SYNOPSIS
Transparency concerns related to global group audits led the PCAOB to introduce the Form AP, requiring the lead audit firm to disclose the participation and relative contribution of component audit firms in a group audit. As prior research suggests that investors fail to seek out Form AP information, this study leverages experimental design to explore investors’ reactions to group audit information directly provided to them, examining their likelihood to invest based on the percentage of audit work completed by a component audit firm and the lead audit firm’s decision to assume or divide responsibility. Results indicate that investors are less likely to invest when a larger portion of the audit is conducted by a component audit firm, regardless of whether the lead audit firm assumes or divides responsibility for the component firm’s work. These findings have significant implications for auditors, regulators, and investors concerning group audit transparency and disclosure practices.
