This study examines whether two key audit committee characteristics, activity and independence,
in combination, reduce the likelihood of fraudulent or aggressive financial statement
actions. In doing so, this study extends prior research on the association between
corporate governance characteristics and financial misstatement. Specifically, prior research
has primarily focused on audit committee existence, rather than committee characteristics,
during the year preceding the fraud period (Beasley, 1996; McMullen, 1996;
Dechow et al., 1996).