Audit Market Concentration and Its Influence on Audit Quality

Abstract

This paper focuses on audit market concentration of listed firms which is characterized by an oligopoly of "Big Four" audit firms. Hence a state of the art analysis of the status quo of concentration measurement has been conducted on the audit market from an international perspective. Thereby risks and causes of concentration development have been assessed along with the current regulatory proposals of the European Commission (EC). After a discussion of conventional measurement methods of audit market concentration, our paper gives a review of previous empirical results of audit market concentration for EU and non EU-member states. Results show that EC reforms cannot clearly be related to increase audit quality but increasing transaction costs.

Audit Fees for the Segments of Non-Listed Auditees in Slovenia

“…Therefore, European countries are concerned that small and medium-sized audit firms will eventually be forced to leave the audit market. This was pointed out in 2011 by the European Commission which, because of its assessment of the market situation, is worrying about audit services [22]. The authors also note that the audit market concentration in the period 1980-2008 increased in most countries; the most prominent are EU Member States, which confirmed the strong oligopoly of large audit firms (the Big 4), especially for companies listed on the Stock Exchange [22].…”

“…Despite the number of clients, we confirm the fall in audit fees, like Maher et al [19] this is explained by the existence of competition among audit firms which, for obtaining a larger market share in the market, reduce the audit fees. Velte and Stiglbauer [22] find that companies listed on the Stock Exchange are audited by the Big 4 auditing companies to the extent of more than 90%. From our research were excluded companies listed on the Stock Exchange but, by reviewing the Annual Reports of these companies, we find out that these are audited 100% by the Big 4 audit companies; like Velte and Stiglbauer [22], we confirm that the medium-sized audit firms can hardly get a big client.…”

“…Velte and Stiglbauer [22] find that companies listed on the Stock Exchange are audited by the Big 4 auditing companies to the extent of more than 90%. From our research were excluded companies listed on the Stock Exchange but, by reviewing the Annual Reports of these companies, we find out that these are audited 100% by the Big 4 audit companies; like Velte and Stiglbauer [22], we confirm that the medium-sized audit firms can hardly get a big client. Due to such market concentrations, there can be a build up of systemic risk and collapse of a systemically important company, or a company that has reached a systemic relevant range, which can cause turbulence in the Slovenian audit market as a whole, as recalls the European Commission (2010).…”

“…This was pointed out in 2011 by the European Commission which, because of its assessment of the market situation, is worrying about audit services [22]. The authors also note that the audit market concentration in the period 1980-2008 increased in most countries; the most prominent are EU Member States, which confirmed the strong oligopoly of large audit firms (the Big 4), especially for companies listed on the Stock Exchange [22]. These are audited mainly by the Big 4 auditing companies to the extent of more than 90%.…”

“…Previous research suggests that, in terms of prices of audit services, were investigated: the correlation between audit fees and audit quality audit [5][6][7][8][9][10], movements of audit fees, depending on the selected factors such as the size of the audit company and the client [9,10,[11][12][13][14][15][16] correlation between audit quality and size of audit company [17,18], correlation between audit fees and competition between audit companies [13,19] the trend of audit fees and their reasons for the increase [20] the degree of industry specialization [10] audit market concentration [21,22].…”