Market Trends of US Auditing Services Industry
Declining Quality of Auditing from the Big 4
Considering the high concentration of the audit service market in the US, investors raised issues with the probability of a lower concentration of audits, which can also result in lesser protection for investors. A ban or suspension on any of the firms could include a catastrophic effect on the market as it would create a huge void that the rest of the markets cannot handle. And considering the same, these firms are reasonably assured about their position from audit regulators. Auditors are fast becoming complacent and are already eliminating certain audit procedures to reduce costs, taking on riskier clients, consenting to the demands of management, and aggressively expanding their riskier non-audit service line under the trusted audit firm brand, which would only increase the auditing standards.
The major factor for this can be how the Big 4 firms and their subsidiaries work. These subsidiaries act as legally distinct business affiliates more than subsidiaries of the global networks, which share the same ethos. Unless regulators take firm action, the quality of the audits is expected to decline further.
Big 4 firms Increase the Auditing Fee as the Tenure Grows
One significant evidence of why the big four firms are monetizing on the lack of competition or regulation is the increased auditing fees for tenured companies. While convention dictates that firms should charge less to their tenured clients who provided the business for a long time, the same doesn't hold for the big four firms in the US.
The justification firms give for such a hike is the increasing workload as the business grows, and the changing corporate structure resulted in its toll on auditing. However, the same doesn't hold for non-big 4 firms whose fees remain flat and marginally decreasing. Big 4 firms, on average, charge their customers 32% higher fees in the 14th year compared to a 6% decline in fees by non-big 4 auditing firms in the same period. The fee increase is a direct consequence of these companies' power in the auditing space. Considering the list of bans imposed in other countries, it is only a matter of time before these companies are asked to follow stricter regulations.
