Audit committees and earnings quality

Authors


  • doi: 10.1111/j.1467-629X.2008.00290.x

  • This paper is from Peter's PhD thesis completed at the University of Southern Queensland (USQ). We are grateful for the input of his Associate Supervisor, Gary Monroe from the Australian National University (ANU). We also thank the two anonymous reviewers for their very helpful comments and suggestions. This paper has also benefited from the comments of seminar participants at Griffith University, ANU, USQ, Central Queensland University (CQU), the 2005 University of Technology Sydney Accounting Research Summer School, and the 2005 Accounting and Finance Association of Australia and New Zealand (AFAANZ) Conference. Funding support was provided by USQ, CQU, and a PhD scholarship jointly sponsored by AFAANZ, CPA Australia and the Institute of Chartered Accountants in Australia. The Global Industry Classification Standard (GICS) industry classification data were kindly provided by Standard & Poor's (S&P). The GICS was developed by and is the exclusive property and a trademark of S&P, a division of the McGraw-Hill Companies Inc. and Morgan Stanley Capital International Inc.

Abstract

This research investigates whether audit committees are associated with improved earnings quality for a sample of Australian listed companies prior to the introduction of mandatory audit committee requirements in 2003. Two measures of earnings quality are used based on models first developed by Jones (1991) and Dechow and Dichev (2002). Our results indicate that formation of an audit committee reduces intentional earnings management but not accrual estimation errors. We also find differences in the associations between audit committee accounting expertise and the two earnings quality measures. Other audit committee characteristics examined are not significantly related to either earnings quality measure.

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