audit Committee Characteristics and Earnings Management

Document Type : Original Article

Authors

1 Faculty of Accounting and Management, Shahid Beheshti University, Tehran, Iran

2 Master of Accounting, Shahid Beheshti University, Tehran, Iran

10.22034/iaar.2021.131576

Abstract

As an integral part of the corporate governance structure, the audit committee is charged with overseeing the financial reporting process, and limiting earnings management is one of the main benefits of companies with an audit committee. Hence, this study examines the relationship between the characteristics of audit committee and accrual earnings management. For this purpose, we investigate the data of 88 companies listed by Tehran Stock Exchange for the period 2014 of 2016. The results of the research indicate that the participation of financial experts in audit committees, increasing the independence and size of audit committee has a significant relationship with less earnings management. Also, the results indicate that there is a U-shaped relationship between audit committee independence and earnings management. In other words, the low independence of the audit committee will not be able to prevent managers' opportunistic behaviors. So, when the majority of members of the Audit Committee are independent (over 50%), Audit Committee independence is leading to lower earnings management. In addition, the results of the research indicate that there is an inverse U-shaped significant relationship between audit committee meetings and earnings management. In this case, holding monthly audit committees (12 meet a year) has the most effectiveness in preventing earnings management. The “effective” number of audit committee meetings is determined at the minimum of the curve (minimum level), reflecting the lowest level of discretionary accruals.

Keywords

Accounting and Auditing Research
Volume 13, Issue 49
April 2021
Pages 155-174

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