Melbourne Accounting Research Seminar - Professor Gilad Livne

Professor Gilad Livne from the University of Exeter will present a MARS seminar.

Topic: Audit Committee Competencies and Audit Effort: Evidence from Materiality and Audit Risk Areas

Abstract: Audit committees (ACs) carry the responsibility of monitoring external auditors. We provide UK-based evidence on this monitoring role by examining the relations between AC competence characteristics (financial expertise, multiple directorships and tenure) and three measures of external audit effort. Specifically, we use materiality, the number of significant risk areas and audit fees. We regard materiality as an inverse measure of the depth of audit effort, the number of risk areas as a measure of the scope of audit effort, and audit fees as a measure of total effort. We find little evidence that AC competencies are associated with the three measures of audit effort. We also examine the relation between AC effort and the three measures of audit effort and present evidence supporting a complementarity effect between AC effort and audit effort. Finally, we find that AC effort, but not AC competence characteristic, is positively related to reporting quality. Our findings highlight the importance of AC effort as a driver of audit effort while suggesting that in the UK individual AC competencies are much less influential.