1- Research problem and questions:
The research raises the following questions about the relationship between the quality of audit committees and earnings management practices in the published financial reports:
A. Is there a relationship between the self-characteristics of the audit committees (independence, expertise of financial and accounting issues, the number of meetings, the size of the Committee, and the percentage of ownership of the members of the Committee of the shares in the company) and earnings management practices?
B. Is there a relationship between the quality of the activities of audit committees and earnings management practices?
2- Research Objectives:
The main objective of the research is presented in the study of the relationship between the quality of audit committees and practices of earnings management in the listed companies in the Egyptian stock Exchange, and the main objective includes the following sub-objectives:
A. The study of the relationship between the characteristics of the self-characteristics of the audit committee and earnings management practices.
B. The study of the relationship between the quality of the activities of the audit committeeand the earnings management practices.
3- The Research importance:
The importance of research appears through the following:
First: The scientific importance:
A. The research is an extension for the previous studies where the researcher tried to develop a model to measure the relationship between the quality of audit committees and earnings management practices of listed companies in the Egyptian Stock of Exchange.
B. The attention of many professional organizations local and international by the importance of the positive role played by audit committees to increase the investors confidence in the published financial reports through reducing earnings management practices.
Second, the practical importance:
A. A Link between the philosophical scientific aspects of the audit committees and the reality of practice to get to know the quality of audit committees activities and their characteristics and their role towards the earnings management practices.
B. To face of the phenomenon of earnings management practice that was increasingly spreaded in Egypt especially after the revolution of 25thJanuary due to poor control mechanisms, It was confirmed by the research of (Khalil 2005) that earnings management process largely practiced in all sectors of the Egyptian joint stock companies, which accounted for (59% ) on the sample companies, as indicated in the study (Ebiary 2011) to the trend of the Egyptian companies to practice earnings management through discretionary accrualspositive and minus, the percentage of the sample that practice earnings management in order to increase the income companies amounted to (56.55%), while the percentage of the sample that was exercising earnings management in order to reduce the income (44.44%), which requires facing this phenomenon in order to trust the information within the accounting informationin the financial statements and reports.
4- Research hypotheses:
A. Ownership of the members of the audit committees of the shares in the company has a positive impact on earnings management practices.
B. The independence of the members of audit committees has a positive impact on earnings management practices.
C. Meetings of the members of audit committees has a positive impact on earnings management practices.
D. The financial and accounting expertise of the members of audit committees has a positive imact on earnings management practices.
E. The size of audit committees has a positive affect on earnings management practices.
F. Audit Committees activities has a positive affect on its role in the reduction of earnings management practices
5- Research Methodology and model building:
To achieve the objectives of the research the researcher used the Content analysis method by which he analysed a sample of (83) listed active companies in the Egyptian Sock Exchange within (EGX 100) index during the year (2012), as a researcher relied on the poll sample of (Auditors, members of audit committees, financial managers) about the impact of audit committees activities to reduce earnings management practices.
6- The research plan:
The Research is divided as follows Section I: General framework of the research, Section II: The quality of audit committees: the concept and practices, Section III: the relationship between the quality of audit committees and earnings management practices Section IV discusses the extrapolation and evaluation of previous studies and build hypotheses, and Section V: analyzes research methodology and model building, and Section VI : research Design section VII analyzing the results of the applied study, and section VIII: findings and recommendations and areas for future research.
7- Findings, recommendations and proposals for future
7.1 Results:
1-determinants of quality of audit committees are not limited to the self characteristics of the committee, but extend to the quality of their activities in different stages, which will reflect on their effectiveness in the performance of its functions such as supervising, controlling and producing financial statements that are free from earnings management practices.
2. The sample of companies practice positive and negative discretionary accrual the percentage of the sample that practice earnings management in order to increase income amounted (80.72%), while the percentage of companies doing earnings management in order to reduce the total income (13.26%), while The percentage of companies that do not practice for the management of the profits (6.02%).
3-The Audit Committee characteristics related to the independence of the members of the Committee properties, financial and accounting expertise, size and periodic meetings of the Committee positively effect the reduction of earnings management practices, while the percentage of possession of members of the Audit Committee of the shares in the company adversely affect their ability to reduce earnings management practices, the relationship between self-characteristics of the committee and the earnings management practices has a significance at the level (5%).
4-Activities of the Audit Committee, both in supervision and financial control over financial reporting stage, and the stage of the review process, and the stage of internal control and risk management, as well as its other functions effect their role in the reduction of earnings management practices where the value of probabilistic (Sig.) Equal to (0.000) Therefore, these activities are considered statistically significant at the level of significance (5%).
5-Activating the role of audit committees requires the availability of certain features, such as: (independence, financial and accounting expertise to members of the Committee and the existence of a Constitution or written charter clearly defines the audit commitee composition, powers and objectives, and the Chairman of the Committee full time to carry out the functions of the Committee, and their follow-up).
7/2 Recommendations:
In light of the results that have been reached in both theoretical and applied study, the researcher recommends the following:
1. Disclosure of audit committees report in the financial reports of companies listed on the stock market because of its role in the reduction of earnings management practices, and thus give confidence and credibility in the information provided to the various stakeholders and assists them in making appropriate decisions.
2. oblige companies listed in the stock market to disclose the functions of the Committee, and the ownership of the members of the Audit Committee of the shares in the company, periodic meetings, and the size of the Committee, independent members ratio, and the availability of financial and accounting expertise to the members of the Committee because of its impact on the Commission's ability to detect earnings management practices.
3. The formation of audit committees by the General Board of the shareholders and not by the board of directors to achieve the independence of the members of the Committee, and ensures the effectiveness of their role in the reduction of earnings management practices.
4. The periodical assessment of the audit committees role in the listed companies in the stock market to determine the extent of change in the determinants of their quality and their ability to reduce earnings management practices.
5. The use of the members of audit committees of the applied study model to identify the assess the management practices of earnings management, and the impact of these practices on the quality of the financial statements and then make the appropriate decisions to correct these practices>
7/3 Future proposals:
The Researcher finds in the light of what has been reached from the results that there are many areas that can serve as a basis for future research, including the following:
1. Examine the relationship between the qualities of audit committees, and reducing the risks associated with the degree of internal control.
2. Examine the relationship between the quality of audit committees, and fees for auditing listed firms in the stock exchange market.
3. Examine the relationship between earnings management practices, and social responsibility of the listed companies in the stock exchange market.
4. Examine the relationship between the quality of audit committees, the price of shares of listed companies in the stock exchange market.
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