Mandatory Disclosure of Engagement Partner Identity: Insights from Practice*

Abstract

This study uses semistructured interviews to gain insights from 19 practicing Canadian audit partners into the practical implications of the engagement partner identity mandate requiring firms to disclose the identity of the engagement partner(s) auditing Canadian publicly traded companies. Building on prior literature that suggests accountability can reach a ceiling, we explore whether audit partners perceive incremental increases in accountability pressures to be effective in increasing audit quality. Based on the existing literature, we propose a nonlinear relation between accountability and performance (audit quality, in the current context), reflecting this ceiling effect. We find partners believe they are reaching, or are at, a ceiling level of accountability and that further initiatives to increase their accountability are ineffective in eliciting procedural changes in the audit or the audit's outcome. Contrary to regulators' motives for the disclosure, our interviewed partners do not believe the transparency of publicly disclosing their names will further increase their level of accountability or overall audit quality. We document that one possible reason for the disconnect is that partners are less concerned with managing external reputation than with managing internal reputation, which they believe has a more direct impact on their careers. We also discuss partners' perceptions of the required disclosure's impact on individual reputations, client risk choices, personal safety, and partner recruitment. We offer suggestions for future research building on the partners' insights.

Engagement partner identification format and audit quality

“…Overall, these observations lend support to the arguments put forth by audit firms that EPI should have no effect on audit quality as individual partners already have a strong sense of accountability (e.g., Brown et al, 2022), in part because of the internal and regulatory control systems already in place. Our results, or lack thereof, also reduce concerns of possible unintended consequences of EPI.…”

“…For example, Lee and Levine (2020) develop a theoretical model showing that EPI can lower audit firms' incentive to maintain good internal quality control systems, leading to a net degradation in audit quality. In the same vein, Brown et al (2022) propose a curvilinear relation between accountability and audit quality, suggesting a possible reduction in audit quality as accountability pressures approach some higher level threshold, which could be associated with EPI. Carcello and Santore (2015), for their part, argue that engagement partners may report more conservatively than their firm would prefer under an EPI requirement.…”

“…Reporting Working Group, 2013; Center for Audit Quality, 2008Quality, , 2009. In interviews with practising Canadian audit partners, Brown et al (2022) find that partners believe EPI in the Canadian context will be ineffective in enhancing audit quality given the high level of accountability these partners feel they already have reached. According to these arguments, EPI should have no effect on audit quality.…”

“…For example, as opponents of EPI, accounting firms argue that the current level of audit quality is high and that individual partners already have a strong sense of accountability given the control systems already in place, including audit firms' internal quality controls and regulatory oversight, such as PCAOB and Canadian Public Accountability Board inspections (e.g., Auditor Reporting Working Group, 2013; Center for Audit Quality, 2008, 2009). In interviews with practising Canadian audit partners, Brown et al (2022) find that partners believe EPI in the Canadian context will be ineffective in enhancing audit quality given the high level of accountability these partners feel they already have reached. According to these arguments, EPI should have no effect on audit quality.…”

Enhancing CPA competencies for internal audit roles

“…Consistent with recent qualitative studies (Brown et al, 2022; Malsch & Salterio, 2016; Power & Gendron, 2015), we use a semistructured interview approach to gain ‘first‐hand knowledge and understanding to provide meaningful insight’ (Malsch & Salterio, 2016, 6) with the goal of helping us focus the survey on those competencies that would be essential 10 years in the future and would be relevant to a range of industries and geographic regions. Thus, with the support of the advisory group, the research team identified a set of interviewees that would represent various industries, geographic locations and company sizes.…”