Abstract

This study studied which Organization, the Audit Committee or the statutory internal Auditor, was effective in controlling earnings management. Previous literatures were mainly compared based on external forms when comparing the two, however, this study expanded them to systematically compare and study the effects of the two by controlling the characteristics of internal audit organizations (expertise, independence, and activities) as well as external forms. In particular, when comparing the two, considering three characteristics of the internal audit organization, this study divided them into 7 groups so that the comparisons could be made between groups with the same characteristics. The 7 groups are divided into 3 groups that satisfy only 1 of the 3 characteristics(for example, in order to control other characteristics, group that satisfies only expertise does not include companies that simultaneously satisfy independence or activity), 3 groups that satisfy only 2 characteristics, and one group that satisfies all three characteristics. This study was conducted on non－financial listed companies from 2014 to 2018, and earnings management used discretionary accruals. The study found that, first, the results of a simple comparison between the audit committee group and the statutory internal Auditor group showed that the audit committee group was more effective in controlling earnings management than the statutory internal Auditor group. Next, the characteristics of the internal audit organization, expertise, independence, and activities, were gradually added to perform the comparison. No significant results were obtained except for the group that satisfies only expertise and the group that satisfies independence. These results mean that the existing argument, which says audit committee group is more effective than the statutory internal Auditor group, is increasingly diluted when compared considering the characteristics of the internal audit organization, unlike the simple comparison. However, this paper compared the differences between the two organizations in terms of earnings management, not in all aspects of the two organizations, so it is necessary to be wary of over－interpreting the results. And, there are criticisms that some proxies of characteristics is appropriate in one of two organizations, but not appropriate in the other, so it is necessary to expand this study by using better proxies in the future.

Keywords

• Audit Committee
• Statutory Internal Auditor
• earnings management
• internal audit organizations

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