An Account Analysis Of PCAOB Inspection Reports For Triennially-Inspected Audit Firms

Landis, Mark; Jerris, Scott I.; Braswell, Mike

doi:10.19030/jber.v9i3.4125

Cited by 8 publications

(8 citation statements)

References 9 publications

(11 reference statements)

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“…A similar trend can be identified for the PCAOB inspections as the number of identified deficiencies decreased for triennially (Anantharaman, 2012;Hermanson et al, 2007;Landis, Jerris, & Braswell, 2011; and annually inspected firms (Church & Shefchik, 2012). In addition, the percentage of firms with quality control problems decreased , while the number of clean inspection reports increased Offermanns & Peek, 2011).…”

Section: Opening the Black Box Through Methodological Pluralismsupporting

confidence: 71%

“…In addition, the percentage of firms with quality control problems decreased , while the number of clean inspection reports increased Offermanns & Peek, 2011). Moreover, while the majority of firms had deficiencies in their first report, less than ten percent had deficiencies in their second report Landis et al, 2011). …”

Section: Opening the Black Box Through Methodological Pluralismmentioning

confidence: 99%

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From peer review to PCAOB inspections: Regulating for audit quality in the U.S.

Löhlein

2016

Journal of Accounting Literature

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This study reviews the existing literature on the U.S. peer review system and the Public Company Accounting Oversight Board (PCAOB) inspection system to assess our knowledge of audit regulation. The traditional self-regulatory system of the accounting profession came to an end, in 2002, when the PCAOB was established to oversee the audit firms of publicly traded companies. This paper contributes to the controversial debate about self-regulation versus independent regulation by analyzing, categorizing, and comparing the research findings on the peer review system and the PCAOB system along three dimensions: the validity of peer reviews and PCAOB inspections, the recognition of reviews and inspections by decision-makers (e.g. investors, bankers, committees), and the effect of reviews and inspections on audit quality. Synthesizing the research on the regulatory regimes suggests that the notion of external quality control, both through peer reviews and government inspections, is positively linked with an improvement of audit quality. At the same time, the analysis indicates that external users do not seem to recognise peer review and PCAOB reports as very useful instruments for decision-making, which is in line with an identified rather skeptical perception of the audit profession on reviews and inspections. Overall, this study reveals that although the academic literature on peer review and PCAOB inspection is extensive it has not produced definitive conclusions concerning various aspects of audit regulation. This paper shows how this blurred picture is due to conflicting research findings, the dominance of the quantitative research paradigm, and unchallenged assumptions within the literature, and concludes by proposing research opportunities for the future.

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Section: Opening the Black Box Through Methodological Pluralismsupporting

confidence: 71%

Section: Opening the Black Box Through Methodological Pluralismmentioning

confidence: 99%

From peer review to PCAOB inspections: Regulating for audit quality in the U.S.

Löhlein

2016

Journal of Accounting Literature

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“…From a regulatory perspective, audit quality (or the lack of it) is measured by the quantity, nature, and magnitude of audit process deficiencies identified through the AICPA Peer Review Program, SEC investigations, and PCAOB inspections, and attributed to the failure to exercise professional skepticism or due professional care (e.g., Beasley et al 2001;Houston 2008, 2009;Hermanson et al 2007Hermanson et al , 2010Landis et al 2011;Louwers et al 2008;Messier et al 2010;PCAOB 2007PCAOB , 2008Roybark 2006). Both approaches have their limitations.…”

Section: Audit Quality: Fact Versus Perceptionmentioning

confidence: 99%

Mandatory Disclosure of the Engagement Partner's Identity: Potential Benefits and Unintended Consequences

King

Davis

Mintchik

2012

Accounting Horizons

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SYNOPSIS: This paper contributes to the deliberations on the potential consequences of requiring disclosure of the engagement partner's identity in the audit report. The PCAOB has recently suggested that this requirement will lead to enhanced audit quality due to increased engagement partner accountability and improved transparency of the audit process. The goal of our commentary is to examine this issue by considering factors that potentially affect audit quality in appearance and audit quality in fact, and applying insights from three distinct academic frameworks: source credibility, accountability, and the theory of affordances.While prior evidence from source credibility research implies that a mandatory signature will likely increase audit quality in appearance, its impact on audit quality in fact remains unclear. Academic literature suggests that increased accountability will increase audit effort but is silent on the associated increase in audit effectiveness. As a result, mandatory disclosure is likely to increase the risk of over-auditing because audit services have the essential characteristics of a credence good. As for an increase in audit quality in appearance, the question remains whether the current perception of audit quality is too low or too high. The increase in public perceptions of audit quality without an associated increase in actual quality is a desirable accomplishment only when public perception of quality is below actual audit quality. Otherwise, the measure increases the gap between delivered audit quality and public perceptions of it. We suggest specific research opportunities in this area.information users seek greater transparency about information source due to a legitimate desire to decrease uncertainty associated with information evaluation. The implication as applied to auditing is that disclosure of the engagement partner's identity will likely increase audit quality in appearance, as well as public confidence in the message content (audit report and associated financial statements). At the same time, greater transparency tempts decision makers to decrease cognitive effort and to rely mostly on the sender's attributes during information processing. The implications are that identifying the EP has the potential to increase the likelihood that investors will place unwarranted weight on the EP's characteristics and underweight the content of the audited financial statements. AccountabilityThis framework, which originated in social psychology, suggests that the positive impact of increased accountability is limited to problems caused by lack of effort rather than by lack of expertise or resources. Accountability-related studies also warn about decision makers' tendency to succumb to the audience's preferences by decreasing effort and independent data processing when reporting to an audience with known views. In an audit context, such a tendency will likely lead to more conservative risk-related judgments and expansive audit procedures, increasing audit costs, but not necessarily au...

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“…Finally, Landis, Jerris and Braswell (2011) examined small firm inspection reports from 2005 through 2008 to classify the types of audit deficiencies described in 339 reports for deficiency firms. The authors found that audit deficiencies decreased in number over time, with the most commonly cited accounts being revenues and assets, and the most frequently cited transactions relating to business combinations and equity.…”

Section: Introductionmentioning

confidence: 99%

PCAOB Inspections of International Audit Firms: Initial Evidence

2012

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This paper examines PCAOB inspections of international audit firms, based on an analysis of 175 first‐time and 56 second‐time inspection reports issued through February 4, 2012. We find that just over half of the inspection reports identify audit deficiencies, and two‐thirds cite quality control defects. Deficiency firms are smaller, but have more issuer clients than no‐deficiency firms, reflecting possible over‐extension into the issuer audit market. Affiliates of Big 4 firms are less likely to have deficiencies than are other firms. We find no significant differences in the rate of audit deficiencies or quality control defects based on whether the PCAOB acts alone or cooperates with a local regulator in conducting the inspection, or based on the home country's legal tradition (common law versus other). Audit deficiencies are most often related to substantive testing and the failure to perform sufficient audit procedures. The deficiencies most commonly relate to the balance sheet, while the individual account cited most often is revenues. Unlike prior research that examines US firms, there is no difference in the rate of audit deficiencies or quality control defects for first‐time versus second‐time inspections.

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An Account Analysis Of PCAOB Inspection Reports For Triennially-Inspected Audit Firms

Abstract: ABSTRACT

Cited by 8 publications

References 9 publications

From peer review to PCAOB inspections: Regulating for audit quality in the U.S.

From peer review to PCAOB inspections: Regulating for audit quality in the U.S.

Mandatory Disclosure of the Engagement Partner's Identity: Potential Benefits and Unintended Consequences

PCAOB Inspections of International Audit Firms: Initial Evidence

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