Do Investors Use Audit Partner Identification? Evidence From the KPMG ‘Steal the Exam’ Scandal
Abbott, L. J., W. L. Buslepp, R. Barber, and P. Sapkota. Do investors find audit partner identification useful? Evidence from the KPMG ‘steal the exam’ scandal Auditing: A Journal of Practice & Theory Forthcoming
Posted: 1 Oct 2019 Last revised: 29 Aug 2022
Date Written: September 5, 2019
Abstract
On April 11, 2017, KPMG LLP announced that six employees at the firm had participated in a scheme to misappropriate confidential information related to the Public Company Accounting Oversight Board’s planned inspections of the firm’s audits (KPMG 2017). The incident was colloquially labeled the KPMG “steal the exam” scandal. We use this setting to investigate whether and to what extent the market finds individual partner identification useful. Because KPMG withheld the names of the audit partners involved in the scandal, the market was unable to subsequently distinguish between rotation-induced audit partner turnover or regulatory-related audit partner terminations. Following information economics models of non-disclosure, we predict that the market would interpret information about KPMG audit partner turnover as evidence of regulatory-related audit partner terminations and impose costs on KPMG audit clients that experienced audit partner turnover. The results are consistent with our prediction in that only KPMG audit clients with audit partner turnover exhibited negative abnormal returns. In sum, our results suggest that the U.S. securities market finds audit partner identification useful and informative.
Keywords: Form AP; KPMG; PCAOB
JEL Classification: M42
Suggested Citation: Suggested Citation