How do Audit Committees Support Audit Engagement Teams and Encourage Professional Skepticism? A Survey and Experimental Evidence

Abstract

We explore how audit committees (ACs) support audit engagement teams and whether AC support can improve auditors’ professional skepticism. We first survey audit practitioners and find that AC support is multidimensional, varies between engagements, and often is not communicated to the entire engagement team. We then experimentally investigate 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. Our findings highlight the importance of AC support for audit teams, and the lack of AC support (or communication thereof) that exists on many audit engagements.

Keywords: audit committee, social support, fraud red flag, management attitude, auditor professional skepticism

JEL Classification: G34, M40, M41, M42