scholarly journals Real Effects of PCAOB International Inspections

2019 ◽  
Vol 95 (5) ◽  
pp. 399-433 ◽  
Author(s):  
Nemit Shroff
Keyword(s):  
Rule Of Law ◽  
Data Availability ◽  
Debt Contracts ◽  
Difference In Differences ◽  
The Public ◽  
Financing Decisions ◽  
Real Effects ◽  
Regulatory Quality ◽  
Public Company ◽  
Financing Frictions

ABSTRACT This paper examines the effect of the Public Company Accounting Oversight Board (PCAOB) international inspection program on companies' financing and investing decisions. Difference-in-differences regression estimates suggest that companies respond to their auditor receiving a “deficiency-free” inspection report by issuing additional external capital amounting to 1.4 percent of assets and increasing investment by 0.5 percent of assets. These effects are larger for (1) financially constrained companies and (2) companies located in countries where there is no regulator or the regulator does not conduct inspections. Further, the effect on financing decisions is stronger in countries with (1) low corruption, (2) strong rule of law, and (3) high regulatory quality. Descriptive evidence suggests that inspections increase the use of financial covenants in debt contracts, which is likely one of the mechanisms through which inspections generate real effects. This paper documents the value of PCAOB inspections in mitigating financing frictions for non-U.S. companies. JEL Classifications: D8; D25; G15; G31; G38; M4; M41; M42. Data Availability: Data are available from the public sources cited in the text.

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.

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 Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the Concept Release, Potential Approach to Revisions to PCAOB Quality Control Standards

2020 ◽  
Vol 14 (2) ◽  
pp. C1-C12
Author(s):  
Veena Looknanan Brown ◽  
Dana R. Hermanson ◽  
Julia L. Higgs ◽  
J. Gregory Jenkins ◽  
Christine Nolder ◽  
...  
Keyword(s):  
Quality Control ◽  
Quality Management ◽  
Data Availability ◽  
Related Services ◽  
Potential Approach ◽  
Roles And Responsibilities ◽  
The Public ◽  
Public Company ◽  
Control Concept ◽  
Release Potential

SUMMARY On December 17, 2019, the Public Company Accounting Oversight Board (the Board or PCAOB) issued a request for comment on its Concept Release, Potential Approach to Revisions to PCAOB Quality Control Standards. The Board is considering revising its Quality Controls (QC) standards to focus firms on improving their QC systems. To reduce the compliance burden, the Board is considering aligning its QC standards with those of the proposed International Standard on Quality Management 1, Quality Management for Firms That Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (proposed ISQM 1). The comment period ended March 16, 2020. This commentary summarizes the participating committee members' views on selected questions on three aspects of a QC system presented in the Concept Release: Resources (Questions 31, 32, 34, 36, 37), The Monitoring and Remediation Process (Questions 45, 46, 47), and Roles and Responsibilities of Individuals (Question 52). Data Availability: The Concept Release, Potential Approach to Revisions to PCAOB Quality Control Standards, including questions for respondents, is available at: https://pcaobus.org/Rulemaking/Docket046/2019-003-Quality-Control-Concept-Release.pdf.

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.

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the PCAOB Rulemaking Docket Matter 029: PCAOB Release No. 2011-007, Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits

2012 ◽  
Vol 6 (1) ◽  
pp. C1-C6 ◽  
Author(s):  
Keith L. Jones ◽  
Jagadison K. Aier ◽  
Duane M. Brandon ◽  
Tina D. Carpenter ◽  
Paul Caster ◽  
...  
Keyword(s):  
Exposure Period ◽  
Data Availability ◽  
Audit Report ◽  
Public Accounting ◽  
Accounting Firms ◽  
The Public ◽  
Public Comment ◽  
Public Company ◽  
Public Accounting Firms ◽  
Auditing Standards

SUMMARY In October 2011, the Public Company Accounting Oversight Board (PCAOB or Board) issued a release to solicit public comment on amendments to its standards that would improve the transparency of pubic company audits. The objective of the release was to solicit public comments on a proposed standard that would (1) require registered public accounting firms to disclose the name of the engagement partner in the audit report, (2) amend the Board's Annual Report Form to require registered firms to disclose the name of the engagement partner for each audit report already required to be reported on the form, and (3) require disclosure in the audit report of other independent public accounting firms and other persons that took part in the audit. The PCAOB provided for a 91-day exposure period (from October 11, 2011, to January 9, 2012) for interested parties to examine the release and provide comments. The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the PCAOB on PCAOB Rulemaking Docket Matter 029: PCAOB Release No. 2011-007, Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits. Data Availability: Information about and access to the release is available at: http://pcaobus.org/Rules/Rulemaking/Docket029/PCAOB_Release_2011-007.pdf

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2016-003, Proposed Auditing Standard—The Auditor's Report on an Audit of Financial Statements when the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards

2016 ◽  
Vol 11 (1) ◽  
pp. C26-C40 ◽  
Author(s):  
Marcus M. Doxey ◽  
Stephen H. Fuller ◽  
Marshall A. Geiger ◽  
Willie E. Gist ◽  
Karl E. Hackenbrack ◽  
...  
Keyword(s):  
Financial Statements ◽  
Auditor Independence ◽  
Data Availability ◽  
Financial Statement ◽  
Specific Information ◽  
Reporting Standard ◽  
The Public ◽  
Auditor Tenure ◽  
Public Company ◽  
Auditor Reporting

SUMMARY On May 11, 2016 the Public Company Accounting Oversight Board (PCAOB) issued a request for comment on Proposed Auditing Standard—The Auditor's Report on an Audit of Financial Statements when the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards, a reproposal of its August 2013 proposed auditor reporting standard. The reproposal retains the pass/fail model of the existing auditor's report while seeking to enhance the form and content of the report. The reproposal solicited public comment on the following significant changes to the existing auditor's report: (1) add a description of “critical audit matters” that provides audit-specific information about especially challenging, subjective, or complex aspects of the audit as they relate to the relevant financial statement accounts and disclosures, (2) add a statement about auditor independence and the phrase “whether due to error or fraud” when describing the auditor's responsibilities to obtain reasonable assurance about whether the financial statements are free of material misstatements, (3) add a statement related to auditor tenure, and (4) standardize the form of the auditor's report, requiring the opinion be the first section of the auditor's report and requiring section titles to guide the reader. The comment period ended on August 15, 2016. This commentary summarizes the participating committee members' views on the alternatives presented in the request for comment. Data Availability: The concept release, proposed and reproposed rules, and supplemental information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket034.aspx

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2013-009, Proposed Rule on Improving the Transparency of Audit: Proposed Amendments to PCAOB Auditing Standards to Provide Disclosure in the Auditor's Report of Certain Participants in the Audit

2014 ◽  
Vol 8 (2) ◽  
pp. C1-C7 ◽  
Author(s):  
Urton L. Anderson ◽  
Lisa Milici Gaynor ◽  
Karl E. Hackenbrack ◽  
Ling Lei Lisic ◽  
Yi-Jing Wu
Keyword(s):  
Data Availability ◽  
Public Accounting ◽  
Accounting Firms ◽  
The Public ◽  
Related Information ◽  
Public Company ◽  
Public Accounting Firms ◽  
Auditing Standards

SUMMARY On December 4, 2013 the Public Company Accounting Oversight Board (PCAOB) solicited public comments on its reproposed amendments to its standards that would improve the transparency of public company audits. The amendments would require (1) disclosure in the auditor's report of the name of the engagement partner, and (2) disclosure in the auditor's report of the names, locations, and extent of participation of other independent public accounting firms that took part in the audit and the locations and extent of participation of other persons not employed by the auditor that took part in the audit. The comment period initially ended on February 3, 2014, but was subsequently extended to March 17, 2014. This commentary summarizes the contributors' views on these amendments. Data Availability: The exposure drafts of the proposed and reproposed rules and related information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket029.aspx

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation

2012 ◽  
Vol 6 (1) ◽  
pp. C15-C27 ◽  
Author(s):  
Keith L. Jones ◽  
Jagadison K. Aier ◽  
Duane M. Brandon ◽  
Tina D. Carpenter ◽  
Lisa M. Gaynor ◽  
...  
Keyword(s):  
Exposure Period ◽  
Auditor Independence ◽  
Data Availability ◽  
Professional Skepticism ◽  
Audit Firm ◽  
The Public ◽  
Public Comment ◽  
Public Company ◽  
Auditing Standards ◽  
Mandatory Audit Firm Rotation

SUMMARY In August 2011, the Public Company Accounting Oversight Board (PCAOB or Board) issued a concept release to solicit public comment on the potential direction of a proposed standard-setting project on means to enhance auditor independence, objectivity, and professional skepticism. The Concept Release sought comments on and explores in detail the possibility of mandatory audit firm rotation. The PCAOB provided for a 121-day exposure period (from August 16 to December 14, 2011) for interested parties to examine and provide comments on the concept release. The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below (dated December 13, 2011) to the PCAOB on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation. Data Availability: Information about and access to the release are available at: http://pcaobus.org/Rules/Rulemaking/Docket037/Release_2011-006.pdf

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2015-004, Supplemental Request for Comment: Rules to Require Disclosure of Certain Audit Participants on a New PCAOB Form

2015 ◽  
Vol 10 (1) ◽  
pp. C1-C10 ◽  
Author(s):  
Marcus M. Doxey ◽  
Marshall A. Geiger ◽  
Karl E. Hackenbrack ◽  
Sarah E. Stein
Keyword(s):  
Data Availability ◽  
The Public ◽  
Related Information ◽  
Audit Firms ◽  
Public Company ◽  
Auditing Standards ◽  
New Form

SUMMARY On June 30, 2015 the Public Company Accounting Oversight Board (PCAOB) issued a supplemental request for comment on its 2013 reproposal to require auditors to disclose in the auditor's report the name of the engagement partner and information about certain other participants in the audit. The supplemental request solicited public comments on an alternative to disclosure of this information in the auditor's report, namely that audit firms report (1) the name of the engagement partner, and (2) the names, locations, and extent of participation of other audit participants in a new form (Form AP) to be filed with the PCAOB within 30 days of the date the auditor's report is first included in a document filed with the SEC. The comment period ended on August 31, 2015. This commentary summarizes the participating committee members' views on the alternatives presented in the supplemental request for comment. Data Availability: The exposure drafts of the proposed and reproposed rules, the supplemental request for comment, and related information are available at: http://pcaobus.org/Rules/Rulemaking/Pages/Docket029.aspx

scholarly journals Auditor Fees and Going-Concern Reporting Decisions on Bankrupt Companies: Additional Evidence

2015 ◽  
Vol 9 (1) ◽  
pp. A13-A27 ◽  
Author(s):  
William J. Read
Keyword(s):  
Audit Fees ◽  
Auditor Independence ◽  
Data Availability ◽  
Audit Failure ◽  
The Public ◽  
Going Concern ◽  
Audit Firms ◽  
Public Company ◽  
Reporting Decisions ◽  
Auditor Fees

SUMMARY The recent growth in non-audit services (NAS) at the major audit firms has the attention of auditing regulators. On several occasions recently, board members of the Public Company Accounting Oversight Board (PCAOB) have indicated that the rise in NAS may place auditor independence at risk (Harris 2014; Tysiac 2014). Impaired independence can result in audit failure, which includes situations when auditors fail to issue going-concern (GC) audit opinions to soon-to-be bankrupt companies. In this paper, I examine the association between the propensity of auditors to issue GC opinions and NAS fees (and audit fees) to 203 bankrupt companies during 2002–2013. In analysis, I find no significant relation between GC decisions and NAS fees and audit fees. My results may interest U.S. regulators, who recently expressed concerns about the threat to auditor independence from the spike in NAS at the major firms. Data Availability: Publicly available from sources identified in the paper.

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