Working Paper: Does Information on Audit Participants Explain Audit Quality of U.S. Multinational Corporations?

Paper Authors: Denise H. Downey and Jean C. Bedard

Abstract: The Public Company Accounting Oversight Board (PCAOB) recently adopted regulations increasing transparency of audits through disclosure of multiple participating firms and identities of lead engagement partners (LEPs). We use PCAOB data on U.S. global network firm multinational engagements prior to these disclosures to investigate audit quality, effort and pricing differences associated with foreign auditor participation and LEP portfolio characteristics. For foreign auditors, results show lower audit quality across multiple proxies; greater engagement hours imply this is not due to lower effort. Of LEP characteristics, client importance to the partner or office has the greatest impact, while some tests support improved audit quality around partner transitions. However, supplemental analysis shows LEP characteristics impact restatements only for domestically staffed engagements; restatements remain high across foreign auditor engagements. We contribute to the literature by studying audit quality effects of audit participants, prior to changes in firm or individual behavior following Form AP disclosures.

To inquire about this paper, please email [email protected].

Disclaimer

The economic research fellows and staff economists generate high-quality working papers that inform the oversight activities of the PCAOB and are disseminated to stimulate discussion and critical comment to the benefit of the public. Working papers are preliminary materials that have not been approved by the Board and reflect only the views of the author(s).

The research topics of economic research fellows, including a description of any nonpublic data sets required for research, are presented to the Board for approval and research papers are reviewed to confirm that the topic of the paper is consistent with the researcher's proposal. That review does not, however, encompass an evaluation of the conclusions reached by researchers.