Abstract
This research aims to study the impact of the audit committee’s financial expertise and status on accrual earnings management. This study focuses on the status of audit committee relatives to the board of director. Status is measured by their current or previous employment in the BEI listed companies, the intra-industry of BEI listed companies, the financial companies of BEI listed or in the financial institutions; in the government; and a degree from elite educational institutions. A sample of non-financial companies is used with a period observation of 2015-2016 and a total observation of 580 firm-years. The result of this research indicates that the audit committee financial expertise has a significant effect on accrual earnings management. The audit committee status has no significant effect on accrual earnings management.
Highlights
Earning management is a management’s opportunistic act that alters income and profits in order to cover up the actual financial condition. [14]
That value indicated that all sample companies are obeyed POJK No.55/POJK.04. 2015 about the Formation and Guidelines of Audit Committee Works that a company has to have a minimal 1 audit committee’s member with financial expertise. 68,1% (395 out of 580) sample companies have more than 1 audit committee’s member with financial expertise
The results show that EXP variable has a negative significant impact on DACC so financial expertise of audit committee have a negative impact on accrual earnings management on 90% level of confidence
Summary
Earning management is a management’s opportunistic act that alters income and profits in order to cover up the actual financial condition. [14]. All cases of earning management are basically altering the financial report to look more profitable, even though the real condition is different, which even causes several companies to go bankrupt. This act of earning management that inflicts financial losses to the companies and stakeholders has to be prevented, one of the preventive moves is through good supervision of the company’s management. Facing the act of earning management, in Indonesia, audit committee who supports the board of commissionners in supervising the company’s financial information, according to Financial Services Authority’s Regulation No.55/POJK.04/2015 about and the Formation and Guidelines of Audit Committee Works, is required to have at least 1 member who has an educational background and expertise in finance and accounting [6] and [16] indicate that an audit committee with financial expertise could improve corporate internal control. Many studies have proven that the financial expertise of an audit committee can improve his/her effectivity in suppressing the possibility of earnings management through abnormal accruals, as can be seen in the research of [1], [2], [5], and [10]
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