Letter to the Editors: Certified Public Accountant

ABSTRACT

The Big Four had about 53 audits inspected on average, which represents less than 17% of the audit reports issued for public companies during 2019, which would have been inspected in 2020. (see Exhibit 1). Because it is not feasible to inspect every audit, the PCAOB attempts to focus on audits that are more likely to be deficient. For each of the Big Four, of the 52 or 53 audits the PCAOB reviewed in 2020, 37 were risk-based selections. [...]the 20% deficiency rate is likely based on audits that were more suspect to begin with. [...]it is also important to remember that Part 1.A deficiencies for an audit firm do not necessarily lead to a significant decrease in an audit client's market value. In auditing, there is a tradeoff between minimizing errors and cost constraints (Chu, L., Fogel-Yaari, H., and Zhang, P., "The estimated propensity to issue going concern audit reports and audit quality," Journal of Accounting Auditing, & Finance, 2022, doi10.1177/0148558X2210790H)· For example, the efforts to improve audit quahty via the StrbenesnOxley AH (SOX) innteased auditing costs;to the point of driving smaller public companies to go private (Engel, E., Hayes, R.M., and Wang, X., "The S erbanes-Oxley Act and firmi' going-private decisions3" Journal of AccounOing and Economics, vol. 44, no. 1/2, pp. 116-145, 2007). [...]we do not expect audits to be perfect;rather, we expect inspectors to discover some deficiencies.