Providing Transparency over the PCAOB Inspection Process: The Perspective of Former Inspectors

Abstract

To provide greater transparency over the PCAOB inspection process, we interview 26 former PCAOB inspectors about the engagement-level inspections of global network firms. To this end, we inductively create a framework capturing three distinct phases of the inspection process: preparation, execution, and resolution. Across these three phases, we provide in-depth and contextual insights that are new to the accounting literature. These insights cover issuer and focus area selection, inspection planning and execution, comment form identification, report issuance, and remediation. We provide inspectors a voice to reveal flaws in this process, such as non-representativeness of the inspections sample, implicit incentives for inspectors to identify deficiencies, and biased application of auditing standards across global network firms, nonaffiliate firms, and international firms. We also inform investor understanding of the holistic inspections process, discuss implications of our findings for practitioners, regulators, and lawmakers, and formulate important topics and questions for future academic research.

Keywords: Auditing, PCAOB Inspections, Inspectors

JEL Classification: K23, M42