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Author: Patrick Badolato
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Regulatory pressure to increase both audit committee financial expertise and board independence has resulted in lower status for audit committees relative to management. This status differential is relevant because expertise and relative status are important determinants of each party's ability to influence outcomes, particularly when parties face conflicting goals. We find that audit committees with both financial expertise and high relative status are associated with lower levels of earnings management, as measured by accounting irregularities and abnormal accruals. These results speak to benefits and limitations of financial expertise, which have been the focus of considerable debate.
Author: Patrick Badolato
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Regulatory pressure to increase both audit committee financial expertise and board independence has resulted in lower status for audit committees relative to management. This status differential is relevant because expertise and relative status are important determinants of each party's ability to influence outcomes, particularly when parties face conflicting goals. We find that audit committees with both financial expertise and high relative status are associated with lower levels of earnings management, as measured by accounting irregularities and abnormal accruals. These results speak to benefits and limitations of financial expertise, which have been the focus of considerable debate.
Author: Joseph V. Carcello
Publisher:
ISBN:
Category :
Languages : en
Pages : 55
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Book Description
A prime objective of the Sarbanes-Oxley Act and recent changes to stock exchange listing standards is to improve the quality of financial reporting. We examine the associations between audit committee financial expertise and alternate corporate governance mechanisms and earnings management. We find that both accounting and certain types of non-accounting financial expertise reduce earnings management for firms with weak alternate corporate governance mechanisms, but that independent audit committee members with financial expertise are most effective in mitigating earnings management. Importantly we find that alternate corporate governance mechanisms are an effective substitute for audit committee financial expertise in constraining earnings management. Finally, we find either no association or a positive association between financial expertise and real earnings management. Our results suggest that alternate governance approaches are equally effective in improving the quality of financial reporting, and that firms should have the flexibility to design the particular set of governance mechanisms that best fit their unique situations.
Author: Bo Qin
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
An audit committee with financial expertise is expected to strengthen the firms' internal control system, and consequently, contribute to reliable and relevant financial reporting. The controversial definition of financial expert was intensively commented on before the Securities and Exchange Commission (SEC) stipulated the final rules. In this study, the author examines whether the impact of audit committee's financial expertise on earnings quality as measured by returns-earnings relation varies with the way the financial expert is defined. The results indicate that the firms with an accounting-literate professional serving on the audit committee are more likely to have high quality of reported earnings than others without such an expert. In addition, the size of the audit committee with accounting-related expertise has a positive impact on earnings quality. In contrast, the presence of a financial expert under SEC final definition is not significantly related to earnings quality. The results are robust with other influential factors, such as earnings growth, persistence, firm size, and industry specificity, taken into account.
Author: Rachel M. Hayes
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Badolato et al. (2014) (BDE) examine the effectiveness of audit committee financial expertise. They find that financial expertise does not deter irregularities unless the audit committee also has high status. I review prior research on financial expertise to place the current study in the literature and for guidance in assessing the paper's assumptions and empirical specifications. BDE's conclusions run counter to many of the prior findings and to broad patterns in the data. I discuss how empirical research design choices and self-selection may affect the paper's conclusions.
Author: Frank M. Burke
Publisher: CCH
ISBN: 9780808091646
Category : Business & Economics
Languages : en
Pages : 468
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Book Description
Author: Joon S. Yang
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
Regulators have frequently expressed concerns about corporate earnings management. Audit committees are expected to monitor managers' tendencies to manipulate their earnings numbers. The extant literature until now has focused on managers' incentives to manipulate annual earnings numbers. However, managers also have incentives to manage quarterly earnings, due for example, to pressures to meet quarterly analyst forecasts. We test whether audit committees with certain characteristics curb managers' ability to engage in quarterly earnings management. We examine the following characteristics of audit committees: their independence, number of meetings, financial expertise, stock ownership, outside directorships, tenure, and number of directors.Using a sample of 896 firm-year observations for the years 1996-2000, we report three findings. First, the number of outside directorships held by audit committee directors is negatively associated with earnings management behavior. This could reflect possible independence of these directors because of their desire to maintain their reputations or their expertise in dealing with financial reporting issues. Second, we find that stock ownership by independent audit committee directors is positively associated with earnings management. The monitoring benefits of independent directors seem to be eroded in situations where they are given stock ownership. Moreover, in our sample, it is mainly the independent directors that own stock. Although we do not know how generalizable this finding is, it suggests that stock ownership by audit committee directors is undesirable. Third, the average tenure of audit committee directors is negatively associated with quarterly earnings management suggesting a possible positive effect of experience with the firm and its accounting. Our results are robust to two different measures of quarterly earnings management.
Author: Ademola Akinteye
Publisher: GRIN Verlag
ISBN: 334607871X
Category : Business & Economics
Languages : en
Pages : 862
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Book Description
Doctoral Thesis / Dissertation from the year 2015 in the subject Business economics - Investment and Finance, grade: Great Distinction, UGSM-Monarch Business School Switzerland (Accounting and Finance), course: Doctor of Philosophy in Finance, language: English, abstract: The dissertation examined Earnings Management and Corporate Governance Governance Practices of the firms that are listed on the floor of the Nigerian Stock Exchange. The researcher investigated the published financial statements of all the listed companies across all the sectors of the exchange using empirical quantitative research methods. Al the variables of earnings management were extracted from the published annual financial statements and Directors Annual Reports through Content Analysis. The paper further explored all the variables of corporate governance as published by the Directors in the Annual Reports in the Financial Statements and through a face to face recorded interviews of the members of the Board of Directors, the members of the Audit Committees and the Heads of Internal Audit Functions in the Listed Public Companies. The study documented that companies that are listed on the Nigerian Stock Exchange are involved in both the upward and downward earnings management practices. This findings cut across all the Sectors and categorization of the companies on the Nigerian Stock Exchange. The research thus recommended the need for better oversight by the Board of Directors, the Audit Committee and the Market Regulators mainly the Security and Exchange Commission and the Nigerian Stock Exchange. The findings of the Research on Corporate Governance is mixed. In certain sectors, evidence of strong corporate governance are documented as reflected in the quality of Board Members, the Quality of the deliberations at the Board meetings, the independence of the Board, the independence of the Audit Committee and the independence and effectiveness of the Head of the Internal Audit function measured by the reporting line of the holder of this role. In some sectors, the ingredients of strong corporate governance were missing thus suggesting a need for a more stricter regime of corporate governance to be implemented in these corporations.
Author: Chaudhry Ghafran
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This thesis examines the impact of audit committee characteristics on financial reporting quality in the context of a large sample of UK companies over the period 2007-2010. The notion of financial reporting quality is assessed by looking at the audit quality and earnings quality of the firms. This study utilises the audit fee and non-audit fee ratio as its proxies for audit quality and accruals based earnings management models as its proxies for earnings quality. The findings from the multivariate analysis show that audit committee meetings and financial expertise exert a significant positive impact on audit fees. Investigating expertise further, this study finds no support for the notion that accounting expertise influences audit fees, however a significant positive influence on audit fees is recorded for the non-accounting financial expertise. However, the holding of additional directorships has a significant negative impact on audit fees. This study also finds that audit committee members' financial expertise has a negative and significant impact on non-audit fee ratio suggesting a strong support of members with financial expertise on issues relating to auditor independence. The study also documents that audit committee members serving longer on the boards do not prefer to purchase high amount of non-audit services from the incumbent auditor. This study also records a significant positive impact of the holding of additional directorships on the provision of non-audit fee ratio, thus signifying a profound support for the busyness hypothesis which argues that overstretched directors are not very good monitors of financial reporting quality. Furthermore, this study finds broadly consistent evidence that audit committees meeting three or more times per year and fully independent audit committees exert a significant positive impact on the quality of reported earnings. This study also finds some evidence (depending on the earnings model used) that the level of ownership of audit committee members also exerts a positive impact on the quality of reported earnings, highlighting the fact that audit committee members with an equity stake in their companies are considered more effective in their oversight of the financial reporting process. On the other hand, this study finds evidence that the busyness of audit committee members (busyness defined in terms of the holding of board seats in other companies) has a significant negative impact on the quality of reported earnings. The composite variables (i.e. ACE1, ACE2, ACE3 and ACE4) representing those companies that satisfy all aspects of current best practice in terms of audit committee composition and operation, has a positive impact on the quality of reported earnings. This study covers the period 2007 to 2010 and therefore offers a contemporary analysis of the influence of audit committee characteristics on financial reporting quality. The study is very comprehensive in its scope not only in the selection of audit committee characteristics and methods employed to quantify these characteristics, but also in the use of various proxies developed to capture the true essence of financial reporting quality. The choice of multiple measurement methods both for the dependent and independent variables facilitates a much richer investigation into the relationship between governance and financial reporting quality variables. Therefore this study makes a major contribution to our understanding of the association between the various audit committee characteristics and financial reporting quality in the wake of recently introduced regulatory recommendations. These findings will also have policy implications as regulators around the world continue to define and refine the desired characteristics and behaviour of audit committees. Therefore, the findings of this study will ensure future policy changes regarding audit committees are adequately informed.
Author: Nurul Nazlia Jamil
Publisher: LAP Lambert Academic Publishing
ISBN: 9783847336785
Category :
Languages : en
Pages : 92
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Book Description
Financial reporting quality has been under scrutiny especially after the collapse of major companies. The main objective of this study is to investigate the audit committee's effectiveness on the financial reporting quality among the Malaysian GLCs. In particular, the study examined the impact of audit committee characteristics (independence, size, frequency meeting and financial expertise) on earnings management in periods prior to and following the transformation program (2003-2009). The study is important as it provides additional knowledge about the impact of audit committee's effectiveness on reducing the earnings management, and assist practitioners, policymakers and regulators such as Malaysian Institute of Accountants, Securities Commission and government to determine ways to enhance audit committee's effectiveness and improve the financial reporting of GLCs, as well as improving the quality of the accounting profession.
Author: Joon S. Yang
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Regulators have frequently expressed concerns about corporate earnings management. Audit committees are expected to monitor managers' financial reporting, including attempts to manipulate earnings numbers. The extant literature has focused on managers'incentives to manipulate earnings numbers. However, managers also have incentives to manage earnings, due to, for example, pressures to meet quarterly analyst forecasts. We test the association between audit committee characteristics and measures of quarterly earnings management. Using a sample of 896 firm-year observations for the years 1996-2000, we report three findings. First, quarterly earnings management is lower for firms whose audit committee directors have greater governance expertise. Second, the extent of stock ownership by audit committee directors is positively associated with quarterly earnings management. Third, the average tenure of audit committee directors is negatively associated with quarterly earnings management.
