TY - JOUR
T1 - Audit Committee Chairs’ Objectives and Risk Perceptions
T2 - Implications for Audit Quality
AU - Ernstberger, Jürgen
AU - Pellens, Bernhard
AU - Schmidt, André
AU - Sellhorn, Thorsten
AU - Weiβ, Katharina
N1 - Publisher Copyright:
© 2024 European Accounting Association.
PY - 2024
Y1 - 2024
N2 - Audit committee chairs (ACCs) are key links in the financial reporting value chain. Whereas prior literature analyzes how ACCs contribute to effective corporate governance, we investigate how ACCs’ personal incentives help explain their audit-related preferences and actions. Guided by a three-step risk management framework (risk identification, evaluation, and mitigation) we conduct semi-structured interviews with 23 ACCs of public German firms. First, we document how ACCs’ objective of avoiding financial reporting outcomes that pose personal (reputational) risks leads them to focus on specific attributes of management’s accounting judgments to evaluate their personal risks. Second, our data reveal that ACCs consider specific auditor attributes helpful in evaluating these risks. Concerning risk mitigation, we find that ACCs prefer to be actively involved in critical discussions with management rather than delegate these entirely to the external auditor. Overall, we document that ACCs’ concerns about personal risk can translate into different preferences (e.g., an aversion to even positive surprises) than concerns about governance effectiveness. These insights contribute to a more nuanced understanding of audit committees’ role in corporate governance, as well as about the enabling factors of audit quality.
AB - Audit committee chairs (ACCs) are key links in the financial reporting value chain. Whereas prior literature analyzes how ACCs contribute to effective corporate governance, we investigate how ACCs’ personal incentives help explain their audit-related preferences and actions. Guided by a three-step risk management framework (risk identification, evaluation, and mitigation) we conduct semi-structured interviews with 23 ACCs of public German firms. First, we document how ACCs’ objective of avoiding financial reporting outcomes that pose personal (reputational) risks leads them to focus on specific attributes of management’s accounting judgments to evaluate their personal risks. Second, our data reveal that ACCs consider specific auditor attributes helpful in evaluating these risks. Concerning risk mitigation, we find that ACCs prefer to be actively involved in critical discussions with management rather than delegate these entirely to the external auditor. Overall, we document that ACCs’ concerns about personal risk can translate into different preferences (e.g., an aversion to even positive surprises) than concerns about governance effectiveness. These insights contribute to a more nuanced understanding of audit committees’ role in corporate governance, as well as about the enabling factors of audit quality.
KW - audit committee chairs
KW - audit quality
KW - interviews
KW - personal risk management
UR - http://www.scopus.com/inward/record.url?scp=85185524611&partnerID=8YFLogxK
U2 - 10.1080/09638180.2024.2306870
DO - 10.1080/09638180.2024.2306870
M3 - Article
AN - SCOPUS:85185524611
SN - 0963-8180
JO - European Accounting Review
JF - European Accounting Review
ER -