Title page for ETD etd-04012015-160918

Type of Document Dissertation
Author Johnson, Elizabeth Schwartzhoff
Author's Email Address eschw15@lsu.edu
URN etd-04012015-160918
Title Does the PCAOB Inspection have an Effect on Audit Fees and Audit Quality?
Degree Doctor of Philosophy (Ph.D.)
Department Accounting
Advisory Committee
Advisor Name Title
Reichelt, Kenneth Committee Chair
Legoria, Joseph Committee Member
Soileau, Jared Committee Member
Sanger, Gary Dean's Representative
  • Audit Fees
  • Audit Quality
Date of Defense 2015-04-01
Availability unrestricted
I investigate the effects of the issuance of the PCAOB Part II report on audit fees and audit quality. The PCAOB replaced the peer review auditor program with an independent inspection of audit firms. Upon completion of each inspection, the PCAOB issues inspection reports that include a public portion (Part I) of identified audit deficiencies, and most include a nonpublic portion (Part II) of identified quality control weaknesses which is not disclosed publicly unless the audit firm does not sufficiently complete remediation during the next 12 months. Upon issuance of the Part II report, I find that audit firms experience reputational damage resulting in a decrease in audit fees. I also find that though audit fees decrease, audit quality increases as the audit firms increase their efforts to remediate the quality control issues identified in the Part II report in an effort to comply with the expectations of the PCAOB. In summary, my results indicate that there is an associated cost to audit firms when they are unable to remediate their control deficiencies within the 12 month remediation period as well as an associated benefit for the audit clients who decide to remain with the audit firm after the issuance of the Part II report, as they not only are able to negotiate lower audit fees but also receive higher audit quality for those lower fees.
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