The Landscape of Auditing in U.S. Capital Markets

Abstract

We document trends in landscape of public-company auditing over 2003 to 2023, focusing on the distribution of audits across auditor size groups, auditor switching patterns, and audit firm entry and exit. We find remarkable stability in the Big 4's proportion of total audit fees but substantial declines in their presence among Nasdaq and OTC issuers. Auditor switching rates decline over time among Big 4 and Mid 2 clients while remaining persistently high among clients of smaller audit firms, suggesting increased differentiation in auditor-client relationships. Although PCAOB registrations surge in the first half of our sample, largely due to the 2009 broker-dealer mandate, total registered firms decline sharply after 2010. Most deregistering firms were minimally involved in auditing public issuers, suggesting that their exit does not necessarily reduce auditor availability. Our results highlight the importance of understanding firm-level audit activity, rather than registration numbers alone, when evaluating regulatory impacts on public issuer audits.

Keywords: Audit market, PCAOB, Auditor switching, Audit regulation, Auditor competition, Audit fees, Sarbanes-Oxley Act JEL Classification: G28, K21, L44, M42