Does the PCAOB's International Inspection Program Improve Audit Quality for Non-US-Listed Foreign Clients?

Journal of Accounting and Economics (August 2017), 64(1): 15-36.

Posted: 14 Apr 2017 Last revised: 28 Apr 2018

See all articles by Simon Fung

Simon Fung

Deakin University

K. K. Raman

The University of Texas at San Antonio

Xindong Kevin Zhu

City University of Hong Kong (CityUHK)

Date Written: April 13, 2017

Abstract

We examine whether the Public Company Accounting Oversight Board (PCAOB) international inspection program improves audit quality for a sample of non-US-listed foreign public client companies from 55 countries audited by foreign (i.e., non-US) auditors. For a sample of non-US-listed clients of PCAOB-registered foreign auditors, we find that initial PCAOB inspections improve audit quality, over and above the threat of such inspections, for foreign auditors’ non-US-listed foreign clients. Our findings document the benefits of PCAOB international inspections for foreign investors in non-US-listed foreign companies which could increase the acceptability of the PCAOB international inspection program abroad.

Keywords: PCAOB international inspection program; Foreign auditors; Non-US-listed foreign public companies; Audit quality; Positive externality

JEL Classification: G18, L11, L15, L51, L80, M40, M41, M42, M48

Suggested Citation

Fung, Simon and Raman, K. K. and Zhu, Xindong Kevin, Does the PCAOB's International Inspection Program Improve Audit Quality for Non-US-Listed Foreign Clients? (April 13, 2017). Journal of Accounting and Economics (August 2017), 64(1): 15-36.. Available at SSRN: https://ssrn.com/abstract=2952361

Simon Fung

Deakin University ( email )

221 Burwood Highway
Burwood, Victoria
Australia

K. K. Raman (Contact Author)

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

Xindong Kevin Zhu

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

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