Audit Committee Independence and Auditor-Manager Disputes

52 Pages Posted: 26 Aug 2020 Last revised: 3 Jun 2021

See all articles by Sandra Kronenberger

Sandra Kronenberger

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management

Sebastian Kronenberger

University of Mannheim

Minlei Ye

University of Toronto

Date Written: June 3, 2021

Abstract

This paper analyzes the role of audit committee independence in resolving disagreements between management and the auditor regarding financial reporting. The common intuition suggests that the audit committee must be independent from management to be able to support the auditor against the manager's manipulation attempts. We build a one-period strategic model to show that this intuition is valid only if overinvestment is a bigger concern to shareholders than underinvestment. Otherwise, any audit committee will agree with management to avoid underinvestment. The audit committee's optimal independence level, which can be fully independent or partially dependent, is affected by investment efficiency, as well as by the strategic interactions of shareholders, the manager, the auditor, and the audit committee.

Keywords: audit committee, manager manipulation, audit quality, dispute, independence, shareholders' value

JEL Classification: M42, M48

Suggested Citation

Kronenberger, Sandra and Kronenberger, Sebastian and Ye, Minlei, Audit Committee Independence and Auditor-Manager Disputes (June 3, 2021). Available at SSRN: https://ssrn.com/abstract=3671569 or http://dx.doi.org/10.2139/ssrn.3671569

Sandra Kronenberger

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management ( email )

Mainz
Germany

Sebastian Kronenberger

University of Mannheim ( email )

Mannheim, 68161
Germany

Minlei Ye (Contact Author)

University of Toronto ( email )

Toronto, Ontario M5S 3G8
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
155
Abstract Views
954
rank
260,512
PlumX Metrics