IFRS Adoption in Europe and Audit Market Concentration

Abstract

The switch to IFRS in Europe opens the opportunities to investigate the relationship between a drastic change in the complexity of financial reporting standards and the audit market dynamics. Following concerns that mandated IFRS may have increased the domination of the global audit firms, we investigate the relationship between audit market concentration and IFRS adoption in the European setting. Our evidence suggests that IFRS adoption is associated with an increase in auditor industry concentration on a cross-border perspective. This is consistent with the view that global audit networks reacted to an increase in accounting/audit complexity by seeking more industry expertise, and that this change in market dynamics is beyond legal jurisdictions. However, we do not find any positive relationship between IFRS adoption and auditor concentration or dominance at the country level. Overall, we conclude that the audit market competition does not seem to be affected by this major change in financial reporting standards.