Voicing concerns in group audits: the impact of lead auditor involvement and psychological safety of component auditors

Both international and U.S. auditing standard setters, along with regulators, have proposed amendments in their regulations related to group audits (AICPA 2021; IAASB 2022; PCAOB 2022). These amendments require lead auditors to ensure that they adequately plan, supervise, and evaluate the work of their component auditors. The aim is to enhance the involvement of lead auditors in the work of component auditors, thereby improving the quality of the component auditors’ work and ultimately elevating the overall quality of the group audits. A survey conducted with component auditor leaders has confirmed that group auditors, in most cases, contributes minimally to the work of component auditors (Gold &Trotman 2024). This finding validates the regulators’ concerns regarding the insufficient involvement of group auditors in the work of component auditors. However, the impact of a high level of involvement from lead auditors on the quality of group audits remains uncertain. Peecher, Ricci and Zhou (2024) suggest that greater autonomy can make auditors feel they have more discretion, enabling them to be proactive in complex audit situations. Bhattacharjee, Hillison, and Malone (2024) also argue that feelings of autonomy could stimulate creativity but controlling activities such as monitoring inhibit autonomy and consequently suppress creativity. Their findings indicate that more frequent monitoring from supervisors decreases auditors’ effort and decision quality, thereby undermining the benefits of working remotely. Therefore, this study will investigate whether and under what circumstance that lead auditor's high involvement in component auditors' work is beneficial.