Auditing the Auditors: Evidence on the PCAOB's Inspections of Audit Firms

Abstract

This paper analyzes audit firm supervision since the Public Company Accounting Oversight Board (PCAOB) began conducting inspections. First, we find that audit clients do not perceive that the PCAOB's inspection reports are valuable for signaling audit quality. Second, we document that the information content of peer review reports fell after they became narrower in scope with the initiation of PCAOB inspections. Third, we isolate that the signaling role of peer review reports mainly stems from information that PCAOB inspectors do not publicly disclose. Collectively, our evidence implies that less is known about audit firm quality under the new regulatory regime.

Keywords: Regulation, Sarbanes-Oxley Act, PCAOB

JEL Classification: G18, L51, M49