Pages: 38-42

Abstract

Inability of shareholders in investigating financial reports and lack of financial perception turned into a new problem in that era. Thus, in late nineteenth and early twentieth centuries, corporation law made it mandatory to prepare standard financial statements, and companies were required to certify financial statements by independent auditors of the entity and managers. Consequently, auditing became an important component in corporation governance policies in different countries. Independence of the Audit Committee is considered as one of the essential features that influences the effectiveness of audit committee in the process of monitoring financial reports. Accordingly, the greater independence of the Audit Committee (i.e. the ratio of independent auditors in Audit Committee) leads to lower accrued profit management. While existing studies proved the impact of some audit committee features on limited accrued profit management and enhanced quality of financial reports, the effect of these features on limited profit management through real items has not been investigated. This study investigated the role of accounting and corporation governance factors in the level of corporation governance disclosure.