The Impact of Audit Committee Existence and Audit Committee Meeting Frequency on the External Audit: Perceptions of Australian Auditors

Abstract

This article examines the impact of audit committee existence, the frequency of audit committee meetings and the auditor's attendance at meetings on aspects of the external audit. Using an experimental design, we find that the audit committee, the frequency of committee meetings and the auditor's attendance at meetings are significantly associated with a reduction in perceived audit risk. The impact on audit efficiency and audit testing is perceived to be minimal. Manager and partner hours are greater when meetings are more frequent and the partner attends all meetings. The audit committee is expected to provide assistance in resolving conflicts with management and to lead to some improvement in overall audit quality. In neither case is this affected by meeting frequency or the auditor's attendance at meetings. Participants expect the existence of an audit committee to lead to an increase in audit fees, particularly when meetings are more frequent and the auditor is required to attend meetings. Reasons given for any fee increase relate to the additional preparation for and attendance at meetings. SUMMARYThis article uses an experimental design to examine the impact of audit committee existence, the frequency of audit committee meetings and the auditor's attendance at meetings on aspects of the external audit. We developed a hypothetical scenario involving a company with a newly formed audit committee and we varied the number of times the audit committee met each year and the audit partner's attendance at the meetings. In the first version of the instrument, participants were advised that the committee met twice a year and the partner was required to attend both meetings. In the second version, the audit committee met six times a year, and the partner was required to attend only the first and last meetings of the year. In the third version, the audit committee met six times a year, and the partner was required to attend all meetings. We chose this design in order to measure the expected impact of these factors on audit risk, audit efficiency, audit testing, auditor-client conflict resolution, audit quality and audit fees.Our results indicate that audit committee existence, the frequency of audit committee meetings and the auditor's attendance at meetings are significantly associated with a reduction in the perceived level of audit risk. The impact of the audit committee on audit efficiency is perceived to be minimal. There is also no perceived impact on audit testing. Manager and partner hours are expected to increase when an audit committee is in place, particularly when meetings are more frequent and the auditor is required to attend all meetings. The audit committee is also expected to provide assistance in resolving conflicts with management and improving the overall level of audit quality, but there are no significant differences based on meeting frequency or auditor attendance at meetings. Participants expect the existence of an audit committee and the frequency of committee meetings to lead to an increase i...

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