Audit Committee Chairs’ Objectives and Risk Perceptions: Implications for Audit Quality

Year: 2024
Type: Journal Publication
Journal: European Accounting Review


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.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, Goethe University Frankfurt, University of Cologne and Leibniz University Hannover who share the same research agenda.

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