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Audit market structure, fees and choice following the Andersen break-up: Evidence from the UK

Abidin, Shamharir and Beattie, Vivien A. and Goodacre, Alan (2008) Audit market structure, fees and choice following the Andersen break-up: Evidence from the UK. SSRN Electronic Journal. pp. 1-50. ISSN 1556-5068

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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.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 audit fee rises 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 concern remains the lack of audit firm choice.

Item Type: Article
Uncontrolled Keywords: Arthur Andersen; audit market; audit fees; concentration; Big 4; industry specialism; competition; low-balling.
Subjects: H Social Sciences > HB Economic Theory
Divisions: Tunku Puteri Intan Safinaz School of Accountancy (TISSA)
Depositing User: Dr. Shamharir Abidin
Date Deposited: 12 Nov 2014 08:08
Last Modified: 26 Apr 2016 01:03

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