18th International Conference on Innovative Computing, Information and Control (ICICIC2024)
Onsite (Qinhuangdao, China) and Online, September 10-13, 2024

PS-5: ICICIC2024-WS05-04
Audit Committee Independence and Real Earnings Management
Xinxin Zhang* and Lei Huang
School of Economics and Management (School of Tourism), Dalian University, Dalian 116622, P. R. China*Corresponding author: 15137985618@163.com

Introduction
The Governance Standards for Listed Companies clearly require listed companies to set up an audit committee, whichfurther clarifies the responsibilities of the audit committee and strengthens the governance effect of the audit committee. Inorder to better play the governance effect of audit committee, this paper starts from the perspective of earnings management.
Most of the existing studies believe that audit committee can effectively inhibit accrual earnings management, but whether it
plays its role in real earnings management remains to be debated and discussed.

Mathematical Formulas

REM = α0 + α1 szdl + ∑Controls + ε(5)REM = α0 + α1 sxdl + ∑Controls + ε(6)Research Questions

Methodologies

Firstly, we divide audit committee into formal
independence and substantive independence, and suggestthat substantive independent audit committee members havehigh independence, which helps to restrain management’searnings manipulation.
Secondly, based on the identification of directors,
especially executive directors, with respect to their identity asdirectors, this paper believes that the information asymmetryof independent directors can be alleviated if directors join theaudit committee. On the basis of having more information
about the enterprise, the audit committee can have a detailed
understanding of the enterprise’s business activities, andjudge whether the cash flow activities can bring long-termvalue to the enterprise, which can alleviate the English
manipulation behavior within the enterprise.

1) Standardized research
Through reading a lot of literature, the methodof logical deduction and induction is combined.
The main research ideas, conclusions andlimitations at home and abroad are analyzed, andthe existing literature and related theories arereviewed and evaluated.
2) Empirical research
The CSMAR database was used to collectsamples and sort out the data related to the study.
Stata15 was used to sort out and process thedata, and statistical analysis, correlation analysis
and regression analysis were carried out to verify
the accuracy of the hypothesis and the feasibilityof the research.

Conclusion
The findings provide two implications. 1) The “form” independence of audit committee can better play a supervisory roleand restrain the real earnings management. However, the “form” independence of audit committee violates the essence of theestablishment of the audit committee. Therefore, it is necessary to further improve the governance mechanism of audit
committee to restrain the sales manipulation behavior of enterprises. 2) The non-independent directors of the audit committee
mainly inhibit the real earnings management of the enterprise by restraining the sales manipulation behavior of the enterprise.
It is necessary to further strengthen the restraining effect of the audit committee on the other two aspects of real earningsmanagement. Compared with sales manipulation, production manipulation and expense manipulation may be more hidden
and difficult to be detected.