PCAOB Enforcement: Toothless Body of Law or a Bite That Packs a Punch?

The value of PCAOB enforcement was questioned in a 2019 Project on Government Oversight report, calling it a “toothless body of law.” However, the argument focused narrowly on the limited number of PCAOB enforcements imposed on Big 4 auditors without consideration of whether they motivate positive audit quality effects more broadly. In this paper, we summarize key findings by Lamoreaux, Mowchan, and Zhang (2023) regarding whether PCAOB enforcement provides spillover benefits, deterring audit failures. LMZ find audit quality improvements among nonsanctioned auditors following PCAOB enforcement, but the pattern of this spillover varies with auditor and enforcement characteristics. Their results suggest that even PCAOB enforcements that seem limited in scope can offer protections to investors more broadly through spillover benefits. In conclusion, we discuss potential avenues through which additional spillover benefits could occur, resulting from audit firm organizational structures, remote work environments, and emerging trends in PCAOB rule-making and enforcement. JEL Classifications: G38; M42; M48.