Impact of Audit Committee Characteristics on Earnings Management in Malaysian Public Listed Companies

Malaysian public listed companies will attempt to portray a positive outlook of business in order to provide confidence to shareholders and investors regarding the profitability and viability of the company. A key method used by the management to manage earnings and show better performance is through accrual accounting. This method of earnings management is not legally prohibited and is based mainly on the company’s choice of accounting policies. The negative impact on the performance of the company can be directly traced to the level of earnings management in the company. The presence of the Audit Committee is mandated in all Malaysian Public Listed companies by virtue of the Bursa Malaysia Listing Requirements. The monitoring and oversight factor of the Audit Committee provides a check and balance mechanism which may be effective in curbing rampant earnings management. This study of 153 Malaysian Public Listed companies utilises secondary data derived from Annual Reports of Year 2011 to ascertain the impact of Audit Committee characteristics, namely frequency of Audit Committee meetings, size of Audit Committee and independence of the Audit Committee, on earnings management. The proxy for earnings management is discretionary accruals and the modified Jones Model is used to determine discretionary accruals.