The Effect of U.S. Audit Partner Identification on Real Earnings Management

Posted: 14 Sep 2019

See all articles by Lawrence Abbott

Lawrence Abbott

University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business

William L. Buslepp

Louisiana State University, Baton Rouge - Department of Accounting

Katherine Gunny

University of Colorado at Denver

Aaron Mandell

University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business

Date Written: September 5, 2019

Abstract

After a lengthy and protracted debate, the Public Company Accounting Oversight Board (PCAOB) adopted Rule 3211 (commonly referred to as “Form AP”) and related amendments to its auditing standards regarding the identification of audit engagement partner and other accounting firms who take part in a public company audit (PCAOB 2015). The rules require 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. The PCAOB argued that disclosing audit partner identity would create greater accountability among audit partners, thereby increasing audit quality. Public accounting firms, most notably Big Four audit firms, voiced their dissent to the regulation, expressing doubt about incremental accountability and citing concerns about incremental, partner-specific legal liability. Extant, outcome-based, archival research using accruals as a proxy for audit quality to examine the effect of Rule 3211 on audit quality has produced decidedly mixed evidence. Our paper examines this issue from a different perspective. We examine whether Rule 3211 engendered differential audit partner accruals-based audit behavior, which would, in turn, impact client real earnings management. We find that real earnings management increased in the post-3211 regulatory environment. Our evidence speaks to the effects and unintended consequences of Rule 3211.

Keywords: audit partner identification, auditor reporting, real earnings management

JEL Classification: M41, M42, M48

Suggested Citation

Abbott, Lawrence and Buslepp, William L. and Gunny, Katherine and Mandell, Aaron, The Effect of U.S. Audit Partner Identification on Real Earnings Management (September 5, 2019). Available at SSRN: https://ssrn.com/abstract=3448800 or http://dx.doi.org/10.2139/ssrn.3448800

Lawrence Abbott (Contact Author)

University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business ( email )

P.O. Box 742
3202 N. Maryland Ave.
Milwaukee, WI 53201-0742
United States

William L. Buslepp

Louisiana State University, Baton Rouge - Department of Accounting ( email )

E.J. Ourso College of Business Administration
2800 Business Education Complex
Baton Rouge, LA 70803
United States

Katherine Gunny

University of Colorado at Denver ( email )

Box 173364
1250 14th Street
Denver, CO 80217
United States

Aaron Mandell

University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business ( email )

P.O. Box 742
3202 N. Maryland Ave.
Milwaukee, WI 53201-0742
United States

HOME PAGE: http://uwm.edu

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
997
PlumX Metrics