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

61 Pages Posted: 21 Aug 2019 Last revised: 13 Feb 2020

See all articles by Mingcherng Deng

Mingcherng Deng

City University of New York (CUNY) - Baruch College

Eunhee Kim

City University of Hong Kong (CityUHK)

Minlei Ye

University of Toronto - Rotman School of Management; University of Toronto at Mississauga - Department of Management

Date Written: February 11, 2020

Abstract

Conventional wisdom suggests that partner identification disclosure can improve audit quality, because it may enhance transparency and individual accountability. Building on a two-period assignment model, we show that under certain conditions, the disclosure can distort partner client assignment because the disclosure can inform the labor market for audit talent. In a decentralized assignment regime in which partners directly bid for clients, we find that the disclosure may give rise to low-balling in the first-period, because partners aggressively lower the audit fees to maximize their career advancement. In a centralized assignment regime in which an audit firm assigns partners to clients, audit firms may distort the assignment in order to dampen partners' career advancement. We also find that in the presence of mandatory partner identification, the optimal partner-client assignment regime depends on the distribution of partners' reputations within an audit firm. Overall, our findings identify unintended consequences of audit partner identification disclosure and provide economic reasons for the mixed empirical findings.

Keywords: audit partner identification, assignment, audit quality, audit fee

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 (February 11, 2020). 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)

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Minlei Ye

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

University of Toronto at Mississauga - Department of Management ( email )

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