PCAOB inspection deficiencies and future financial reporting quality: Do the types of deficiencies matter?

• 成果类型: Article
• 署名作者: Constance, Patience; Lennox, Clive; Li, Chan
• 署名单位: State University System of Florida; University of West Florida; University of Southern California; University of Kansas
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.13000
• 发表日期: 2025
• 页码: 121-152
• 关键词: internal control; corporate governance; empirical-evidence; earnings quality; determinants; CHALLENGES; proxies; IMPACT; audits

摘要

This study examines whether PCAOB inspection reports are useful for signaling the risk of misstatements in future periods and the extent to which different types of audit deficiencies predict future misstatements. We find that, after the inspection report is issued, PCAOB-identified audit deficiencies are positively associated with future misstatements for the audit firm's entire client portfolio. When we examine different types of deficiencies, we find that an auditor's failure to understand the client's accounting procedures or policies is the most detrimental type of deficiency for future reporting quality. We also examine the deficiency types for Big 4 versus non-Big 4 firms separately. The results show that an auditor's failure to understand the client's accounting procedures or policies is the only deficiency type that is positively associated with future misstatements for Big 4 firms. For non-Big 4 firms, however, future misstatements are predicted by an auditor's failure to understand the client's accounting procedures or policies, inadequate substantive testing, and inadequate going-concern assessments. Our study has important implications given the concerns raised by auditors regarding the usefulness of PCAOB inspections.