Several years ago, the PCAOB adopted a rule requiring the public identification of the audit firm’s engagement partner on each public company audit. This rule went into effect for audit reports issued after January 31, 2017. It was intended to promote improved audit quality by enhancing auditor accountability. But according to a MarketWatch.com article, so far, there’s no evidence that it’s moved the needle on that front, but there’s at least some evidence that investors are using the information as a screening tool. Here’s an excerpt:
One of those new studies found that despite slightly positive trends in audit quality, the improvement is not yet convincingly attributable to the adoption of the audit partner-naming rule. That research, entitled “What’s in a Name? Initial Evidence of U.S. Audit Partner Identification Using Difference-in-Differences Analyses,” by Lauren M. Cunningham of the University of Tennessee, Chan Li of the University of Kansas, Sarah E. Stein of Virginia Tech, and Nicole S. Wright of James Madison University, is in the current issue of The Accounting Review, a peer-reviewed journal of the American Accounting Association.
The study by Cunningham and her colleagues also cites another ongoing study that finds investors are less likely to invest in a company when the partner is linked to another client with a restatement. Another working paper finds no evidence of significant trading activity in the days surrounding PCAOB Form AP disclosure, even in cases of a change in audit partner in the second year of mandatory disclosure.
-John Jenkins, TheCorporateCounsel.net October 17, 2019
