Audit Market Structure, Fees and Choice following the Andersen Break-up: Evidence from the UK

50 Pages Posted: 26 Feb 2008 Last revised: 23 Dec 2008

See all articles by Shamharir Abidin

Shamharir Abidin

Universiti Utara Malaysia - Faculty of Accountancy

Vivien A. Beattie

Lancaster University - Management School

Alan Goodacre

University of Stirling - Department of Accounting and Finance

Date Written: January 1, 2008

Abstract

This paper presents evidence on audit market concentration and auditor fee levels in the UK market in the crucial period of structural change following the PricewaterhouseCoopers' (PwC) merger and encompassing Andersen's demise (1998-2003). Given the current interest in auditor choice, analysis is also undertaken at the individual audit firm level and by industry sector. There is evidence of significant upward pressure on audit fees since 2001 but only for smaller auditees. Audit fee income for top tier auditors (Big 5/4) did not change significantly while the number of auditees fell significantly, consistent with a move towards larger, less risky, clients. Andersen's demise markedly reduced the level of inequality among the top tier firms but PwC retained its position as a 'dominant firm'. On switching to the new auditor, former Andersen clients experienced audit fee rises broadly in line with inflation, with no evidence of fee premia or discounting. They also reported significantly lower NAS fees, consistent with audit firms and auditees responding to public concerns about perceptions of auditor independence. There is no general evidence of knowledge spillover effects or cross-subsidisation of the audit fee by NAS. The combined findings provide no evidence to indicate that recent structural changes have resulted in anticompetitive pricing; the key concern remains the lack of audit firm choice.

Keywords: Arthur Andersen, audit market, audit fees, concentration, Big 4, industry specialism, competition

JEL Classification: M49, L10

Suggested Citation

Abidin, Shamharir and Beattie, Vivien and Goodacre, Alan, Audit Market Structure, Fees and Choice following the Andersen Break-up: Evidence from the UK (January 1, 2008). Available at SSRN: https://ssrn.com/abstract=1096464 or http://dx.doi.org/10.2139/ssrn.1096464

Shamharir Abidin

Universiti Utara Malaysia - Faculty of Accountancy ( email )

Sintok, Kedah Darul Aman 06010
Malaysia

Vivien Beattie (Contact Author)

Lancaster University - Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Alan Goodacre

University of Stirling - Department of Accounting and Finance ( email )

Stirling, FK9 4LA
United Kingdom
+44 1786 467291 (Phone)
+44 1786 467308 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
754
Abstract Views
3,258
rank
32,099
PlumX Metrics