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U.S. Auditors' Perceptions of the PCAOB Inspection Process: A Behavioral Examination†

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  • Lindsay M. Johnson
  • Marsha B. Keune
  • Jennifer Winchel

Abstract

This study examines U.S. auditors' observations of the PCAOB inspection process, and its impact on their work, in order to understand the current U.S. regulatory audit climate. Using 20 interviews with experienced auditors, we consider behavioral factors (e.g., perceived power of and trust in the PCAOB) that can impact the level and form of auditor compliance according to theory from the slippery slope framework on audit regulation (Kirchler et al. 2008; Dowling et al. 2018). Our participants described an audit climate with a powerful regulator. They reported that their desire to receive “clean” inspection reports has had a substantial impact on audit procedures and quality control. However, our participants do not appear to have high trust in the PCAOB, as they questioned aspects of the inspection process and its expectations. Accordingly, we conclude that U.S. public company auditors operate in an antagonistic environment in which auditors perceive the PCAOB has high coercive power. In other words, they comply due to fear of enforcement rather than agreement with the PCAOB's views on audit quality. Some auditors also indicated that they consider both the costs and benefits of compliance. Theoretical intuition implies that any future increases to perceived costs relative to perceived benefits of compliance could ultimately decrease the PCAOB's coercive power and reduce U.S. auditor compliance. Our findings have implications for regulators and researchers interested in understanding behavioral factors that may influence regulatory compliance. Perception du processus d'inspection du PCAOB chez les auditeurs des États‐Unis : une analyse comportementale Les auteures s'intéressent aux observations d'auditeurs américains sur le processus d'inspection du PCAOB et sur l'incidence de ce processus sur leur travail, afin de comprendre le climat actuel de la réglementation de l'audit aux États‐Unis. Analysant les résultats de vingt entrevues menées auprès d'auditeurs expérimentés, elles se penchent sur les facteurs comportementaux (notamment la perception du pouvoir du PCAOB et la confiance dans le PCAOB) susceptibles d'avoir une incidence sur le degré de conformité des auditeurs et la forme qu'elle prend, selon la théorie relative à la réglementation de l'audit issue du cadre de référence de la pente glissante (Kirchler et al., 2008; Dowling et al., 2018). Selon la description que font les auditeurs interrogés du climat de l'audit, les autorités de réglementation jouissent d'un grand pouvoir. Le désir des auditeurs d'obtenir une attestation de conformité a eu une incidence importante sur les procédures d'audit et le contrôle de la qualité. Les participants à l’étude ne semblent cependant pas accorder une grande confiance au PCAOB puisqu'ils remettent en question certains aspects du processus d'inspection et des résultats visés. Les auteures concluent donc que les auditeurs des sociétés américaines faisant appel public à l’épargne exercent leurs activités dans un environnement antagoniste où le PCAOB est perçu comme un pouvoir hautement coercitif. En d'autres termes, les auditeurs se conforment par peur d'y être contraints plutôt que par adhésion à l'optique du PCAOB sur la qualité de l'audit. Certains auditeurs affirment aussi tenir compte à la fois des coûts et des avantages de la conformité. L'intuition théorique laisse croire qu'une éventuelle hausse des coûts perçus de la conformité par rapport à ses avantages perçus pourrait ultimement diminuer le pouvoir de coercition du PCAOB et réduire la conformité des auditeurs américains. Les constatations des auteures intéresseront les autorités de réglementation et les chercheurs qui souhaitent comprendre quels sont les facteurs comportementaux susceptibles d'influer sur la conformité à la réglementation.

Suggested Citation

  • Lindsay M. Johnson & Marsha B. Keune & Jennifer Winchel, 2019. "U.S. Auditors' Perceptions of the PCAOB Inspection Process: A Behavioral Examination†," Contemporary Accounting Research, John Wiley & Sons, vol. 36(3), pages 1540-1574, September.
  • Handle: RePEc:wly:coacre:v:36:y:2019:i:3:p:1540-1574
    DOI: 10.1111/1911-3846.12467
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    Cited by:

    1. Goodson, Brian M. & Grenier, Jonathan H. & Maksymov, Eldar, 2023. "When law students think like audit litigation attorneys: Implications for experimental research," Accounting, Organizations and Society, Elsevier, vol. 104(C).
    2. Hanlon, Michelle & Shroff, Nemit, 2022. "Insights into auditor public oversight boards: Whether, how, and why they “work”," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    3. van Brenk, Herman & Renes, Remko & Trompeter, Gregory M., 2022. "Auditing in the public interest: Reforming the profession by building on the strengths of the existing accounting firms," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 83(C).
    4. Sarah B. Stuber & Chris E. Hogan, 2021. "Do PCAOB Inspections Improve the Accuracy of Accounting Estimates?," Journal of Accounting Research, Wiley Blackwell, vol. 59(1), pages 331-370, March.
    5. Matthew Bamber & Santhosh Abraham, 2020. "On the “Realities” of Investor‐Manager Interactivity: Baudrillard, Hyperreality, and Management Q&A Sessions†," Contemporary Accounting Research, John Wiley & Sons, vol. 37(2), pages 1290-1325, June.
    6. Christensen, Brant & Lei, Lijun (Gillian) & Shu, Sydney Qing & Thomas, Wayne, 2023. "Does audit regulation improve the underlying information used by managers? Evidence from PCAOB inspection access and management forecast accuracy," Accounting, Organizations and Society, Elsevier, vol. 106(C).
    7. Keyser, John D., 2023. "Examine the available evidence: Was the Duhnke PCAOB captured?," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 97(C).
    8. Christine Gimbar & Molly Mercer, 2021. "Do Auditors Accurately Predict Litigation and Reputation Consequences of Inaccurate Accounting Estimates?," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 276-301, March.
    9. Booker, Danielle D. & Pelzer, Josette R.E. & Richardson, Jeremy R., 2023. "Integrating data analytics into the auditing curriculum: Insights and perceptions from early-career auditors," Journal of Accounting Education, Elsevier, vol. 64(C).
    10. Aobdia, Daniel & Dou, Yiwei & Kim, Jungbae, 2021. "Public audit oversight and the originate-to-distribute model," Journal of Accounting and Economics, Elsevier, vol. 72(1).
    11. Knechel, W. Robert & Park, Hyun Jong, 2022. "Audit firm political connections and PCAOB inspection reports," Accounting, Organizations and Society, Elsevier, vol. 100(C).

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