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A report entitled Audit concentration :lack of competition in the large company audit market - Assignment Example

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A report entitled Audit concentration :lack of competition in the large company audit market

The Big Four Companies audit almost all the companies under FTSE 100 and FTSE 350. The report elaborates whether the auditing of the large companies in the hands of the Big Four companies are a matter of concern or not (“Big Four find Competition Commission audit conclusions Lacking”). Though the plan of CC was not successful but there was question whether other audit companies are to be given the chance of auditing the large companies. The report throws light on the concerns that can be raised against the operation of the Big Four companies (Burgess 234). Plan of Competition Commission The Competition Commission (CC) on July 2013 declared that the Big Four companies should tender the audit reports of the large companies every five years instead of 10 years. It shook the Big four companies as they felt the threat from the other Mid-tier audit companies who will get the chance of establishing their business by taking their market (Frambling and Johnstone 145). Thus they opposed to the proposal. The proposal did not succeed as the case did not move further. The proposal was taken by CC to expose other Mid-tier audit companies and other small audit companies to audit large companies’ financial statement (“Non-Audit Remains Point for Discussion within Europe”). As a result those companies can make their strong position in the audit market which can also threaten the operation of the Big Four companies (“FRC Audit Rules Should Have Been Given Time to Take Root”). Main concerns The proposal was not accepted by the Big four companies but the issue was questioned and thus became a topic of high concern. The main concerns that can be raised regarding the issue are the following: 1) There are high barriers to the entry of other audit firms: A crucial barrier for the entry of the second tier audit firms in the market for auditing the large companies as these companies prefers to be audited by the Big Four companies (Millichamp 234). The main concern of the Big Four companies dominating the market lies in the lack of resources for auditing the large companies (“FRC Rubbishes Mandatory Five Year Audit Tendering”). Investments in the auditing process is risky as there is high cost of scaling for meeting the resources that are required for auditing of the large companies. Thus this barrier has limited the entry of the audit firms into the market other than the Big Four firms as the Mid tier audit firms do not have the investment potential for the audit process. Thus, there was little competition in the audit market for the Big four companies (“FRC Disagrees with Competition Commission Rotation Plans”). 2) Negative perceptions regarding the audit firms: It is important to note that reputation is a significant driver for choosing the auditor. Thus the difference between the Mid-tier audit companies and the Big Four Companies are made by comparing the reputation of the both. Thus the Big Four companies are preferred by the large companies for auditing their financial statements. Studies have pointed out the fact that very few large companies (less than 10%) will prefer Mid-tier companies ...Show more

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Audit concentration – Lack of competition in the large company audit market Table of Contents Introduction 3 Plan of Competition Commission 3 Main concerns 4 Step taken to increase the competition in the audit market 6 Conclusion 7 Works Cited 9 Name of Student: Name of Professor: Course Number: Date of Paper: Audit concentration – Lack of competition in the large company audit market Introduction The report highlights the plan formulated by Competition Commission (CC) in July 2013 which shook the Big Four auditing companies under FTSE 350 audit market, PwC, Deloitte, KPMG and EY…
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