Artikel Gunny & Zhang (2013)
5 important questions on Artikel Gunny & Zhang (2013)
How do the inspection reports look like?
- Public portion:
- Deficiencies in the quality of the audit work of a specific engagement.
- Client identity is not report.
- Nonpublic portion:
- Related to auditor's quality control system
- Only made public if not resolved by audit firms within 12 months
Why are PCAOB inspection reports likely to be associated with audit quality?
- PCAOB can conduct investigations, disciplinary proceedings, impose sanctions, and can communicate findings to regulatory and law enforcement bodies.
- PCAOB has access to all client documentation.
- PCAOB can interview audit committee members and directors.
- Large inspection teams had on average 23 years of experience, small teams 14 years.
Why might PCAOB inspection reports not be associated with audit quality?
- Inspection reports may not be representative of overall audit quality because they take the risky engagement.
- Nonpublic portion of reports may contain (most) relevant information.
- PCAOB might lack qualified resources, technical skills, and insufficient time and funds for timely inspections.
- Inspection reports might cover trivial or inconsequential weaknesses (for example, too detailed).
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How are the inspection reports (those are about the audit firm and specific engagements (confidential)) classified?
- Clean report: no issues
- Deficient report: Departure from Auditing Standards (PCAOB standards) (e.g., failure to perform and document substantive procedures, insufficient analytical review, missing steps)
- Seriously deficient report: Financial statements do not comply with Accounting Standards (GAAP) and/or even have to be restated (e.g. Material misstatements)
How is audit quality measured?
- Discretionary accruals
- Propensity to restate (client has to restate their financial statements)
- Propensity to issue a going concern opinion
The question on the page originate from the summary of the following study material:
- A unique study and practice tool
- Never study anything twice again
- Get the grades you hope for
- 100% sure, 100% understanding
