Competition in the UK accounting services market

Competition in the UK accounting services market Purpose – The purpose of this paper is to examine the relationship between market structure, competition and pricing in the UK accounting services market. This association is important because mergers amongst the leading firms and the collapse of Arthur Andersen have reduced the number of international accounting firms to four. Design/methodology/approach – The paper examines concentration ratios (CR) and the fees charged by accounting firms. The data used encompass the period when the number of leading suppliers fell from eight to four. Findings – FTSE100 consultancy fees increased rapidly in the 1990s. Independence concerns, corporate scandals and additional legislation contributed to a sharp increase in audit fees and a significant decrease in consultancy fees since the turn of the century. The international accounting firms responded to saturation of the FTSE100 market by targeting the small and medium‐sized client sectors as avenues for further growth. The audit market is competitive at the initial tender stage but concentration has allowed firms to significantly increase audit fees on repeat engagements. Research limitations/implications – A number of theoretical and empirical limitations are acknowledged that could further increase the statistical power of the tests. Practical implications – The study should be of interest to regulatory bodies, auditors, audit clients and academics. Originality/value – This paper fills a gap in the literature regarding the evolution of CRs and accounting service fees over a significant time frame. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Auditing Journal Emerald Publishing

Competition in the UK accounting services market

Managerial Auditing Journal, Volume 22 (2): 21 – Jan 9, 2007

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Publisher
Emerald Publishing
Copyright
Copyright © 2007 Emerald Group Publishing Limited. All rights reserved.
ISSN
0268-6902
DOI
10.1108/02686900710718681
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine the relationship between market structure, competition and pricing in the UK accounting services market. This association is important because mergers amongst the leading firms and the collapse of Arthur Andersen have reduced the number of international accounting firms to four. Design/methodology/approach – The paper examines concentration ratios (CR) and the fees charged by accounting firms. The data used encompass the period when the number of leading suppliers fell from eight to four. Findings – FTSE100 consultancy fees increased rapidly in the 1990s. Independence concerns, corporate scandals and additional legislation contributed to a sharp increase in audit fees and a significant decrease in consultancy fees since the turn of the century. The international accounting firms responded to saturation of the FTSE100 market by targeting the small and medium‐sized client sectors as avenues for further growth. The audit market is competitive at the initial tender stage but concentration has allowed firms to significantly increase audit fees on repeat engagements. Research limitations/implications – A number of theoretical and empirical limitations are acknowledged that could further increase the statistical power of the tests. Practical implications – The study should be of interest to regulatory bodies, auditors, audit clients and academics. Originality/value – This paper fills a gap in the literature regarding the evolution of CRs and accounting service fees over a significant time frame.

Journal

Managerial Auditing JournalEmerald Publishing

Published: Jan 9, 2007

Keywords: Accounting; Services; Competitors; United Kingdom

References

  • And then there were four: a study of UK audit market concentration ‐ causes, consequences and the scope for market adjustment
    Beattie, V.; Goodacre, A.; Fearnley, S.
  • Auditor brand name reputations and industry specializations
    Craswell, A.; Francis, J.; Taylor, S.
  • Auditor reputation: the international empirical evidence
    Moizer, P.
  • Changes in the UK market for audit services: 1972‐1982
    Moizer, P.; Turley, S.
  • Auditor concentration of listed public companies on international stock exchanges
    Narasimhan, R.; Chung, S.
  • Auditor concentration: a replication and extension for the UK audit market 1991‐1995
    Pong, C.
  • The determinants of audit fees: some empirical models
    Pong, C.; Whittington, G.
  • Large companies and the big eight: an overview
    Schiff, A.; Fried, H.
  • The effect of the PricewaterhouseCoopers merger on auditor concentration in Australia: a note
    Thavapalan, S.; Moroney, R.; Simnett, R.

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