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2018B03 – The drivers and impact of audit committee involvement on audit quality
Project Number – 2018B03

2018B03 – The drivers and impact of audit committee involvement on audit quality

What?

What?

The key objectives of the project are to understand, in the Dutch context: (1) the determinants of audit committee involvement with a particular focus on audit committee leadership, social cohesion of the audit committee and its fit in the overall board; (2) the impact of audit committee involvement on audit input, audit process, and audit output factors; and (3) the impact of audit committee involvement on pre-audit financial reporting quality and the difference in financial reporting quality pre- and post-audit.

Why?

The insights of the proposed project will not only be relevant for the academic community, but also for audit practice, standard setters and regulators to better understand the role of audit committee leadership, social cohesion of the audit committee and its fit in the overall board, and how it affects the core input, process and output factors relevant to audit quality, as well as the incremental contribution of the external auditor in improving financial reporting quality conditional on the extent of audit committee involvement.

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Audit committees and audit quality – a review of the literature
The purpose of this literature review is to provide an overview of the academic literature on the relationship between audit committees (ACs) and audit quality (AQ). The starting point for our review is the most recent comprehensive overview of literature on corporate governance research in accounting and auditing by Carcello et al. (2011a). We start from their findings and conclusions, and add our review of studies on the relationship between ACs and AQ for the most current period, starting with 2011. In doing so, we draw from the IAASB (2014) conceptual framework on AQ that presents the key input, process and output factors that contribute to AQ.
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De betrokkenheid van het auditcomité op de auditkwaliteit
Het auditcomité is een belangrijk onderdeel van de huidige corporate governance. Ondanks de steeds strenger wordende regelgeving op het gebied van onafhankelijkheid en expertise, is het nog steeds onduidelijk waarom sommige auditcomités onderpresteren en hoe dit de effectiviteit van de externe accountantscontrole beïnvloedt. Wij stellen dat, naast het hebben van de juiste vaardigheden, de betrokkenheid van het auditcomité bij het auditproces cruciaal is voor de effectiviteit van de audit. Communicatie, vertrouwen, ondersteuning, macht en leiderschap zijn belangrijke kenmerken die van invloed kunnen zijn op de manier waarop het auditcomité omgaat met meningsverschillen tussen het management en de accountant, en in hoeverre het auditcomité beide partijen kritisch zal uitdagen. Deze ‘zachte’ dimensies zijn nog onvoldoende onderzocht. Er is meer inzicht nodig voor de praktijk, academici en toezichthouders over hoe de betrokkenheid van het auditcomité kan worden gestimuleerd en hoe de betrokkenheid het auditproces beïnvloedt. Wij willen aantonen dat een actief en betrokken auditcomité in staat is om synergie te creëren met de externe accountant, waarbij beide partijen op elkaar vertrouwen en elkaar steunen. Die synergie kan het auditproces en de auditkwaliteit naar een hoger niveau tillen.
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Audit Committee Involvement and Audit Quality
The audit committee is a key feature of contemporary corporate governance. Despite ever-tightening regulation concerning its independence and expertise, it still is unclear why some audit committees underperform, and how this impacts the effectiveness of the external audit. We argue that, next to having the appropriate skills, audit committee involvement in the audit process is crucial for its effectiveness. Communication, trust, and support between the audit committee and the external auditor, as well as the power and leadership of the audit committee are key features which may affect how the audit committee deals with disagreements between management and the auditor, and to what extent it will critically challenge both parties. However, these “soft” dimensions are understudied, and more insight is valuable for practitioners, academics, as well as regulators on what triggers audit committee involvement, and how this feeds back into the audit process. We aim to demonstrate that an active, involved audit committee is able to create synergies with the external auditor, which can streamline the audit process and enhance audit quality.  
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The drivers and impact of audit committee involvement on audit quality
The audit committee is an important component of current corporate governance. Despite increasingly strict regulations regarding independence and expertise, it remains unclear why some audit committees underperform and how this affects the effectiveness of the external audit. We argue that, in addition to having the right skills, the audit committee’s engagement in the audit process is crucial for audit effectiveness. Communication, trust, support, power, and leadership are key characteristics that can influence how the audit committee handles disagreements between management and the auditor, and to what extent the committee will critically challenge both parties. These “soft” dimensions have not yet been sufficiently studied. More insight is needed for practitioners, academics, and regulators on how audit committee engagement can be encouraged and how this engagement impacts the audit process. We aim to demonstrate that an active and engaged audit committee can create synergy with the external auditor, where both parties trust and support each other. This synergy can elevate the audit process and audit quality to a higher level.
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Audit Committees and Audit Quality
The purpose of this literature review is to provide an overview of the academic literature on the relationship between audit committees (ACs) and audit quality (AQ). The starting point for our review is the most recent comprehensive overview of literature on corporate governance research in accounting and auditing by Carcello et al. (2011a). We start from their findings and conclusions, and add our review of studies on the relationship between ACs and AQ for the most current period, starting with 2011. In doing so, we draw from the IAASB (2014) conceptual framework on AQ that presents the key input, process and output factors that contribute to AQ.  
Read PDF
More Info
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Project info

Project Lead

Prof. dr. Ann Vanstraelen

Research team

Dr. Ulrike Thürheimer
Dr. Caren Schelleman
Dr. Rogier Deumes
Prof. Ganesh Krishnamoorthy
Dr. Sanne Janssen
Prof. dr. Ann Vanstraelen

Involved University

Maastricht University | Northeastern University | University of Antwerp

Theme(s)

Audit quality & outcomes
Project Number – 2018B03

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