PCAOB Inspection and Audit Quality: Evidence from Chinese IPO Firms

• In Event: International Accounting

Abstract

We investigate the effect of the PCAOB inspections on audit quality by examining the audit quality differences between the Chinese affiliates of Big Four accounting firms and the U.S. affiliates of Big Four accounting firms. We examine a sample of IPOs of Chinese firms in the U.S. during the IPO and the post-IPO period. We expect audit quality of Chinese affiliates of the Big Four accounting firms to be lower than the the audit quality of the U.S. affiliates of Big Four firms because the external monitoring mechanism under the PCAOB requires U.S. audit to comply with audit quality control standards. We find that Chinese cross-listed IPO firms audited by the Chinese affiliates of Big Four accounting firms manage their earnings and pay lower audit fees to their auditors compared with the U.S. firms in the post-IPO period.

Authors

• Pervaiz Alam, Kent State University

• Yang Cheng, Kent State University - Kent