Audit committee strength and auditors' risk assessments: The moderating role of CEO narcissism

Yasemin Karaibrahimoglu*, Jim Emanuels, Anna Gold, Philip Wallage

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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Abstract

This paper examines the impact of two elements of the client's control environment on auditor's assessment of the risk of material misstatement: audit committee strength and CEO narcissism, the latter of which is a component of management philosophy, operating style, and tone at the top. We predict and find that auditors' risk assessments are adequately responsive to both elements; however, importantly, a strong audit committee decreases perceived risk assessments only when the client has a CEO with less narcissistic characteristics. In other words, our findings suggest that the presence of narcissistic CEOs' attitudes weakens the perceived audit committee effectiveness, leading auditors to rely less on a strong audit committee. Our findings contribute to the auditing literature by exploring auditors' responses to the complex dynamics between management boards and those charged with governance. From a practical perspective, our results suggest that auditing standards and practice guidance should consider making such complexities and the role of management attitudes and styles even more explicit.
Original languageEnglish
Article number12243
Pages (from-to)661-674
Number of pages14
JournalInternational Journal of Auditing
Volume25
Issue number3
Early online date30-Jun-2021
DOIs
Publication statusPublished - Nov-2021

Keywords

  • Auditor
  • Audit Committee
  • CEO Narcissism
  • Risk assessment

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