The Effect of an Auditor Identity Disclosure Requirement on Audit Quality: An Experimental Examination Incorporating the Incremental Effect of a Signature Requirement

After considering a proposal to require the engagement partner’s signature on the audit report (PCAOB 2009), the Public Company Accounting Oversight Board chose instead to only require the disclosure of the engagement partner’s name (PCAOB 2015). This choice was made, however, with little supporting theory or empirical evidence. We make predictions regarding the behavioral effects of the two proposed requirements using insights from social norm activation theory, and test those predictions using an experimental audit market setting found in the literature. We find that both requirements reduce misreporting in the audit report compared to a control setting with neither requirement present. Using a multivariate regression analysis, we also document that the signature requirement generates an incremental reduction in misreporting when added to the disclosure requirement. Finally, we provide evidence that the effects we document are driven by participants with higher sensitivity to social norms as measured by a pre-experiment personality questionnaire. This evidence supports our social norm theory and suggests that policymakers should consider such theory in future policy deliberations. This evidence also supports the new identity disclosure requirement at the PCAOB and helps explain the existence of signature requirements in many non-U.S. countries.