The Impact of PCAOB-Type Regulations on Auditors under Different Legal Systems

Abstract

This paper analyzes the impact of Public Company Accounting Oversight Board (PCAOB)-type regulatory oversight and legal liability on audit quality and social surplus. We show the conditions under which regulatory oversight can improve audit quality and social surplus, as compared to the impact of legal systems. Moreover, we demonstrate that regulatory oversight is not likely to substitute effectively for a legal system. This is the first study that analyzes the possible effects of an audit regulator on auditors under different legal systems, and our results enhance understanding of the complex relationship between regulatory oversight, a legal system, and social surplus.

Keywords: Regulatory oversight, auditing standards, audit quality, audit value

JEL Classification: M42; M48