Audit firms inspected by the PCAOB may voluntarily submit written responses to the PCAOB’s findings, which are included in public inspection reports. While relatively large firms moved to providing brief, standardized responses to the PCAOB’s findings by 2010, smaller firms (inspected every three years) have continued to submit more detailed responses. This study explores the impact of these variations. First, such responses lead to increased audit fees but do not enhance audit quality, especially among firms with deficiencies. Second, shorter, less complex responses with a negative tone and no partner signature indicate a lack of commitment to quality improvement. Third, despite the responses’ effects on fees and quality, clients tend to retain auditors who respond to the PCAOB and the response characteristics help to explain auditor retention. Overall, the findings suggest a strategic use of responses to downplay or refute issues, aiding small firms in retaining clients.
| Speaker: | Dr Miguel Minutti-Meza Professor, University of Miami |
| When: |
- |
