Audit Committee Effectiveness and Earnings Management under IFRS Adoption: Evidence from Saudi Arabia

Abstract

This research work examines the impact of Audit Committee (AC) characteristics on Earnings Management (EM) in Saudi Arabia's joint-stock companies. The used sample consists of 103 non-financial joint stock companies from 2017 to 2019. This research uses the modified Jones model (1995) to measure EM. The primary outcomes of this study show that the independent and non-executive AC members have a substantial negative impact on EM. However, stock ownership by the AC, the existence of directors in the AC, and the educational level of the AC members have a considerable positive effect on EM. Other characteristics of the AC, which are the size, number of meetings, experts, educational level of the AC chairman, and the remuneration to the AC members, have no impact on EM. This paper contributes to enhancing regulators’ understanding of AC effectiveness in Saudi joint-stock companies. In addition, this study enriches the academic literature by filling the gap in the literature dealing with this subject.