Establishment of National Public Audit Oversight Boards and Audit Quality

Abstract

We examine the establishment of public audit oversight bodies (POB) around the world. While there is substantial evidence on the impacts of the U.S. PCAOB, generalizability of the PCAOB experience to other countries establishing POBs is not a foregone conclusion. We provide descriptive evidence on the establishment of POBs including characteristics of the POBs and factors associated with the timing of establishment up through 2020. Using a difference-in-differences research design over a 20-year period, we find that establishment of a POB is associated with improvements in audit quality. This association is driven by countries that committed to public oversight earlier in our time-series and mainly pertain to POBs that mandate reporting of inspection results or have enforcement authority. This paper contributes to our understanding of public audit oversight around the world and provides important nuance to the relation between POBs and audit quality.

Keywords: public audit oversight; audit quality; accruals; international; audit regulation

JEL Classification: M40, M42, M48, L51, L84, G18