PCAOB International Inspections and Audit Quality

The Accounting Review (Forthcoming)

Fox School of Business Research Paper No. 17-028

Posted: 10 Aug 2017 Last revised: 18 Sep 2017

See all articles by Jagan Krishnan

Jagan Krishnan

Temple University - Department of Accounting

Jayanthi Krishnan

Temple University - Department of Accounting

HakJoon Song

California State University, Dominguez Hills

Date Written: September 1, 2016

Abstract

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

Krishnan, Jagan and Krishnan, Jayanthi and Song, HakJoon, PCAOB International Inspections and Audit Quality (September 1, 2016). The Accounting Review (Forthcoming), Fox School of Business Research Paper No. 17-028, Available at SSRN: https://ssrn.com/abstract=3015805

Jagan Krishnan

Temple University - Department of Accounting ( email )

Fox School of Business & Management
1801 Liacorous Walk
Philadelphia, PA 19122
United States
215-204-8126 (Phone)
215-204-5587 (Fax)

Jayanthi Krishnan (Contact Author)

Temple University - Department of Accounting ( email )

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

HakJoon Song

California State University, Dominguez Hills ( email )

1000 E. Victoria Street, Carson, CA
Carson, CA 90747
United States

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