The Audit Industry: World's Weakest Oligopoly?

72 Pages Posted: 4 Feb 2009

See all articles by Bernard Ascher

Bernard Ascher

American Antitrust Institute (AAI)

Date Written: September 18, 2008


The world's audit oligopoly is composed of four accounting firms: PricewaterhouseCoopers, KPMG, Ernst & Young, and Deloitte Touche Komatsu (the Big 4). These firms are in a strong position in that they audit the financial statements of nearly all the global public companies in the world and, arguably, are the only audit firms able to do so. They are huge, privately-owned, international networks with robust revenues, vast resources, and expertise. Yet they are heavily regulated by governments, and they are subject to massive lawsuits when investors and creditors suffer large losses due to fraud or error; these are their major weaknesses. Since the dual shocks of the collapse of Arthur Andersen (reducing the Big 5 to 4) and the enactment of stringent regulations by the U.S. Congress in 2002 in reaction to corporate accounting scandals, there is great concern in the financial community that another company in the oligopoly could be forced out of business, further reducing the choice of auditors for multinational corporations and causing disruptions in the marketplace. This paper reviews the effects of concentration on competition in the market for audits of major multinational corporations, as well as the effects on audit fees, audit quality, and the regulatory environment. It observes that competition is far less intense than in earlier years and that regulatory authorities are reluctant to take severe disciplinary actions against audit firms, but that the industry remains vulnerable to legal challenge. Global public companies will continue to face limited choice of auditors until smaller competitors or new competitors can build viable networks and reputations for high quality audits. The paper examines barriers to market entry and comments on proposals to promote greater competition, including liability limitations. It also reports on anticompetitive practices of major accounting firms in the past and the need for regulatory authorities to maintain constant vigilance to avoid any recurrence. Finally, responding to the question posed in the title, the paper concludes that considering the industry's market dominance, the relaxation of punitive actions by regulatory authorities and the availability of some forms of liability limitation, the audit industry may not be the ideal candidate for weakest oligopoly in the world.

Keywords: competition, oligopoly, antitrust, business organization, accounting firms, audit fees

JEL Classification: M49, L84, K22

Suggested Citation

Ascher, Bernard, The Audit Industry: World's Weakest Oligopoly? (September 18, 2008). Available at SSRN: or

Bernard Ascher (Contact Author)

American Antitrust Institute (AAI) ( email )

1730 Rhode Island Avenue, NW
Suite 1100
Washington, DC 20008-1022
United States

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