IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v48y2023i3p524-549.html
   My bibliography  Save this article

The audit market for listed Australian companies from 2012 to 2018: A state of play

Author

Listed:
  • Elizabeth Carson

    (School of Accounting, Auditing and Taxation, UNSW Sydney, Sydney, NSW, Australia)

  • Yi (Dale) Fu

    (Department of Accounting, Deakin University, Burwood, VIC, Australia)

  • Ulrike Thürheimer

    (Accounting Section, University of Amsterdam, Amsterdam, The Netherlands)

  • Yang Xu

    (UQ Business School, The University of Queensland, Brisbane, QLD, Australia)

Abstract

Motivated by recent regulatory scrutiny of auditing in Australia, we provide an overview of the audit market for Australian listed companies from 2012 to 2018. Using descriptive analyses, we explore audit market competition, the provision of non-audit services (NAS), and audit firm tenure. We find that the Australian audit market is highly segmented. Big 4 firms increasingly dominate the larger client segment, while Non-Big 4 firms focus on medium and smaller clients. Auditor-provided NAS fees represent a relatively small fraction of audit fees for smaller clients, but a relatively high fraction for larger clients. We further observe that the share of total revenue from NAS of Big 4 firms increases over time. Finally, a relatively small percentage of clients has long audit firm tenure, and that long tenure is more common in the larger client segments. We discuss the implications of these findings and research opportunities that emerge. JEL Classification: D40, L11, M42, L84

Suggested Citation

  • Elizabeth Carson & Yi (Dale) Fu & Ulrike Thürheimer & Yang Xu, 2023. "The audit market for listed Australian companies from 2012 to 2018: A state of play," Australian Journal of Management, Australian School of Business, vol. 48(3), pages 524-549, August.
    • Handle: RePEc:sae:ausman:v:48:y:2023:i:3:p:524-549
    DOI: 10.1177/03128962221124642
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/03128962221124642
    Download Restriction: no
    File URL: https://libkey.io/10.1177/03128962221124642?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Tim Pearson & Greg Trompeter, 1994. "Competition in the Market for Audit Services: The Effect of Supplier Concentration on Audit Fees," Contemporary Accounting Research, John Wiley & Sons, vol. 11(1), pages 115-135, June.
    2. repec:eme:maj000:maj-06-2015-1201 is not listed on IDEAS
    3. Mimra, Wanda & Rasch, Alexander & Waibel, Christian, 2016. "Price competition and reputation in credence goods markets: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 100(C), pages 337-352.
    4. Mark L. DeFond & K. Raghunandan & K.R. Subramanyam, 2002. "Do Non–Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1247-1274, September.
    5. Timothy B. Bell & Monika Causholli & W. Robert Knechel, 2015. "Audit Firm Tenure, Non‐Audit Services, and Internal Assessments of Audit Quality," Journal of Accounting Research, Wiley Blackwell, vol. 53(3), pages 461-509, June.
    6. Yi Fu & Elizabeth Carson & Roger Simnett, 2015. "Transparency report disclosure by Australian audit firms and opportunities for research," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 30(8/9), pages 870-910, October.
    7. Joseph Gerakos & Chad Syverson, 2015. "Competition in the Audit Market: Policy Implications," Journal of Accounting Research, Wiley Blackwell, vol. 53(4), pages 725-775, September.
    8. Yitang (Jenny) Yang & Roger Simnett, 2020. "Financial Reporting by Charities: Why Do Some Choose to Report Under a More Extensive Reporting Framework?," Abacus, Accounting Foundation, University of Sydney, vol. 56(3), pages 320-347, September.
    9. Donelson, Dain C. & Ege, Matthew & Imdieke, Andrew J. & Maksymov, Eldar, 2020. "The revival of large consulting practices at the Big 4 and audit quality," Accounting, Organizations and Society, Elsevier, vol. 87(C).
    10. Elizabeth Carson & Roger Simnett & Ulrike Thürheimer & Ann Vanstraelen, 2022. "Involvement of Component Auditors in Multinational Group Audits: Determinants, Audit Quality, and Audit Fees," Journal of Accounting Research, Wiley Blackwell, vol. 60(4), pages 1419-1462, September.
    11. Chih†Ying Chen & Chan†Jane Lin & Yu†Chen Lin, 2008. "Audit Partner Tenure, Audit Firm Tenure, and Discretionary Accruals: Does Long Auditor Tenure Impair Earnings Quality?," Contemporary Accounting Research, John Wiley & Sons, vol. 25(2), pages 415-445, June.
    12. Peter Carey & Brad Potter & George Tanewski, 2014. "Application of the Reporting Entity Concept in Australia," Abacus, Accounting Foundation, University of Sydney, vol. 50(4), pages 460-489, December.
    13. Yi Fu & Elizabeth Carson & Roger Simnett, 2015. "Transparency report disclosure by Australian audit firms and opportunities for research," Managerial Auditing Journal, Emerald Group Publishing, vol. 30(8/9), pages 870-910, October.
    14. DeFond, Mark L. & Lennox, Clive S., 2011. "The effect of SOX on small auditor exits and audit quality," Journal of Accounting and Economics, Elsevier, vol. 52(1), pages 21-40, June.
    15. E. Johnson & Inder K. Khurana & J. Kenneth Reynolds, 2002. "Audit†Firm Tenure and the Quality of Financial Reports," Contemporary Accounting Research, John Wiley & Sons, vol. 19(4), pages 637-660, December.
    16. Larry R. Davis & Billy S. Soo & Gregory M. Trompeter, 2009. "Auditor Tenure and the Ability to Meet or Beat Earnings Forecasts," Contemporary Accounting Research, John Wiley & Sons, vol. 26(2), pages 517-548, June.
    17. Brad Potter & Matthew Pinnuck & George Tanewski & Sue Wright, 2019. "Keeping it private: financial reporting by large proprietary companies in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(1), pages 87-113, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Knechel, W. Robert & Thomas, Edward & Driskill, Matthew, 2020. "Understanding financial auditing from a service perspective," Accounting, Organizations and Society, Elsevier, vol. 81(C).
    2. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    3. Kitto, Andrew R., 2024. "The effects of non-Big 4 mergers on audit efficiency and audit market competition☆," Journal of Accounting and Economics, Elsevier, vol. 77(1).
    4. Timothy B. Bell & Monika Causholli & W. Robert Knechel, 2015. "Audit Firm Tenure, Non‐Audit Services, and Internal Assessments of Audit Quality," Journal of Accounting Research, Wiley Blackwell, vol. 53(3), pages 461-509, June.
    5. Sarowar Hossain & Jeff Coulton & Jenny Jing Wang, 2023. "Client Importance and Audit Quality at the Individual Audit Partner, Office, and Firm Levels," Abacus, Accounting Foundation, University of Sydney, vol. 59(2), pages 650-696, June.
    6. Shivaram Rajgopal & Suraj Srinivasan & Xin Zheng, 2021. "Measuring audit quality," Review of Accounting Studies, Springer, vol. 26(2), pages 559-619, June.
    7. Bandyopadhyay, Sati P. & Chen, Changling & Yu, Yingmin, 2014. "Mandatory audit partner rotation, audit market concentration, and audit quality: Evidence from China," Advances in accounting, Elsevier, vol. 30(1), pages 18-31.
    8. Beardsley, Erik L. & Imdieke, Andrew J. & Omer, Thomas C., 2021. "The distraction effect of non-audit services on audit quality," Journal of Accounting and Economics, Elsevier, vol. 71(2).
    9. Brandon Gipper & Luzi Hail & Christian Leuz, 2017. "On the Economics of Audit Partner Tenure and Rotation: Evidence from PCAOB Data," NBER Working Papers 24018, National Bureau of Economic Research, Inc.
    10. Adalene Olivia Silvestre & Cristiano Machado Costa & Clóvis Antônio Kronbauer, 2018. "Audit Rotation And Earnings Quality: An Analysis Using Discretionary Accruals," Brazilian Business Review, Fucape Business School, vol. 15(5), pages 410-426, September.
    11. Yang, Seunghee & Lee, Woo-Jong & Lim, Youngdeok & Yi, Cheong H., 2021. "Audit firm operating leverage and pricing strategy: Evidence from lowballing in audit industry," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(2).
    12. Stephen V. Brown & W. Robert Knechel, 2016. "Auditor–Client Compatibility and Audit Firm Selection," Journal of Accounting Research, Wiley Blackwell, vol. 54(3), pages 725-775, June.
    13. Brian Bratten & Monika Causholli & Thomas C. Omer, 2019. "Audit Firm Tenure, Bank Complexity, and Financial Reporting Quality," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 295-325, March.
    14. Chen, Lihong & Xiao, Tingting & Zhou, Jia, 2023. "Do auditor changes affect the disclosure of critical audit matters? Evidence from China," Economic Modelling, Elsevier, vol. 122(C).
    15. Lorenzo Dal Maso & Gerald J. Lobo & Francesco Mazzi & Luc Paugam, 2020. "Implications of the Joint Provision of CSR Assurance and Financial Audit for Auditors' Assessment of Going‐Concern Risk†," Contemporary Accounting Research, John Wiley & Sons, vol. 37(2), pages 1248-1289, June.
    16. Ku He & Xiaofei Pan & Gary Tian, 2017. "Legal Liability, Government Intervention, and Auditor Behavior: Evidence from Structural Reform of Audit Firms in China," European Accounting Review, Taylor & Francis Journals, vol. 26(1), pages 61-95, January.
    17. Konstantinos Vasilakopoulos & Christos Tzovas & Apostolos Ballas, 2021. "Banks’ Risk and The Impact of Audit Quality on Income Smoothing," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 20(3), pages 425-453, September.
    18. Fung, Simon Yu Kit & Raman, K.K. & Zhu, Xindong (Kevin), 2017. "Does the PCAOB international inspection program improve audit quality for non-US-listed foreign clients?," Journal of Accounting and Economics, Elsevier, vol. 64(1), pages 15-36.
    19. Neal Arthur & Medhat Endrawes & Shawn Ho, 2017. "Impact of Partner Change on Audit Quality: An Analysis of Partner and Firm Specialisation Effects," Australian Accounting Review, CPA Australia, vol. 27(4), pages 368-381, December.
    20. Sarowar Hossain & Larelle Chapple & Gary S. Monroe, 2018. "Does auditor gender affect issuing going‐concern decisions for financially distressed clients?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(4), pages 1027-1061, December.

    More about this item

    Keywords

    Audit firm tenure; audit market competition; audit market concentration; non-audit services;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ausman:v:48:y:2023:i:3:p:524-549. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.