Auditor Perceptions, Reactions, and Responses to PCAOB Inspection Feedback

ABSTRACT Guided by the performance feedback literature, we study PCAOB inspections as a nonstandard feedback event. We use an experiential questionnaire to collect and analyze perceptions, reactions, and responses to inspection feedback from 120 partners and managers subject to a recent PCAOB inspection. Despite varying perceptions, we find on average auditors perceive strong firm support but also that firms acquiesce to inspectors. Generally, the feedback source, inspectors, are perceived as professional, organized, and knowledgeable and auditors agree with the feedback message, perceiving it as consistent and well reasoned. We observe a range of auditor reactions (satisfaction with and motivated to use inspection feedback), responses at the engagement level (improvements to audit quality and inspection risk or impression management), and individual responses. Multivariate analyses show more positive feedback perceptions improve reactions, which enhance desirability of responses and are robust to considering the inspection outcome, offering insights for refining inspection interactions and processes.