Audit Partner Identification, Assignment, and the Labor Market for Audit Talent

70 Pages Posted: 21 Aug 2019 Last revised: 20 Jun 2022

See all articles by Mingcherng Deng

Mingcherng Deng

City University of New York (CUNY) - Baruch College

Eunhee Kim

Baruch College, CUNY

Minlei Ye

University of Toronto

Date Written: June 17, 2022

Abstract

Conventional wisdom suggests that audit partner name disclosure benefits investors by informing them about engagement partners’ performance. However, such public disclosure of the identity of the audit partners may also intensify competition for audit talent in the labor market. To examine the economic consequences of audit partner identification, we build a two-period model in which an audit firm matches partners to clients. The audit partner identification broadens a partner’s outside options in the labor market, making talent retention more costly. If the talent-retention cost is substantial, audit partner identification may cause an audit firm to adjust its partners’ compensation packages and mismatch the partners and clients, and may lead to lower audit quality. Overall, we identify unintended consequences of audit partner identification by examining its impact on the audit labor market and provide economic reasons for the mixed empirical findings.

Keywords: audit partner identification, client-partner matching, partner compensation, audit quality, audit labor markets

JEL Classification: M42, M48

Suggested Citation

Deng, Mingcherng and Kim, Eunhee and Ye, Minlei, Audit Partner Identification, Assignment, and the Labor Market for Audit Talent (June 17, 2022). Baruch College Zicklin School of Business Research Paper No. 2019-08-03, Available at SSRN: https://ssrn.com/abstract=3438826 or http://dx.doi.org/10.2139/ssrn.3438826

Mingcherng Deng

City University of New York (CUNY) - Baruch College ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

Eunhee Kim (Contact Author)

Baruch College, CUNY ( email )

55 Lexington Avenue
New York, NY 10010
United States

Minlei Ye

University of Toronto ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

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