Earnings management is perceived to be a pervasive phenomenon, spread across companies and industries. It distorts earnings quality and portrays an incorrect picture of a firm’s financial performance. Accounting frauds in companies originate from a culture of widespread earnings management. Audit committees are a popular corporate governance tool to improve the credibility of financial statements. The study, evidently the first of its kind in India, seeks to examine the effectiveness of audit committees in constraining earnings management in Indian companies. Secondary data is collected for a sample of 130 companies listed on the BSE and studied for a three-year period 2013-2015. Univariate correlations, multivariate linear regression, and logistic regression models are used to conduct empirical analysis. Evidence suggests significant impact of audit committee size, multiple directorships of audit committee members and frequency of audit committee meetings on earnings quality. Other audit committee characteristics are not found to have a significant impact on the level of earnings management. Findings of the study throw up useful insights for regulators and company boards to evaluate the efficacy of board audit committees and implement additional governance measures to help preserve the integrity of financial statements.

The objective of the study is to examine the extent of disclosure of intellectual capital (IC) items, made by major Indian corporates indexed in Nifty 50, main index of National Stock Exchange (NSE). The sub-objective is examination of association if any, between the disclosure of IC by these corporates and factors such as sector, size, leverage, ownership structure, proportion of independent directors on board and profitability of the respective companies. The study discloses that a higher percentage of service sector companies have a high disclosure level as compared to industrial or other sector companies. The data reveal that company size and independence of the board (indicated by percentage independent directors) are positively associated and significant determinants of disclosure. The company size plays a more important role in influencing disclosure levels in industrial sector companies as compared to service sector. Companies with higher leverage and higher government ownership are likely to have lower disclosure indices. Intellectual capital disclosure (ICD) is not influenced by profitability of firms.

Corporate accounting frauds over the last two decades have caused massive erosion of investor wealth and shattered public confidence in regulators and capital markets. Deliberate manipulation of financial numbers by a company is rarely a one-off event; it is more a culture of widespread earnings management that permeates an organization and eventually leads to a full-blown accounting fraud. This paper looks at earnings management practices in Indian companies and examines the extent of earnings management prevalent across firms of varying market capitalization. The present study examines 130 listed Indian companies during the period of 2013-2015. The findings of this study provide a measure of the quality of financial reporting in India. Modified Jones model (1995) is used to estimate discretionary accruals (DA), which is considered as a proxy for earnings management. The average DA is estimated at 5.6% of the total assets of the firms, which is comparable to the estimates in other parts of the world (about 1%-5% of total assets). A sector-specific analysis reveals presence of higher earnings manipulation in the consumer durable and energy sectors. Large cap companies are found to show a lower level of earnings management as compared to the small-cap firms. The study also finds a dip in the magnitude of DA in 2015, which is the first year of application of the new Companies Act 2013. Subsequent years will reveal the true success of the new Act in enforcing a stricter regime of corporate governance and greater accountability of corporate boards and audit committees. International studies point towards a high degree of correlation between effective audit committees and lower levels of earnings management in companies. Further work in this field from an Indian context will help identify factors that have a constraining effect on earnings management, and ultimately help preserve the sanctity of reported financial numbers.

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