Do PCAOB Inspections of Foreign Auditors Improve Global Financial Reporting Comparability?
61 Pages Posted: 19 Nov 2019
Date Written: November 8, 2019
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: Suggested Citation