The Effects of Non-Big 4 Mergers on Audit Efficiency and Audit Market Competition

2019 ◽  
Author(s):  
Andrew Kitto
Keyword(s):  
Market Competition ◽  
Audit Market ◽  
Big 4 ◽  
Audit Efficiency

Audit Committee Accounting Expertise and the Mitigation of Strategic Auditor Behavior

2020 ◽  
Author(s):  
James Hansen ◽  
Ling Lei Lisic ◽  
Timothy A. Seidel ◽  
Michael S. Wilkins
Keyword(s):  
Audit Committee ◽  
Market Competition ◽  
Legal Liability ◽  
Audit Committees ◽  
Credence Goods ◽  
Professional Regulation ◽  
Audit Market ◽  
Big 4 ◽  
Material Weaknesses ◽  
Accounting Expertise

Our study is motivated by the theory of credence goods in the auditing setting. We propose that audit committee accounting expertise should reduce information asymmetries between the auditor and the client, thereby limiting auditors' ability to over-audit and under-audit. Consistent with this notion, our results indicate that when audit committees have accounting expertise, clients (1) pay lower fees when changes in standards decrease required audit effort; (2) pay a smaller fee premium in the presence of remediated material weaknesses; and (3) have a reduced likelihood of restatement when audit market competition is high. Our findings in the under-auditing setting generally are strongest among non-Big 4 engagements, consistent with non-Big 4 auditors being less sensitive to market-wide disciplining mechanisms such as reputation, legal liability, and professional regulation. We also provide evidence that the nature of audit committee members' accounting expertise differentially impacts the committee's ability to curtail over- and under-auditing.

Office-Client Balance and Metro Area Audit Market Competition

2020 ◽  
Vol 39 (4) ◽  
pp. 113-141
Author(s):  
Michael L. Ettredge ◽  
Matthew G. Sherwood ◽  
Lili Sun
Keyword(s):  
Relative Abundance ◽  
Audit Quality ◽  
Market Competition ◽  
Data Availability ◽  
Financial Statement ◽  
Audit Market ◽  
Metro Area ◽  
Big 4 ◽  
Jel Classifications

SUMMARY We propose a new audit supplier competition construct, the Office-Client Balance (OCB), which consists of the relative abundance of competing audit offices and audit clients in a metropolitan (metro) area. From this construct, we derive a metro level audit competition proxy reflecting surpluses or shortfalls of total metro audit office numbers relative to the national metro OCB norm: the OCB_TOT. Consistent with the predictions of Porter's Five Forces theory, we find that OCB_TOT is associated with lower fees, more auditor turnover, and more (less) office exits (entrances) in metro audit markets. These findings validate OCB_TOT as a proxy for audit market competition. Our results indicate that greater metro level competition among auditors (more positive OCB_TOT) is associated with higher audit quality, proxied by fewer financial statement misstatements. Several additional analyses suggest that OCB_TOT is useful in explaining clients' choices of local (versus remote) audit offices and Big 4 (versus non-Big 4) offices. Data Availability: Data used in this study are available from public sources. JEL Classifications: G18; L10; M42.

Changes in Audit Market Competition and the Big N Premium

2012 ◽  
Vol 31 (3) ◽  
pp. 47-73 ◽  
Author(s):  
Elizabeth Carson ◽  
Roger Simnett ◽  
Billy S. Soo ◽  
Arnold M. Wright
Keyword(s):  
European Commission ◽  
Market Power ◽  
Market Competition ◽  
Big 5 ◽  
Audit Market ◽  
Big 4 ◽  
Audit Firms ◽  
House Of Lords ◽  
Audit Fee ◽  
The Impact

SUMMARY We respond to calls for research into the effect of the decline in the number of Big N firms on market power and consequential impact on competition (U.S. Department of the Treasury 2008; European Commission 2010; U.K. House of Lords 2011) by analyzing the change in Big N audit fee premium over the Big 6, Big 5, and Big 4 periods, and across different client segments. Using a large sample of Australian publicly listed companies over the years 1996–2007, we find that while premiums paid to Big N auditors have increased significantly for the Big 4 and Big 5 periods compared to the Big 6 period, the growth has not been shared equally across all client segments. In particular, while the largest global clients pay some of the highest premiums, the increase in premiums for this group in the Big 4 period has been lower than those experienced by other clients. We also observe that premiums paid to industry specialists have declined relative to the Big 6 period, but fee discounts offered to clients switching to a Big N auditor from a non-Big N auditor have increased. In all, we find that the premiums paid by Big N clients increased in line with consolidation in the number of Big N audit firms, but the impact varied across client segments.

Client Consulting Opportunities and the Reemergence of Big 4 Consulting Practices: Implications for the Audit Market.

2020 ◽  
Author(s):  
Elizabeth N Cowle ◽  
Jonathan Shipman ◽  
Tyler Kleppe ◽  
James R. Moon, Jr.
Keyword(s):  
Audit Market ◽  
Big 4

The Relationship between Audit Market Competition and Audit Fee

2017 ◽  
Vol 35 (1) ◽  
pp. 185-215
Author(s):  
Hyun Jae Park ◽  
Jaewan Park ◽  
Hye Jeong Nam
Keyword(s):  
Market Competition ◽  
Audit Market ◽  
Audit Fee ◽  
The Relationship

Client Consulting Opportunities and the Reemergence of Big 4 Consulting Practices: Implications for the Audit Market

2019 ◽  
Author(s):  
Elizabeth Cowle ◽  
Tyler J. Kleppe ◽  
James Moon ◽  
Jonathan E. Shipman
Keyword(s):  
Audit Market ◽  
Big 4

Spatial Competition in Local Audit Markets and the Fallout on Deloitte from the 2007 PCAOB Censure

2016 ◽  
Vol 36 (2) ◽  
pp. 1-19 ◽  
Author(s):  
Jeff P. Boone ◽  
Inder K. Khurana ◽  
K. K. Raman
Keyword(s):  
Market Power ◽  
Audit Quality ◽  
Spatial Competition ◽  
Spatial Location ◽  
Audit Fees ◽  
Audit Market ◽  
Big 4 ◽  
Audit Fee ◽  
The Face ◽  
Market Leader

SUMMARY We examine whether Deloitte's spatial location in local audit markets affected the firm's adverse fallout—in terms of decreased ability to retain new clients and maintain audit fees—from the 2007 PCAOB censure. We motivate our inquiry by the notion that auditor-client alignment and auditor-closest-competitor distance can help differentiate the incumbent Big 4 auditor from other Big 4 auditors and thus provide market power, i.e., inhibit clients from shopping for another supplier because of the lack of a similar Big 4 provider in the local audit market. Consequently, it seems reasonable that the increase in switching risk and loss of fee growth suffered by Deloitte following the 2007 PCAOB censure will be lower in local markets where Deloitte was the market leader and its market share distance from its closest competitor was greater. Our findings suggest that the decline in Deloitte's audit fee growth rate following the 2007 PCAOB censure was concentrated in the pharmaceutical industry, although the client loss rate appears to have occurred more broadly (across all cities and industries). Collectively, our findings suggest that audit quality issues override auditor market power, i.e., differentiation does not provide Big 4 firms market power in the face of adverse regulatory action. JEL Classifications: G18; L51; M42; M49.

The effect of auditor narcissism on audit market competition

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hojat Mohammadi ◽  
Mahdi Salehi ◽  
Meysam Arabzadeh ◽  
Hassan Ghodrati
Keyword(s):  
Financial Markets ◽  
Significant Relationship ◽  
Design Methodology ◽  
Audit Quality ◽  
Stock Exchange ◽  
Market Competition ◽  
Competitive Pressure ◽  
Content Type ◽  
Listed Firms ◽  
Audit Market

Purpose This paper aims to assess auditor narcissism’s effect on audit market competition (auditor concentration, clients’ concentration and competitive pressure). Design/methodology/approach This paper’s method is descriptive-correlational based on published information from listed firms on the Tehran Stock Exchange from 2012 to 2018 using a sample of 188 firms (1,310 observations). The method used for hypothesis testing is linear regression using panel data. Findings The results show a negative and significant relationship between auditor narcissism and audit market competition and its indices, including auditor concentration, clients’ concentration and competitive pressure. Moreover, a positive and significant relationship was observed between audit quality and audit market competition and its indices, including auditor concentration, client concentration and competitive pressure. Originality/value To analyzes competition indices in the audit market (auditor concentration, clients’ concentration and competitive pressure). The variable is assessed once more using the exploratory factor analysis of the so-called three variables single variable, named audit market competition. So the central question of the study is investigated within a broader sense. Moreover, as the present study is carried out in the emergent financial markets with extremely competitive audit markets to figure out the effect of auditors’ intrinsic characteristics on such markets’ competitiveness, it can provide useful information in this field.

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