Competition Issues in the Market for Audit and Assurance Services: Are the Concerns Justified?

Abstract

Concerns regarding the perceived lack of competition in the market for audit and assurance services has been widely publicised in the popular press on many occasions over many years. The Office of Fair Trading (OFT) in the United Kingdom (UK) decided that competition problems in the audit market warranted a referral to the UK Competition Commission (OFT 115‐11, October 2011). The UK Competition Commission released its report before the end of 2013 for implementation in the near future. This exploratory study investigates in an Australian context the views of stakeholder groups (including regulators, standard setters, audit suppliers, purchasers and financial statement users) regarding the level of competition in the market for audit and assurance services, and what potential remedies could be implemented to deal with such concerns. The findings in this study do not fully support the acceleration in the global debate on audit concentration and competition. Only users of financial reports consider that competition in the audit services market is insufficient. The other stakeholder groups do not share this view, although regulators and standard setters did have concerns over the lack of choice for large company audits. We need to consider the structural benefits and the continued viability of each of these large players (the Big Four), when considering these ‘lack of choice’ concerns. The level of competition is discussed essentially at firm level; however, underlying all of this are the consequences for the efficiency of the capital market.