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The effect of audit committee performance on earnings quality

Author

Listed:
  • Jerry W. Lin
  • June F. Li
  • Joon S. Yang

Abstract

Purpose - The role of audit committees in ensuring the quality of corporate financial reporting has come under considerable scrutiny due to recent high‐profile “earnings management” cases and the collapse of Enron. The purpose of this paper is to examine the association between the characteristics of audit committees (size, independence, financial expertise, activity, and stock ownership) and earnings restatement – a direct measure of earnings management. Design/methodology/approach - Univariate correlations and multivariate statistical analyses are performed. In particular, a multivariate logistic regression model is used. Findings - Evidence suggests a negative association between the size of audit committees and the occurrence of earnings restatement. The remaining four audit committee characteristics are not found to have a significant impact on the quality of reported earnings. Research limitations/implications - This study focuses on the fiscal year 2000 only. As data become available for more fiscal years, future studies may re‐examine the issue. Originality/value - Results of this research provide useful information for the accounting profession, the regulators and corporations on the effective practice of audit committees.

Suggested Citation

  • Jerry W. Lin & June F. Li & Joon S. Yang, 2006. "The effect of audit committee performance on earnings quality," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 21(9), pages 921-933, December.
    • Handle: RePEc:eme:majpps:02686900610705019
    DOI: 10.1108/02686900610705019
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    Citations

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    Cited by:

    1. Patrick Velte, 2009. "Die Corporate Governance-Berichterstattung des Aufsichtsrats — Eine empirische Untersuchung im deutschen Prime Standard zum Einfluss auf die Unternehmensperformance," Schmalenbach Journal of Business Research, Springer, vol. 61(7), pages 702-737, November.
    2. Dachen Sheng & Huijun Cheng & Minmin Yin, 2024. "Housing Developers’ Heterogeneous Decision-Making under Negative Shock after the High-Growth Era: Evidence from the Chinese Real Estate Economy," Mathematics, MDPI, vol. 12(12), pages 1-22, June.
    3. Li, Xuelian & Liu, Ming, 2024. "Abnormal audit fees and financial reporting quality: A meta-analysis," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 55(C).
    4. Mst. Maksuda Begum & Niluthpaul Sarker & Shamsun Nahar, 2023. "The Impact of Corporate Governance Attributes on Financial Distress among the Listed Firms in Pharmaceuticals Industry of Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 155-167, November.
    5. Aso Abdullah & Sibel Yamak & Anna Korzhenitskaya & Roya Rahimi & Jeanette McClellan, 2024. "Sustainable development: The role of sustainability committees in achieving ESG targets," Business Strategy and the Environment, Wiley Blackwell, vol. 33(3), pages 2250-2268, March.
    6. Masoud Azizkhani & Sarowar Hossain & Mai Nguyen, 2023. "Effects of audit committee chair characteristics on auditor choice, audit fee and audit quality," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3675-3707, September.
    7. Cheng-Wen Lee & Min-Ying Cheng, 2024. "Audit Quality and Auditors' Party Membership: An Insightful Viewpoint into Financial Restatements," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 14(6), pages 1-9.
    8. Yusri Huzaimi Mat Jusoh & Siti Noor Azmawaty Abd Razak & Wan Nurul Basirah Wan Mohamad Noor & Ataina Hudayati & Abriyani Puspaningsih & Farah Aida Ahmad Nadzri, 2022. "Audit Committee Characteristics and Timeliness of Financial Reporting: Social Enterprises Evidence," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 16(2), June.
    9. Amjad Wajdi Noor Ahmad Kamal & Ameer Irfhan Arshad & Norliza Che-Yahya & Siti Sarah Alyasa-Gan, 2023. "Performance of Shariah vs Non-Shariah Firms: A Study of Manufacturing Sector in Malaysia," Information Management and Business Review, AMH International, vol. 15(1), pages 149-163.
    10. Zhongtian Li & Jing Jia & Larelle (Ellie) Chapple, 2022. "The corporate sustainability committee and its relation to corporate environmental performance," Meditari Accountancy Research, Emerald Group Publishing Limited, vol. 31(5), pages 1292-1324, July.
    11. Suchismita Ghosh & Ritu Pareek & Tarak Nath Sahu, 2024. "Do Carbon Performance and Disclosure Practices Effect Companies’ Financial Performance: A Non-Linear Perspective," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(3), pages 733-754, September.
    12. Nasareldeen Hamed Ahmed Alnor, 2024. "Corporate Governance Characteristics and Environmental Sustainability Affect the Business Performance among Listed Saudi Company," Sustainability, MDPI, vol. 16(19), pages 1-19, September.

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