The credibility of self-regulation: Evidence from the accounting profession's peer review program

C. Lennox, G. HILARY

Journal of Accounting and Economics

décembre 2005, vol. 40, n°1-3, pp.211-229

Départements : Comptabilité et Contrôle de Gestion

Following the Sarbanes-Oxley Act, self-regulated peer reviews at accounting firms were replaced by independent inspections conducted by the Public Company Accounting and Oversight Board. Critics of self-regulation had argued that the peer review program lacked credibility. This paper tests whether the opinions issued by the peer reviewers provided credible information to clients about audit firm quality. We find audit firms gained clients after receiving clean opinions from their reviewers and lost clients after receiving modified or adverse opinions. This suggests peer review opinions provided credible information about quality differences between audit firms. (c) 2005 Elsevier B.V. All rights reserved. Author Keywords: self-regulation; Sarbanes-Oxley act KeyWords Plus: AUDITING ENFORCEMENT RELEASES; FRAUD