PCAOB International Inspections and Audit Quality
The Accounting Review (Forthcoming)
Posted: 10 Aug 2017 Last revised: 18 Sep 2017
Date Written: September 1, 2016
We investigate the impact of the Public Company Accounting Oversight Board’s (PCAOB) first-time inspections of foreign accounting firms by examining abnormal accruals around the inspection year, and the value relevance of accounting numbers around the inspection report date, for their U.S. cross-listed clients. We document lower abnormal accruals in the post-inspection period, and greater value relevance of accounting numbers in the post-report period for clients of the inspected auditors, compared with non-cross-listed clients or clients of non-inspected auditors within the inspected countries. Comparisons of the PCAOB’s joint inspections with PCAOB standalone inspections indicate that while both experience lower post-inspection abnormal accruals, the former benefit more than the latter. The value relevance measure, in contrast, shows greater increases for the PCAOB stand-alone inspections than for joint inspections. Comparing the inspection effects for auditors with and without deficiency reports, we find no systematic differences for accruals or for value relevance.
Keywords: Cross listing; Foreign auditors; PCAOB; Joint inspections; Sarbanes-Oxley Act
JEL Classification: G18, K22, M42, M48, M49
Suggested Citation: Suggested Citation