PCAOB Inspection Reports and Shareholder Ratification of the Auditor

Accounting and the Public Interest, Vol. 17, No. 1, 2017

23 Pages Posted: 19 Mar 2018  

Myungsoo Son

California State University, Fullerton - Department of Accounting

HakJoon Song

California State University, Dominguez Hills

Youngkyun Park

University of Idaho - College of Business & Economics

Date Written: December 2017

Abstract

We examine the effect of unfavorable PCAOB inspection reports, which contain audit deficiencies related to GAAS and/or GAAP violations, on shareholder voting for the auditor ratification. We further investigate whether shareholders likely vote against ratification for the auditors receiving deficiency reports in a weak corporate governance environment. Overall, we do not find evidence that shareholders vote against auditor ratifications when their auditors receive unfavorable inspection reports. However, we find some evidence that shareholders cast their votes against the ratifications of auditors receiving unfavorable inspection reports when the corporate governance is weak, as proxied by CEO duality and a low level of board diligence. Our results suggest that shareholders seem not to incorporate inspection reports as a potential proxy for auditor quality in their vote decisions on auditor ratification.

Keywords: PCAOB inspection reports; audit deficiency; shareholder ratification

Suggested Citation

Son, Myungsoo and Song, HakJoon and Park, Youngkyun, PCAOB Inspection Reports and Shareholder Ratification of the Auditor (December 2017). Accounting and the Public Interest, Vol. 17, No. 1, 2017. Available at SSRN: https://ssrn.com/abstract=3140825

Myungsoo Son

California State University, Fullerton - Department of Accounting ( email )

P.O. Box 34080
Fullerton, CA 92834-6848
United States

HakJoon Song (Contact Author)

California State University, Dominguez Hills ( email )

Carson, CA 90747
United States

Youngkyun Park

University of Idaho - College of Business & Economics ( email )

Moscow, ID 83944-3174
United States
208-885-7154 (Phone)

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