The auditing oligopoly and lobbying on accounting standards

We examine how the tightening of the U.S. auditing oligopoly over the last twenty-five years-from the Big 8 to the Big 6, the Big 5, and, then, the Big 4-has affected the incentives of the Big N, as manifest in their lobbying preferences on accounting standards. We find, as the oligopoly has tightened, Big N auditors are more likely to express concerns about decreased "reliability" in FASB-proposed accounting standards (relative to an independent benchmark); this finding is robust to controls for various alternative explanations. The results are consistent with the Big N auditors facing greater political and litigation costs attributable to their increased visibility from tightening oligopoly and with decreased competitive pressure among the Big N to satisfy client preferences (who, relative to auditors, favor accounting flexibility over reliability). The results are inconsistent with the claim that the Big N increasingly consider themselves "too big to fail" as the audit oligopoly tightens.