Negative PCAOB Inspections of Triennially Inspected Auditors and Involuntary and Voluntary Client Losses

Daugherty, Brian; Dickins, Denise; Tervo, Wayne

doi:10.1111/j.1099-1123.2011.00432.x

Cited by 56 publications

(50 citation statements)

References 19 publications

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“…The underlying assumption of studies using the frequency of going-concern opinions being indicative of audit quality DeFond & Lennox, 2011;) is that that low-quality audit firms are more likely to yield to the pressure of their client, and therefore issue fewer going-concern opinions. 8 The result was supported by Daugherty et al (2011), who found that deficiency reports caused involuntary and voluntary client losses. The figures show that low-quality audit firms voluntarily resigned from their clients because the costs associated with regulatory compliance outweighed the benefits of auditing publicly traded companies.…”

Section: Effect Of Pcaob Inspections On Audit Qualitysupporting

confidence: 72%

“…However, the findings of several other studies show that PCAOB outcomes are recognized for financial decision-making by the financial markets Daugherty et al, 2011;Offermanns & Peek, 2011;Robertson & Houston, 2010, p. 20). Daugherty et al (2011) pointed out that deficiency reports were positively associated with dismissal of audit firms by their clients.…”

Section: Recognition Of Pcaob Inspections For Decision-makingmentioning

confidence: 82%

“…Daugherty et al (2011) pointed out that deficiency reports were positively associated with dismissal of audit firms by their clients. In addition, the analysis shows that companies that dismissed audit firms with deficiencies were more likely to hire an audit firm with clean reports.…”

Section: Recognition Of Pcaob Inspections For Decision-makingmentioning

confidence: 99%

“…Research has revealed the reaction of financial markets to PCAOB reports, in particular, in two ways: firstly, empirical studies have tested whether PCAOB reports are associated with client changes Daugherty et al, 2011;Lennox & Pittman, 2010) or with a movement in the stock price of the clients (Offermanns & Peek, 2011); secondly, experimental studies have focused on the evaluations and interpretation of PCAOB by financial experts (Robertson & Houston, 2010;Robertson et al, 2014). Lennox and Pittman (2010) analyzed the association between the number of weaknesses (none, one, or many) in PCAOB reports and the changes in the number of clients.…”

Section: Recognition Of Pcaob Inspections For Decision-makingmentioning

confidence: 99%

“…Empirical studies have shed light on this question by analyzing the variability in audit fees (Francis et al, 1990;Giroux, Deis, & Bryan, 1995) and by examining the number of clients that the audit firm gained or lost (Daugherty, Dickins, & Tervo, 2011;Hilary & Lennox, 2005;Lennox & Pittman, 2010). In other studies, questionnaires and surveys (Alam, Hoffman, & Meier, 2000;File, Ward, & Gray, 1992;Schneider & Ramsay, 2000;Woodlock & Claypool, 2001), and experimental designs (Payne, 2003;Robertson & Houston, 2010;Robertson, Stefaniak, & Houston, 2014;Wainberg, Kida, Piercey, & Smith, 2013) have been used to reveal whether financial experts recognise peer review and PCAOB results as being useful for decision-making.…”

Section: Recognition Of Peer Reviews and Inspections In Decision-makingmentioning

confidence: 99%

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From peer review to PCAOB inspections: Regulating for audit quality in the U.S.

Löhlein

2016

Journal of Accounting Literature

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This study reviews the existing literature on the U.S. peer review system and the Public Company Accounting Oversight Board (PCAOB) inspection system to assess our knowledge of audit regulation. The traditional self-regulatory system of the accounting profession came to an end, in 2002, when the PCAOB was established to oversee the audit firms of publicly traded companies. This paper contributes to the controversial debate about self-regulation versus independent regulation by analyzing, categorizing, and comparing the research findings on the peer review system and the PCAOB system along three dimensions: the validity of peer reviews and PCAOB inspections, the recognition of reviews and inspections by decision-makers (e.g. investors, bankers, committees), and the effect of reviews and inspections on audit quality. Synthesizing the research on the regulatory regimes suggests that the notion of external quality control, both through peer reviews and government inspections, is positively linked with an improvement of audit quality. At the same time, the analysis indicates that external users do not seem to recognise peer review and PCAOB reports as very useful instruments for decision-making, which is in line with an identified rather skeptical perception of the audit profession on reviews and inspections. Overall, this study reveals that although the academic literature on peer review and PCAOB inspection is extensive it has not produced definitive conclusions concerning various aspects of audit regulation. This paper shows how this blurred picture is due to conflicting research findings, the dominance of the quantitative research paradigm, and unchallenged assumptions within the literature, and concludes by proposing research opportunities for the future.

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Section: Effect Of Pcaob Inspections On Audit Qualitysupporting

confidence: 72%

Section: Recognition Of Pcaob Inspections For Decision-makingmentioning

confidence: 82%

Section: Recognition Of Pcaob Inspections For Decision-makingmentioning

confidence: 99%

Section: Recognition Of Pcaob Inspections For Decision-makingmentioning

confidence: 99%

Section: Recognition Of Peer Reviews and Inspections In Decision-makingmentioning

confidence: 99%

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From peer review to PCAOB inspections: Regulating for audit quality in the U.S.

Löhlein

2016

Journal of Accounting Literature

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PCAOB inspection deficiencies and audit fees

Alam,

Cheng,

Rickett

et al. 2023

J Corp Accounting Finance

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This study aims to extend research on the effect of PCAOB inspections on audit firm behavior by examining generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAAP) type PCAOB inspection deficiencies, separately, to reveal the differential effects on audit fees in subsequent years. We empirically examine the audit fees of 98,393 client firm‐year observations for auditors who received a PCAOB inspection report during 2004–2021 via multivariate regression analyses. We find that GAAS (GAAP) deficiencies are associated with higher (lower) audit fees in the years following the reported deficiency. Our results suggest that the PCAOB inspection process modifies audit firm behavior when GAAS deficiencies are reported leading to the firm charging higher audit fees to defray the costs of addressing the deficiencies, but due to the severity of GAAP deficiencies that are identified, audit firms are willing to negotiate lower fees to retain the client. Our results are primarily driven by annually inspected audit firms. These results suggest that auditors respond to GAAS and GAAP PCAOB inspection deficiencies differently. The results of our study are useful to regulators and policymakers, such as the SEC and the PCAOB, in understanding how auditors respond to PCAOB inspection deficiencies and their due diligence to correct those deficiencies. PCAOB inspections are intended to evaluate compliance with accounting and auditing standards to improve audit quality and our study helps to extend the research to date which has not yet clearly demonstrated whether or not this has been accomplished.

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The Influence of Political Regime on State-Level Disciplinary Actions of CPAs Sanctioned by the PCAOB

2021

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We investigate whether enforcement is influenced by politics by comparing the severity of PCAOB sanctions of individual CPAs to the severity of related state-level disciplinary actions imposed by boards of accountancy (BOAs). Our results provide evidence that when responding to PCAOB sanctions, BOAs under Republican regimes impose less severe penalties than do BOAs under Democratic regimes. Our data and analyses inform the regulatory and enforcement practices of the accounting profession and other professions. Most directly, motivated by improvements in technology that facilitate the cross-jurisdiction practice of public accounting, states have adopted mobility laws where CPAs are only required to be licensed in their state of residence to practice in multiple states. These laws simplify licensing but may complicate enforcement. Beyond generalized red-state, blue-state differences in enforcement, we find that non-resident CPAs receive less severe disciplinary actions. If not reasonably consistent across BOAs, regulators may be unwilling to delegate responsibility for enforcement to another state's BOA.

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Negative PCAOB Inspections of Triennially Inspected Auditors and Involuntary and Voluntary Client Losses

Cited by 56 publications

References 19 publications

From peer review to PCAOB inspections: Regulating for audit quality in the U.S.

From peer review to PCAOB inspections: Regulating for audit quality in the U.S.

PCAOB inspection deficiencies and audit fees

The Influence of Political Regime on State-Level Disciplinary Actions of CPAs Sanctioned by the PCAOB

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