The Impact of PCAOB Inspections on Auditor Behaviors—Reshaping the Definition of Audit Quality at the Cost of the Profession

The Sarbanes Oxley Act passed in 2002 fueled increasing regulation and oversight over not only publically-traded companies, but also public accounting firms. The implementation of the Public Company Accounting Oversight Board (PCAOB) increased the accountability of auditors in its extensive oversight protocols aimed to improve audit quality and to strengthen the public trust in financial reporting that faltered with scandals such as Enron, WorldCom, and Xerox in the early 21st century. While evidence from extensive research suggests that PCAOB’s inspections have improved overall audit quality through the lenses of client relationships and client retention, there is a lack of research exploring the implications of PCAOB inspections from the perspectives of audit engagement teams. Specifically, how do PCAOB annual and triannual inspections impact auditor behaviors? Given these questions, my research explores the impact of PCAOB inspections on the public accounting profession through an in-depth analysis of how the PCAOB’s inspection initiatives redefine audit quality, reshape auditor behaviors, and ultimately cultivate auditor conflict in serving the public interest and serving regulators. Applying PCAOB standards and analyzing its corresponding inspection process, this paper examines the impacts of PCAOB inspections on auditor behaviors, and how that may affect audit quality negatively as auditors shift their intentions from auditing to detect fraud to avoiding inspection risk, potentially compromising professional skepticism and due care in the process