The Effect of Female Directors and Financial Expertise of Audit Committees on Earnings Quality

A Conceptual Framework

Abstract

A quality financial reporting which produces quality information on profit is essential in making investment decisions. The profit revealed is considered qualified if the earnings information is accurate and unbiased. However, the adoption of the accrual basis may prompt management to conduct earnings management activities hence, in the use of accrual basis, the profits contain elements of cash and accrual (non-cash). Accrual items occur based on management policy (discretionary accruals) or management non-policy (nondiscretionary accruals). Previous study found that the increase in profit accompanied by high accruals indicate low-quality earnings and is associated with low-returns in the future. To prevent the excessive earnings management activities, the implementation of corporate governance is required within the company. Some of the determinants that may be expected to minimize earnings management activities are the involvement of female directors and effective board committees in the company. Thus, the present study evaluates the existing literature in order to link between board governance and earnings quality. Based on the summary, this study develops a conceptual framework to examine the influence of board governance characteristics and earnings quality among pubic listed companies in Indonesia. This study provides more insights into the literature of governance and quality of earnings particularly on the involvement of women in board and the committees of audit.