Do PCAOB Inspections of Foreign Auditors Improve Global Financial Reporting Comparability?

61 Pages Posted: 19 Nov 2019

See all articles by Matthew Ege

Matthew Ege

Texas A&M University - Department of Accounting

Young Hoon Kim

Texas A&M University - Department of Accounting

Dechun Wang

Texas A&M University

Date Written: November 8, 2019

Abstract

This study investigates whether Public Company Accounting Oversight Board (PCAOB) inspections of foreign auditors affect global financial reporting comparability. Foreign auditors may adjust audit methodologies to address PCAOB inspection findings, which could affect financial reporting of local clients. Exploiting both within- and across-country variation in PCAOB inspections, we find that non-US-listed foreign companies’ financial reporting becomes more comparable to their US and non-US industry peers after their auditors undergo an initial PCAOB inspection. Subsample tests suggest that results are driven by auditors that satisfactorily address deficiencies and auditors that do not publicly push back against deficiencies. The effects exist both within and across global audit networks and are dampened after local audit regulators begin inspection programs. Overall, our evidence suggests that the PCAOB international inspection program affects audit methodologies of inspected auditors in a consistent way, improving comparability across jurisdictions and auditors.

Keywords: PCAOB, Comparability, Foreign Auditors

JEL Classification: M41, M42

Suggested Citation

Ege, Matthew and Kim, Young Hoon and Wang, Dechun, Do PCAOB Inspections of Foreign Auditors Improve Global Financial Reporting Comparability? (November 8, 2019). Available at SSRN: https://ssrn.com/abstract=3483635 or http://dx.doi.org/10.2139/ssrn.3483635

Matthew Ege (Contact Author)

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

Young Hoon Kim

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

Dechun Wang

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

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