The purpose of this paper is to examine the relationship between market structure, competition and pricing in the UK accounting services market. This association is important because mergers amongst the leading firms and the collapse of Arthur Andersen have reduced the number of international accounting firms to four.
The paper examines concentration ratios (CR) and the fees charged by accounting firms. The data used encompass the period when the number of leading suppliers fell from eight to four.
FTSE100 consultancy fees increased rapidly in the 1990s. Independence concerns, corporate scandals and additional legislation contributed to a sharp increase in audit fees and a significant decrease in consultancy fees since the turn of the century. The international accounting firms responded to saturation of the FTSE100 market by targeting the small and medium‐sized client sectors as avenues for further growth. The audit market is competitive at the initial tender stage but concentration has allowed firms to significantly increase audit fees on repeat engagements.
A number of theoretical and empirical limitations are acknowledged that could further increase the statistical power of the tests.
The study should be of interest to regulatory bodies, auditors, audit clients and academics.
This paper fills a gap in the literature regarding the evolution of CRs and accounting service fees over a significant time frame.
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