The External Auditor and the Audit Committee
Routledge Companion to Auditing, edited by David Hay, W. Robert Knechel and Marleen Willekens, 2014.
Posted: 12 Apr 2014
Date Written: January 31, 2014
The audit committee is an important corporate governance mechanism that is responsible for overseeing the company’s relations with the external auditor. It thus contributes to ensuring the quality of the external audit and reinforces confidence in the auditor’s report. This chapter provides a survey of the state of knowledge on audit committees. Given the recent extensive literature reviews done on the topic, we focus on current issues and review selected contemporary relevant studies. Four issues regarding audit committees are identified: their role regarding the appointment and removal of the external auditor, their role in overseeing non-audit services, their interactions with the auditor, and their role in auditor/management disagreements. Overall, the results of the studies reviewed suggest that “strong” audit committees influence audit quality. They also show that there is room for improvement. Audit committees are not the external auditor’s “boss”; they act at a distance in the auditor selection process and in the process of resolving disagreements between auditor and management. Consequently, management still drives the relationships with the auditor, and the audit committee arguably does not play its full role in protecting auditors’ independence. Finally, this chapter underlines the need for more studies on how the audit committee exerts its oversight role in practice.
Keywords: Audit, Auditor independance, Governance
JEL Classification: G30, M40
Suggested Citation: Suggested Citation