Insights into Auditor Public Oversight Boards: Whether, How, and Why they 'Work'

Abstract

We survey 170 inspectors, representing 27% of the inspection staff, from auditor public oversight boards (POBs) in 20 countries to understand whether, how, and why auditors change auditing practices in response to POB oversight. We ask about several theories and areas in the literature. We find that a large majority of POB inspectors believe that auditors frequently respond to inspector feedback by changing audit procedures and quality control systems. Inspectors perceive inspections to have broad effects on several aspects of auditing, ranging from documentation, scrutiny of management estimates, and training to changes in the audit-quality review process, firm culture and on occasion even compensation policies. Inspectors perceive that the primary reasons why auditors respond to their feedback are 1) POB enforcement capabilities, 2) the perceived authority of the POBs, 3) public disclosure of inspection findings, and 4) that POBs have a culture conducive for detecting auditing deficiencies. Cross-sectional tests suggest that inspection frequency and the number of inspectors employed by a POB also affect the perceived extent to which auditors respond to inspection feedback.