Effect of Audit Committee Characteristics on Real Earnings Management through Abnormal Cash Flow
Auwalu Musa *
Department of Accounting, Bauchi State University, Gadau, Nigeria and Tunku Puteri Intan Safinaz School of Accounting, Universiti Utara Malaysia, 06010 Sintok, Kedah, Malaysia.
Rohaida Abdul Latif
Tunku Puteri Intan Safinaz School of Accounting, Universiti Utara Malaysia, 06010 Sintok, Kedah, Malaysia.
Jamaliah Abdul Majid
Tunku Puteri Intan Safinaz School of Accounting, Universiti Utara Malaysia, 06010 Sintok, Kedah, Malaysia.
*Author to whom correspondence should be addressed.
Abstract
Aims: The purpose of this study is to examine the effect of audit committee characteristics on real earnings management (REM) through abnormal cash flow from operations of listed companies in Nigeria. The study was conducted on non-financial listed companies in Nigeria for the period of five years (2016-2020). The data were extracted from the sample of firm's annual reports and Thompson Reuters database. Ordinary Least Square (OLS) regression was employed to test the study model. The analysis is based on a sample of 76 listed non-financial companies for five years with 380 firm-year observations. The finding shows that audit committee size and financial expertise reduces management opportunistic earnings manipulations. Also, the result demonstrates that the presence of independent directors in the audit committee is significantly associated with lower earnings management practices. However, the result further establishes that audit committee meeting frequency and real earnings management are positively related. The findings will give an insight to investors, policymakers, and regulators by enabling them to better understand the importance of audit committee in improving the financial reporting quality (FRQ), and the effect of audit committee characteristics in mitigating earnings manipulations.
Keywords: Audit committee, earnings management, financial reporting, corporate governance