The effect of SOX on small auditor exits and audit quality

DeFond, Mark L.; Lennox, Clive S.

doi:10.1016/j.jacceco.2011.03.002

Cited by 271 publications

(210 citation statements)

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“…The effect of PCAOB inspections on small auditors was also revealed by DeFond and Lennox (2011). The study indicates that from 2002 to 2004 almost half the small audit firms left the audit market.…”

Section: Effect Of Pcaob Inspections On Audit Qualitymentioning

confidence: 55%

“…In contrast, research on the PCAOB inspections has used audit client-specific measures to evaluate the extent to which inspection contributes to audit quality (Abbott, Gunny, & Zhang, 2013;Carcello et al, 2011;Gramling, Krishnan, & Zhang, 2011;Offermanns & Peek, 2011). Other studies have researched the effect of inspections on the composition of the audit market (DeFond & Lennox, 2011), or have directly asked financial experts about the effect of peer reviews and PCAOB inspections on audit quality Felix & Prawitt, 1993;McCabe, Luzi, & Brennan, 1993;Newman & Oliverio, 2010).…”

Section: Effect Of Peer Reviews and Inspections On Audit Qualitymentioning

confidence: 99%

“…They showed how PCAOB inspections pushed "low-quality" auditors out of the market, which was interpreted as an increase of overall audit quality DeFond & Lennox, 2011;Hermanson & Houston, 2008;Read, Rama, & Raghunandan, 2004). Read et al (2004) demonstrated that small audit firms were much more likely to cease performing SEC audits in the post-SOX period than in previous periods due to the perception of a more stringent oversight by PCAOB.…”

Section: Effect Of Pcaob Inspections On Audit Qualitymentioning

confidence: 99%

“…The study used the likelihood of firms being issued with going-concern opinions as being indicative of audit quality, thereby determining that exiting firms did in fact belong to the group of low-quality audit firms. The underlying assumption of studies using the frequency of going-concern opinions being indicative of audit quality DeFond & Lennox, 2011;) is that that low-quality audit firms are more likely to yield to the pressure of their client, and therefore issue fewer going-concern opinions. 8 The result was supported by Daugherty et al (2011), who found that deficiency reports caused involuntary and voluntary client losses.…”

Section: Effect Of Pcaob Inspections On Audit Qualitymentioning

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: Effect Of Pcaob Inspections On Audit Qualitymentioning

confidence: 55%

Section: Effect Of Peer Reviews and Inspections On Audit Qualitymentioning

confidence: 99%

Section: Effect Of Pcaob Inspections On Audit Qualitymentioning

confidence: 99%

Section: Effect Of Pcaob Inspections On Audit Qualitymentioning

confidence: 99%

See 2 more Smart Citations

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

Löhlein

2016

Journal of Accounting Literature

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“…Conceptually, engagement specific deficiencies as well as audit firm quality control deficiencies discovered during inspections and publicly disclosed in PCAOB inspection reports can lead to changes in the auditor's incentive structure and behavior, in response to the increased litigation risks and regulatory sanctions (DeFond and Lennox 2011). Based on the assumption that the audit market in the US is competitive, the increased costs should be reflected in audit fees.…”

Section: Public Oversight and Audit Firm Behaviormentioning

confidence: 99%

Economic consequences of public oversight of the auditing profession

Zou

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Definitions and determinants of audit quality

Dresdner

Fischer

2020

J Corp Accounting Finance

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Based on a review of the academic literature, we define audit quality from the perspectives of auditors and investors. We then discuss historical events that have impacted audit quality, including the effects of Sarbanes-Oxley; Public Company Accounting Oversight Board's restriction on auditor-provided tax services; mandatory audit partner rotation; and the merger of Price Waterhouse and Coopers & Lybrand.

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The effect of SOX on small auditor exits and audit quality

Cited by 271 publications

References 21 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.

Economic consequences of public oversight of the auditing profession

Definitions and determinants of audit quality

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