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 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

Auditor-client interactions in the changed UK regulatory environment - A revised grounded theory model

Audit and financial reporting quality are under intense scrutiny nationally and globally. The outcome of high-level auditor-auditee discussion and negotiation issues (auditor-client interactions) is central to this debate. Beattie et al. developed a grounded theory model of these interactions in the 1997 UK setting. This paper reports on a field study of 45 interactions in nine case companies in the radically changed post-SOX regulatory environment. Crucially, interviewees in each case company extend the chief financial officer-audit partner dyad to include the audit committee chair. Fundamental revisions to the model emerge. The strongest influence on interactions has become the national enforcement regime, overlaid upon the international standard-setting regime. The outcome in both the eyes of the participants and in our evaluation is full compliance (contrary to the findings from the 1997 setting), regardless of the perceived quality of the standards and the integrity of the outcome. Personal and company characteristics, which were of most importance in 1997, have become peripheral. The audit committee chair is shown to fulfil a gatekeeping role in relation to the full audit committee

And then there were four: a study of UK market concentration - causes, consequences and the scope for market adjustment

While concentration measures are a good indicator of market structure, the link with competitiveness is more complex than often assumed. In particular, the modern theory of industrial organisation makes no clear statement regarding the impact of concentration on competition - the focus of this paper is concentration and no inferences are made about competitive aspects of the market. The extent and nature of concentration within the UK listed company audit market as at April, 2002 and, pro forma, after the collapse of Andersen is documented and analysed in detail (by firm, market segment and industry sector). The largest four firms held 90 per cent of the market (based on audit fees) in 2002, rising to 96 per cent with the demise of Andersen. A single firm, Pricewaterhouse-Coopers, held 70 per cent or more of the share of six out of 38 industry sectors, with a share of 50 per cent up to 70 per cent in a further seven sectors. The provision of non-audit services (NAS) by incumbent auditors is also considered. As at April 2002, the average ratio of non-audit fees (paid to auditor) to audit fees was 208 per cent, and exceeded 300 per cent in seven sectors. It is likely, however, that disposals by firms of their management consultancy and outsource firms, combined with the impact of the Smith Report on audit committees will serve to reduce these ratios. Another finding is that audit firms with expertise in a particular sector appeared to earn significantly higher nonaudit fees from their audit clients in that sector. The paper thus provides a solid empirical basis for debate. The subsequent discussion considers the implications for companies and audit firms of the high level of concentration in the current regulatory climate, where no direct regulatory intervention is planned

Heads I win, tails you lose? A career analysis of executive pay and corporate performance

The paper adopts a novel career perspective to examine theories of corporate control in the context of executive pay. Detailed career histories of boardroom executives in all FTSE 350 companies between 1996 and 2008 are utilised. The paper highlights the failure of existing arrangements to adjust pay outcomes where career performance is poor. The leading theoretical reasons for this disconnect, namely managerial power and neoinstitutionalism, are not consistent with the data. The paper identifies a settling-up process at work, whereby pay is adjusted in the light of both past pay and past performance. From a policy perspective, a case is made for adopting a cumulative or career-oriented approach to rewarding executive performance through the use of truly long-term incentives in the form of 'career shares'

Direct immuno- fluorescence for the diagnosis of legionellosis

DJM HALDANE, R PEPPARD, RK SUMARAH. Direct immunofluor escenc e for t he d iagnosis of legionellosis. Can J Infect Dis 1993;4(2):101-104. Culture and direct immunofluorescent m icroscopy (DFA) results for Legionellapneumophila were reviewed over a two-year period. In the first year, a positive result was defined as having at least one morphologically typical fluorescing organism. In the second year. a positive was defined as at least five typical fluorescing organisms. Despite these stricter criteria and other measures to reduce the possibility of reagent contamination, there was no statistically significant difference in the sensitivity or specificity of the DFA in the two years for sputa, deep specimens or overall. Of 37 sputum specimens from infected patients, 16 were positive on DFA. Thirty-two of38 positive patients were detected by sputum culture. DFA can provide rapid diagnostic information but cannot be used to rule out the diagnosis. Sputum is a useful specimen for the initial laboratory investigation of patients with legionellosis. de donner des renseignements diagnostiques rapides. mais elle ne peut etre utilisee pour eliminer les diagnostics. L'expectoration est un prelevement utile pour le premier examen de laboratoire des patients atteints de legionellose

Big Data and Changes in Audit Technology: Contemplating a Research Agenda

This study explores the most recent episode in the evolution of audit technology, namely the incorporation of Big Data and Data Analytics (BDA) into audit firm approaches. Drawing on 22 interviews with individuals with significant experience in developing, implementing or assessing the impact of BDA in auditing, together with publicly available documents on BDA published within the audit field, the paper provides a holistic overview of BDA-related changes in audit practice. In particular, the paper focuses on three key aspects, namely the impact of BDA on the nature of the relationship between auditors and their clients; the consequences of the technology for the conduct of audit engagements and the common challenges associated with embedding BDA in the audit context. The study’s empirical findings are then used to establish an agenda of areas suitable for further research on the topic. The study is one of the first empirical accounts providing a perspective on the rise of BDA in auditing

Appointments, pay and performance in UK boardrooms by gender

This article uses UK data to examine issues regarding the scarcity of women in boardroom positions. The article examines appointments, pay and any associated productivity effects deriving from increased diversity. Evidence of gender-bias in the appointment of women as non-executive directors is found together with mixed evidence of discrimination in wages or fees paid. However, the article finds no support for the argument that gender diverse boards enhance corporate performance. Proposals in favour of greater board diversity may be best structured around the moral value of diversity, rather than with reference to an expectation of improved company performance

The effect of audit committee characteristics on intellectual capital disclosure

This paper, using data from 100 UK listed firms, investigates the relationship between audit committee characteristics and intellectual capital (IC) disclosure. We find that IC disclosure is positively associated with audit committee characteristics of size and frequency of meetings, and negatively associated with audit committee directors’ shareholding. We find no significant relationship between IC disclosure and audit committee independence and financial expertise. We also observe variations in the association between audit committee characteristics and IC disclosure at its component level, which suggest that the underlying factors that drive various forms of IC disclosure, i.e. human capital, structural capital and relational capital, are different. These results have important implications for policy-makers who have a responsibility to ensure that shareholders are protected by prescribing appropriate corporate governance structures and accounting regulations/guidelines