What is it about?
The Public Company Accounting Oversight Board (PCAOB) inspections companies with less than 100 publicly traded clients once every three years. We speculate that PCAOB inspectors will select more recent audit engagements to inspect, as these engagements provide a more current assessment of an auditor’s performance. Consistent with this theory, we find the auditors become more conservative when they expect that the PCAOB will be inspecting their work and this leads to changes in audit quality across time (i.e., higher audit quality as the PCAOB inspection approaches).
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Why is it important?
Our results suggest that the budget constraints of the PCAOB may impact regulatory effectiveness. Further, the results of our tests imply that a more randomized approach (e.g., varying the time between PCAOB inspections) could improve intertemporal audit quality among triennially inspected auditors.
Perspectives
We hope that our study may support the PCAOB’s mission to promote audit quality. Hopefully, the PCAOB can use our study to identify ways to improve the PCAOB inspection process.
William Buslepp
Louisiana State University
Read the Original
This page is a summary of: The Impact of the PCAOB Triennial Inspection Process on Inspection Year and Non-Inspection Year Audits, Auditing A Journal of Practice & Theory, January 2021, American Accounting Association,
DOI: 10.2308/ajpt-18-150.
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