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Some cases of financial fraud invite inquiries about the effectiveness of corporate governance mechanism in financial distress companies. This study empirically examines whether the financial distress moderate the impact of corporate governance mechanism to earnings management. The sample of this study is manufacturing companies listed at Indonesia Stock Exchange for period 2010 -2012. Discretionary accruals are used as a proxy for earnings management, while financially distressed and non-distressed firms are identified based on Altman Z-score test. Corporate governance mechanism is measured by four characteristics of the audit committee, i.e. size (total number of audit committee members), independence (audit committee composition), activity(frequency of audit committee meeting), and expertise (the number of audit committee have finance or accounting background).This study finds that (1) financial distress does not moderate the impact of total members of audit committee to earnings management; (2) financial distress does not moderate the impact of frequency of audit committee meeting to earnings management; (3) financial distress does not moderate the impact of audit committee composition to earnings management; (4)financial distress moderates the impact of audit committee finance/accounting knowledge to earnings management. These results suggestthat the effectiveness corporate governance is low, and finance/accounting literacy of audit committee should be alert. Beberapa kasus manipulasi keuangan pada perusahaan yang mengalami kesulitan keuangan mengundang pertanyaan terkait efektifitas mekanisme tata kelola perusahaan. Penelitian ini secara empiris menguji apakah kondisi kesulitan keuangan dapat memoderasi pengaruh mekanisme tata kelola perusahaan terhadap manajemen laba. Sampel dari penelitian ini adalah perusahaan sektor manufaktur yang terdaftar di Bursa Efek Indonesia periode 2010-2012.Discretionary accruals digunakan sebagai proksi untuk manajemen laba, sedangkan kondisi kesulitan keuangan diidentifikasi menggunakan uji Altman Z-score. Mekanisme tata kelola perusahaan diukur dengan 4 karakteristik komite audit, yaitu ukuran (jumlah anggota komite audit), independensi (komposisi komite audit), aktivitas (frekuensi pertemuan komite audit), dan keahlian (jumlah anggota komite audit yang memiliki latar belakang keuangan atau akuntansi). Penelitian ini menemukan bahwa (1) kondisi kesulitan keuangan tidak memoderasi pengaruh jumlah anggota komite audit terhadap manajemen laba; (2) kondisi kesulitan keuangan tidak memoderasi pengaruh frekuensi pertemuan komite audit terhadap manajemen laba; (3) kondisi kesulitan keuangan tidak memoderasi pengaruh komposisi komite audit terhadap manajemen laba; (4) kondisi kesulitan keuangan memoderasi  pengaruh jumlah anggota komite audit yang memiliki latar belakang keuangan atau akuntansi terhadap manajemen laba. Hasil ini menunjukkan bahwa efektifitas tata kelola perusahaan masih rendah dan anggota komite audit yang memiliki latar belakang keuangan atau akuntansi harus mewaspadainya.

FINANCIAL CONDITION MODERATED THE EFFECTIVENESS OF AUDIT COMMITTEETOREDUCE EARNINGSMANAGEMENT