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

56 Pages Posted: 14 Jan 2019 Last revised: 26 May 2020

See all articles by Brian Bratten

Brian Bratten

University of Kentucky - Von Allmen School of Accountancy

Monika Causholli

University of Kentucky - Von Allmen School of Accountancy

Valbona Sulcaj

University of Kentucky - Von Allmen School of Accountancy

Date Written: May 2020

Abstract

Although one of the most crucial responsibilities of audit committees is overseeing the audit process, we know very little about how audit committees fulfill this role and how their oversight impacts audit quality. Recently, in response to calls for more transparency, many firms have begun reporting their audit committees’ oversight activities. We create a composite measure that captures the extent of audit committees’ reported oversight over the external audit. We find that when firms’ audit committees report exerting strong oversight, they have higher audit quality as proxied by discretionary accruals, audit fees and the likelihood to meet or beat earnings. 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 the audit committees’ oversight role by introducing a new comprehensive measure of their reported activities and sheds light on how these activities map into audit quality.

Keywords: Audit Committees, Audit Quality, Financial Reporting

JEL Classification: M41, M42, G18

Suggested Citation

Bratten, Brian and Causholli, Monika and Sulcaj, Valbona, Overseeing the External Audit Function: Evidence from Audit Committees’ Reported Activities (May 2020). Available at SSRN: https://ssrn.com/abstract=3314334 or http://dx.doi.org/10.2139/ssrn.3314334

Brian Bratten (Contact Author)

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States
859-257-1947 (Phone)

HOME PAGE: http://gatton.uky.edu/faculty-research/departments/von-allmen-school-accountancy/directory

Monika Causholli

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

Valbona Sulcaj

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

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