This study investigates the relation between audit competition, audit quality, and auditor labor hours. Using proprietary data on auditor realization rates, we construct new measures of competition based on theory predicting that abnormal profits will quickly disappear when competition is high but persist over multiple periods when competition is low. We find consistent evidence of persistent abnormal profits among U.S. Big 4 engagements and that individual offices earn persistent abnormal returns, suggesting that the market is not perfectly competitive. Examining the consequences of lower competition, we find that profit persistence is negatively related to audit hours and positively related to audit quality. Although we are cautious about inferring causality, our findings suggest that lower competition is associated with more efficient and effective audits.

The engagement quality review is a key component of an audit firm's quality control system. This study leverages unique data on individual engagement quality reviewers (EQRs) to examine how previous shared working experience between EQRs and engagement partners affects audit quality. While prior research suggests that within‐firm network ties between predecessor and successor partners facilitate knowledge transfer, we find that prior shared working experience between EQRs and engagement partners is associated with lower audit quality. Mechanism tests indicate that such experience is associated with a higher likelihood of regulatory enforcement actions related to deficiencies in audit procedures, insufficient evidence, and a lack of professional skepticism. We also find that such experience corresponds with higher materiality thresholds, suggesting reduced scrutiny during audit planning and execution. Additional analyses reveal that these adverse effects primarily arise when previous shared working relationships did not produce adverse outcomes, when EQRs are not audit industry leaders, and when they face lower reputational risk. These findings are especially salient given that EQRs’ previous shared working experience with engagement partners appears to weigh heavily in EQR assignments. Overall, our study provides important insights into the implications of EQR independence and the determinants of engagement quality review effectiveness.

We investigate the monitoring quality of accountants with ties to the Mafia in their role as auditors for “clean” firms—those with no known ties to organized crime. Using a proprietary government database, we identify Italian firms with alleged ties to the Mafia through their executives, directors, or shareholders. We define “suspect accountants” as those who serve as auditors for these Mafia‐connected firms, acknowledging their potential associations with criminal entities. We predict and find evidence that “clean” clients (treatment group) monitored by suspect accountants are more likely to engage in earnings management practices that reduce taxable income, compared with a control sample of “clean” firms monitored by accountants with no known Mafia ties (control group). Our findings suggest that accountants with ties to the Mafia act as low‐quality monitors in the “clean” economy.