The period after the demise of Enron and Andersen has been tumultuous for the accounting profession. In congressional hearings and in responses to the SEC and GAO, auditors have stated that provisions of the Sarbanes‐Oxley Act of 2002 (SOA) and related SEC rules changes would cause many local and regional audit firms to terminate audit work for SEC registrants. In this study, we provide empirical evidence about small audit firms and recent changes in the market for SEC audits. After examining all auditor resignations during 2000–2003, we find that 47 local and regional audit firms disclosed in Form 8‐Ks filed in 2002–2003 that they were ceasing all SEC audits; only eight such firms that made this disclosure in 2000–2001. From interviews with audit partners of such firms, we find that the primary reasons for ceasing SEC audits is the perception of a more stringent oversight by the recently created Public Company Accounting Oversight Board (PCAOB), increased professional liability insurance costs, and increased scrutiny of SEC registrants. We also find that many local and regional audit firms that had no SEC audit clients in 2002 voluntarily registered with the PCAOB. Interviews with partners of such audit firms indicate that the primary reason for voluntarily registering with the PCAOB is to signal their audit quality to non‐SEC registrants (private companies, nonprofits, etc.) and their stakeholders.

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