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

Löhlein, Lukas

doi:10.1016/j.acclit.2016.05.002

Cited by 36 publications

(25 citation statements)

References 61 publications

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“…This study directly responds to calls from both academia (e.g., Löhlein ; Malsch and Salterio ) and regulators (e.g., Carmichael ; Franzel ) for research considering the effectiveness and impact of the PCAOB's initiatives. We aim to provide a better understanding of inspections, in terms of how auditors anticipate the potential for PCAOB inspection, experience the inspection, cope with the aftermath of the inspection, and finally, understand how audit professionalism has been affected by the overall inspections experience.…”

Section: Introductionmentioning

confidence: 76%

PCAOB Inspections: Public Accounting Firms on “Trial”

Westermann

Cohen

Trompeter

2019

Contemporary Accting Res

178

146

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The objective of our article is to obtain a better understanding of how auditors anticipate the potential for PCAOB inspection, experience the inspection, cope with the consequences of the inspection, and understand the PCAOB's influence within the context of professionalism. We use a qualitative approach that uses both surveys (55) and interviews (20) of auditors (of varying rank and firm) across a five‐year period (2012–2017). Respondents suggest that PCAOB inspectors are powerful, representing the “prosecution,” “judge,” and “jury” of the auditing profession. We therefore use a structural metaphor of the PCAOB inspection as a judicial “trial.” By controlling the criteria used to evaluate performance, inspectors have the power to repeatedly “subpoena,” “interrogate,” and return a “verdict” on the firm (auditor); those judged as “guilty” require supervised “probation.” This process is perceived as having improved audit quality but at a cost. Passing an inspection is so important that auditors (firms) have resorted to impression management strategies and “functionally stupid” work practices (e.g., excessive documentation, a decrease in critical thinking as a result of a “box ticking” approach to auditing). Furthermore, some respondents believe that being a good auditor has come at the expense of being a good accountant; the emphasis on audit process and concurrent de‐emphasis on technical accounting could ultimately lead to audits themselves falling short. In addition, it is evident that inspectors and auditors differ in their perceptions of risk, likely manifesting because inspectors are standards‐focused while auditors (firms) are methodology‐focused. Finally, the inspection process has created excessive stress and tension, beyond budget and fee pressures, which some auditors perceive as affecting the pool of talented auditors that firms may be able to attract and retain in the future.

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Section: Introductionmentioning

confidence: 76%

PCAOB Inspections: Public Accounting Firms on “Trial”

Westermann

Cohen

Trompeter

2019

Contemporary Accting Res

178

146

View full text Add to dashboard Cite

show abstract

“…Second, our study provides some evidence as to why auditors might perceive the relation between inspections and audit quality differently than intended by regulation (cf. Löhlein , 45). Our positivist orientation also affords us the ability to capture U.S. auditors' stated perceptions of their experiences with and the day‐to‐day influences of the PCAOB inspection process to examine behavioral factors (i.e., auditors' perceptions of PCAOB power and their trust in the PCAOB) that lead to an antagonistic climate for U.S. public company audits.…”

Section: Introductionmentioning

confidence: 99%

U.S. Auditors' Perceptions of the PCAOB Inspection Process: A Behavioral Examination

Johnson

Keune

Winchel

2019

Contemporary Accting Res

108

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This study examines U.S. auditors' observations of the PCAOB inspection process, and its impact on their work, in order to understand the current U.S. regulatory audit climate. Using 20 interviews with experienced auditors, we consider behavioral factors (e.g., perceived power of and trust in the PCAOB) that can impact the level and form of auditor compliance according to theory from the slippery slope framework on audit regulation (Kirchler et al. 2008; Dowling et al. 2018). Our participants described an audit climate with a powerful regulator. They reported that their desire to receive “clean” inspection reports has had a substantial impact on audit procedures and quality control. However, our participants do not appear to have high trust in the PCAOB, as they questioned aspects of the inspection process and its expectations. Accordingly, we conclude that U.S. public company auditors operate in an antagonistic environment in which auditors perceive the PCAOB has high coercive power. In other words, they comply due to fear of enforcement rather than agreement with the PCAOB's views on audit quality. Some auditors also indicated that they consider both the costs and benefits of compliance. Theoretical intuition implies that any future increases to perceived costs relative to perceived benefits of compliance could ultimately decrease the PCAOB's coercive power and reduce U.S. auditor compliance. Our findings have implications for regulators and researchers interested in understanding behavioral factors that may influence regulatory compliance.

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“…This has unveiled their impotence and partial influence in several settings (Canning & O'Dwyer, 2013;Caramanis et al, 2015;Malsch & Gendron, 2011). While significant research on oversight bodies such as the PCAOB focuses on the effects of their inspection processes and the wider impacts of their enforcement actions (Abernathy, Barnes, & Stefaniak, 2013;Lohlein, 2016), we have little in-depth knowledge of individuals' efforts to shape these bodies and establish their operational effectiveness. This is despite increased calls for studies focusing on "[a]gendas of local [regulatory] implementation and the possibilities as to what can and cannot be implemented at national level" (Samsonova-Taddei & Humphrey, 2015, p.69).…”

Section: Introductionmentioning

confidence: 99%

Institutional work and regulatory change in the accounting profession

Canning

O’Dwyer

2016

Accounting, Organizations and Society

111

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Independent oversight bodies such as the PCAOB in the U.S. and the POB in the U.K. pervade the international accounting regulatory environment. Their existence has been hailed as marking an end to self-regulation of the accounting profession. This paper examines how, and with what effect, individuals within one such oversight body attempted to reconfigure the regulatory field of accounting in Ireland. We mobilise the concept of institutional work to theorise the interrelated nature of the forms of institutional work these individuals engaged in as they sought to realise regulatory change. The paper advances prior theorisations of the recursive relationship between different forms of institutional work and patterns of institutional change and stability. We unveil a more refined, nuanced categorisation of institutional work within efforts to instigate regulatory change. We show how specific forms of institutional work interact and mutually reinforce or displace one another as regulators seek to establish power and legitimacy in a regulatory field. The role and nature of work rejectionwhereby regulators initially reject certain forms of work but later embrace themis unveiled within a change process where shifting regulatory logics both shape and are shaped by the forms of institutional work undertaken. The paper provides a counterpoint to prior research by illustrating how socio-political factors enabled more than constrained the impact of the institutional work undertaken by individuals within an independent oversight body. It concludes with a call for research focusing on how targets of regulation in accounting engage in institutional work as they respond to efforts to restrict their autonomy.

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

Cited by 36 publications

References 61 publications

PCAOB Inspections: Public Accounting Firms on “Trial”

PCAOB Inspections: Public Accounting Firms on “Trial”

U.S. Auditors' Perceptions of the PCAOB Inspection Process: A Behavioral Examination

Institutional work and regulatory change in the accounting profession

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