A discussion of public identification of US audit engagement partners: Who benefits? Who pays?

Bailey, Rose L; Dickins, Denise; Reisch, John T.

doi:10.1057/jdg.2010.13

Cited by 8 publications

(8 citation statements)

References 10 publications

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“…The gist of the main objections from public accounting firms: (1) no further increase of the EP's accountability is warranted since the EP is already accountable to a wide range of constituents (audit committee, partners in the firm); (2) the requirement will result in investor confusion about the division of responsibilities in the audit process-hence, less transparency; (3) the requirement will impair the established effective mechanisms of corporate governance for both audit clients and audit firms; (4) the requirement will likely increase the EP's ''professional hazard'' risks, including legal liability; (5) the requirement will result in multiple administrative and technical challenges that have nothing to do with audit quality; and (6) the PCAOB's justification is based on inappropriate analogies. 7 We refer an interested reader to Bailey et al (2010) for a more detailed review of those comments.…”

Section: Introductionmentioning

confidence: 99%

Mandatory Disclosure of the Engagement Partner's Identity: Potential Benefits and Unintended Consequences

King

Davis

Mintchik

2012

Accounting Horizons

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SYNOPSIS: This paper contributes to the deliberations on the potential consequences of requiring disclosure of the engagement partner's identity in the audit report. The PCAOB has recently suggested that this requirement will lead to enhanced audit quality due to increased engagement partner accountability and improved transparency of the audit process. The goal of our commentary is to examine this issue by considering factors that potentially affect audit quality in appearance and audit quality in fact, and applying insights from three distinct academic frameworks: source credibility, accountability, and the theory of affordances.While prior evidence from source credibility research implies that a mandatory signature will likely increase audit quality in appearance, its impact on audit quality in fact remains unclear. Academic literature suggests that increased accountability will increase audit effort but is silent on the associated increase in audit effectiveness. As a result, mandatory disclosure is likely to increase the risk of over-auditing because audit services have the essential characteristics of a credence good. As for an increase in audit quality in appearance, the question remains whether the current perception of audit quality is too low or too high. The increase in public perceptions of audit quality without an associated increase in actual quality is a desirable accomplishment only when public perception of quality is below actual audit quality. Otherwise, the measure increases the gap between delivered audit quality and public perceptions of it. We suggest specific research opportunities in this area.information users seek greater transparency about information source due to a legitimate desire to decrease uncertainty associated with information evaluation. The implication as applied to auditing is that disclosure of the engagement partner's identity will likely increase audit quality in appearance, as well as public confidence in the message content (audit report and associated financial statements). At the same time, greater transparency tempts decision makers to decrease cognitive effort and to rely mostly on the sender's attributes during information processing. The implications are that identifying the EP has the potential to increase the likelihood that investors will place unwarranted weight on the EP's characteristics and underweight the content of the audited financial statements. AccountabilityThis framework, which originated in social psychology, suggests that the positive impact of increased accountability is limited to problems caused by lack of effort rather than by lack of expertise or resources. Accountability-related studies also warn about decision makers' tendency to succumb to the audience's preferences by decreasing effort and independent data processing when reporting to an audience with known views. In an audit context, such a tendency will likely lead to more conservative risk-related judgments and expansive audit procedures, increasing audit costs, but not necessarily au...

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Section: Introductionmentioning

confidence: 99%

Mandatory Disclosure of the Engagement Partner's Identity: Potential Benefits and Unintended Consequences

King

Davis

Mintchik

2012

Accounting Horizons

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“…Additionally, previous studies revealed some costs related to the audit partner identification requirement, including a reduction in audit efficiency (Bailey et al, ), higher audit fees (Carcello & Li, ), more conservative audits (Carcello & Santore, ), more aggressive write‐down judgments (Cianci et al, ), and investor information contagion (Lambert, Luippold, & Stefaniak, ). Carcello and Li () showed that audit fees in the UK significantly increase in the postsignature period.…”

Section: Background and Prior Researchmentioning

confidence: 99%

“…The effort to lower the risk and avoid cost at the partner level will ultimately lead to an improvement in audit quality. Moreover, given the disclosure of engagement partners' identities, the public's scrutiny of the partners' performances is likely to influence the partners' behaviors (Carcello & Santore, ), such as developing a more rigorous audit process (Bailey et al, ), increasing professional skepticism, and relying less on assertions made by management (PCAOB, ).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…It is asserted that the litigious U.S. environment may be sufficient enough to enforce engagement partners to exert effort and perform well, leading to higher audit quality (Cianci et al, ). In addition, existing quality control standards currently followed by accounting firms provide reasonable assurance that accounting firms and their personnel comply with professional, regulatory, and legal requirements (Bailey et al, ). Another opposing argument is that the disclosure of engagement partners may not have any effect on audit quality, because currently audit partners are sufficiently accountable to the public (Cianci et al, ).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…On the one hand, introducing the engagement partner disclosure requirement may improve audit quality for the following reasons: First, the partner disclosure requirement increases the transparency of the audit reporting, consequently resulting in auditor exposure to higher litigation and reputational risks. As such, the disclosure requirement incentivizes partners to gather more evidence during an audit (Carcello & Santore, ), develop more rigorous auditing processes, and be more independent of management assertions (Bailey, Dickins, & Reisch, ; PCAOB, ). Second, the audit partner's sense of accountability for the audit work is one of the main factors influencing the auditor's efforts, which determine the quality of the audit engagement (PCAOB, , ).…”

Section: Introductionmentioning

confidence: 99%

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Impact of the disclosure of audit engagement partners on audit quality: Evidence from the USA

Dao

Liu

2019

Int J Auditing

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The debate concerning the recent regulation in the USA mandating accounting firms to disclose engagement partners' identity is ongoing. We examine the impact of the Public Company Accounting Oversight Board's (PCAOB's) requirement of disclosing engagement partners' names on Form AP on the quality of audit engagements. Using two measures of audit quality (abnormal accruals and the probability of detecting material weaknesses in internal control), we find that disclosing engagement partners' names is associated with a lower level of abnormal accruals and a higher probability of accounting firms detecting material weaknesses in internal control. Our study extends the contemporary research on the disclosure of engagement partners' identification by providing additional evidence to the literature on this issue in the U.S. setting. Our study also provides evidence supporting the PCAOB's perception that this disclosure leads to higher audit quality.

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Does the requirement of an engagement partner signature improve financial analysts’ information environment in the United Kingdom?

Liu

2016

Rev Quant Finan Acc

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A discussion of public identification of US audit engagement partners: Who benefits? Who pays?

Cited by 8 publications

References 10 publications

Mandatory Disclosure of the Engagement Partner's Identity: Potential Benefits and Unintended Consequences

Mandatory Disclosure of the Engagement Partner's Identity: Potential Benefits and Unintended Consequences

Impact of the disclosure of audit engagement partners on audit quality: Evidence from the USA

Does the requirement of an engagement partner signature improve financial analysts’ information environment in the United Kingdom?

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