FINANCIAL CONDITION MODERATED THE EFFECTIVENESS OF AUDIT COMMITTEETOREDUCE EARNINGS MANAGEMENT
Abstract: Some cases
of financial fraud
invite inquiries about
the effectiveness of
corporate governance
mechanism in financial
distress companies. This study
empirically examines whether the financial
distress moderate the impact of
corporate governancemechanism to
earnings management. The
sample of this study is manufacturing companies listed
at Indonesia Stock
Exchange for period
2010 -2012. Discretionary accruals
are used as a proxy for earnings management, while financially distressed and non-distressed
firms are identified based on Altman Z-score test. Corporate governancemechanism
is measured by four
characteristics of the
audit committee, i.e. size (total number
of audit committee
members), independence (audit
committee composition), activity(frequency of
audit committee meeting),
and expertise (the number
of audit committee have
finance or accounting background).This study
finds that (1) financial distress
does not moderate the impact of total members of audit committee to earnings management;
(2) financial distress does not moderate the impact of frequency of audit committee meeting to earnings management;
(3) financial distress
does not moderate the
impact of audit
committee composition to earnings management;
(4)financial distress moderates
the impact of
audit committee finance/accounting knowledge toearnings management. These
results suggestthat the effectiveness corporate governance is low, and
finance/accounting literacy of audit committee should be alert.
Author: Michella Maria Virgine
Prayogo,Yie Ke Feliana, Aurelia Carina Christanti Sutanto
Journal Code: jpmanajemengg130090
