UK Auditor Concentration: A Descriptive Note

Abstract

This note describes supplier concentration in the UK market for audit services. It extends previous research, which has focused on listed markets, by examining auditor concentration ratios across all corporate (quoted, unquoted plc and private) sub-markets. Individual and combined Big Six supplier concentration (CR6) ratios are calculated with reference to the number of clients audited, corporate size and disclosed audit fees. Compared with previous studies, the analysis is based on a larger number (171,799) of corporate audits, and indicates that, inter alia, corporate size (across different sub-markets) is a key determinant of supplier concentration. However, variations are reported in relation to individual auditors, auditee size and corporate sub-sectors. Other key findings are that the CR6 ratio in the quoted market has continued to rise in recent years, from 72.3% in 1991 (Beattie and Fearnley, 1994) to 78.4% in 1994/95, and that the Big Six currently audit a substantial proportion (58.2%) of companies in the UK middle market, which they appear to be targeting, as the large auditee sub-sector becomes saturated, to increase market share.