Role of Audit Committee Financial Expertise and Their Status in Reducing Corporate Real Earnings Management

Aninta Sagitaria, Aria Farah

Abstract

The study aims to examine the role of audit committee financial expertise (measured by audit committee educational background in accounting and finance and CPA certification) and their status (relative to board of directors) in reducing real earnings management. Audit committee status is compared to board of director status and status for both groups measured by the current or previous employment in Indonesia Stock Exchange (IDX) listed companies in Indonesia; current or previous employment in the Indonesia public companies with similar industries; current or previous employment in the Indonesia public financial sector companies or financial institutions; current or previous employment in Indonesia government institutions; and a degree from prestigious educational institutions. Samples of this research consist of Indonesia Stock Exchange (IDX) listed non-financial companies with a period of observation of 2013-2016. The total observations are 1080 firm-years. The result of this study shows that audit committee financial expertise has no impact in reducing corporate real earnings management. Meanwhile, audit committee status can reduce corporate real earnings management. This study also finds that audit committee status has not been able to strengthen audit committee financial expertise to reduce corporate real earnings management.