Do PCAOB inspection reports influence corporate executives' perceptions of audit quality?

What is it about?

We investigate the effects of inspection reports, which consistently disseminate negative information in the form of audit deficiencies (and in some cases quality control criticisms), on perceived audit quality and potential auditor switching. We find that PCAOB inspection reports generally decrease perceived audit quality, regardless of response pattern, which in turn generally is associated with an increased likelihood that executives will consider switching auditors.

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Why is it important?

We offer implications for audit policy including the possibility that, while PCAOB inspections could be improving actual audit quality, the reports could be imposing costs by reducing perceived audit quality and, in turn, increasing the likelihood of auditor changes.