Despite regulations mandating audit committee economic independence, the CEO may still influence audit committee members’ objectivity through social ties (e.g., belonging to the same country club) or professional ties (e.g., having served on boards together). Additionally, prior archival research finds that audit committee industry expertise enhances financial reporting quality. Nonetheless, information about ties and industry expertise are not currently publicly disclosed in regulatory filings. In an experiment with 342 reasonably informed investors, we find, as hypothesized, that ties (professional or social) and industry expertise affect assessments of audit committee independence and competence. Using planned contrast tests, we also find that investors assess audit committees with no ties and industry expertise (social ties and no industry expertise) as the most (least) effective and also result in the highest (lowest) likelihood of investing. Further, the potential negative effects of social ties on investor’s judgments are muted when there is industry expertise present, while the presence of no ties appears to decrease negative effects on investor judgments due to a lack of industry expertise. This study provides important baseline evidence supporting the relevance of audit committee ties and industry expertise information to investors and thus suggests the value of increased disclosures to investors of such information to enhance their ability to make more informed investment decisions.

Errors reflect unintended deviations from plans or goals and commonly carry negative connotations. Although errors cannot be eliminated, they offer opportunities for learning and innovation. Audit firms employ powerful mechanisms, such as review processes, to prevent or detect audit errors and safeguard their work in the public interest. At the same time, the profession recognizes positive long‐term outcomes of errors in terms of continuous learning to enhance auditor skills and, ultimately, audit quality. The current study employs semistructured interviews with Dutch auditors to investigate how they manage the tensions emanating from extant public and regulatory demands for flawless audits while embracing errors as opportunities for learning. Our findings reveal that auditors express a positive attitude toward openly communicating audit errors, but, in substance, they espouse negative emotions and defensive strategies for fear of repercussions. We argue that the excessive emphasis audit firms and oversight bodies place on error prevention conditions auditors into perceiving errors as negative and avoidable events. We assert these attitudes result from the profession's efforts to maintain status and legitimacy in the eyes of the public and the regulator, where any auditor error may shed doubt on auditors' work in the public interest. In sum, our findings indicate that viewing errors as incompatible with audit work makes the profession susceptible not only to repeating errors but also to missing out on opportunities to improve services and to achieve innovation.