The Public Company Accounting Oversight Board began requiring firms last year to disclose the names of engagement partners who participated in audits, but a new academic study questions whether the new requirement will actually benefit investors.

The study, which appears in the spring issue of Behavioral Research in Accounting, a journal published by the American Accounting Association, tested the impact of the new requirements on 157 experienced investors and found the information had a bigger impact than predicted on investment decisions. The disclosure “may have a greater impact on investor decisions than would be warranted or than what regulators would have anticipated or intended,” said Tamara A. Lambert of Lehigh University, who co-authored the study with Benjamin L. Luippold of Babson College and Chad M. Stefaniak of the University of South Carolina.

The researchers found that audit partner disclosure leads to a shift of approximately 17 percent in the participants’ investment decisions, indicating that irrational factors could be at play. The professors looked at an investment phenomenon known as contagion, in which a negative event at a company reduces an investor’s assessment of the company and of other companies that share features in common with it. Social psychology research “finds that individuals’ judgments related to people are more extreme, more hastily and confidently formed, and more easily recalled than those made of groups,” said the study.

The participants read information about five fictitious, publicly traded technology companies, which they were asked to consider for long-term investments. The basic information about the companies was that they were all in the same industry, located in the same part of the country, and had received an unqualified audit opinion from two Big Four accounting firms operating in the same city. The investors also received five key performance metrics about the tech companies: ratio of assets to liabilities, days’ sales of inventories, return on assets, profit margin and market share.

Approximately 77 percent of the participants who knew the identity of the companies’ auditing firms but not of the engagement partners chose to invest in one company whose performance metrics the study’s authors described as “markedly better than [those of] the other four firms.” Among those who also knew the identity of engagement partners, only about 63 percent chose that same company. The decline of 14 percentage points suggested a contagion effect that was more than 17 percent larger than that caused by audit firm identification alone.

“Our results suggest that audit partner identity disclosure results in partner-based contagion above and beyond any effect due to shared industry and shared firm,” the study found.

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