Abstract:
The results of the surveys conducted in the Gulf Cooperation Council (GCC) in 2007
and 2010 provide evidence on the existence of fraud and it is expected to increase
over time. Therefore, it is vital to study the role of internal corporate governance to
reduce this fraud. The objective of this study is to examine the mediating effect of
internal audit sourcing on the relationship between audit committee effectiveness and
earnings management. To achieve this objective, three main relationships are
examined, namely, the relationship between audit committee effectiveness and
earnings management, the relationship between audit committee effectiveness and
internal audit sourcing and the relationship between internal audit sourcing and
earnings management when controlling for audit committee effectiveness. The
theoretical framework of these relationships depends on the agency theory and
resource dependence theory. This study uses the panel data method and includes
Omani non-financial listed companies. The sample of the study is 370 firm-year observations for the period of 2008-2012. The discretionary accruals by Modified
Jones Model 1995 and discretionary revenue by Stubben (2010) were used to
measure earnings management. Further, six audit committee characteristics are used
to create the audit committee effectiveness measure.
