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2018B04 – How can audit committee support improve auditors’ application of professional skepticism?
Project Number – 2018B04
Research output

2018B04 – How can audit committee support improve auditors’ application of professional skepticism?

What?

What?

The study has three main objectives: (1) assess the current state, best practices, and potential innovations that could occur in relation to audit committee support for the audit engagement team and its effects on the application of professional skepticism, (2) determine whether expressing greater audit committee support causes audit seniors to more appropriately apply skepticism, and (3) evaluate whether the application of skepticism can be enhanced if the message of support comes directly from the audit committee chair to the audit senior.

Why?

Professional skepticism is essential to audit quality, and enhancing auditor skepticism is of great concern to regulators, practitioners, and researchers. Highly skeptical auditors increase the likelihood that material misstatements are detected, which is important in promoting audit quality, investor confidence, and global financial stability. While skepticism is undoubtedly essential to audit quality, prior research has shown that it may come at a cost (e.g., budget overruns and potential conflicts with management), which forms a significant barrier to the appropriate application of skepticism. The study investigates how support of the audit committee (e.g., insulating the audit engagement when relations with client management are strained) may reduce this barrier, enhance the appropriate application of professional skepticism, and hence lead to higher audit quality.

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How do audit committees support audit engagement teams and encourage professional skepticism? A survey and experimental evidence
KEY TAKE-AWAYS The team explores how audit committees (ACs) support audit engagement teams and whether AC support can improve auditors’ professional skepticism. First they surveyed audit practitioners and found out that AC support is multidimensional, varies between engagements, and often is not communicated to the entire engagement team. Then it was experimentally investigated whether the explicit communication of AC support to the entire engagement team (by the partner vs. the AC chair) impacts the skepticism of auditors. While skeptical judgments are consistently high, auditors vary in their skeptical actions. When management attitudes towards the engagement team are poor, AC support communicated by the audit partner increases skeptical actions. Direct communication of support by the AC chair does not increase skepticism relative to when the partner conveys AC support. The findings of the team highlight the importance of AC support for audit teams, and the lack of AC support (or communication thereof) that exists on many audit engagements.  
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Can audit committee support improve auditors’ application of professional skepticism?
Despite the recognized importance of professional skepticism, auditors’ failure to consistently exercise a sufficient level of professional skepticism continues to be a globally recognized issue. In this study, we seek to gain a better understanding of the role audit committees, who oversee the audit process and can help/aid in improving auditors’ application of skepticism. In a survey of audit practitioners, we found that: audit committee support varies substantially between audit engagements; audit committee support is multifaceted; and the support is often not conveyed to the lower-level members of the engagement team. Given our survey findings, we experimentally investigated whether and how audit committee support being explicitly conveyed to the entire engagement team (by either the partner or audit committee chair) impacts the skeptical judgments and actions of auditors. We find that an expression of audit committee support conveyed explicitly by the audit partner can increase the skeptical actions of auditors, whereas such an expression of support by the audit committee chair does not. Our findings point to the crucial role audit partners can play in improving auditors’ application of professional skepticism.  
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Professional skepticism and audit committee support
This literature review explores how audit committee involvement can enhance auditors’ application of professional skepticism which is a critical factor for audit quality. It synthesizes research on auditor traits, knowledge, and incentives, highlighting barriers such as time pressure, budget constraints, and outcome bias that discourage skepticism.
The review also examines how audit committees can support auditors beyond oversight, including through direct communication and fostering a supportive culture, to reduce these barriers. Findings suggest that audit committee support, when effectively conveyed, may strengthen skepticism and improve audit quality.
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Project info

Project Lead

Prof. Dr. Anna Gold
Anna Gold

Research team

Tammmie Schaefer
Justin Leiby
Prof. Dr. Anna Gold
Anna Gold
Joseph Brazel

Involved University

North Carolina State University
University of Illinois
Vrije Universiteit Amsterdam
Project Number – 2018B04

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