Audit Committee Competence and Earnings Management in Europe

This study analyses the association between the competence of audit committee members and earnings management in a sample of 142 non-financial firms from France, Germany, Italy, Spain, and the United Kingdom over the 2006-2013 period. We measure members' competence through their dedication and expertise. We find that outside directorships have a dual effect, such that a balanced level of dedication to the audit committee (roughly two outside directorships) reduces earnings management. We examine four types of expertise: audit, non-audit accounting, non-accounting financial, and supervisory expertise. We find a negative relation between earnings management and the audit experience of committee members, and that the other types of expertise play no relevant role. We also find that the contribution of audit experts to curbing earnings management proves particularly important in smaller and less active committees, as well as in smaller and busier boards. (C) 2022 ASEPUC. Published by EDITUM - Universidad de Murcia.