Paper Title
A Study of CPA Firms� Technical Competence

Abstract
The supply of audit quality is affected by both auditor independence and auditor competence. Auditor independence is driven by market-based incentives that include CPA firms� reputation and litigation risk. Auditor competence, by contrast, is based on a CPA firm�s internal strengths, which refer to the auditors� ability to deliver high-quality audits. Because auditor competence is highly associated with a CPA firm�s internal practices or operations, which are considered unobservable, a common proxy for auditor competence is the size of a CPA firm. We note, however, that the widely held assumption that auditor size equates to auditor competence unnecessarily discriminates against small and medium-sized CPA firms. Another common proxy for a CPA firm�s competence is auditors� specialized knowledge (or expertise) developed in particular industries. However, classification problems are inherent when applying industry specialization. In addition to the above factors, we believe there should be other auditor characteristics that are associated with auditor competence. In this study, we use the staff-to-partner ratio (as a CPA firm-level characteristic) and the workload of engagement auditors (as an individual auditor-level characteristic) to measure a CPA firm�s span of control, and expect that they are related to a CPA firm�s technical competence and, in turn, audit quality. Using modified audit opinion to measure audit quality, we find that CPA firms with a smaller staff-to-partner ratio and engagement partners with a lower audit workload are associated with higher audit quality, which imply that a narrower span of control captures better monitoring and learning capabilities of personnel that ultimately builds expertise and leads to higher technical competence and audit quality. Our results are robust to auditor size effect and various model specifications. Considered together, these results suggest that CPA firms� span of control has significant influence on CPA firms� technical competence and audit quality. Keywords- Technical competence; span of control; audit quality JEL classification: M12; M42