Auditors' Communications with Audit Committees: The Influence of the Audit Committee's Oversight Approach

Abstract

SUMMARY Policymakers have identified effective communications between the auditor and the audit committee (AC) as an indicator of a quality audit, but little is known about the factors auditors consider when deciding what to communicate about significant accounting issues. We propose auditors use the AC's oversight approach as a cue for the level of detail in their communications that is necessary to satisfy the AC's preferences for auditors' insights on issues that were resolved with management. In our experiment, auditors resolved an inventory obsolescence issue with a hypothetical CFO, and then wrote a communication about it for the AC. We manipulate the AC's preference for getting involved in the issue resolution process and its reputation for asking questions. Our results, supplemented by findings from audit partner interviews, suggest auditors tailor their communications to the AC's oversight approach, the AC's industry and accounting knowledge, and the AC chair's preferred communication style. Data Availability: Contact the authors.

Audit committees’ oversight role in developing countries: evidence from Jordan

“…informal meetings and telephone conversations) helps them in raising and discussing important matters such as those regarding the cooperation and integrity of the management, or in discussing sensitive issues that cannot be discussed during the formal meetings. Fiolleau et al (2019) investigated the effect of the AC's oversight approach on the content of auditors' communications to the AC concerning significant accounting matters that are resolved with management. Using an experiment and interviews, the findings support the notion that auditors use the AC's oversight approach as a cue for the level of detail in their communications that is necessary to provide the AC comfort and thereby secure its approval.…”

“…Gendron et al (2004) studied the activities in AC meetings for three Canadian public companies in 2000 and 2001. Compernolle (2018) and Fiolleau et al (2019) examined the communication between AC and external auditors, but they analysed the AC process from the external auditors’ point of view. Although Sallah and Stewart (2012) considered a developing country (Malaysia), the focus of the study is on the role of the AC in resolving auditor–client disputes.…”

“…Fiolleau et al (2019) investigated the effect of the AC’s oversight approach on the content of auditors’ communications to the AC concerning significant accounting matters that are resolved with management. Using an experiment and interviews, the findings support the notion that auditors use the AC’s oversight approach as a cue for the level of detail in their communications that is necessary to provide the AC comfort and thereby secure its approval.…”

“…The evidence concerning the AC processes, in practice, is still limited and mainly came from the developed countries (Beasley et al , 2009; Cohen et al , 2002; Cohen et al , 2013; Fiolleau et al , 2019; Gendron et al , 2004; Turley and Zaman, 2007; Compernolle, 2018). This study differentiates itself in the following ways: first, these studies are conducted in developed markets, thereby leaving uncertainties regarding the practices of ACs in the developing markets (i.e.…”

Audit Committee Impact on Corporate Profitability in Oman Companies: an Auditing and Management Accounting Perspective

“…As of late, this significant job has been extended past the annual financial statements to incorporate the quarterly financial reports (Hashim, Ahmed & Huey, 2019). Audit committees are getting more involved within the oversight of financial reporting matters as contrasted with financial statements (Fiolleau, Hoang, & Pomeroy, 2019). As reported by Owolabi and Dada (2011), considering the quantum of firm failure and collapses, it is essential that the audit committee is paid attention and more seriously in each corporate organization.…”