Competition in the Audit Market: Policy Implications

• 成果类型: Article
• 署名作者: Gerakos, Joseph; Syverson, Chad
• 署名单位: University of Chicago; National Bureau of Economic Research
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12087
• 发表日期: 2015
• 页码: 725-775
• 关键词: industry specialization; firm tenure; client; CHOICE; Reputations; earnings; QUALITY

摘要

The audit market's unique combination of featuresits role in capital market transparency, mandated demand, and concentrated supplymeans it receives considerable attention from policy makers. We explore the effects of two market scenarios that have been the focus of policy discussions: mandatory audit firm rotation and further supply concentration due to the exit of a Big 4 audit firm. To do so, we first estimate publicly traded firms' demand for auditing services, allowing the services provided by each of the Big4 to be differentiated products. We then use those estimates to calculate how each scenario would affect client firms' consumer surplus. We estimate that, for U.S.publicly trade firms, mandatory audit firm rotation would induce consumer surplus losses of approximately $2.7 billion if rotation were required after 10 years and $4.7-5.0 billion if after only four years. We find similarly that exit by one of the Big4 would reduce client firms' surplus by $1.4-1.8 billion. These estimates reflect only the value of firms' lost options to hire the exiting audit firm; they do not include likely fee increases resulting from less competition among audit firms. The latter could result in audit fee increases between $0.75-1.3 billion per year for mandatory rotation and $0.47-0.58 billion per year for the disappearance of a Big4 audit firm. Such losses are substantial; by comparison, total audit fees for public firms were $11 billion in 2010.