Audit Committee Effectiveness, Audit Quality and Earnings Management: An Empirical Study of the Listed Companies in Egypt

Abstract

The role of audit committees and audit quality in ensuring the quality of corporate financial reporting has come under considerable scrutiny due to recent high-profile earnings management cases in the world. The purpose of this paper is to examine the association between the audit committee effectiveness, audit quality and earnings management practices of more active 50 Egyptian companies listed on the Egyptian Stock Exchange of the non-financial sector during the period 2007-2010. After controlling for size, leverage and cash flow from operation activities, the results of univariate and multivariate analyses indicated that audit committees independence; experience of audit committee members; audit committee meetings; and audit quality have significant negative association with discretionary accruals as a proxy for earnings management. On the other hand, no significant relationship is found between audit committees size and the level of discretionary accruals. This paper is important because it offers useful information that is of great value to policy makers, academics and other stakeholders.

Keywords: Audit Committee Effectiveness, Audit Quality, Earning Management, Egypt