Audit Committee Characteristics and Earnings Management: Evidence from Listed Capital Goods And Consumer Services Companies in Sri Lanka

Abstract

Recent accounting scandals have emphasized the need of audit committees in discovering substantial misstatements and thereby restricting earnings management. The purpose of the study is to investigate the influence of audit committee characteristics on earnings management of listed capital goods and consumer services companies in Sri Lanka from 2017 to 2021. Panel regression analysis was conducted and 50 listed companies representing the capital goods and consumer services sector in Sri Lanka were selected as sample. This research focuses on four aspects of audit committee characteristics, namely audit committee size, audit committee independence, audit committee financial expertise, and audit committee meetings, while earnings management was measured using the modified Jones model. The results reveal that the audit committee independence has a positive impact on earnings management while the audit committee financial expertise has a negative impact on earnings management. Control variable, firm size has a positive impact on earnings management while negatively affecting leverage.