Abstract:
Better financial reporting methods are correlated with strong corporate
governance. Managers have greater incentives to disclose confidential
information to the users and less motive to manage earnings since agency
conflicts are minimized. This study aimed to examine the influence of audit
committee characteristics on the earnings management of listed companies
in Sri Lanka. Secondary data of listed firms on the Colombo Stock Exchange
(CSE) for the five years from 2017 to 2021 was used. For data analysis, 107
companies listed on CSE were selected as the sample and a quantitative
technique was employed. Audit committee size, audit committee
independence, audit committee financial expertise, and audit committee
meetings were proxies for audit committee characteristics, while firm size
and leverage were considered as control variables. This study used
discretionary accruals as a signal of the presence of earnings management.
The techniques of Pearson’s Correlation and panel data regression were
employed to estimate the association between the audit committee
characteristics and earnings management. The empirical findings revealed
that audit committee independence and audit committee meetings
significantly influence the earnings management of listed companies in Sri
Lanka. Therefore, there is strong evidence that a low level of audit
committee independence and audit committee meetings have a major effect
as a device in mitigating earnings management. This study contributes
significantly to improving one's understanding of the interactive role of
audit committee characteristics.
