GAO-03-864 Highlights, PUBLIC ACCOUNTING FIRMS Mandated Study on …

Short Description
and Urban Affairs and the House. Committee on Financial Services. July 2003. PUBLIC ACCOUNTING FIRMS. Mandated Study on Consolidation and. Competition.

Website: www.gao.gov | Filesize: 77kb

Content
Domestically and globally, there are only a few large firms capable of auditing
large public companies, which raises potential choice, price, quality, and
concentration risk concerns. A common concentration measure used in
antitrust analysis, the Hirschman-Herfindahl Index (HHI) indicates that the
largest firms have the potential for significant market power following mergers
among the largest firms and the dissolution of Arthur Andersen (see fig. below).
Although GAO found no evidence of impaired competition to date, the
significant changes that have occurred in the profession may have implications
for competition and public company choice, especially in certain industries, in
the future.
Existing research on audit fees did not conclusively identify a direct correlation
with consolidation. GAO found that fees have started to increase, and most
experts expect the trend to continue as the audit environment responds to
recent and ongoing changes in the audit market. Research on quality and
independence did not link audit quality and auditor independence to
consolidation and generally was inconclusive. Likewise, GAO was unable to
draw clear linkages between consolidation and capital formation but did observe
potential impacts for some smaller companies seeking to raise capital.
However, given the unprecedented changes occurring in the…