An Analysis of the Timeliness of Section 104 Inspection Reports: 2004-2010

Abstract

Section 104 of the Sarbanes-Oxley Act (USHR 2002) requires the Public Company Accounting Oversight Board (PCAOB or Board) to conduct inspections of each registered public accounting firm. Audit deficiencies that exceed certain thresholds are summarized in the public portion of the Board’s inspection reports. Critics have called for more timely disclosure of PCAOB inspection reports (Reilly 2006; Roybark 2006, 2009; Turner 2006). Roybark (2009) analyzed the 558 inspections reports issued by the PCAOB during 2004-2007 (December 31) to determine the time lags based on days from field-to-report. During its first year of triennial inspections (2004), the mean number of days from field-to-report was 416 for firms where audit deficiencies were reported. For 2004 annual inspections, the mean number of days ranged from 295 to 475 for national firms and 291 to 334 for Big-4 firms. And while some improvements on the timeliness of triennial inspection reports were originally reported, improvements reported for 2007 inspections dissipated once additional inspection reports for 2007 were subsequently issued during 2008-2010. So has the PCAOB actually improved its Section 104 reporting by issuing its inspection reports in a more timely manner? To answer this question, 1,323 triennial and annual inspection reports issued during 2004-2011 (June 9) are analyzed based on the time lag from the last date in the field to the issuance date of the inspection reports (field-to-report) to determine if the time lapse has improved since the Board issued its first inspection reports in 2004.