This paper examines whether unofficial audit team size affects auditors’ responses to audit risk. We find that larger unofficial audit teams are less likely to engage specialists, indicating weaker audit risk responses. The effect is concentrated in the use of valuation specialists and is more pronounced for Key Audit Matters (KAMs) related to asset impairment, fair value measurement, estimated liabilities, and litigation. Cross-sectional analyses show that the negative association is stronger for larger teams, firms with weaker media oversight, less complex operations, lower auditor centrality, and lower client importance. Mechanism analyses suggest that larger unofficial audit teams weaken audit responses by avoiding auditor rotation to extend tenure and relying heavily on internal client resources and in-house industry specialists. Our findings contribute to the literature on unofficial audit teams and KAM disclosures and provide implications for audit firms, listed companies, and regulators to mitigate the drawbacks of unofficial audit team structures.
Hu et al. (Tue,) studied this question.