What’s in a Name? The Impact of U.S. Audit Partner Identification on Going Concern Audit Report Modifications
38 Pages Posted: 8 Feb 2018 Last revised: 18 Feb 2018
Date Written: January 30, 2018
After a lengthy and protracted debate, the Public Company Accounting Oversight Board (PCAOB) adopted new rules and related amendments to its auditing standards regarding the engagement partner and other accounting firms that took part in the audit (PCAOB 2015). The rules require disclosure of the engagement partner’s name and information about other accounting firms on new PCAOB Form AP, Auditor Reporting of Certain Audit Participants ("Form AP"). We investigate the impact of this regulation on audit behavior in the context of the auditor’s Going Concern Modification propensity. Consistent with the PCAOB’s motivation of enhancing audit partner-specific reputation, we document a reduction in the propensity to issue a going concern modification in the disclosure regime. Our results are sensitive to auditor type. Specifically, only Big 4 auditors exhibit a reduction in the going modification rate. Our evidence suggests reporting rates are more consistent with historical rates. The implication is going concern opinions may now reflect a more accurate, although less conservative, propensity to modify an audit report.
Keywords: Audit partner identification; Auditor Reporting, Going Concern Opinion
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