ACCTG 502 | Session 4 | Audit Committee, Board of Director Characteristics, and Earnings Management

ACCTG 502 | Session 4 | Audit Committee, Board of Director Characteristics, and Earnings Management April Klein Introduction: This study investigates whether characteristics of the audit committee and board relate to earnings management by the firm. A negative relationship is observed between audit committee independence and abnormal accruals. Similarly, a negative relationship exists between board independence and abnormal accruals. Reductions in the independence of either the board or the audit committee are associated with significant increases in abnormal accruals. The strongest effects are seen when either the board or the audit committee consists mainly of outside directors. These findings indicate that boards designed to be more independent from the CEO are more effective at monitoring the company's financial reporting process. r 2002 Elsevier Science B.V. All rights reserved.