The audit market effects of disputing a GAAP-deficient PCAOB inspection report

Lawrence J. Abbott, William Buslepp and Matthew Notbohm

Advances in accounting, 2018, vol. 41, issue C, 126-140

Abstract: As part of its charter, the Public Company Accounting Oversight Board (PCAOB) has the authority to inspect and review the workpapers of all accounting firms that provide auditing services to publicly traded companies. The PCAOB summarizes their findings in publicly available inspection reports available on its website. Prior research suggests that the accessibility, variation and source creditability of the inspection reports creates a publicly available audit quality signal that is used by various auditor choice stakeholders. This is particularly true for triennially inspected auditors that receive a GAAP-deficient report (Abbott, Gunny, & Zhang, 2013). In a GAAP-deficient inspection report, the PCAOB alleges that the auditor failed to identify departures from generally accepted accounting principles (GAAP) in the clients' financial statements. In this paper, we investigate whether and to what extent the auditor's response – which is also encapsulated in the inspection report – impacts the reaction to GAAP-deficient inspection reports. We create a sample of 113 GAAP-deficient inspection reports that correspond to 100 unique auditors. For these 100 auditors and their 805 audit clients, we find auditors that dispute the PCAOB findings are less likely to be dismissed by their clients when the client has an audit committee with accounting-related financial expertise. Collectively, our results indicate that auditor choice stakeholders weigh both the PCAOB- and auditor-assessments of auditor performance.

Keywords: PCAOB inspection reports; Audit committee financial expertise; Auditor dismissal (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0882611017301347
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:41:y:2018:i:c:p:126-140

DOI: 10.1016/j.adiac.2018.03.001

Access Statistics for this article

Advances in accounting is currently edited by Dennis Caplan

More articles in Advances in accounting from Elsevier
Bibliographic data for series maintained by Catherine Liu ().