Abstract:
Recent accounting scandals have emphasized the need of audit committees in
discovering substantial misstatements and thereby restricting earnings management.
The purpose of the study is to investigate the influence of audit committee
characteristics on earnings management of listed capital goods and consumer
services companies in Sri Lanka from 2017 to 2021. Panel regression analysis was
conducted and 50 listed companies representing the capital goods and consumer
services sector in Sri Lanka were selected as sample. This research focuses on four
aspects of audit committee characteristics, namely audit committee size, audit
committee independence, audit committee financial expertise, and audit committee
meetings, while earnings management was measured using the modified Jones
model. The results reveal that the audit committee independence has a positive
impact on earnings management while the audit committee financial expertise has a
negative impact on earnings management. Control variable, firm size has a positive
impact on earnings management while negatively affecting leverage.
