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Auditing, Consulting, and Audit Market Concentration

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Author Info

  • Christopher Bleibtreu

    ()
    (Department of Economics, University of Konstanz, Germany)

  • Ulrike Stefani

    ()
    (Department of Economics, University of Konstanz, Germany)

Abstract

In its recently published Green Paper, the European Commission 2010 discusses various methods to enhance the reliability of audits and to re-establish trust in the financial market. The Commission primarily focuses on increasing auditor independence and on reducing the high level of audit market concentration. Based on a model in the tradition of the circular market matching models introduced by Salop 1979, we show that prohibiting non-audit services as a measure intended to improve auditor independence can have counter-productive secondary effects on audit market concentration. In fact, our model demonstrates that incentives for independence and the structure of the audit market are simultaneously determined. Because market shares are endogenous in our model, it is not even clear that prohibiting non-audit services indeed increases an auditor’s incentive to remain independent.

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Bibliographic Info

Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-28.

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Length: 35 pages
Date of creation: 02 Aug 2011
Date of revision:
Handle: RePEc:knz:dpteco:1128

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Related research

Keywords: auditing; Audit Fees; Knowledge Spillovers; Audit Market Concentration; Auditor Independence;

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References

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  1. Chee-Yeow Lim & Hun-Tong Tan, 2008. "Non-audit Service Fees and Audit Quality: The Impact of Auditor Specialization," Journal of Accounting Research, Wiley Blackwell, vol. 46(1), pages 199-246, 03.
  2. Scott Whisenant & Srinivasan Sankaraguruswamy & K. Raghunandan, 2003. "Evidence on the Joint Determination of Audit and Non-Audit Fees," Journal of Accounting Research, Wiley Blackwell, vol. 41(4), pages 721-744, 09.
  3. Rick Antle & Elizabeth Gordon & Ganapathi Narayanamoorthy & Ling Zhou, 2006. "The joint determination of audit fees, non-audit fees, and abnormal accruals," Review of Quantitative Finance and Accounting, Springer, vol. 27(3), pages 235-266, November.
  4. Quick, Reiner & Sattler, Matthias, 2011. "Das Erfordernis der Umsatzunabhängigkeit und die Konzentration auf dem deutschen Markt für Abschlussprüferleistungen," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 56503, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
  5. DeAngelo, Linda Elizabeth, 1981. "Auditor independence, `low balling', and disclosure regulation," Journal of Accounting and Economics, Elsevier, vol. 3(2), pages 113-127, August.
  6. Rick Antle & Elizabeth Gordon & Ganapathi Narayanamoorthy & Ling Zhou, 2002. "The Joint Determination of Audit Fees, Non-Audit Fees, and Abnormal Accruals," Yale School of Management Working Papers amz2502, Yale School of Management, revised 02 May 2006.
  7. David F. Larcker & Scott A. Richardson, 2004. "Fees Paid to Audit Firms, Accrual Choices, and Corporate Governance," Journal of Accounting Research, Wiley Blackwell, vol. 42(3), pages 625-658, 06.
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