Auditors’ Reaction to Feedback from PCAOB Inspections

• In Event: Audit Regulation and Inspection

Abstract

PCAOB inspections offer a unique opportunity for auditors to receive feedback about their performance. Using an experiential questionnaire, we ask 103 partners and managers about their experience with and reaction to a recent PCAOB inspection. Drawing on performance feedback research, we predict and find that more positive perceptions of the inspection feedback source and message each increase auditors’ motivation to use the inspection feedback. This in turn increases audit quality and decreases inspection risk management on the subsequent year of the engagement. We further find that as auditors’ motivation to use inspection feedback increases, their desire to continue working on public company audits increases and their turnover intentions decrease. Interestingly, inspection results (i.e., presence or absence of a Part I finding) do not impact audit quality beyond the effect of inspection feedback message. We conclude by providing qualitative insights into ways in which inspectors and audit firms can improve the inspection feedback experience and ultimately audit quality.

Authors

• Veena Looknanan Brown, University of Wisconsin-Milwaukee

• Denise Hanes Downey, Villanova University

• Amy C Tegeler, University of Wisconsin-Milwaukee