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

50 Pages Posted: 16 Oct 2007 Last revised: 30 Sep 2008

Clive S. Lennox

University of Southern California

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Date Written: October 1, 2008

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

Suggested Citation

Lennox, Clive S. and Pittman, Jeffrey, Auditing the Auditors: Evidence on the PCAOB's Inspections of Audit Firms (October 1, 2008). Available at SSRN: https://ssrn.com/abstract=1020183 or http://dx.doi.org/10.2139/ssrn.1020183

Clive Lennox (Contact Author)

University of Southern California ( email )

Los Angeles, CA 90089
United States

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

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