Is Audit Quality Higher when Audit Committees Report Strong Oversight?

Abstract

This article provides a summary of recent research by Bratten, Causholli, and Sulcaj (2022) who examine whether issuers with audit committees who report strong oversight over the audit function have higher audit quality. Using a novel dataset from Audit Analytics that summarizes reported audit committee activities, Bratten et al. (2022) create a composite measure that captures the strength of the audit committee’s oversight of the audit process. The study uses several measures to capture audit quality, including audit fees, discretionary accruals, and propensity to meet or just beat earnings benchmarks. The authors show that when issuers’ audit committees report activities consistent with being more active in overseeing the external auditor, issuers, on average, have better audit quality.

Keywords: audit committee, auditor oversight, audit quality, audit committee disclosures