Does trust matter in external audits? The role of audit committee chair’s trust in external audits

Abstract

Purpose This study aims to investigate the impact of the audit committee chair’s trust on the quality of interactions between the external auditor and the audit committee chair in Hong Kong. Design/methodology/approach The research uses a questionnaire survey to gather data from the audit committee chairs of the listed companies in Hong Kong, with a response rate of 19.2%. Partial least squares structural equation modelling is used in this study. Findings The results reveal that the audit committee chair’s trust in the external auditor’s competence, integrity and goodwill is an important determinant of the interaction quality. The findings also show that interaction quality during the pre-engagement stage is important to mediate the relationships between the three dimensions of trust and interaction quality during the audit performance stage. Originality/value This is the first study, to the best of the author’s knowledge, that examines the impact of the audit committee chair’s trust in the external auditor on the quality of their interactions. The findings provide insights for board of directors, auditors and policymakers to implement policies that enhance trust between them to improve audit quality.