The Credibility of Self-Regulation: Evidence from the Accounting Profession's Peer Review Program

Lennox, Clive S.; Hilary, Gilles

doi:10.2139/ssrn.698701

Download This Paper

Open PDF in Browser

Add Paper to My Library

The Credibility of Self-Regulation: Evidence from the Accounting Profession's Peer Review Program

33 Pages Posted: 18 Apr 2005

See all articles by Clive S. Lennox

Gilles Hilary

Georgetown University - Department of Accounting and Business Law

There are 2 versions of this paper

Date Written: March 4, 2005

Abstract

Following the Sarbanes-Oxley Act, self-regulated peer reviews at accounting firms were replaced by independent inspections conducted by the Public Company Accounting and Oversight Board. Critics of self-regulation had argued that the peer review program lacked credibility. This paper tests whether the opinions issued by the peer reviewers provided credible information to clients about audit firm quality. We find audit firms gained clients after receiving clean opinions from their reviewers and lost clients after receiving modified or adverse opinions. This suggests peer review opinions provided credible information about quality differences between audit firms.

Keywords: Self-regulation, Sarbanes-Oxley Act

JEL Classification: G18, G34, L51, M49, G38

Suggested Citation: Suggested Citation

Lennox, Clive and Hilary, Gilles, The Credibility of Self-Regulation: Evidence from the Accounting Profession's Peer Review Program (March 4, 2005). Available at SSRN: https://ssrn.com/abstract=698701 or http://dx.doi.org/10.2139/ssrn.698701