THE IMPACT OF AUDIT COMMITTEE CHARACTERISTICS ON EARNINGS QUALITY: EVIDENCE FROM LISTED COMPANIES IN SRI LANKA

Abstract

This study examines the impact of Audit Committee Characteristics on Earnings Quality of Public Listed Companies in Sri Lanka. Several prior studies have examined this relationship in developed countries. There appears to be a dearth of literature on the subject in developing and Asian countries, and Sri Lanka in particular. This study contributes to the existing literature by integrating both Audit Committee Characteristics and Earnings Quality. A quantitative approach was adopted in the study to find answers to the research questions. Audit Committee Size, Audit Committee Independence, Number of Audit Committee Meetings, Financial Experience of Audit Committee Members and Percentage of Common Stocks Owned by Audit Committee were used as independent variables and Earnings Quality was used as the dependent variable of the study. Pooled data regression is used to analyse data. The used dataset covers all companies in the Colombo Stock Exchange in Sri Lanka except banks, finance and insurance companies and collected data for 5 5-year period from 2020 to 2024. Based on the regression estimate obtained, the study concludes that the earnings quality is significantly influenced by the financial experience of members of the audit committee and ownership of stocks by members of the audit committee, while the size of the audit committee, degree of independence of the audit committee and audit committee meetings have reported an insignificant impact on audit report lag. Findings of the study will be useful to identify the impact of disclosure quality on the financial performance of the listed companies in Sri Lanka. Findings also provide useful insights to regulators and policymakers in coming up with appropriate policies.