Article2017

Oversight of audit quality in the UK: insights into audit committee conduct

30 citations0/0 files storedMeditari Accountancy Research

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to examine the conduct of the audit committee (AC) in terms of its oversight role of audit quality in the UK. Design/methodology/approach This study uses semi-structured interviews with 11 AC members and 11 audit partners. Findings The findings show that the conduct of the AC in relation to audit quality involves the assessment of the contents of the reports prepared by the external auditors for the AC. Furthermore, the oversight of audit quality by the AC involves a thorough assessment of the presentation of the external auditors during the interaction and communication between the two parties. This illustrates the AC’s role as an effective monitoring mechanism when overseeing the audit quality. However, the conduct of the AC in overseeing four major areas (independence, appointment, remuneration and effectiveness of audit process) related to audit quality, as recommended by the UK Code of Corporate Governance, provides mixed results. The findings highlight the ceremonial role of the AC in those areas, which demonstrates the limited supporting role of the AC in enhancing audit quality. Furthermore, it is suggested that the effectiveness of the oversight role is influenced by the quality of the chairman of the AC and the quality of the relationship between the AC and the external auditors. Originality/value This study contributes to the existing literature by providing additional insights into the conduct of the AC in overseeing audit quality as well as additional evidence concerning the role and effect of the AC in relation to audit quality as prescribed by the UK Code of Corporate Governance.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields 1983The Iron Caged Revisited : Institutional Isomorphism and Collective Rationality in Organizational Fields 2002Audit committee, board of director characteristics, and earnings management 2009What is an adequate sample size? Operationalising data saturation for theory-based interview studies 2004The Effect of Audit Committee Expertise, Independence, and Activity on Aggressive Earnings Management 2009The Audit Committee Oversight Process*2002Audit Committee Effectiveness: A Synthesis of the Empirical Audit Committee Literature

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