![\"Will](\"https:\/\/www.newsbeep.com\/il\/wp-content\/uploads\/2025\/12\/01kbzpvxsscexa9y6x554ez66b.jpg\")
Will Ciconte<\/p>\n
The paper has been accepted to the Journal of Accounting Research.<\/p>\n
\u201cMore providers should mean more fierce competition, where the provider should then try to differentiate based on their quality, and that should drive quality up and ensure prices stay at a fair price. Unfortunately, that ignores a few things unique about the audit market,\u201d said Ciconte, who co-wrote the article with Andrew Kitto of the University of Massachusetts Amherst.<\/p>\n
Their study focuses on profit persistence (i.e., profits are \u201csticky\u201d over time). They find certain audit offices have abnormal profits and there does not seem to be enough competitive pressure to drive down those profits over time. This provides evidence supporting concerns expressed by the audit regulator that the audit market lacks competition.<\/p>\n
\u201cWe interpret the evidence as suggesting auditors with persistent profits are just providing better audits,\u201d he said.<\/p>\n
For the main analysis, Ciconte and Kitto measure competition using regressions of abnormal profitability in the current year on abnormal profitability in the prior year. (Abnormal profitability refers to the difference between the profitability for a given audit engagement compared to all engagements in the same year.)<\/p>\n
Ciconte said, \u201cWe use this measure to explore whether higher profit persistence, which we use as a measure for low competition, is related to auditor effort and quality. We test this by regressing auditor hours, financial statement restatements, PCAOB inspection findings and discretionary accruals on our competition measure.\u201d<\/p>\n
Most larger companies rely on one of the Big Four firms \u2014 Deloitte, PwC (PricewaterhouseCoopers), EY (Ernst & Young) and KPMG \u2014 for their accounting and auditing. But that comes with its own set of baggage.<\/p>\n
\u201cFor many of these companies, they can\u2019t get an auditor that\u2019s outside of the Big Four because there\u2019s a need to invest in technology and knowledge and skills to serve the client,\u201d Ciconte said.<\/p>\n
\u201cThere\u2019s this concern, \u2018We only have these four firms that can serve this pool of clients. They don\u2019t have an incentive to do a good job.\u2019 We say, \u2018Let\u2019s see what competition looks like inside these markets. And then if we are detecting that there appears to be less competition, what are the implications for stakeholders?\u2019\u201d<\/p>\n
Given that Ciconte found a lack of competition wasn\u2019t problematic, then wouldn\u2019t the audit quality be the same if a company were to switch to any of the other Big Four?<\/p>\n
\u201cBecause these auditors are able to develop skill and expertise which they can then exploit, this creates a barrier so another firm can\u2019t just come in and say, \u2018Hey, you should come with us.\u2019 Because switching off that auditor will be costly to the clients. The clients are willing to stick with them because they figured out a way to develop their processes, to get the right people in place to do good work and to get to a quality answer that is not replicable by a competitor,\u201d he said.<\/p>\n
The Delaware native started at KU this fall. He considers his expertise a \u201cweird hybrid\u201d of audit research and tax research.<\/p>\n
Ciconte said, \u201cI know from my talks with rank-and-file partners in major firms, they\u2019re always monitoring these concerns. They understand what\u2019s going on in the regulatory environment, and so they\u2019re concerned about potential changes. Our study suggests any changes should be done very cautiously. It\u2019s not good to solve a problem that doesn\u2019t exist.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"LAWRENCE \u2014 In the U.S. public company audit market, regulators often assume that the absence of competition may…\n","protected":false},"author":2,"featured_media":176034,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[114,85,46,103460,21502,103458,30904,103459],"class_list":["post-176033","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-business","tag-il","tag-israel","tag-jayhawks","tag-kansas","tag-ku","tag-lawrence","tag-university-of-kansas"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/176033","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=176033"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/176033\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/176034"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=176033"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=176033"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=176033"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}