Staff View: Audit market structure, fees and choice in a period of structural change: Evidence from the UK

Audit market structure, fees and choice in a period of structural change: Evidence from the UK – 1998–2003

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 al...

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Main Authors:	Abidin, Shamharir, Beattie, Vivien A., Goodacre, Alan
Format:	Article
Language:	English
Published:	Elsevier Ltd. 2010
Subjects:	HF5601 Accounting
Online Access:	http://repo.uum.edu.my/12662/1/1-s2.0.pdf http://repo.uum.edu.my/12662/ http://dx.doi.org/10.1016/j.bar.2010.04.002
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spelling	my.uum.repo.126622016-04-24T03:02:35Z http://repo.uum.edu.my/12662/ Audit market structure, fees and choice in a period of structural change: Evidence from the UK – 1998–2003 Abidin, Shamharir Beattie, Vivien A. Goodacre, Alan HF5601 Accounting 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. A decomposition analysis of the aggregate Big 5/4 concentration ratio changes over the period identifies the impact of four distinct consumer-based reasons for change: leavers; net joiners; non-par auditor switches; and (only for the audit fees measure) audit fee changes. 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 an initial audit fee rise 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 concerns remain the lack of audit firm choice and issues concerning the governance and accountability of audit firms. Elsevier Ltd. 2010 Article PeerReviewed application/pdf en http://repo.uum.edu.my/12662/1/1-s2.0.pdf Abidin, Shamharir and Beattie, Vivien A. and Goodacre, Alan (2010) Audit market structure, fees and choice in a period of structural change: Evidence from the UK – 1998–2003. The British Accounting Review, 42 (3). pp. 187-206. ISSN 0890-8389 http://dx.doi.org/10.1016/j.bar.2010.04.002 doi:10.1016/j.bar.2010.04.002
institution	Universiti Utara Malaysia
building	UUM Library
collection	Institutional Repository
continent	Asia
country	Malaysia
content_provider	Universiti Utara Malaysia
content_source	UUM Institutionali Repository
url_provider	http://repo.uum.edu.my/
language	English
topic	HF5601 Accounting
spellingShingle	HF5601 Accounting Abidin, Shamharir Beattie, Vivien A. Goodacre, Alan Audit market structure, fees and choice in a period of structural change: Evidence from the UK – 1998–2003
description	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. A decomposition analysis of the aggregate Big 5/4 concentration ratio changes over the period identifies the impact of four distinct consumer-based reasons for change: leavers; net joiners; non-par auditor switches; and (only for the audit fees measure) audit fee changes. 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 an initial audit fee rise 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 concerns remain the lack of audit firm choice and issues concerning the governance and accountability of audit firms.
format	Article
author	Abidin, Shamharir Beattie, Vivien A. Goodacre, Alan
author_facet	Abidin, Shamharir Beattie, Vivien A. Goodacre, Alan
author_sort	Abidin, Shamharir
title	Audit market structure, fees and choice in a period of structural change: Evidence from the UK – 1998–2003
title_short	Audit market structure, fees and choice in a period of structural change: Evidence from the UK – 1998–2003
title_full	Audit market structure, fees and choice in a period of structural change: Evidence from the UK – 1998–2003
title_fullStr	Audit market structure, fees and choice in a period of structural change: Evidence from the UK – 1998–2003
title_full_unstemmed	Audit market structure, fees and choice in a period of structural change: Evidence from the UK – 1998–2003
title_sort	audit market structure, fees and choice in a period of structural change: evidence from the uk – 1998–2003
publisher	Elsevier Ltd.
publishDate	2010
url	http://repo.uum.edu.my/12662/1/1-s2.0.pdf http://repo.uum.edu.my/12662/ http://dx.doi.org/10.1016/j.bar.2010.04.002
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score	13.211869

Audit market structure, fees and choice in a period of structural change: Evidence from the UK – 1998–2003

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