In the period leading up to the early 2000s there were a series of large company failures attributed at least in part to audit failures. Consequently, the Sarbanes Oxley Act (SOX) was promulgated in July 2002 to restore confidence in public company financial reporting and the work of auditors. The Public Company Accounting Oversight Board (PCAOB) was established by SOX and appointed as the regulator of the accounting firms that audit the financial statements of public companies. The PCAOB is required to routinely inspect the operations of these accounting firms in an effort to satisfy its mandate to bring about an improvement in the audit quality of these companies. These inspections extend to the non-US auditors of companies that are cross-listed in the US. Despite various mainly US studies on inspections, there is limited evidence that the inspections have resulted in improved audit quality.
Some governments have not permitted PCAOB inspections in their countries. The variation in the feasibility of inspections internationally provides a unique opportunity to study whether inspections have resulted in improved audit quality. The variation overcomes the problem of lack of a control sample that is encountered when examining US companies. Accordingly, I examine companies whose securities are cross-listed in the US in the periods before and after inspection in order to provide evidence on the benefits of inspections.
I find some evidence that inspections improve the audit quality of companies that are cross-listed in the US. This suggests the audit quality of companies from countries that do not permit inspections may be positively affected should inspections be permitted.
|School:||Florida Atlantic University|
|School Location:||United States -- Florida|
|Source:||DAI-A 74/02(E), Dissertation Abstracts International|
|Keywords:||Audit quality, Cross-listed securities, Public Company Accounting Oversight Board (PCAOB), Sarbanes-Oxley Act|
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