Mandatory Disclosure of Audit Engagement Partners: Effects on Audit Quality

• In Event: Audit Quality & Judgment

Abstract

This study investigates whether disclosure of individual audit engagement partners (AEPs or ‘partners’) improves audit quality through increased transparency. We examine effects of the disclosure in an experimental market and investigate whether greater transparency incentivizes AEPs to build individual reputations for quality distinct from their firms. When transparency is at the partner level (i.e., AEP is publicly-known), we find quality is higher (partners exert more effort and report less aggressively) and partners accept higher-risk clients than when transparency is at the firm level (i.e., AEP is not publicly-known). We also explore the effects of increased transparency from the financial statement/audit report users’ perspective and find users have more confidence, exhibited by willingness to bid higher when transparency is at the partner level than at the firm level. Our findings provide evidence of partners’ and users’ responses to the new AEP disclosure rule and implications of AEP disclosure for audit quality.

Authors

• Veena Looknanan Brown, University of Wisconsin-Milwaukee

• Jodi Lynn Gissel McDowell, Marquette University

• Adam Vitalis, Georgia Institute of Technology