A Tale of Three Perspectives: How GNFs, Annual NAFs, and Triennial NAFs Experience the PCAOB Inspection Deficiency Remediation Process

Abstract

Using qualitative methods, we interview practitioners with PCAOB inspection remediation experience to investigate the challenges global network firms (GNFs), annual non-affiliated firms (NAFs), and triennial NAFs experience with the remediation process and how they respond to them. We find stark differences in the remediation challenges experienced by these groups of firms, including differences in their PCAOB remediation teams’ accessibility, consistency, and timing of communication. For example, NAF respondents perceive a lack of guidance and timely feedback from the PCAOB and difficulties transitioning from triennial to annual inspection, and some even perceive they are being pushed out of the public issuer market. Using Oliver’s (1991) strategic responses framework to analyze how firms respond to the challenges of remediation, we find that GNF and NAF firms tend to respond differently to remediation challenges, and their differential responses are related to differential perceptions of the PCAOB’s actions and intentions. Overall, GNFs appear to mostly use acquiescence, compromise, and proactive influence strategies, whereas NAFs also tend to use avoidance and defiance strategies. Our study provides academics and regulators detailed insights from auditors’ perspectives on the impact of the PCAOB’s actions during the remediation process.

Keywords: remediation, inspection deficiencies, quality control criticisms, global network firms, non-affiliated firms, strategic responses, small audit firms, Non-Big 4, Big 4

JEL Classification: M40, M42, M48