This paper examines the relationship between audit committee and board characteristics and earnings management. The study finds a non-linear negative relationship between audit committee independence and earnings manipulation. Specifically, a significant relationship is found only when the audit committee has less than a majority of independent directors. Surprisingly, no significant association is found between earnings management and the more stringent requirement of 100% audit committee independence. The study also finds that earnings management is positively related to whether the CEO sits on the board’s compensation committee and negatively related to the CEO’s shareholdings and whether a large outside shareholder sits on the board’s audit committee. These results suggest that boards structured to be more independent of the CEO may be more effective in monitoring the corporate financial accounting process. The study also finds that other corporate governance characteristics are related to earnings management. For example, earnings management is negatively related to whether a large non-management blockholder sits on the board's audit committee. The study uses a sample of 687 large, publicly-traded U.S. firms and finds that the cross-sectional Jones model is more statistically powerful than the time-series model. The study concludes that boards and audit committees structured to be independent of management are best able to perform their independent oversight functions. The findings support the assertions of the SEC, NYSE, and NASDAQ that for all trading companies, investors will be best served if their elected boards provide corporate governance mechanisms consistent with achieving unbiased, transparent financial statements.This paper examines the relationship between audit committee and board characteristics and earnings management. The study finds a non-linear negative relationship between audit committee independence and earnings manipulation. Specifically, a significant relationship is found only when the audit committee has less than a majority of independent directors. Surprisingly, no significant association is found between earnings management and the more stringent requirement of 100% audit committee independence. The study also finds that earnings management is positively related to whether the CEO sits on the board’s compensation committee and negatively related to the CEO’s shareholdings and whether a large outside shareholder sits on the board’s audit committee. These results suggest that boards structured to be more independent of the CEO may be more effective in monitoring the corporate financial accounting process. The study also finds that other corporate governance characteristics are related to earnings management. For example, earnings management is negatively related to whether a large non-management blockholder sits on the board's audit committee. The study uses a sample of 687 large, publicly-traded U.S. firms and finds that the cross-sectional Jones model is more statistically powerful than the time-series model. The study concludes that boards and audit committees structured to be independent of management are best able to perform their independent oversight functions. The findings support the assertions of the SEC, NYSE, and NASDAQ that for all trading companies, investors will be best served if their elected boards provide corporate governance mechanisms consistent with achieving unbiased, transparent financial statements.