Audit Partner Disclosure: An Experimental Exploration of Accounting Information Contagion

Lambert, Tamara A.; Luippold, Benjamin L.; Stefaniak, Chad M.

doi:10.2308/bria-51853

Cited by 24 publications

(12 citation statements)

References 28 publications

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“…Consistent with the usefulness of the audit history of an engagement partner, Lambert et al (2018) find in an experiment that prospective investors, especially less experienced investors, are less likely to invest in a company that has been linked to another company with restated financials through a common engagement partner.…”

Section: Background and Hypothesismentioning

confidence: 65%

Investor reaction to the audit engagement partner disclosure rule

Park

2021

MAJ

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Purpose This paper aims to examine whether investors perceive the adoption of Public Company Accounting Oversight Board (PCAOB) Rule 3211, which mandates disclosure of the identity of audit engagement partners for the US-listed companies, as providing net benefits to the companies. Design/methodology/approach This study identifies 33 events leading up to the adoption of the PCAOB rule and examines the market reaction around these events. Findings The author finds positive abnormal market-wide returns in response to events that increase the likelihood of adopting the mandate. These positive returns are relatively stronger among companies with higher audit risk and companies with high-quality auditors. Practical implications The results of this study indicate that market participants expect that the overall benefits from the audit engagement partner disclosure rule outweigh the associated costs for average firms and in particular for firms with high audit risk and high-quality auditors. Originality/value Prior studies document mixed evidence on the net effects of PCAOB Rule 3211 on audit quality and audit fees, potentially because of the short post-rule adoption period and the weak effect of the rule on audit quality and audit fees during the transition period. The author complements these studies by providing the first evidence on the way that the stock market reacts to events that change the likelihood of the adoption of the audit engagement partner disclosure mandate.

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Section: Background and Hypothesismentioning

confidence: 65%

Investor reaction to the audit engagement partner disclosure rule

Park

2021

MAJ

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“…In a U.S. setting, Laurion, Lawrence, and Ryans [2017] provide evidence of increased restatement discoveries following a partner rotation, indicating benefits from a “fresh look” using partner changes identified in SEC correspondence. In an experimental setting, Lambert, Luippold, and Stefaniak [2018] find that investors avoid companies audited by partners associated with restatements because of a perceived increase in restatement likelihood for their other clients. Collectively, these findings provide evidence that partner identity could inform U.S. investors about audit and financial reporting quality, particularly in cases where partners have audit failures.…”

Section: Background Prior Literature and Hypotheses Developmentmentioning

confidence: 99%

Do Investors Care Who Did the Audit? Evidence from Form AP

Doxey

Lawson

Lopez

et al. 2021

J of Accounting Research

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In early 2017, the Public Company Accounting Oversight Board (PCAOB) mandated the disclosure of audit participants, including the lead audit partner and other audit firms participating in the audit (“component auditors”). In this study, we examine whether investors use these disclosures in a way that influences their investment decisions, a primary goal of the PCAOB. Using trading volume, absolute abnormal returns, and bid–ask spreads, we find little evidence of a significant investor response following the disclosure of partner identity or component auditor participation in the first three years of the requirement. We also examine instances where these disclosures are most likely to be informative (e.g., partners associated with restatements or component auditors with PCAOB deficiencies) and find no significant investor response. Taken together, we find little evidence that capital markets respond to partner and component auditor identity in the United States.

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“…8. Accounting research regularly employs web-based organizations to recruit participants (Brown-Liburd and Zamora, 2015; Pyzoha, 2015; Lambert et al , 2018; Bentley et al , 2020; (Leiby et al , 2019 for a discussion). Research Now is an international company whose actively managed panels meet online panel best practices for data quality, including participant validation, survey fraud prevention, engagement checks of respondent attention, and sampling procedures to provide transparency.…”

Section: Notesmentioning

confidence: 99%

Client negotiation strategy spillover to integrated audit judgments

Aghazadeh

Lambert

2020

MAJ

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Purpose This study aims to explore the effect of negotiating audit differences on auditors’ internal control deficiency (ICD) severity assessments, an ensuing, non-negotiated judgment, in an integrated audit. Design/methodology/approach The experiment manipulates the client’s concession timing strategy as either immediate or gradual, holding the outcome constant. A total of 34 auditors (primarily managers) resolve an audit difference with the client. Findings The client’s concession timing strategy during the negotiation of an audit difference spills over to affect auditors’ severity assessment of a related ICD. Auditors judged the ICD severity to be higher (lower) in the immediate (gradual) condition. Client retention risk inferences mediate this effect. Research limitations/implications The effect on auditors’ ICD severity assessments may not ultimately affect the audit report. Participants did not control their negotiation strategy, allowing the client’s negotiation strategy and the outcome to be held constant; it is possible that interactive effects between the client and auditor’s strategy might affect the study’s implications. Practical implications Features of the auditor–client negotiation process may influence auditors’ downstream, post-negotiation judgments and may therefore help to explain empirical evidence and Public Company Accounting Oversight Board inspection findings that show auditors often fail to identify an internal control material weakness after identifying a financial statement misstatement. Originality/value This paper expands current negotiation research by exploring the impact of inferences made based on counterparty concession strategy for downstream, non-negotiated judgments and current integrated audit research by identifying client retention perceptions as a driving factor of lower ICD severity assessments.

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Audit Partner Disclosure: An Experimental Exploration of Accounting Information Contagion

Cited by 24 publications

References 28 publications

Investor reaction to the audit engagement partner disclosure rule

Investor reaction to the audit engagement partner disclosure rule

Do Investors Care Who Did the Audit? Evidence from Form AP

Client negotiation strategy spillover to integrated audit judgments

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