Economic Consequences of Implementing the Engagement Partner: Signature Requirement in the UK

Abstract

This paper examines whether and the extent to which requiring the audit engagement partner (EP) signature influences on information asymmetry, analysts' forecast errors, and forecast dispersion. I predict and find that, ceteris paribus, there is a significant decline in information asymmetry, analysts' forecast errors and forecast dispersion from the pre-to post-EP signature period in the UK over both of short-term (i.e., 2008-2010) and long-term (i.e., 2004-2014). These findings hold when using a control sample approach, indicating that my results are not likely due to the effect of concurrent events and correlated omitted variables. These findings suggest that implementing the EP signature requirement benefits analysts forecasts over a short-and long-term.

What's in a Name? Reputation and Monitoring in the Audit Market

“…Overall, their results suggest that capital market participants place (and should place) a positive value on information which reveals the identity of the audit partner to them. Liu (2017) looks at UK data and finds that requiring the engagement partner's name to be disclosed led to a reduction in the analysts' forecast errors.…”