Smaller audit firms that get dinged in their regulatory inspections generally lose their public audit clients or just drop out of public company auditing entirely, according to recent academic research.
Brian Daugherty, assistant professor at the University of Wisconsin, said the smallest audit firms, typically auditing only one public audit client, are the firms hardest hit by a negative inspection report from the Public Company Accounting Oversight Board. They typically lose their clients to other small audit firms that have so far not been the subject of a published negative inspection finding, he said.
