JANUARY 2015 / THE CPA JOURNAL44 By Jason Bergner and Ling Lin On December 4, 2013, the PCAOBconducted an open meeting toreconsider its proposal to require the disclosure of the engagement partner (and certain other participants) in the audit report, as part of its efforts to improve transparency. The PCAOB is carefully con- sidering the likely costs and benefits of this requirement before making a final decision (http://pcaobus.org/News/Speech/Pages/120 42013_Harris_Transparency.aspx). The authors present arguments for and against requiring audit partner disclosure and sum- marize the current practice and empirical findings in foreign jurisdictions, such as the EU and China. While the debate for the past five years has been an argument about the possible costs and benefits of a signature or disclosure requirement, the authors believe that the movement of the international community toward adopting common standards may eventually warrant a similar U.S. approach. Debating the Issue The signature/disclosure requirement has been an issue for almost a decade, first appearing on the PCAOB’s agenda in 2005 (Tammy Whitehouse, “Divided PCAOB Presses for Names in Audit Report,” December 4, 2013, Compliance Week, http://www.complianceweek.com/divided- pcaob-presses-for-names-in-audit-report/arti- cle/323604/). The current proposal to disclose of the engagement partner in the audit report stemmed, at least in part, from the 2008 Final Report of the Advisory Committee on the Auditing Profession (ACAP) (PCAOB Release 2011-007, “Improving the Transparency of Audits: Proposed Amendments to PCAOB Auditing Standards and Form 2,” http://pcaobus.org/ Rules/Rulemaking/ Docket029/ PCAOB_ Release_2011-007 .pdf). That report con- tained seven recommendations that the ACAP believed contained “room for improvement.” These recommendations were designed to be implemented in the short term and enhance the audit profession. The sixth of these recommendations was to “urge the PCAOB to undertake a stan- dard-setting initiative to consider mandating the engagement partner’s signature on the auditor’s report” in order to increase trans- parency and accountability (Department of the Treasury, 2008, http:// www.treasury .gov/ about/ organizational-structure/ offices/ Documents/ final -report .pdf). Accordingly, the PCAOB issued a concept release in July 2009 that would have required the lead engagement partner’s signature and the disclosure of other participants. This Disclosure of the Engagement Partner in the Audit Report An International Perspective on the PCAOB Proposal A C C O U N T I N G & A U D I T I N G s t a n d a r d s s e t t i n g original concept release resulted in 23 com- ment letters (Comment Letters for Docket 029, http://pcaobus.org/Rules/Rulemaking/Pages/ Docket029Comments.aspx). Respondents in favor of the release cited the following reasons: n Increased transparency will lead to increased accountability, which will in turn lead to higher ...

1. JANUARY 2015 / THE CPA JOURNAL44
By Jason Bergner and Ling Lin
On December 4, 2013, the PCAOBconducted an open meeting
toreconsider its proposal to require
the disclosure of the engagement partner
(and certain other participants) in the
audit report, as part of its efforts to improve
transparency. The PCAOB is carefully con-
sidering the likely costs and benefits of this
requirement before making a final decision
(http://pcaobus.org/News/Speech/Pages/120
42013_Harris_Transparency.aspx). The
authors present arguments for and against
requiring audit partner disclosure and sum-
marize the current practice and empirical
findings in foreign jurisdictions, such as
the EU and China. While the debate for
the past five years has been an argument
about the possible costs and benefits of a
signature or disclosure requirement, the
authors believe that the movement of the
international community toward adopting
common standards may eventually warrant
a similar U.S. approach.
Debating the Issue
The signature/disclosure requirement
has been an issue for almost a decade, first
appearing on the PCAOB’s agenda in 2005

2. (Tammy Whitehouse, “Divided PCAOB
Presses for Names in Audit Report,”
December 4, 2013, Compliance Week,
http://www.complianceweek.com/divided-
pcaob-presses-for-names-in-audit-report/arti-
cle/323604/). The current proposal to
disclose of the engagement partner in the
audit report stemmed, at least in part, from
the 2008 Final Report of the Advisory
Committee on the Auditing Profession
(ACAP) (PCAOB Release 2011-007,
“Improving the Transparency of Audits:
Proposed Amendments to PCAOB Auditing
Standards and Form 2,” http://pcaobus.org/
Rules/Rulemaking/ Docket029/ PCAOB_
Release_2011-007 .pdf). That report con-
tained seven recommendations that the
ACAP believed contained “room for
improvement.” These recommendations
were designed to be implemented in the
short term and enhance the audit profession.
The sixth of these recommendations was
to “urge the PCAOB to undertake a stan-
dard-setting initiative to consider mandating
the engagement partner’s signature on the
auditor’s report” in order to increase trans-
parency and accountability (Department of
the Treasury, 2008, http:// www.treasury .gov/
about/ organizational-structure/ offices/
Documents/ final -report .pdf).
Accordingly, the PCAOB issued a concept
release in July 2009 that would have required
the lead engagement partner’s signature and

3. the disclosure of other participants. This
Disclosure of the Engagement Partner
in the Audit Report
An International Perspective on the PCAOB Proposal
A C C O U N T I N G & A U D I T I N G
s t a n d a r d s s e t t i n g
original concept release resulted in 23 com-
ment letters (Comment Letters for Docket 029,
http://pcaobus.org/Rules/Rulemaking/Pages/
Docket029Comments.aspx). Respondents
in favor of the release cited the following
reasons:
n Increased transparency will lead to
increased accountability, which will in turn
lead to higher audit quality.
n It is common for executives to sign
their names when acting on behalf of the
entity (financing, purchasing, filing tax
reports).
n Interested parties can correspond
directly with the signatory regarding par-
ticular auditing questions, and track any
relationship between signing partner and
audit quality.
n There is no justification for anonymity.
Respondents opposed to the release cited
the following reasons:
n The audit partner already has to sign off
on files for reports to be issued and

4. understands the strict sense of duty and the
associated liability.
n The existing accountability to the firm,
SEC, and PCAOB is sufficient; the signa-
ture requirement would not add incre-
mental accountability.
n The report is issued on the authority of
the firm and not the individual; thus, the
standard would mislead users into think-
ing that the partner has the sole authority
to issue the report.
n There is the potential for increased lia-
bility to the partners.
Some recent academic research supports
the idea of the signature requirement
leading to greater audit quality in the
United Kingdom (J. Carcello and C. Li,
“Costs and Benefits of Requiring an
Engagement Partner Signature: Recent
Experience in the United Kingdom,”
Accounting Review, vol. 88, pp. 1511: 46,
2013), arguing that increased accountabil-
ity theoretically should result in more
conservative audit reports (J. Carcello and
R. Santore, “Engagement Partner Signature
Regulation: A Theoretical Analysis,” work-
ing paper, University of Tennessee, 2010),
and that auditors exhibit greater effort in
an experiment where accountability is
greater (T. DeZoort, P. Harrison, and M.
Taylor, “Accountability and Auditors’
Materiality Judgments: The Effects of
Differential Pressure S tr ength on
Conservatism, Variability, and Effort,”

5. Accounting, Organizations, & Society, vol.
31, pp. 371–390, 2006).
Opponents, such as Ernst and Young
(PCAOB 2013c) and KPMG (PCAOB
2013c), argued that audit partners (and their
firms) are already accountable to a num-
ber of bodies, including the rest of the firm,
the PCAOB, and the SEC. Furthermore,
opponents argued that requiring the part-
ner’s public disclosure could have unin-
tended negative consequences for the audit
partner and mislead the public about the
ultimate responsibility for the audit.
Following the receipt of the comment let-
ters, the PCAOB took no further action;
instead, it issued a proposal in 2011 that
would have required the disclosure of the
engagement partner’s name without requir-
ing a signature (PCAOB Release 2011-
007). Of the 43 comment letters received,
the arguments mirrored those of the 2009
concept release. Proponents often cited
increased transparency and accountability,
while opponents often cited accountability
measures already in place. The PCAOB re-
proposed the disclosure requirement in
2013, and stated that it believes that dis-
closing an audit partner’s name, and not
signature, would provide most of the same
potential benefits while mitigating person-
al liability concerns (Release 2013-009,
“Improving the Transparency of Audits:
P r opos ed A me ndme nts to PC AOB
Auditing Standards to Provide Disclosure

6. in the Auditor’s Report of Certain
P ar ticipants in the Audit,” h t t p : / /
p c a o b u s . o r g / R u l e s / R u l e m a k i n g /
D o c k e t 0 2 9 / P C A O B % 2 0 R e l e a s e
%20No%20%20 2013-009%20-%20
Transparency .pdf). It received another 67
comment letters in which proponents and
opponents argued along the same lines of
reasoning as the earlier proposals.
The International Scene
The European Parliament passed the
Eighth Directive on Statutory Audits in
2006, which requires that engagement
partners sign their names on audit reports.
The member states of the European Union
were required to adopt this standard by
2008, and they now follow the 2006 Statutory
Audit Directive, instead of International
Standard on Auditing (ISA) 700 (see Standing
Advisory Group Meeting, Panel Discussion—
Signing the Auditor’s Report, 2008,
http://pcaobus.org/News/Events/Documents
/10222008_SAGMeeting/BP_Signing_Audit
or_Report.pdf). Outside of the EU, Australia
and China also require the auditor to sign
the audit report. Although the experience of
these countries cannot be a perfect predic-
tor of what would happen in the United
States, they can offer insights into the poten-
tial effects of the PCAOB’s proposal.
In Sweden, researchers have studied
investor reaction to the disclosure of spe-

7. c ific pa rtne rs (W .R . Kne c he l, A.
Vanstraelen, and M. Zerni, “Does the
Identity of Engagement Partners Matter?
An Analysis of Audit Partner Reporting
Decisions,” working paper, University of
Florida, 2013). The researchers examined
audits of different companies across indus-
tries that were headed by the same part-
ners. They found that the pattern of audit
reporting, whether aggressive or conserva-
tive, persisted over time and extended to
other clients of the same partner. Their
results show that not only do investors look
for patterns of named audit partners as
being primarily aggressive or conservative,
but also these investors penalize the clients
of firms with aggressive audit partners.
As a result, these companies face higher
borrowing costs than companies with
conservative auditors.
In China, it also appears the individu-
al partner disclosure has an effect.
Researchers there have found that the
45JANUARY 2015 / THE CPA JOURNAL
The fear of a criminal
wrong being committed
by an uninformed
taxpayer shapes a

8. reaction to cooperate
with the scammer.
effects that individual auditors have on
audit quality are statistically and eco-
nomically significant (F. Gul, D. Wu, and
Z. Yang, “Do Individual A uditor s
Affect Audit Quality? Evidence from
Archival Data,” Accounting Review, vol.
88, pp. 1993–2023). They investigated
approximately 800 individual auditors
in China and found that auditors exhib-
ited significant variability in audit quali-
ty, distinct from effects at the firm level,
office level, or client side; this was found
with respect to both small and large audit
firms. Furthermore, they found that the
variation in quality could only partially
be explained by educational level, expe-
rience with a large firm, or other such
factors. Their empirical test results lend
support to the disclosure of the partner’s
name to the market.
While these two international studies
offer interesting results, it is important
to note the uniqueness and limitations of
the studies. The Chinese study used sev-
eral proxies for audit quality, while the
Swedish study focused on the context of
the issuance of a going concern opinion.
The use of a going concern opinion
(employed by both studies) may not be

9. representative of the greater concern
about audit quality. In fact, the PCAOB
has noted that they are more concerned
about subtle ways in which auditor objec-
tivity is compromised (Transcript of pub-
lic meeting on auditor independence and
audit firm rotation, http://pcaobus.org/
Rules/Rulemaking/Docket037/2012-
3-21_Transcript-Notice.pdf.). These stud-
ies are based outside the United States
and may not be representative of the con-
sequences of adopting partner disclosure
in this jurisdiction. As more countries
adopt the partner disclosure standard (or
some variant thereof) over time, the
amount of data available for study will
increase. Future studies may be able to
use more subtle measures of audit qual-
ity in markets that share more character-
istics with the U.S. market.
Despite their limitations, disclosure
advocates advance these international
r e s u l t s i n t h e i r a r g u m e n t s f o r t h e
PCAOB’s proposal. PCAOB Chairman
James R. Doty, for instance, said that the
capital markets know that not all audit
quality is identical, and they are willing
to pay more for reliable audits, in the
form of reduced financing costs for com-
panies of which audit reports are more
reliable (Statement on the reproposal,
2013, http://pcaobus.org/ News/ Speech/
Pages/ 12042013_Doty_ Transparency
.aspx). Doty’s views, however, should not

10. be taken to represent all of the board’s
members.
For example, Jay Hanson, also a board
member, has “strong reservations about the
proposal,” stating “that my concerns about
this aspect of the reproposal are significant,
because, based on what we know, I believe
the potential costs associated with requir-
ing this disclosure in the audit report may
f a r o u t w e i g h t h e m o r e l i m i t e d
benefits” (Statement on the reproposal,
http://pcaobus.org/News/Speech/Pages/120
42013_Hanson_Transparency.aspx, 2013).
Hanson has called into question the
potential associated costs of implement-
ing the partner disclosure standard. He and
others are concerned about increased
costs for firms under the proposed require-
ment, with specific mention of potential
increased personal liability and unneces-
sary audit procedures performed as part
of “defensive audits” (Comment letters for
Docket 029).
The Costs of Enhancing Audit Quality
Even those who protest against the pro-
posal state their support of more transpar-
ent audits and higher audit quality. The
debate about the current proposal boils
down to two questions: 1) Would the pro-
posal enhance audit quality? and 2) Would
the increased costs (assuming there are any)
justify the requirement?

11. The benefit of the disclosure requirement
rests primarily on increased accountability.
At its core, it is a social instrument aimed
at mitigating unconscious biases. When a
decision maker’s identity is undisclosed to
viewers of the information (i.e., financial
statement users), the decisions being made
may be biased toward those with whom the
decision maker has strong social ties.
Requiring the lead engagement partner’s
name to appear on the publicly disclosed
audit report would identify that partner,
and identifiability has been shown in social
psychology experiments to mitigate uncon-
scious biases (M. Dobbs and W.D. Crano,
“Outgroup Accountability in the Minimal
Group Paradigm: Implications for Aversive
Discrimination and Social Identity Theory,”
Personality and Social Psychology Bulletin,
vol. 27, pp. 355–364, 2001).
Although this proposal describes
accountability in a general sense, it is
really aimed at identifiability, which is one
of four subtypes of accountability (P. E.
Tetlock, “Accountability and Complexity
of Thought,” Journal of Personality and
Social Psychology, vol. 45, pp. 74–83,
1983). As its name would suggest, identi-
fiability is aimed at making the decision
maker identifiable to others (i.e., financial
statement users). The theory suggests that
people will make decisions in a more unbi-
ased (i.e., independent) manner when
they know in advance that they will be

12. identifiable to others.
While the psychology research shows
that identifiability decreases bias, the
weakness of these studies is that they are
performed in a vacuum; that is, no other
accountability measures exist. In the
audit context, however, there are already
many other accountability measures in
place. Thus, the argument is whether the
partner disclosure requirement will add
any incremental benefit to measures
already in place. Despite the accountabil-
ity already provided through a firm’s
system of quality control, there are dif-
ferences in terms of audit quality at the
office level (J. Francis, “What Do We
Know about Audit Quality?,” British
Accounting Review vol. 36, pp. 345–368,
2004). The logic that follows suggests that
there might also be differences at the part-
ner level.
Because users already know the office
that signs off on the financial statements,
there might be little more to be learned by
pushing down to the individual partner
level. The research cited in non-U.S. coun-
tries from earlier in the article suggests that
going down to the individual auditor level
would bring incremental benefits. The
authors believe that, as the history of an
engagement partner develops, financial
statement users will learn more about the
audit experience, industry specialty, and
eventually the reputation of each engage-

13. ment partner. They will incorporate this
information when judging audit quality
and react to patterns of aggressiveness and
conservatism accordingly. In the long run,
the authors believe that the disclosure of
an engagement partner’s name will bene-
fit financial statement users at large.
JANUARY 2015 / THE CPA JOURNAL46
However, such benefits come with
costs. Tying engagement partners’ repu-
tations to the audits they oversee would
encourage them to require more evidence
to support the audit opinion. Therefore,
audit fees will likely increase due to
longer hours spent by the audit team.
Furthermore, the accounting profession,
including all of the Big Four, voiced their
concerns that litigation against the
engagement partner would be encouraged
by the disclosure requirement (Comment
Letters for Docket 029). If their concerns
were to be found accurate, highly qual-
ified individuals might become reluc-
tant to take on the role of engagement
partner in the absence of increased
compensation. As a consequence, audit
fees would likely increase.
What may ultimately move the dis-
closure requirement from proposal to real-
ity is not a clear resolution of the
cost-benefit argument, but rather con-

14. vergence with international standards. The
International Auditing and Assurance
Standards Board has released a proposal
requiring the disclosure of the engage-
ment partner’s name. If adopted, it would
align the requirements for the interna-
tional community to require disclosure
with those of the EU, China, and others;
this could move the United States toward
adoption of such a standard. As PCAOB
Board member Lewis H. Ferguson noted,
“If that is adopted, as it is likely to be,
that will become binding on the many
countries around the world that will fol-
low those standards. If we don't move in
this way, the United States will be an out-
lier. I don't think we should be an outli-
er on an issue like this” (Oral statement
on the reproposal, http:// pcaobus.org/
N e w s / S p e e c h / P a g e s / 1 2 0 4 2 0 1 3 _
Ferguson_oral.aspx, 2013). q
Jason Bergner, PhD, is an assistant
professor in the college of business at
the University of Nevada, Reno. Ling
Lin, DBA, is an assistant professor
of accounting in the department of
accounting and finance at the Charlton
College of Business, University of
M a s s a c h u s e t t s D a r t m o u t h , N o r t h
Dartmouth, Mass. The authors would
like to thank Krishnagopal Menon, edi-
tor, for his helpful comments.
47JANUARY 2015 / THE CPA JOURNAL

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