Christopher K. M. Pong

Auditor Concentration: A Replication and Extension for the UK Audit Market 1991-1995

This paper examines the issue of auditor concentration in the UK during the period from 1991 to 1995. It shows that in 1995 the Big Six held 75% of the total number of audits and collectively earned 92% of the total audit fees. There was only a small increase in auditor concentration during the five year period, resulting from companies switching from small audit firms to Big Six and newly listed companies choosing a Big Six firm. The paper also examines auditor concentration within industries. Finally, the study assesses the measurement methods most commonly used in auditor concentration studies. Copyright Blackwell Publishers Ltd 1999.

Modernization versus problematization: value-for-money audit in public services

This paper examines the practice of value-for-money (VFM) audit in Scotland. The concept of VFM has featured strongly in the policy guidance of successive governments as they have initiated changes in the structure, organization and delivery of public services. The expression VFM is now embedded in everyday language and discussion about the performance of the public sector. However, this study of the practices of an expert group of VFM auditors presents a picture of complexity: VFM, as a concept, may be taken for granted, but, in practice, it has been, and continues to be, problematic.

The implications of merger for market share, audit pricing and non‐audit fee income: The case of PricewaterhouseCoopers

Purpose – Concern has been raised over the impact of the PricewaterhouseCoopers merger on the competitiveness of the market for audit services. This paper aims to examine the market share and audit pricing of PricewaterhouseCoopers in the UK before and after its merger. It also seeks to examine the change in consultancy services income of PricewaterhouseCoopers since its merger.Design/methodology/approach – Numerical data analysis is performed. In particular, concentration indices and audit fee model (OLS) are used.Findings – The increase in audit services market concentration as a result of the merger has not led to an increase in audit prices. Although the merger has enabled PricewaterhouseCoopers to increase its market leadership in regions and in industrial sectors, neither industry leadership nor city leadership generated a premium in audit pricing. An analysis of non‐audit services fee income leads to the rejection of claims by critics that the main purpose of the merger is to enable Pricewaterhouse...

Are Joint Audits Associated with Higher Audit Fees

Abstract In its October 2010 Green Paper on audit policy, the European Commission suggested that joint audits might be a way of improving the audit market in Europe. However, some parties consider that a joint audit system is not an efficient solution because the perceived improvements in audit quality, if any, are not commensurate with the significant increase in audit fees. We compare audit fees paid during the years 2007–2011 by listed companies in France, where joint audits are mandatory, with those paid by British and Italian companies. Theory suggests that audit fees in countries with high investor protection, such as the UK, are likely to be greater than those in countries with lower investor protection, such as France and Italy, ceteris paribus. However, we find significantly higher audit fees in France after controlling for well-documented auditor, client, and engagement attributes, which vary across countries. Furthermore, since we do not find statistically significant differences in the magnitude of abnormal accruals, the higher audit fees observed in France do not appear to be associated with higher audit quality.

‘Auditor professional judgement’: implications for regulation and the law

Auditors Paul Grout, Ian Jewitt, Chris Pong and Geoff Whittington The audit industry is in a state of turmoil and there are conflicting views on what should be done. Auditors have been criticised for their role in several well publicised corporate collapses and face huge lawsuits as a result. The problems are exacerbated by pressures for harmonisation which arise partly because of political developments, and partly because of the increasing sophistication and internationalisation of financial markets. We summarise the current situation and then discuss the policy issues from the viewpoint that auditor professional judgement plays a major role in the transmission of information. This viewpoint leads us to some provocative conclusions: taking too firm measures to ensure auditor independence may be against the interests of investors and creditors. The controversial UK Caparo decision that third party investors and creditors are not owed a duty of care by auditors might enhance information transmission. Steps to rule out creative accounting might be counterproductive: for example, in the context of bank regulation, the much criticised historic cost basis for evaluating assets may be better than marking to market.

The future of the external audit function

Purpose - The purpose of this paper is to provide an overview of the challenges and opportunities currently facing external auditors at a time of economic and financial crisis. Design/methodology/approach - The paper has a particular focus on the other contributions to this special issue of Findings - The paper puts forward various suggestions for future academic research that might improve auditing practice. Also, the principal aim of this special issue has been to spotlight differing perspectives on some of the perennial problems which have plagued auditing for generations and to suggest possible ways forward. Practical implications - Various suggestions for future academic research that might improve auditing practice are put forward in the paper. Originality/value - Major contemporary issues facing the auditing profession (or industry) are summarized. The paper highlights the diversity of value stances that exists in the audit academy and may (together with the other papers forming part of this special issue) be useful for introducing university students studying auditing at intermediate or advanced levels to a variety of current auditing issues and debates.

A descriptive analysis of audit price changes in the UK 1991–95

This paper examines changes in the audit fees of quoted public limited companies in the UK during the period from 1991 to 1995. After controlling for changes in the size, complexity and risk of auditees, it is shown (based on a logarithm audit fee model) that the audit market experienced a 9.7% reduction in inflation-adjusted fees over this five-year period. The results also provide evidence of overall fee reductions by each of the Big Six. On closer examination, a mixture of fee increases, decreases and no changes were observed for auditees of the Big Six and for the groups of medium-sized and small audit firms investigated. These results, which pertain to a period when market concentration increased markedly (Beattie and Fearnley, 1994; Peel, 1997; Pong, 1999), offer some amelioration of the concerns of the purchasers of audit services that, in general, audit fees will rise in response to an increase in dominance by a few large firms.

The Working of the Auditing Practices Committee—Three Case Studies

Abstract This is a study of the development of three different auditing guidelines by the Auditing Practices Committee (APC) of the UK and the Irish Republic. The guidelines are those on analytical review, fraud, and general insurance business. The evidence is derived from the APCs archives and includes agendas, minutes, working papers and correspondence of working parties and of the main Committee, in addition to published sources. The evidence is used to assess the validity of the public criticisms that have been made of the APC and the possible effectiveness of the recent reforms of the system.

ACCOUNTING FOR A DISAPPEARANCE: A CONTRIBUTION TO THE HISTORY OF THE VALUE ADDED STATEMENT IN THE UK

Burchell et als [1985] historical analysis of value added in the UK attributes its rise and fall to societal circumstances which initially encouraged the voluntary disclosure of the Value Added St...

Doctors under the microscope: the birth of medical audit

In 1989 a UK government White Paper introduced medical audit as a comprehensive and statutory system of assessment and improvement in quality of care in hospitals. A considerable body of research has described the evolution of medical audit in terms of a struggle between doctors and National Health Service managers over control of quality assurance. In this paper we examine the emergence of medical audit from 1910 to the early 1950s, with a particular focus on the pioneering work of the American surgeons Codman, MacEachern and Ponton. It is contended that medical professionals initially created medical audit in order to articulate a suitable methodology for assessing individual and organisational performance. Rather than a means of protecting the medical profession from public scrutiny, medical auditing was conceived and operationalised as a managerial tool for fostering the active engagement of senior hospital managers and discharging public accountability. These early debates reveal how accounting was implicated in the development of a system for monitoring and improving the work of medical professionals, advancing the quality of hospital care, and was advocated in ways, which included rather than excluded managers.