Are PCAOB Identified Audit Deficiencies Associated with a Change in Reporting Decisions of Triennially Inspected Audit Firms?

Auditing: A Journal of Practice & Theory, Forthcoming

Posted: 10 Feb 2008 Last revised: 21 Apr 2014

See all articles by Audrey A. Gramling

Audrey A. Gramling

Oklahoma State University - Stillwater - School of Accounting

Jayanthi Krishnan

Temple University - Department of Accounting

Yinqi Zhang

American University

Date Written: February 2011

Abstract

The primary issue we examine is whether PCAOB identified audit deficiencies are associated with a change in triennially inspected audit firms’ going concern (GC) reporting decisions for their financially distressed clients. Our analysis generally indicates that firms with PCAOB deficiencies were more likely to issue a GC opinion for financially distressed clients subsequent to their PCAOB inspection than prior to their inspection. We also examine the same issue for audit firms with a PCAOB inspection report indicating no audit deficiencies. For these firms, our results provide only limited evidence of a change in the likelihood of issuing a GC opinion, with audit firms becoming more conservative (i.e., greater likelihood of issuing a GC opinion).

Keywords: PCAOB Inspection, Going-Concern, Audit Deficiencies

JEL Classification: G18, G38, L84, M41, M49

Suggested Citation

Gramling, Audrey A. and Krishnan, Jayanthi and Zhang, Yinqi, Are PCAOB Identified Audit Deficiencies Associated with a Change in Reporting Decisions of Triennially Inspected Audit Firms? (February 2011). Auditing: A Journal of Practice & Theory, Forthcoming , Available at SSRN: https://ssrn.com/abstract=1091786

Audrey A. Gramling

Oklahoma State University - Stillwater - School of Accounting ( email )

College of Business Administration
345 Business Building
Stillwater, OK 74078
United States

Jayanthi Krishnan (Contact Author)

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
215-204-3085 (Phone)

Yinqi Zhang

American University ( email )

4400 Massachusetts Ave NW
Washington, DC 20016
United States

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