Changes in Audit Market Competition and the Big N Premium

48 Pages Posted: 20 Apr 2012  

Elizabeth Carson

University of New South Wales

Roger Simnett

UNSW Australia Business School, School of Accounting

Billy S. Soo

Boston College

Arnold Wright

Northeastern University - Accounting Group

Date Written: April, 19 2012

Abstract

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 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.

Keywords: audit fees, audit market, competition, regulation, longitudinal analysis

Suggested Citation

Carson, Elizabeth and Simnett, Roger and Soo, Billy S. and Wright, Arnold, Changes in Audit Market Competition and the Big N Premium (April, 19 2012). Auditing: A Journal of Practice & Theory, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2042807

Elizabeth Carson (Contact Author)

University of New South Wales ( email )

Sydney, NSW 2052
Australia
+612 9385 5822 (Phone)
+612 9385 5925 (Fax)

Roger Simnett

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
+61 2 9385 5825 (Phone)
+61 2 9385 5925 (Fax)

Billy S. Soo

Boston College ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3963 (Phone)
617-552-2097 (Fax)

Arnold Wright

Northeastern University - Accounting Group ( email )

406 Hayden Hall
United States

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