Not All PCAOB Inspections Are Created Equal

Colleen M. Boland, PhD, CPA, Brian Daugherty, PhD, CPA, Denise Dickins, PhD, CPA, CIA, and Anna J. Johnson-Snyder, PhD, CPA, CFE

Much has changed since the PCAOB began its inspection program in 2004. In just the last 10 years, the number of auditing firms registered with the PCAOB has increased by approximately 37%, 14 auditing standards have been issued, and the inspection process has matured. One percent of auditing firms (the Big Four) are responsible for the audits of U.S. issuers that account for more than 98% of global market capitalization, while 372 auditors are responsible for auditing the remaining 2% (Caleb Newquist, “The Big 4's Stranglehold on the Audit Market Is Worse than You Thought,” July 17, 2013, http://bit.ly/2taSFFa). Given the need to balance the PCAOB's increasing responsibilities with its stated objective of improving audit quality through its inspection program, more resources should be devoted to inspections of this 1%. By analyzing recent PCAOB inspection trends and extracting auditing firms' inspection reports, this article provides descriptive evidence that aligns with this expectation.