Stein, Walker, and Wolfe Win Best Paper
January 17, 2023
Sarah Stein, Kim Walker, Karneisha Wolfe and their coauthor Lauren Cunningham of the The University of Tennessee are the 2023 recipients of the AAA Auditing Section Best Behavioral Paper Award.
While the audit committee’s traditional responsibilities include oversight of external/internal auditors and other financial reporting-related functions, many audit committees are taking on additional oversight responsibilities related to enterprise risk management (ERM), cybersecurity, and environmental, social and governance (ESG) reporting. Since these additional responsibilities are not assigned uniformly across all boards, stakeholders must rely on public disclosures to understand board risk oversight and gain assurance that audit committees are fulfilling their fiduciary duties. This study uses a qualitative, interview-based approach to show that most companies develop disclosures based on peer benchmarking, which results in standardized language rather than conveying information to help investors distinguish audit committee quality. Signaling theory allows the authors to identify the key breakdown in the disclosure cycle that led to these current practices: companies do not receive feedback about the usefulness of audit committee disclosures from investors. Thus, companies feel like investors are satisfied with existing disclosures while investors are frustrated that companies provide so little information about the audit committee. This study provides suggestions for moving forward that the authors hope will be of interest to preparers, users, and regulators of governance disclosures.
- Access a copy of the paper here: https://ssrn.com/abstract=4249500
- Joint publication with the Center for Audit Quality with takeaways for professionals: https://www.thecaq.org/ac-kitchen-sink/
- Summary of the article on Columbia Law School’s Blue Sky blog: https://clsbluesky.law.columbia.edu/2023/01/12/more-transparent-audit-committee-disclosures-requires-investor-feedback/
- Podcast with the Council for Institutional Investors: https://www.cii.org/podcasts (scroll down through the podcasts to find the podcast titled “Audit Committee: The Kitchen Sink of the Board”)