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High Concentration in the European Audit Market: In the Public Interest?

Holgersson, Johan LU (2012) BUSN69 20121
Department of Business Administration
Abstract
Background and problem: By examining the problems and measures of audit market concentration in the Commission’s Green paper and the audit professions responses to the Green paper it can be seen that they have different opinions. The Commission greatest concern seems to be the highly concentrated audit market and that this will affect the auditor independence. The audit profession appears to agree that there are problems with the current market situation and legislation. However, by reviewing the audit profession’s responses to the Commission’s Green paper they seem not to agree to the majority of proposed actions of the Green paper.

Purpose: This thesis will analyze the advantages and disadvantages of the high audit market... (More)
Background and problem: By examining the problems and measures of audit market concentration in the Commission’s Green paper and the audit professions responses to the Green paper it can be seen that they have different opinions. The Commission greatest concern seems to be the highly concentrated audit market and that this will affect the auditor independence. The audit profession appears to agree that there are problems with the current market situation and legislation. However, by reviewing the audit profession’s responses to the Commission’s Green paper they seem not to agree to the majority of proposed actions of the Green paper.

Purpose: This thesis will analyze the advantages and disadvantages of the high audit market concentration in the EU market for large listed entities and the Commission’s proposed measures to counteract the concentration.

Methodology: I have used a qualitative method in this thesis where two interviews with Swedish auditors represents the primary data.

Theoretical Perspectives: In order to clarify the proposed measures regarding audit market concentration in the Green paper and the Proposal of statutory audits of PIEs, relevant academic research and other studies have been used. Several relevant topics have been discussed from different perspectives, these topics are: concentration effects, current market structure, development of the Big Four, barriers to entry, the role of the audit, mandatory firm rotation and joint audits.

Empirical foundation: The empirical research in this thesis is built up on two interviews with two Swedish auditors from the Big Four audit firms. This is supported with responses to the Green paper and proposal of statutory audits of PIEs from three big audit profession bodies: Far, FEE, IFAC and also the Big Four and the mid-tier audit firms’ responses.

Conclusions: The Commission is not satisfied with the current market situation for large listed entities and wants to create a more dynamic market and enhance the auditor independence. The main reason for the Commission’s great concern is the recent financial crisis and the last decade’s accounting scandals. These events have lead to mistrust of auditors independence from the public. By decreasing the audit market concentration and enhance the auditor independence the Commission believe that this will increase the overall audit quality. The main measures to achieve these goals are to implement mandatory firm rotation with re-tendering, voluntarily joint audits and to address the Big Four bias. (Less)
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author
Holgersson, Johan LU
supervisor
organization
course
BUSN69 20121
year
type
H1 - Master's Degree (One Year)
subject
keywords
Concentration, Green paper, Joint audits, Mandatory firm rotation, Big Four bias
language
English
id
2543533
date added to LUP
2012-08-09 11:39:35
date last changed
2012-08-09 11:39:35
@misc{2543533,
  abstract     = {Background and problem: By examining the problems and measures of audit market concentration in the Commission’s Green paper and the audit professions responses to the Green paper it can be seen that they have different opinions. The Commission greatest concern seems to be the highly concentrated audit market and that this will affect the auditor independence. The audit profession appears to agree that there are problems with the current market situation and legislation. However, by reviewing the audit profession’s responses to the Commission’s Green paper they seem not to agree to the majority of proposed actions of the Green paper. 

Purpose: This thesis will analyze the advantages and disadvantages of the high audit market concentration in the EU market for large listed entities and the Commission’s proposed measures to counteract the concentration. 

Methodology: I have used a qualitative method in this thesis where two interviews with Swedish auditors represents the primary data. 

Theoretical Perspectives: In order to clarify the proposed measures regarding audit market concentration in the Green paper and the Proposal of statutory audits of PIEs, relevant academic research and other studies have been used. Several relevant topics have been discussed from different perspectives, these topics are: concentration effects, current market structure, development of the Big Four, barriers to entry, the role of the audit, mandatory firm rotation and joint audits. 

Empirical foundation: The empirical research in this thesis is built up on two interviews with two Swedish auditors from the Big Four audit firms. This is supported with responses to the Green paper and proposal of statutory audits of PIEs from three big audit profession bodies: Far, FEE, IFAC and also the Big Four and the mid-tier audit firms’ responses. 

Conclusions: The Commission is not satisfied with the current market situation for large listed entities and wants to create a more dynamic market and enhance the auditor independence. The main reason for the Commission’s great concern is the recent financial crisis and the last decade’s accounting scandals. These events have lead to mistrust of auditors independence from the public. By decreasing the audit market concentration and enhance the auditor independence the Commission believe that this will increase the overall audit quality. The main measures to achieve these goals are to implement mandatory firm rotation with re-tendering, voluntarily joint audits and to address the Big Four bias.},
  author       = {Holgersson, Johan},
  keyword      = {Concentration,Green paper,Joint audits,Mandatory firm rotation,Big Four bias},
  language     = {eng},
  note         = {Student Paper},
  title        = {High Concentration in the European Audit Market: In the Public Interest?},
  year         = {2012},
}