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Board Monitoring and Earning Management
Board Monitoring and Earning Management
Submitted to;
Sir Hammad Mirza
Submitted by;
Adeel umer 11-013 MBA (1.5) FINANCE
UNIVERSITY OF SARGODHA
Introduction
What is board monitoring?
We focus on two aspect of board monitoring 1. The role of outside board director,s Have a financial background Hold senior mgt position in other large corporation.
2.Audit commitee
The list is almost endless. All these actions are costly in the sense that they have negative affect on the firm,s future cash flow,s. Such manipultion reduce the value of the firm and as such are more costly then mere accounting manipulation. We therefore expect that the manipulation of accrual,s will be the instrument choosen frist, before mgt resort,s to more costly ones involving real changes in investment and operating activities.we focus on only accounting manipulations. We use abnormal accruals as our proxy for earning management.
Audit committee
audit committee has the specific responsibility for the production of financial statement and usually for communicating with the external auditor. Audit committee are not mandatory in the uk firms but listed companies are encouraged to form them.
125 firm,s are included in only one year 156 firm,s are included in two year,s 278 firm,s are included in each of three year,s
Result,s
In US firm,s has low fraud cases where proportion of outside director,s is high Outside director,s contribute toward,s the integrity of financial statement Audit committee have no direct affect on earning management. We find that firm,s with higher proportion of outside board member,s are associated with less earning management.