How do Audit Committees Support Audit Engagement Teams and Encourage Professional Skepticism? A Survey and Experimental Evidence

Abstract

We explore how audit committees (ACs) support audit engagement teams and whether AC
support can increase auditors’ professional skepticism, specifically skeptical actions towards
fraud red flags. We first survey audit practitioners and find that AC support is multidimensional,
varies between engagements, and often is not communicated to the entire engagement team. We
then experimentally investigate whether the explicit communication of AC support to the entire
engagement team (by the audit partner or directly from the AC chair) increases skeptical action.
The conveyance of AC support increases skeptical actions, particularly when management has
poor attitudes toward the engagement team. Our findings related to direct communication by the
AC chair, as opposed to indirect communication by the partner, are mixed. While direct
communication does not increase skeptical action beyond the level observed when the partner
conveys the AC support, it does mitigate the degree to which anticipated management conflict
decreases skeptical action. Our study highlights the importance of AC support in relation to
skepticism and the crucial role audit partners can play in conveying AC support to their entire
engagement team.

Keywords: audit committee, social support, fraud red flag, management attitude, auditor professional skepticism

JEL Classification: G34, M40, M41, M42