The Credibility of Self-Regulation: Evidence from the Accounting Profession's Peer Review Program
Posted: 18 Apr 2005
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The Credibility of Self-Regulation: Evidence from the Accounting Profession's Peer Review Program
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