The association between audit committee effectiveness and audit risk

Audit committees (ACs) are expected to play a key role in improving financial
statement integrity and as a consequence reduce audit risk. Companies reporting conformity with
regulations can have an AC that appears effective but is not actually effective in substance. We
surveyed audit partners and managers to identify their indicators of actual AC effectiveness
(auditor-chosen list). We hypothesize a negative association between AC effectiveness and audit
risk, only when an auditor-chosen list, rather than extent of conformity with regulations, is used
to measure effectiveness. Results support our expectations.