U.S. Audit partner identification and auditor reporting |
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| Institution: | 1. University of Wisconsin-Milwaukee, United States;2. Louisiana State University, United States;1. Rotman School of Management, University of Toronto, Canada;2. Nankai Business School, Nankai University, China;3. School of Accounting, Dongbei University of Finance and Economics, China;1. Hong Kong University of Science and Technology, Hong Kong S.A.R., China;2. Wuhan University, China;1. Henry B. Tippie Research Chair in Accounting at the University of Iowa, 21 E. Market St., Iowa City, IA, USA;2. Assistant Professor in Accounting at the Colorado State University, 501 W. Laurel St., Fort Collins, CO, USA;1. International University of Monaco, OMNES Education, 14, rue Hubert Clerissi, 98000 Monaco, Monaco;2. Department of Economics, Management, Institutions (DEMI), University of Naples “Federico II”, Monte S. Angelo University Campus, Naples (Italy);1. School of Management and Economics, CUHK Business School, The Chinese University of Hong Kong, Shenzhen, China;2. Department of Accountancy and Law, Hong Kong Baptist University, Hong Kong, China;3. Department of Accounting, National Chung Hsing University, Taiwan |
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| Abstract: | After a lengthy and protracted debate, the Public Company Accounting Oversight Board (PCAOB) adopted new rules requiring disclosure of the engagement partner’s name and information about other accounting firms on the new PCAOB Form AP, Auditor Reporting of Certain Audit Participants. We investigate the impact of this regulation on auditor behavior in the context of the auditor’s going concern report modification propensity. We document an increase in the propensity to issue a going concern report modification in the disclosure regime, accompanied by a corresponding increase in the Type I (‘false positives’) error rate. Thus, an unintended consequence of Rule 3211 is the potential reduction in the audit report's informativeness. Conceivably, a more significant repercussion is that going concern modifications can hasten bankruptcy for firms since financial institutions may be reluctant to lend money to firms with modified audit reports. An unjustified increase in the going concern modification rate as evinced in our paper may make U.S. capital markets potentially less attractive to young, upstart, albeit financially-distressed, companies. |
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| Keywords: | M42 M48 |
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