The effect of audit opinion signature on a jury's perception of negligence

• Author: Aaron B. Wilson,David M. Stott,Michael Chapman
• DOI: http://doi.org/10.1111/ijau.12143
• Date: 01 March 2019
• Published date: 01 March 2019

ORIGINAL ARTICLE

The effect of audit opinion signature on a jury's perception of

negligence

Aaron B. Wilson |Michael Chapman |David M. Stott

School of Accountancy, Ohio University,

Athens, OH, USA

Correspondence

Aaron B. Wilson, School of Accountancy, Ohio

University, Athens, OH, 45701, USA.

Email: wilsona5@ohio.edu

New regulation by the Public Company Accounting Oversight Board (PCOAB) and the

International Auditing & Assurance Standards Board (IAASB) regarding changes to the

way audit opinions are signed has resulted in very different outcomes. The PCAOB

requires audit firms to report the audit partner's name on Form AP, which is available

on the PCAOB website. The IAASB, on the other hand, requires mandatory disclosure

of the audit partner on the audit opinion. Opponents argued that requiring partner

signature would increase liability. Based on a scenario depicting fraudulent activity,

assessed jury negligence is higher when the partner signs their name to the audit

opinion than when they sign their firm's name when measuring both partner and firm

negligence. Firm size was assessed but found to be insignificant. Finally, we examined

the effect of psychological contract violation theory in relation to the audit opinion

signature method, with results suggesting the relationship between signature method

and perceived auditor negligence is mediated by trust.

KEYWORDS

audit opinion signature, firm size, IAASB ISA‐700, juryperception, monetary penalty, negligence,

PCAOB Release No. 2015–008, PCOAB Form‐AP

1|INTRODUCTION

The International Auditing and Assurance Standards Board (IAASB)

adopted a new regulation requiring the disclosure of the audit partner

responsible for issuing an audit opinion on financial statements for

periods ending on or after December 15, 2016. This new standard,

ISA 700 (revised), requires that the name of the engagement partner

be included in the auditor's report.

In the USA, The Public Company Accounting Oversight Board

(PCAOB) addressed this issue by implementing a new regulation that

requires firms to report the audit partner name on Form AP (PCAOB,

2015). Completed Forms AP are available in a searchable database

located on the PCAOB website. This regulation also states that any

disclosure of the audit partner name on the audit opinion itself is

entirely voluntary. By implementing this new regulation, the PCAOB

has been able to address some of the firms' concerns regarding the

issue of audit opinion signature while still increasing transparency.

The PCOAB's call for comments in 2011 regarding its proposal to

require the disclosure of the audit engagement partner's identity has

been met with comments from both the profession and the academic

community (KPMG, 2012; PricewaterhouseCoopers [PwC] LLP, 2012;

Ernst & Young, 2012; Carcello & Santore, 2015). The academic

research has focused almost exclusively on the impact such a require-

ment would have on overall audit quality (Blay, Notbohm, Schelleman,

& Valencia, 2014; Carcello & Li, 2013; Carcello & Santore, 2015; King,

Davis, & Mintchik, 2012). However, comment letters from the profes-

sion suggested that audit firms were concerned about the impact on

legal liability of such a requirement due to the potential public misun-

derstanding related to the respective roles of the firm and the engage-

ment partner.

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As a result, firms cited partner unease, related to

increased personal exposure to private litigation, as a significant con-

cern with this proposed requirement (Ernst & Young, 2009; KPMG,

2012; PwC LLP, 2012). The PCAOB also identified the profession's

concern of increased legal liability as one of the reasons mandatory

disclosure of the audit partner's name on the opinion is not required

(PCOAB, 2015). In addition to this new PCAOB requirement, the

IAASB's implementation of ISB‐700 is also now in effect resulting in

two distinct approaches to addressing the audit opinion signature.

Received: 25 January 2018 Revised: 31 July 2018 Accepted: 27 August 2018

DOI: 10.1111/ijau.12143

Int J Audit. 2019;23:45–56. © 2018 John Wiley & Sons Ltdwileyonlinelibrary.com/journal/ijau 45