Overseeing the External Audit Function: Evidence from Audit Committees’ Reported Activities

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

Recently, in response to calls for more transparency, many firms have begun reporting the activities undertaken by their audit committees in overseeing the work of the external auditor. We use a composite measure of audit committees’ reported oversight activities for a sample of S&P 1500 firms and examine the extent to which these reported activities are associated with audit quality. We find that when firms’ audit committees report exerting strong oversight, they have higher audit quality as proxied by audit fees, discretionary accruals, the likelihood of meeting or beating earnings benchmarks, and restatements. We also find that the market reacts positively to reports indicating strong oversight, consistent with perceptions of higher audit quality. This study extends prior literature on audit committees by introducing a new comprehensive measure of audit committees’ reported oversight activities and sheds light on how these activities map into audit quality.

Original languageEnglish
Pages (from-to)1-31
Number of pages31
JournalAuditing
Volume41
Issue number4
DOIs
StatePublished - Nov 2022

Bibliographical note

Funding Information:
We thank Ann Vanstraelen (editor), two anonymous reviewers, Urton Anderson, Mark Kohlbeck, Mathijs Van Peteghem, Roy Schmardebeck, Eddie Thomas, David Ziebart, and participants at the 2018 International Symposium for Audit Research (ISAR), the 2018 AAA Annual Meeting, the 2018 AAA Southeast Regional Meeting, the 2018 Temple University Accounting Conference, the 2019 Audit Midyear Meeting, the 2020 FARS Midyear Meeting, the University of Kentucky, and the University of Louisville for helpful comments and suggestions. We gratefully acknowledge financial support from the Gatton College of Business & Economics, the Deloitte Professorship, and the Von Allmen School of Accountancy at the University of Kentucky.

Publisher Copyright:
© 2022, American Accounting Association. All rights reserved.

Keywords

  • audit committees
  • audit quality
  • financial reporting

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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