Pcaob Inspection Reports: Quality Control and Firms’ Characteristics

Abstract

This study compared the weaknesses identified in the audit engagement performance and quality control (that have been made public by the PCAOB after a lack of progress report within 12 months by the firms) sections of the PCAOB's published reports. It also, examined the relationship between firms' characteristics (i.e. size of workforce, number of clients, number of audit offices, and number of audit engagement deficiencies) and PCAOB's report, to achieve these, 108 PCAOB Inspection reports for inspected firms were analyzed. The reports were grouped into two panels (i.e. clean reports-panel A and unresolved reports-panel B); 52 and 56 firms' reports respectively were analyzed for each group. The OLS regression results indicate that clean reports are positively and significantly associated with the size of work force, while, it is negatively associated with the number of clients, number of audit offices and number of audit engagement deficiencies. Unresolved reports increase as number of audit offices, and number of audit engagements increase, but it decreases as size of workforce and audit clients increase. We conclude that the number of audit clients is a key quality control determinant as well as the size of work force. We therefore recommend that the PCAOB should encourage firms to increase workforce because, the result of this study has shown that, the number of employees and partners impact greatly on the quality of report by audit firms.