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An investigation into PCAOB reporting deficiencies
The PCAOB inspection reports for large audit firms are primarily anecdotal in nature, providing only a list of deficiencies found without any statistical context (e.g., the inspection sample size). This is problematic when trying to determine the extent of a firm’s audit weaknesses. However, simply adding statistical data to the reports, as currently provided in the PCAOB reports of small firms, may not solve the problem. Prior research suggests that statistical data are often ignored or underweighted when anecdotal data are present. This study investigates whether a bias for anecdotal data overwhelms the statistical data as currently presented in small firm reports, and whether any anecdotal bias can be overcome by possible decision aids. I first demonstrate that the anecdotal data presented in PCAOB reports can lead to incorrect perceptions of audit firms. I then find that the PCAOB’s practice of providing statistical context in small firm reports is ineffective; that is, users continue to focus on anecdotal data even in the presence of informative statistical data. Finally, I provide evidence to indicate that two easily implemented decision aids can successfully help incorporate statistical data into perceptions of audit firms, resulting in more informed audit engagement decisions.
Wainberg, James Samuel, "An investigation into PCAOB reporting deficiencies" (2010). Doctoral Dissertations Available from Proquest. AAI3427574.