The Effect of PCAOB Inspection Report Findings on Auditor Effort

• In Event: Accounting History

Abstract

At the 2010 AICPA National Conference on SEC and PCAOB Developments, Daniel Goelzer, then Acting Chairman of the PCAOB stated, “[i]t has been widely reported that audit committees are expecting auditors to share in the economic pain that companies are feeling by agreeing to fee reductions” (Goelzer 2010). An increase in an audit firm’s political visibility, such as that garnered by the release of the PCAOB inspection reports, in an economically stressed time can have negative consequences on audit firms and issuers. We examine the impact of PCAOB inspection report findings on audit effort, as represented by audit fees. Consistent with theory, we find that audit effort (i.e. audit fees) is influenced by inspection findings depending on the severity of clients’ accounting issues and internal control weaknesses.

Authors

• Anna J Johnson-Snyder, Bradley university

• Maria Paulina Kassawat, Youngstown State University