Audit market concentration, audit fees, and audit quality: A cross-country analysis of complex audit clients

Joshua L. Gunn, Brett S. Kawada, Paul N. Michas

Research output: Contribution to journalArticle

Abstract

Regulators around the world are concerned about the potentially harmful effects of high audit market concentration on audit pricing and quality. However, results in the overall literature have failed to reach consensus on this issue. We contribute to this debate by arguing that the audit market is segmented and that concentration in the Big 4 segment of the market leads to higher audit pricing. Accordingly, our analyses use international data and focus on concentration within the Big 4 group of firms across countries. We find that audit fees are increasing in our concentration measure for clients where the barriers to entry by competing auditors are higher, as proxied by client size, international operations, and IFRS use. Finally, we find evidence that audit quality is decreasing in Big 4 market concentration for these types of engagements. This indicates a wealth transfer from shareholders to audit firms when auditor concentration is high because these complex clients are charged more, but receive audits that are of lower quality.

Original languageEnglish (US)
Article number106693
JournalJournal of Accounting and Public Policy
Volume38
Issue number6
DOIs
StatePublished - Nov 1 2019

Keywords

  • Audit fees
  • Audit market concentration
  • Audit pricing
  • Client complexity
  • Cross-country audit fees
  • Global audit fees
  • International Financial Reporting Standards

ASJC Scopus subject areas

  • Accounting
  • Sociology and Political Science

Fingerprint Dive into the research topics of 'Audit market concentration, audit fees, and audit quality: A cross-country analysis of complex audit clients'. Together they form a unique fingerprint.

  • Cite this