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PCAOB Inspections: Public Accounting Firms on 'Trial'
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3165769##
* Abstract* The objective of our paper is to obtain a better understanding of how auditors anticipate the potential for PCAOB inspection, experience the inspection, cope with the consequences of the inspection, and understand the PCAOB’s influence within the context of professionalism. We use a qualitative approach that employs both surveys (55) and interviews (20) of auditors (of varying rank and firm) across a five-year period (2012-2017). Respondents suggest that PCAOB inspectors are powerful, representing the ‘prosecution’, ‘judge’, and ‘jury’ of the auditing profession. We therefore employ a structural metaphor of the PCAOB inspection as a judicial ‘trial’. By controlling the criteria for which to evaluate performance, inspectors have the power to repeatedly ‘subpoena’, ‘interrogate’, and return a ‘verdict’ on the firm (auditor); those judged as ‘guilty’ require supervised ‘probation’. This process is perceived as having improved audit quality, but at a cost. Passing an inspection is so important, that auditors (firms) have resorted to impression management strategies and “functionally stupid” work practices (e.g., excessive documentation, a decrease in critical thinking as a result of a “box ticking” approach to auditing). Further, some respondents believe that being a good auditor has come at the expense of being a good accountant; the emphasis on audit process and concurrent de-emphasis on technical accounting could ultimately lead to audits themselves falling short. In addition, it is evident that inspectors and auditors differ in their perceptions of risk; likely manifesting because inspectors are standards focused while auditors (firms) are methodology focused. Finally, the inspection process has created excessive stress and tension, beyond budget and fee pressures, which some auditors perceive as affecting the pool of talented auditors that firms may be able to attract and retain in the future.
* Keywords:* Auditing, Inspections, Metaphor, PCAOB, Professionalism, Qualitative
* Abstract* The objective of our paper is to obtain a better understanding of how auditors anticipate the potential for PCAOB inspection, experience the inspection, cope with the consequences of the inspection, and understand the PCAOB’s influence within the context of professionalism. We use a qualitative approach that employs both surveys (55) and interviews (20) of auditors (of varying rank and firm) across a five-year period (2012-2017). Respondents suggest that PCAOB inspectors are powerful, representing the ‘prosecution’, ‘judge’, and ‘jury’ of the auditing profession. We therefore employ a structural metaphor of the PCAOB inspection as a judicial ‘trial’. By controlling the criteria for which to evaluate performance, inspectors have the power to repeatedly ‘subpoena’, ‘interrogate’, and return a ‘verdict’ on the firm (auditor); those judged as ‘guilty’ require supervised ‘probation’. This process is perceived as having improved audit quality, but at a cost. Passing an inspection is so important, that auditors (firms) have resorted to impression management strategies and “functionally stupid” work practices (e.g., excessive documentation, a decrease in critical thinking as a result of a “box ticking” approach to auditing). Further, some respondents believe that being a good auditor has come at the expense of being a good accountant; the emphasis on audit process and concurrent de-emphasis on technical accounting could ultimately lead to audits themselves falling short. In addition, it is evident that inspectors and auditors differ in their perceptions of risk; likely manifesting because inspectors are standards focused while auditors (firms) are methodology focused. Finally, the inspection process has created excessive stress and tension, beyond budget and fee pressures, which some auditors perceive as affecting the pool of talented auditors that firms may be able to attract and retain in the future.
* Keywords:* Auditing, Inspections, Metaphor, PCAOB, Professionalism, Qualitative
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