【正文】 Hala,2020).Sherron Watkins,former Enron vice president,believes that internal auditors should look for warning signs such as undue pressure from senior management to meet earnings targets and pensation arrangements that might encourage employees to manipulate earnings in order to receive financial rewards(Hala,2020).Clikeman (2020)argues that internal auditors should not only be actively involved in detecting earnings management,but that they should take a proactive approach to educating managers and directors about the dangers of the and Cashell(2020) regard the role of internal audit in detecting earnings management as being a plementary one to that of external believe that both should be actively involved in the detection of inappropriate earnings management,thereby providing two unrelated opinions to the audit mittee. These arguments suggest that the presence of an internal audit function should be associated with a lower level of earnings ,the following hypothesis is proposed. H3:Earnings management is negatively associated with the presence of an internal audit function. audit The choice of a firm’s auditor is another internal governance mechanism that is likely to be associated with earnings evidence suggests that the large audit firms are perceived to perform higher quality audits than smaller audit firms(DeAngelo,1981).While examples such as Enron in the USA and HIH in Australia might suggest otherwise,the large firms are considered to be more effective monitors of the financial reporting process pared to smaller (2020)argues that, not only do the large audit firms have more resources and expertise to detect earnings management,but they also have a greater incentive to protect their reputation because of their larger client studies demonstrate that clients of Big 5 auditors report lower levels of earnings management than clients of nonBig 5 auditors(Becker et al.,1998。Rezaee,2020。Goodwin and Kent,2020)as a means of improving internal governance processes. Although traditionally internal audit has focused more on controls and operational risks,there has been increasing emphasis in the professional literature on the need to also focus on earnings management and inappropriate financial reporting(Eighme and Cashell,2020。Goodwin and Yeo,2020。Wright,1996). In contrast,however,Klein(2020a)reports a negative relation between earnings management and a majority of independent directors on the audit mittee,but finds no meaningful relationship between earnings management and an audit mittee prised solely of independent directors. To effectively monitor the financial discretion of management,the audit mittee is expected to review the financial reporting process,as well as to facilitate a flow of information among the board of directors,the internal and external auditors, and management(McMullen and Raghundan,1996).However,both Cohen et al.(2020)and Gibbins et al.(2020)report that external auditors are sceptical of the role that audit mittees play in reducing conflicts between auditors and management. Hence,to effectively discharge their responsibilities,audit mittees need to be active(Collier,1993。ASX,2020).This is supported by research that demonstrates a relationship between audit mittee independence and a higher degree of active oversight and a lower incidence of financial statement fraud (Jiambalvo,1996。BRC,1999).Both the published literature and governance reports suggest that audit mittees should consist exclusively of nonexecutive or independent directors( and Williams,1994。ASX,2020。Bosch Committee,1995。ASX,2020。OECD,1999。Jiambalvo,1996), our approach is to examine a board crosssection of firms rather than identifying a specific subset with strong incentives to engage in earnings management. Such subsets of firms are often context specific(. recent managerial change,hostile takeover or new capital raising)and these contexts are likely to be endogenous to the internal governance mechanisms we examine. Internal governance structure The internal governance structure of a firm consists of the functions and processes established to oversee and influence the actions of the firm’s management. The role of these mechanisms in relation to financial reporting is to ensure pliance with mandated reporting requirements and to maintain the credibility of a firm’s financial statements(Dechow et al.,1995).The mechanisms that we examine in the present study are the board of directors,the audit mittee,the internal audit function and the choice of external auditor. Board of directors Fama and Jensen(1983a,b)recognize the board as the most important control mechanism available because it forms the apex of a firm’s internal governance terms of monitoring financial discretion,an effective board of directors should ascertain the validity of the accounting choices made by management and the financial implications of such decisions(NYSE,2020). From an agency perspective,the ability of the board to act as an effective monitoring mechanism is dependent upon its independence from management(Beasley,1996。namely,avoiding breaching debt covenants(DefondandJiambalvo,1991,1994) and avoiding political costs(WattsandZimmerman,1978。s results. Section 5 concludes by discussing the implications of the research findings,highlighting potential limitations and considering future areas for research. 2 Theoretical background and hypotheses Management The preparation and disclosure of true and fair financial information is central to corporate governance,as it provides stakeholders with a foundation to exercise their rights,in order to protect their interests(OECD,1999). However,earnings management,defined as the practice of distorting the true financial performance of (a) pany39。Xieetal.,2020。Dechowetal.,1996。Internal audit function 1 Introduction R