ISSN: 2306-9007 Salleh & Haat (2014) 307 I www.irmbrjournal.com March 2014 International Review of Management and Business Research Vol. 3 Issue.1 R M B R Audit Committee and Earnings Management: Pre and Post MCCG NIK MOHAMAD ZAKI NIK SALLEH Faculty of Management Multimedia University Email: nik.zaki.nsalleh@mmu.edu.my Tel: 603-83125708 MOHD HASSAN CHE HAAT Faculty of Management and Economics Universiti Malaysia Terengganu Email: hassan@umt.edu.my Tel: 609-6684198 Abstract The purpose of this study is to examine the effectiveness of audit committee in constraining earnings management after the revised MCCG among listed firms on Bursa Malaysia. Specifically, the study explores how audit committee impacted earnings management before and after the revision of MCCG in 2007. This study is important because it is among the pioneer empirical evidences to compare the effectiveness of audit committee characteristics in mitigating earnings management between the pre and post revised MCCG periods. The sample for this study was drawn from 280 companies listed on Bursa Malaysia in 2005, 2006, 2008 and 2009. The audit committee characteristics include size, independence, expertise, frequency of meetings and activity disclosure. The discretionary accrual was estimated using the Modified Jones Model (1995) which was used to proxy for earnings management. The empirical results on audit committees play an important and effective role in reducing earnings management after the revision of MCCG. After controlling for firm size, board size and leverage, the study found that audit committee size and audit committee that had meetings with external auditor without the presence of executive directors at least twice a year showed a significant association with earnings management. Overall, these findings called for further examination into the roles of audit committee in mitigating earnings management. Key Words: Audit committee, earnings management, expertise, activity disclosure, Malaysian Code of Corporate Governance (MCCG). Introduction Audit committee is one of the sub-committees of the board. An audit committee, which is mainly comprised of non-executive directors, can be said as an effective tool to ensure corporate governance in an organization. An audit committee can be defined as a sub-committee in the Governing Body (Board of Directors) that makes arrangements for the audit and also as a sub-committee of the Board (Hossain& Khan, 2006). This committee tries to enhance the ability of the Board to fulfil its legal responsibilities and ensure the credibility and objectivity of the financial reports. Accountants International Study Group defined audit committee in a detailed way: “A committee of directors of a corporation whose specific responsibility is to review the annual financial statements before submission to the board of directors. The committee generally acts as a liaison between the auditor and the board of directors and its activities may include the review of nomination of auditors, overall scope of the audit, results of the audit, internal financial controls and financial information for publication.” Companies establish on audit committee within the Board of Directors to take active role in overseeing the company’s accounting and financial reporting policies and practices (Whittington & Pany, 2001). Improved quality of financial reporting