Paul Danos, John W. Eichenseher, Audit Industry Dynamics: Factors Affecting Changes in Client-Industry Market Shares, Journal of Accounting Research, Vol. 20, No. 2, Part II (Autumn, 1982), pp. 604-616
This paper builds on the results of prior research on the structure of the U.S. market for audit services. Two complementary empirical approaches are pursued. First, inferences are made about specific aggregate Big Eight comparative advantages from an analysis of auditor selections by 299 sample firms from 1964 to 1980. Second, dynamic trends within the Big Eight are considered by examining changes in individual audit firm market shares across extensive client samples at four points in time--1950, 1960, 1970, and 1980. In general, analysis Of auditor change data indicates no substantial upward shift in aggregate Big Eight "equilibrium" market share in the two decades studied. Rather, it would appear that movements in this time-frame to, the Big Eight reflect a long process of adjustment to relatively stable conditions of comparative advantage. Changes in within Big Eight market shares, on the other hand, strongly support the not]on of increasing intra-Big Eight competition for nonregulated clients.
This study is both a replication and an extension of prior work on auditor concentration in specific industries. By expanding the client population sevenfold, more comprehensive measurement of concentration is obtained than was possible in previous research. Prior studies' conclusions concerning the variability of auditor concentration across industries are supported, but the levels of concentration appear to be lower when a surrogate for audit fees is employed as the measure of CPA-firm activity levels. An important finding is that concentration measures are quite sensitive to the CPA-firm activity measure employed. A model is posited for explaining the level of auditor concentration in any given industry. The model states that auditor concentration is a positive function of the degree of client-industry regulation and capital market activity. Tests of this model across 54 industries indicate statistically significant positive associations between the two proposed explanatory variables, and the level of CPA-firm concentration.
The purpose of this paper is to describe certain aspects of specialized knowledge communication in auditing. The paper discusses the possible organizational responses an audit firm could make when competitive markets require efficient knowledge sharing among auditors and when economies of scale opportunities through division of responsibilities exist. Experienced auditors were surveyed about their consultation with others in their firms for specific types of clients and for different phases of audit engagements. In general, the results suggest limits to expertise‐related economies of scale in the audit setting studied. The required specialized knowledge seems to be close at hand and accessible in most engagements with little need to consult with nonlocal specialists. When consulted, however, the nonlocal specialists are believed to convey important information. Résumé. Les auteurs ont pour but de décrire certains aspects de la communication de connaissances spécialisées en vérification. Ils traitent des différentes réponses organisation‐nelles que peut donner un cabinet de vérification aux exigences des marchés concurrentiels relatives au partage efficient des connaissances chez les vérificateurs et à la possibilité de réaliser des économies d'échelle grâce au partage des responsabilités. Les auteurs ont interrogé des vérificateurs expérimentés dans le but de déterminer s'ils consultaient d'autres vérificateurs de leur cabinet au sujet de certains types précis de clients et pour différentes phases des missions de vérification. De façon générale, les résultats obtenus donnent à penser que les économies d'échelle reliées à l'expertise dans les contextes de vérification étudiés sont limitées. Dans la plupart des missions, il semble que les connaissances spécialisées requises soient à portée de la main et facilement accessibles, sans qu'il soit nécessaire de consulter des spécialistes de l'extérieur. On croit cependant que les spécialistes de l'extérieur livrent de l'information importante lorsqu'ils sont consultés.