|
The Association Between Earnings Quality and Regulatory Report Opinions in the Accounting Industry - AICPA Peer Review and PCAOB Inspections
Katherine Gunny,
University of Colorado Boulder
Tracey Zhang, Singapore Management University
ABSTRACT. We compare the outcome of two different information systems – self regulation versus private sector regulation – in the accounting industry. Under the Sarbanes-Oxley Act, PCAOB inspections replaced AICPA peer reviews of auditors. Peer review opinions are useful regarding decisions about hiring and firing of auditors (Hilary and Lennox, 2005); therefore, the question remains what are the benefits of incurring the cost to replace a self-regulatory system with a private regulatory agency. We examine the usefulness of these two information systems at distinguishing earnings quality at firms employing reviewed auditors. We find opinions from the PCAOB inspection are able to distinguish earnings quality whereas the peer review opinion does not. Given that the PCAOB inspection report opinions are associated with earnings quality, we next identify characteristics associated with auditors that receive a positive PCAOB opinion. We find they are larger and are more independent of clients.
Full-Text is no longer available online. Please contact the author(s) for more information about this manuscript.
Back to Session Listing
|