Conventional wisdom suggests that audit engagement partner name disclosure benefits investors by informing them about the partners' performance. However, such public disclosure of the identity of the audit partners may also intensify competition for audit talent in the labor market. To examine the economic consequences of audit partner identification, we build a two‐period model in which an audit firm matches partners to clients. The audit partner identification broadens a partner's outside options in the labor market, making talent retention more costly. If the talent‐retention cost is substantial, audit partner identification may cause an audit firm to adjust its partners' compensation packages and mismatch the partners and clients, which may lead to lower audit quality. Overall, we identify unintended consequences of audit partner identification by examining its impact on the audit labor market, and we provide economic reasons for the mixed empirical findings.

This paper hypothesizes and finds that firms audited by city‐industry specialists have more timely disclosures of contingent losses from litigation when there is no news coverage relating to the legal case prior to management disclosures. A closer examination reveals that this result is explained by the specialist auditors’ prior experience auditing clients in the same office and industry who are involved with litigation. In our setting, disclosures of litigation‐related contingent losses, we identify two kinds of knowledge generated from experience: industry knowledge and litigation knowledge. Industry knowledge helps auditors detect and correct poor implementation of guidance for litigation loss contingency disclosures. Auditors gain litigation knowledge from auditing clients in a given office and industry with previous involvement as defendants. Thus, the two types of knowledge interact in their effects on reporting outcomes.

We develop a measure to capture an audit firm's competitive position in a local audit market based on the transaction costs of changing audit firms included in DeAngelo's (1981) multi-period audit pricing model. Our competition measure reflects the size difference between the largest audit firm in a market specified by client industry at the city level and the other audit firms operating in that market. We find that audit fees of a client decrease as this size difference increases. This result suggests that smaller audit firms charge lower audit fees because of their competitive disadvantage to the local largest firm.