An Investigation into the Effectiveness of Audit Committees in Mitigating Earnings Management Practices

Posted: Jan 08, 2021

• Damian Torres
• Kara Sullivan
• Liam Rivera

Abstract

The integrity of financial reporting represents a cornerstone of capital market efficiency and investor confidence. Within the corporate governance framework, audit committees serve as critical monitoring mechanisms designed to oversee financial reporting quality and constrain managerial opportunism in earnings reporting. While extensive literature has examined the relationship between audit committee characteristics and financial reporting outcomes, the fundamental question of how audit committees effectively mitigate earnings management practices remains inadequately understood. Traditional approaches have predominantly focused on structural attributes such as committee independence, financial expertise, and meeting frequency, yielding mixed and often contradictory findings. This research addresses this gap by introducing a novel methodological framework that examines the behavioral and communicative dimensions of audit committee effectiveness. Our investigation is motivated by the recognition that structural attributes alone provide an incomplete picture of audit committee effectiveness.