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What’s in a Name? Reputation and Monitoring in the Audit Market

24 March 2017
Publication Type: Policy Brief, Working Paper
Economic Theme: Public Finance
JEL Code: L14, L51, M42

We demonstrate a tension between monitoring and reputation incentives when moving from collective reputation environments to individual reputation environments by analyzing a new rule. After January 2017, the name of the engagement partner has to be disclosed in all audit reports issued in the USA. We study the resulting change in auditor incentives and show that while the consequent higher reputation incentives can improve audit quality, partners have a lower incentive to monitor other partners when names are disclosed. This may lead to a fall in audit quality when the rule is implemented. We present several solutions to this problem.

Series title: Working paper 675
1 March 2017
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