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    Changes in Audit Market Competition and the Big N Premium
    research summary posted October 3, 2013 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 03.0 Auditor Selection and Auditor Changes 
    Changes in Audit Market Competition and the Big N Premium
    Practical Implications:

    The increase in the premium paid for a Big N auditor over a non-Big N auditor has increased over time and is associated with consolidation in the audit industry. This association is weaker for large global firms and more pronounced for medium and small size firms. From these results, the authors suggest that concerns regarding the impact on large global firms of consolidation in the audit market may be overstated.


    Carson, E., R. Simnett, B. S. Soo, and A. M. Wright. 2012. Changes in Audit Market Competition and the Big N Premium. AUDITING: A Journal of Practice & Theory. 31(3), 47-73.

    audit fees; audit market; competition; regulation; longitudinal analysis
    Purpose of the Study:

    Since 1997, the number of large, global audit firms has decreased from six to four. This study responds to recent calls from government bodies for research into the market effects of this decline. The authors investigate the change in audit fees over the sample period to determine if there has been a significant decrease in competition in the audit market.

    Design/Method/ Approach:

    The authors use data on audit fees from ninety percent of nonfinancial listed Australian firms between the years 1996 and 2007, which spans the time window of the decline from the Big 6 to the Big 4 audit firms. The authors use the Big N premium, the difference between a Big N audit fee and what a client could pay for a non-Big N auditor, as their dependent measure and control for relevant changes in the economy over the period.


    The study provides evidence that the overall Big N Premium has increased significantly from the Big 6 period to both the Big 5 and Big 4 periods. Surprisingly, the premium for the largest global firms has not increased as greatly as the rest of the market, likely due to their relatively greater bargaining power. On the other hand, small and mid-size firms saw a larger jump in premiums over the time period.

    Auditor Selection and Auditor Changes, Client Acceptance and Continuance
    Audit Fee Decisions