Abstract

http://ssrn.com/abstract=1883668
 
 

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Does the PCAOB’s Remediation Process Promote Audit Report and Financial Statement Reliability?


William L. Buslepp


Texas Tech University - Area of Accounting

Lisa Victoravich


University of Denver - Daniels College of Business

April 12, 2014


Abstract:     
Part II of the Public Company Accounting Oversight Board (PCAOB) inspection report is released one year after the initial inspection report (Part I) only for firms that fail to remediate quality control criticisms (QCC firms). We provide evidence that the release of Part II discloses new relevant information about a firm’s disregard for maintaining an effective quality control system. More specifically, we find that QCC firms have lower audit quality in terms of restatements than those firms that address their criticisms (Remediate firms) after the PCAOB provides their inspection findings. This suggests that the release of Part II indicates a disregard or an inability to address the identified weaknesses, which results in continued audit quality issues. We also find that the release of Part II foreshadows a change in auditors, either due to dismissal or resignation. Finally, we find that a majority of restatements at clients of QCC firms are discovered by a successor auditor of higher quality (non-QCC firm) after the client has changed auditors. We conclude that for triennial firms, Part II signals audit quality and the two-part reporting process leads to improved financial statement reliability.

Number of Pages in PDF File: 56

Keywords: PCAOB; quality control criticisms; audit quality; restatements; auditor switching

JEL Classification: M42

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Date posted: July 11, 2011 ; Last revised: April 13, 2014

Suggested Citation

Buslepp, William L. and Victoravich, Lisa, Does the PCAOB’s Remediation Process Promote Audit Report and Financial Statement Reliability? (April 12, 2014). Available at SSRN: http://ssrn.com/abstract=1883668 or http://dx.doi.org/10.2139/ssrn.1883668

Contact Information

William L. Buslepp (Contact Author)
Texas Tech University - Area of Accounting ( email )
P.O. Box 42101
Lubbock, TX 79409
United States
Lisa Victoravich
University of Denver - Daniels College of Business ( email )
2101 S. University Blvd.
Denver, CO 80208
United States
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