Abstract
Based on data from 760 PCAOB inspection reports issued between December 2006 and April 2021 for 305 non‐U.S. audit firms, this paper analyses changes and trends in PCAOB inspection traits, inspection outcomes, audit firm characteristics and firms' reactions to those inspections. We find significant changes have occurred in several areas, including changes in audit quality for both principal‐auditor engagements and referred‐work (i.e., other auditor) engagements, audit deficiency rates for both Big‐4 affiliated firms and unaffiliated firms, firms' responses to inspections and several other changes. We also find a significant iteraction between the firm's network affiliation and the firm's role in the engagement (i.e., principal auditor vs. referred work). Further analysis of this interaction reveals that when unaffiliated firms perform referred‐work engagements, they have better PCAOB inspection outcomes than when performing principal‐auditor engagements. However, affiliation with a network mitigates this outcome.
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