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

CPA-Firm Merger: An Investigation of Audit Quality

[[abstract]]It would be interesting to know how the theories and hypotheses in auditing developed for a mature economy work in an emerging market. This paper uses the merger of Diwan, Ernst & Young and J.T. Lai & Co., CPAs in Taiwan in 2000 as a target to study the effects of a CPA-firm merger on audit quality, measured by discretionary accruals. Diwan, Ernst & Young and J.T. Lai & Co., CPAs belonged to Big 5 and non-Big 5 CPA firms in Taiwan, respectively, before they merged. The magnitudes of the increased size and reputation caused by the merger are different between the two firms. Therefore, we also analyse whether the merger has different effects on audit quality of these two firms. The empirical evidence shows that after the merger, the discretionary accruals of the two firms' clients significantly decrease. In addition, the magnitude of the change is greater for the clients of J.T. Lai & Co., CPAs than for those of Diwan, Ernst & Young. The results are consistent with predictions of both size and reputation effect hypotheses.[[journaltype]]國外[[incitationindex]]SSCI[[booktype]]紙本[[countrycodes]]GB