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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