Economic Analysis of Proposed PCAOB Standards: Finding a Path Forward

2018 ◽  
Vol 32 (2) ◽  
pp. 183-200 ◽  
Author(s):  
Christine Nolder ◽  
Zoe-Vonna Palmrose
Keyword(s):  
Economic Analysis ◽  
Audit Quality ◽  
Standard Setting ◽  
Current Approach ◽  
Relevant Research ◽  
The Public ◽  
Setting Process ◽  
Public Company ◽  
Tailored Approach ◽  
The U.S

SYNOPSIS The pace of standard-setting by the Public Company Accounting Oversight Board (PCAOB) has been glacial, which increases the risk that U.S. auditing standards are not keeping up with the global audit environment. Legislation enacted in 2012 that created the need to conduct economic analysis of proposed PCAOB standards added important considerations. If appropriately integrated into the process, these considerations can improve PCAOB standard-setting. We describe the PCAOB's current approach to economic analysis and offer recommendations to improve the coherence, usefulness, and relevance of the evidence sought to justify the need for standard-setting. Our recommendations involve a tailored approach that (1) differentiates among types of PCAOB standards based on considering their overarching purpose and target audience; (2) recognizes appropriate theories that are unique to each type of standard—whether economic or other theories; and (3) develops audit-centric core principles focused on audit quality on which to ground the discussion of each proposed standard. We hope our commentary shifts thinking about the approach to economic analysis to improve PCAOB standard-setting, stimulates academic discussion of these and other important issues facing the standard-setting process in the U.S., and inspires relevant research that informs PCAOB standard-setting.

The Development of Auditing Standards at the PCAOB and Related Audit Practitioner Input

2020 ◽  
Author(s):  
L. Tyler Williams ◽  
W. Mark Wilder
Keyword(s):  
Standard Setting ◽  
The Public ◽  
Setting Process ◽  
Public Company ◽  
Auditing Standards ◽  
Audit Standard ◽  
Comment Letters ◽  
Feedback Responses

The Public Company Accounting Oversight Board (PCAOB; Board) maintains that constituent feedback plays an essential and dynamic role in its audit standard-setting process. We examine a major source of constituent feedback, responses to standard-setting questions, using a sample drawn from the original proposals of fourteen PCAOB auditing standards. We find that after receiving comment letter feedback to the standard-setting questions, the Board revises approximately half of its guidance tied to those questions before it finalizes auditing standards-a finding consistent with the Board's assertion that it carefully considers constituent perspectives as it develops new regulation. We also explore the related comment letters of eight professional auditing firms subject to the PCAOB's annual inspection program and discover varying levels of opposition to and support for the PCAOB's proposed authoritative guidance. We observe PCAOB revision to authoritative guidance highly contested by the firms in more than three-fourths of cases of standard-setting questions and PCAOB non-revision to guidance highly supported by the firms in more than ninety percent of cases.

Acid-Causing Emission Standards in Alberta: The Standard-Setting Process, Enforcement and Forums

1985 ◽  
Vol 23 (1) ◽  
pp. 1
Author(s):  
Shelley N. Phillips ◽  
Gale L. Pretash
Keyword(s):  
Standard Setting ◽  
The Public ◽  
Public Input ◽  
Emission Standards ◽  
Setting Process ◽  
Scientific Analysis

The implementation and enforcement of standards regulating acid-causing emissions in Alberta are examined in this paper. Also addressed are the available forums for public input, the need for further scientific analysis and better communication between government, industry and the public.

scholarly journals Is The Pcaob a “Heavily Controlled Component” Of The Sec?: An Essential Question In The Constitutional Controversy

2009 ◽  
Vol 71 (3) ◽  
Author(s):  
Donna M. Nagy
Keyword(s):  
Supreme Court ◽  
Separation Of Powers ◽  
Free Enterprise ◽  
Public Companies ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Essential Question ◽  
The U.S

The U.S. Supreme Court recently heard oral arguments in Free Enterprise Fund v. Public Company Accounting Oversight Board, described as “the most important separation-of-powers case regarding the President’s appointment and removal powers to reach the courts in the last 20 years.” Established by Congress as the cornerstone of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley” or the “Act”), the Public Company Accounting Oversight Board (the “PCAOB” or the “Board”) was structured as “a strong, independent board to oversee the conduct of the auditors of public companies.” Its principal mission was to prevent the type of auditing failures that contributed to the scandals at Enron, WorldCom, and numerous other public companies in the period leading up to the passage of the Act.

The Impact of the PCAOB Triennial Inspection Process on Inspection Year and Non-Inspection Year Audits

2021 ◽  
Author(s):  
Lawrence J. Abbott ◽  
William L Buslepp
Keyword(s):  
Audit Quality ◽  
The Public ◽  
Learned Behavior ◽  
Public Company ◽  
Inspection Process ◽  
One Year ◽  
The Impact

The Public Company Accounting Oversight Board (PCAOB) inspects auditors with fewer than 100 publicly held clients, once every three years (i.e., triennial inspection). In doing so, the PCAOB may inspect any audit engagement within the three-year window, including audits completed only months earlier ("inspection year" audits) and audits with at least a one-year, if not two-year lag ("non-inspection year" audits). We theorize the triennial inspection process affects audit quality levels, whereby auditors impose higher (lower) audit quality during inspection years (non-inspection years). We find clients of triennially inspected auditors have significantly lower levels of accruals during inspection years. Further, this change can be attributed to additional audit effort expended during inspection years. Finally, we find some evidence this is a learned behavior developed after the initial round of inspections. Our evidence suggests auditors opportunistically increase (decrease) audit quality during inspection (non-inspection) years in response to the triennial inspection process.

Hiring Auditors with a Part II Quality Control Report: An Opportunity for Increased Earnings Management or Lower Audit Fees?

2020 ◽  
Vol 5 (1) ◽  
pp. 73-93
Author(s):  
Jared Eutsler ◽  
D. Kip Holderness ◽  
Megan M. Jones
Keyword(s):  
Quality Control ◽  
Audit Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Fiscal Year ◽  
The Public ◽  
Audit Firms ◽  
Public Company ◽  
General Demand ◽  
Systemic Quality

ABSTRACT The Public Company Accounting Oversight Board's (PCAOB) Part II inspection reports, which disclose systemic quality control issues that auditors fail to remediate, signal poor audit quality for triennially inspected audit firms. Auditors that receive a Part II inspection report typically experience a decrease in clients, which demonstrates a general demand for audit quality. However, some companies hire auditors that receive Part II inspection reports. We examine potential reasons for hiring these audit firms. We find that relative to companies that switch to auditors without Part II reports, companies that switch to auditors with Part II reports have higher discretionary accruals in the first fiscal year after the switch, which indicates lower audit quality and a heightened risk for future fraud. We find no difference in audit fees. Our results suggest that PCAOB Part II inspection reports may signal low-quality auditors to companies that desire low-quality audits. Data Availability: Data are available from the public sources cited in the text.

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the PCAOB Rulemaking Docket Matter No. 31: PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts

2011 ◽  
Vol 5 (1) ◽  
pp. C11-C15 ◽  
Author(s):  
Joseph Brazel ◽  
James Bierstaker ◽  
Paul Caster ◽  
Brad Reed
Keyword(s):  
Audit Quality ◽  
Exposure Period ◽  
Public Accounting ◽  
Accounting Firms ◽  
Accounting Firm ◽  
The Public ◽  
Sarbanes Oxley ◽  
Public Company ◽  
Auditing Standards ◽  
Supervision Practices

SUMMARY: Recently, the Public Company Accounting Oversight Board (“PCAOB” or “Board”) issued a release to address, in two ways, issues relating to the responsibilities of a registered public accounting firm and its supervisory personnel with respect to supervision. First, the release reminds registered firms and associated persons of, and highlights the scope of, Section 105(c)(6) of the Sarbanes-Oxley Act of 2002 (“the Act”), which authorizes the Board to impose sanctions on registered public accounting firms and their supervisory personnel for failing to supervise reasonably an associated person who has violated certain laws, rules, or standards. Second, the release discusses and seeks comment on conceptual approaches to rulemaking that might complement the application of Section 105(c)(6) and, through increased accountability, lead to improved supervision practices and, consequently, improved audit quality. The PCAOB provided for a 91-day exposure period (from August 5, 2010, to November 3, 2010) for interested parties to examine and provide comments on the conceptual approaches to rulemaking that might complement the application of Section 105(c)(6). The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the PCAOB on the PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts.

PCAOB International Inspections and Audit Quality

2016 ◽  
Vol 92 (5) ◽  
pp. 143-166 ◽  
Author(s):  
Jagan Krishnan ◽  
Jayanthi Krishnan ◽  
Hakjoon Song
Keyword(s):  
Audit Quality ◽  
Value Relevance ◽  
Accounting Firms ◽  
The Public ◽  
Public Company ◽  
Accounting Numbers ◽  
Abnormal Accruals ◽  
Relevance Measure ◽  
The Impact ◽  
First Time

ABSTRACT We investigate the impact of the Public Company Accounting Oversight Board's (PCAOB) first-time inspections of foreign accounting firms by examining abnormal accruals around the inspection year, and the value relevance of accounting numbers around the inspection report date, for their U.S. cross-listed clients. We document lower abnormal accruals in the post-inspection period, and greater value relevance of accounting numbers in the post-report period for clients of the inspected auditors, compared with non-cross-listed clients or clients of non-inspected auditors within the inspected countries. Comparisons of the PCAOB's joint inspections with PCAOB stand-alone inspections indicate that while both experience lower post-inspection abnormal accruals, the former benefit more than the latter. The value relevance measure, in contrast, shows greater increases for the PCAOB stand-alone inspections than for joint inspections. Comparing the inspection effects for auditors with and without deficiency reports, we find no systematic differences for accruals or for value relevance.

scholarly journals Audit Quality: Insights from the Academic Literature

2012 ◽  
Vol 32 (Supplement 1) ◽  
pp. 385-421 ◽  
Author(s):  
W. Robert Knechel ◽  
Gopal V. Krishnan ◽  
Mikhail Pevzner ◽  
Lori B. Shefchik ◽  
Uma K. Velury
Keyword(s):  
Audit Quality ◽  
Academic Research ◽  
Future Research ◽  
The Public ◽  
Academic Literature ◽  
Public Company

SUMMARY This study presents a review of academic research on audit quality. We begin with a review of existing definitions of audit quality and describe general frameworks for establishing audit quality. Next, we summarize research on indicators of audit quality such as inputs, process, and outcomes. Finally, we offer some suggestions for future research. The study should be useful to academics interested in audit quality as well as to the Public Company Accounting Oversight Board (PCAOB) and other regulators.

scholarly journals The Effect of an Auditor Identity Disclosure Requirement on Audit Quality: An Experimental Examination Incorporating the Incremental Effect of a Signature Requirement

2019 ◽  
Vol 38 (4) ◽  
pp. 17-29 ◽  
Author(s):  
Allen D. Blay ◽  
Eric S. Gooden ◽  
Mark J. Mellon ◽  
Douglas E. Stevens
Keyword(s):  
Audit Quality ◽  
Social Norm ◽  
Data Availability ◽  
The Public ◽  
Audit Market ◽  
Incremental Effect ◽  
Public Company ◽  
Identity Disclosure ◽  
Disclosure Requirement ◽  
Higher Sensitivity

SUMMARY After considering a proposal to require the engagement partner's signature on the audit report (PCAOB 2009), the Public Company Accounting Oversight Board chose instead to only require the disclosure of the engagement partner's name (PCAOB 2015). We make predictions regarding the effects of the two proposed requirements using insights from social norm theory, and test those predictions using an experimental audit market setting found in the literature. We find that both requirements reduce misreporting when compared to a control setting with neither requirement present. We also document that the signature requirement generates an incremental reduction in misreporting when added to the disclosure requirement. Finally, we provide evidence that these effects are driven by participants with higher sensitivity to social norms. This theory and evidence supports the new identity disclosure requirement at the PCAOB and helps explain the existence of signature requirements in many non-U.S. countries. Data Availability: Experimental data are available from the authors upon request.

scholarly journals Profiling Membership in the PCAOB's Standing Advisory Group

2019 ◽  
Vol 13 (1) ◽  
pp. A30-A41
Author(s):  
Kelsey Brasel ◽  
L. Tyler Williams
Keyword(s):  
Advisory Committee ◽  
Standard Setting ◽  
Descriptive Study ◽  
Data Availability ◽  
Professional Experience ◽  
Advisory Group ◽  
The Public ◽  
Advisory Boards ◽  
Public Company ◽  
Group Members

SUMMARY The Public Company Accounting Oversight Board (PCAOB) appoints an advisory group known as the Standing Advisory Group (SAG) to provide input on the relevance and appropriateness of its standard-setting agenda. Throughout the year, the PCAOB convenes meetings where the SAG opines on the direction of authoritative guidance on behalf of constituent groups. Our descriptive study provides an overview of the SAG's composition and role in standard-setting and succinctly describes the group members' professional experience since its inception in 2004. Specifically, we examine to what extent the PCAOB assembles the advisory group in consideration of the requirements of the Federal Advisory Committee Act of 1972 (FACA), which mandates appropriate constituent representation on governmental advisory boards. We find that although the PCAOB is not required to meet the requirements of the FACA, the SAG appears to represent an appropriate level and variety of professional experience consistent with other governmental advisory boards. Data Availability: Publicly available.

Sign in / Sign up

Export Citation Format

Share Document