This paper examines the role of the Public Company Accounting Oversight Board (PCAOB) quality control inspection program on market segmentation of small firms’ audit services. Specifically, we investigate how non-remediation of quality control criticisms (QCCs) affects the supply and demand of low-quality audits. We find that remediation of QCCs improves audit quality for small accounting firms. However, some small accounting firms do not remediate QCCs (NR firms) and continue to provide low audit quality. We investigate how NR clients react to the disclosure of non-remediation of QCCs. We find that NR clients with low agency costs are more likely to retain NR firms after the disclosure of non-remediation. This finding is consistent with our expectation that voluntary QCC remediation creates a low-quality audit market segment for NR firms. Our findings suggest that the public disclosure of QCCs is not sufficient to remove low-quality auditors. Instead, NR clients use the disclosure of non-remediation of QCCs as a signal to sort themselves into segments based on their demand for audit quality. We are the first to study and find that PCAOB inspections, and specifically the voluntary nature of remediation and public disclosure of lack of remediation, create market segmentation.

本文研究了上市公司会计监督委员会 (PCAOB) 质量控制检查计划对小公司审计服务市场细分的作用。具体来说，我们调查了质量控制批评 (QCC) 的不补救如何影响低质量审计的供需。我们发现，QCC 的整治提高了小型会计师事务所的审计质量。然而，一些小型会计师事务所不修复 QCC（NR 事务所）并继续提供低审计质量。我们调查了 NR 客户对披露未修复 QCC 的反应。我们发现代理成本低的 NR 客户更有可能在披露非补救措施后保留 NR 公司。这一发现与我们的预期一致，即自愿 QCC 补救为 NR 公司创造了一个低质量的审计细分市场。我们的研究结果表明，QCC 的公开披露不足以消除低质量的审计师。取而代之的是，NR 客户将披露 QCC 的未修复作为信号，根据他们对审计质量的需求将自己分类。我们是第一个研究并发现 PCAOB 检查，特别是补救的自愿性质和缺乏补救的公开披露，造成市场细分。