Does PCAOB Inspection Access Improve Audit Quality? An Examination of Foreign Firms Listed in the United States

55 Pages Posted: 2 Apr 2013 Last revised: 4 Nov 2015

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2015

Abstract

To gain insight into the impact of the Public Company Accounting Oversight Board’s (PCAOB) auditor inspection program, I examine the association between the PCAOB’s access to inspect auditors of foreign SEC registrants and audit quality. Although the PCAOB is mandated to inspect all auditors of SEC registrants, certain foreign governments prohibit PCAOB inspections of their domestic auditors, providing variation in PCAOB inspection access that is not available when studying a US sample of companies. I find that auditors subject to PCAOB inspection access provide higher quality audits as measured by more going concern opinions, more reported material weaknesses, and less earnings management, relative to auditors not subject to PCAOB inspection. There is no observable difference between the two sets of auditors prior to the PCAOB inspection regime. The positive effect of PCAOB inspection access on audit quality is observed in jurisdictions with, and without, a local audit regulator. Overall, the results are consistent with PCAOB inspection access being positively associated with audit quality.

Keywords: PCAOB, audit regulation, audit quality, going concern, internal control weakness

JEL Classification: G18, L51, M49

Suggested Citation

Lamoreaux, Phillip T., Does PCAOB Inspection Access Improve Audit Quality? An Examination of Foreign Firms Listed in the United States (November 1, 2015). Available at SSRN: https://ssrn.com/abstract=2238168 or http://dx.doi.org/10.2139/ssrn.2238168

Phillip T. Lamoreaux (Contact Author)

Arizona State University ( email )

Tempe, AZ 85287
United States

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