A Study On The Correlation Between Listing Corporation Audit Committee Characteristics And Accounting Conservatism

China published Code of Corporate Governance for Listed Companies in2002,which first proposed the suggestion that the board of directors of listing corporationscould establish the audit committee, and provided the main responsibilities of the auditcommittee. The audit committee specifically oversees the company’s accounting andfinancial reporting process and the financial statement of the company audit on behalfof the board of directors, to ensure the credibility of financial reporting and thecompliance of business activities. And accounting conservatism, one of the basicprinciples of accounting, has a long history. It is also an important characteristic ofaccounting information quality requirements. Conservative accounting policies arealways considered to be a governance mechanism which could reduce a company’spotential litigation cost, contract cost and political cost. It also can coordinate variousinternal contract parties involved in the conflict of interest and ensure the effectiveimplementation of the contract, to reduce the moral hazard and the opportunismbehavior from the parties of the contract under the condition of asymmetric information.If the audit committee can play the function of supervision and control effectively, theaccounting earnings manipulation behavior from the manager layer againstshareholders’ goal will be reduced. And it also can increase the cost of the managers’providing accounting information, which is not conservative, to improve the corporategovernance effect and finally enhance the accounting conservatism. Therefore, theresearch on audit committee and accounting conservatism becomes very necessary.This paper reviewed and commented the domestic and foreign research literatureon the characteristics of audit committee and accounting conservatism, using theprincipal-agent theory and incomplete contract theory explored the relationship betweenthe characteristics of audit committee and accounting conservatism. Then the thesisselected the companies from2011to2013in the main board of Shenzhen StockExchange and the Shanghai Stock Exchange as a sample, using Basu regression modeland its improved model, to conduct a detail study and analysis on the relationshipbetween the characteristics of the audit committee and accounting conservatism. Andthe paper used three methods, containing descriptive statistics, the variables’ correlationanalysis and multiple regression analysis, to inspect the relation between the audit committee’s characteristics (containing size, independence, professional and diligence)and accounting conservatism. Finally, the author drew the following conclusions:(1)Accounting conservatism exists generally in listing corporation in China.(2) The auditcommittee size has no significant influence on the accounting conservatism.(3) Asignificant positive relationship exists between the proportion of independent directorsin the audit committee and accounting conservatism.(4) When the audit committeemembers include the general manager (or vice-general manager), accountingconservatism will be significantly negative affected.(5) The proportion of financialexperts in audit committee and accounting conservatism correlation don’t havesignificant relevance.(6) The audit committee diligence have no significant influenceon the accounting conservatism.In the research content, this paper discussed the characteristics of audit committee,and in the measure of the independence of audit committee joined the factor thatwhether the members include the general manager (or vice-general manager), and tookit as one of the explanatory variables in the empirical research to study the influence onaccounting conservatism. Furthermore, in the research perspective, most scholars’research in China was mainly related to the relationship between the characteristics ofaudit committee and audit opinion, the change of financial reporting quality,information disclosure and so on. And their study about the factors that influence theaccounting conservatism was mostly from the points such as the nature of equity, thecharacteristics of board of directors, management incentive, creditors’ constraint andstate holding. This thesis discussed the correlation between audit committeecharacteristics and accounting conservatism, extending the research perspective.