Do Investors Use Audit Partner Identification? Evidence From the KPMG ‘Steal the Exam’ Scandal

41 Pages Posted: 1 Oct 2019

See all articles by Lawrence J. Abbott

Lawrence J. Abbott

University of Memphis

Russell Barber

University of Colorado Denver

William L. Buslepp

Louisiana State University, Baton Rouge - Department of Accounting

Pradeep Sapkota

University of North Texas

Date Written: September 5, 2019

Abstract

On April 11, 2017, the Securities and Exchange Commission (SEC) announced charges against KPMG LLP – arising from their participation in a scheme to misappropriate and use confidential information relating to the Public Company Accounting Oversight Board’s (PCAOB) planned inspections of KPMG. The incident was colloquially labeled the KPMG ‘steal the exam scandal.’ We use this setting to investigate if the market finds information concerning individual partner identity useful. Since KPMG withheld the names of the audit partners who were involved in the scandal, the market was unable to distinguish between rotation-induced audit partner turnover and regulatory-related, audit partner terminations. Following information economics models of non-disclosure, we predict that the market would use information about KPMG audit partner turnover as evidence of regulatory-related, audit partner terminations and impose costs on KPMG audit clients who experienced audit partner turnover. The results are consistent with our prediction as KPMG’s overall reputation was not damaged, whereas audit engagements involving audit partners that were potentially involved in the scandal were. In sum, our results suggest that the market finds audit partner identification useful and informative.

Keywords: Form AP; KPMG; PCAOB

JEL Classification: M42

Suggested Citation

Abbott, Lawrence J. and Barber, Russell and Buslepp, William L. and Sapkota, Pradeep, Do Investors Use Audit Partner Identification? Evidence From the KPMG ‘Steal the Exam’ Scandal (September 5, 2019). Available at SSRN: https://ssrn.com/abstract=3456894 or http://dx.doi.org/10.2139/ssrn.3456894

Lawrence J. Abbott

University of Memphis ( email )

Department of Accounting
Memphis, TN 38152
United States
901-678-4576 (Phone)
901-678-2685 (Fax)

Russell Barber

University of Colorado Denver ( email )

United States

William L. Buslepp (Contact Author)

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

Pradeep Sapkota

University of North Texas ( email )

College of Business Administration
P.O. Box 305219
Denton, TX 76203
United States
9405653098 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
216
Abstract Views
1,184
rank
194,662
PlumX Metrics