The Competence of Audit Committee Members concerning the External Audit Ethics

Abstract

This study investigates the impact of audit committee members' competence on the ethical aspects of external audits and its influence on the audit quality of Public Interest Entities (PIEs). Using a mixed-method approach, including surveys with respondents at audit firms and PIEs in Europe and semi-structured interviews with participants at PIEs in Europe, the findings highlight the importance of pre-appointment training for audit committee members concerning external audit ethics. This pre-appointment training would enable audit committee members of PIEs to evaluate whether external auditors and audit firms have implemented appropriate safeguards and mitigations to ensure the ethical audit practices of PIEs. The study recommends stringent global regulatory provisions mandating specific guidelines for PIE audit committees for assessing external auditor independence and minimizing potential conflicts of interest to preserve the audit quality of PIEs. Implications for Central European audience: For the Central European audience, the study advocates for mandatory pre-appointment training of prospective audit committee members and restrictive regulatory mechanisms to enhance audit committee members' competence concerning the evaluation of external auditor's independence and minimizing potential conflicts of interest for ensuring ethical audit practices and preserving audit quality of PIEs.