审计文献Theeconomic role of the audit in free and regulated market A look back and a look.docx

审计文献Theeconomic role of the audit in free and regulated market A look back and a look.docx

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审计文献TheeconomicroleoftheauditinfreeandregulatedmarketAlookbackandalook

Theeconomicroleoftheauditinfreeandregulatedmarket:

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Abstract（Summary）

ThenatureofcompetitioninthemarketforauditsandCPAfirms'behaviorinthiscompetitiveenvironmentarediscussed.Concernsrangefromrecurringchargesthatlarge,dominantCPAfirmspreventeffectivecompetition,tofearsthatdestructivecompetitionwillerodeauditorindependence.Theimplicationoftheseconcernsisthatregulationisneededtocontrolsupplierbehavior.Empiricalresultsaboutauditorconcentration,auditfee,andauditorchoicearesynthesizedtoproduceapictureofwhatisknownandwhatremainstobelearnedabouttheauditmarketstructure,determinantsofthatmarketstructure,andCPAfirmbehaviorandperformanceintheUS.Theanalysisofindustrialorganizationisacomplexundertakingthatcanbenefitregulators,educators,andprofessionalsbyprovidingabetterunderstandingoftheauditmarket.

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CopyrightUniversityofFlorida,AccountingResearchCenter1992

1.0INTRODUCTION

Therecentmergersofpublicaccounting（CPA）firmsthatreducedtheBig8totheBig6refocusconcernaboutthebehaviorofsuppliersinthemarketforaudits[Rankin,1989].InanearlyattempttopresentaprofileoflargerCPAfirmsfrompubliclyavailabledata,ZeffandFossum[1967,p.306]notedtheopportunitiesforfutureresearchbystating,"Thedatapresented...barelyscratchthesurfaceofapotentiallyfascinatingareaofstudy,namely,howpublicaccountingfirmsgrow,develop,andacquirepersonalities."

OneaspectofthisareaofstudythathasbeenconsideredsinceZeffandFossumisthenatureofcompetitioninthemarketforauditsandCPAfirms'behaviorinthiscompetitiveenvironment.Concernsrangefromrecurringchargesthatlarge,dominantCPAfirmspreventeffectivecompetitiontofearsthatdestructivecompetitionwillerodeauditorindependence.Theimplicationoftheseconcernsisthatregulationisneededtocontrolsupplierbehavior.

Thispapersynthesizesempiricalresultsaboutauditorconcentration,auditfee,andauditorchoicetoproduceapictureofwhatisknownandwhatremainstobelearnedabouttheauditmarketstructure,determinantsofthatmarketstructure,andCPAfirmbehaviorandperformanceintheUnitedStates.Theeconomicsofindustrialorganizationprovidesaconceptualframeworkfororganizingthistopic.

Anydiscussionofaneconomicmarketmustdefinethemarket'sbuyersandsellers.AlthoughitisconvenienttodefinetheU.S.auditmarketasallauditclients,mostresultsindicatethatsuppliers'performanceandbehaviordifferinthelarge-andsmall-clientsegmentsofthatmarket.Similarly,suppliersaregroupedintotwotypes:

theBig8firms,whichparticipateinbothmarketsegments,andallotherCPAfirms,whichgenerallyparticipateonlyinthesmall-clientsegment.Thedistinctionbetweenthetwomarketsegmentsandthetwosuppliertypesismaintainedinourdiscussion.

Thenextsectionprovidesabriefoverviewoftheeconomicsofindustrialorganizationandtheapproachwetaketoorganizetheaccountingliterature.Insections3-6,wereviewtheempiricalevidence.Section7containsasummary,conclusions,anddirectionsforfutureresearch.

2.0THEECONOMICSOFINDUSTRIALORGANIZATION

Industrialorganizationstemsfrommicroeconomicsandistheappliedeconomicsofsupply[Shepherd,1990].Theprimaryconcernofindustrialorganizationiswhetherfirmsinthemarketarebehavinginamannerthatpromotessocialwelfare.Acentralassumptionofstructuralistsisthateffectivecompetitiondependsonamarket'sstructureandresultsinperformancethatprovidesthegreatestbenefittosociety.Effectivecompetitioninvolvesastrivingamongcomparablerivalswhoexertamutualpressuresostrongthatallcompetitorsmustapplymaximumefforts.Effectivecompetitionrequirestwointernalmarketconditions:

areasonabledegreeofparityamongcompetitorsandenoughcompetitorstopreventeffectivecollusionamongthemtorigthemarket.

Amarket'sstructureismeasuredbythesizedistributionofcompetingfirmsandreflectstheinternalconditionsofthemarket.Afirm'smarketpowerismeasuredbyitsmarketshare,whichdetermineswhetherthereisamonopolyinthemarket.Concentrationisthecombinedmarketshareofleadingfirmsandrepresentsthedegreeofoligopolyinthemarket.Combinedmarketshareisadilutionoftheeffectthatasinglefirmwiththesamemarketsharewouldhave.Highmarketconcentrationusuallyfavorscollusionandincreasesleadingfirms'abilitytoearnexcessprofitsbyraisingpriceabovecost.

Externalentryconditionscansubstituteforinternalcompetitiveconditions.Evenwithfewrivals,amarketmaybehavecompetitivelyifentryfromtheoutsideisarealisticthreat.However,barrierstofreeentry（suchaseconomiesofscaleproductdifferentiation,ordiversification）maydeterminestructure.

Mainstreamresearchersholdthestructuralistviewthat

（1）conditionsofsupplyanddemanddeterminemarketstructureand

（2）firmbehaviorandperformancearetheresultofmarketstructure.Firmbehaviorcanbemonopolistic,collusive,orcompetitive,andfirmperformanceisreflectedinthefirms'economicpatternsoperationalefficiency,andratesofinnovation.Goodperformanceispromotedbyamarketstructurewithlowconcentrationandcompetitivefirmbehavior.Howeverafirm'ssuperiorperformancemayjustifymonopolyinsomecases.Thefundamentalpatternisthatafirm'smarketpowervariesmainlywithitsmarketshare,andpricedifferencesmayreflectafirm'smonopolisticbehavior.

Althoughstructuralistsrecognizethatcauseandeffectaremixedtosomedegree,causationispresumedtoflowprimarilyfromstructuretobehaviorandperformance.TheschoolofthoughtassociatedwiththeUniversityofChicagoandUCLAassumesthatthedirectionofcausationisreversed（seefigure1）.（Figure1omitted）Eachfirm'srelativeefficiencyissaidtobetherealdeterminantofitsbehaviorandmarketstructure.Theviewcanbesummarizedasfollows:

1.Monopolyreflectssuperiorperformance.

2.Thecostsofattainingmonopolycommonlyuseupanypossiblemonopolyprofits.

3.Marketdominancehasonlyminimalharmfuleffects.

4.Collusionistheonlypureformofmarketpower,anditquicklycollapsesfromcheating.

Analystswithinthisschoolassertthatmonopolyisrare,weak,transient,andjustifiedbyefficiency[Demsetz,1974].

Proponentsofbothviewsagreeonthefollowingcoreissues:

1.Firmsseekhighermarketsharestogainhigherprofits.

2.Whenthesefirms'mutualstrivingsholdeachotherincheck,effectivecompetitionexists.

3.Ifoneorseveralfirmsgainhighmarketshares,theycanobtainhighprofitsbysettingpricesabovecostsandrestrictingoutput.Bothmonopolyandoligopolyimposesocialcosts.

4.Thecostsofmonopolymaybeoffsetiftherearelargeenoughscaleeconomies,productdifferentiation,diversification,orsuperiorperformancebythedominantfirms.

Toassessthenatureofcompetitioninthemarketforaudits,empiricalevidenceisorganizedwiththefollowingapproach:

Insection3,Big8marketsharesandauditmarketconcentrationareusedtodividetheauditmarketintotwocategories.Marketperformanceexpectedineachmarketcategoryiscomparedtotheevidenceofactualperformance.Insection4,evidenceofeconomiesofscaleisconsideredinasimilarmanner.Sections5and6containdiscussionsoftheempiricalevidenceregardingproductdifferentiationandfirmdiversification,respectively.Asummaryofthesourcesforempiricalresultsincludedinthisreviewisprovidedintable1.

3.0STRUCTUREOFTHEMARKETFORAUDITS

Marketsarecategorizedaccordingtoevidenceofamonopoly,dominant-firm,tightoligopoly,andlooseoligopoly.Monopolisticanddominant-firmmarketsarecharacterizedbyasinglefirmwithnocloserival.Sinceatleastsixtoeightfirmscompeteasrelativelyequalrivalsintheauditmarket,thecriticalissueiswhethercollusionislikelyornot,thedistinctionbetweentightandlooseoligopoly.

Thedifferenceisoneofdegree.Atightoligopolyhasfewerrivals,higherconcentration,stablemarketshares,andmediumtohighbarrierstoentry.Alooseoligopolyhaslowerconcentration,unstablemarketshares,andlowentrybarriers.Generally,looseoligopolyisthebestall-aroundstructure.Itprovidesfirmswithsignificantdegreesofmarketpresence,continuity,andstabilitywhilepermittingtherealizationofscaleeconomiesinproduction,innovation,andotheractivities.Becauseconcentrationislow,thelikelihoodofcollusionisalsolow.

BurtonandRoberts[1967]reportedthat,in1952,92differentCPAfirmsauditedthe620companieslistedatleastonceasaFortune500companyfrom1955to1963.In1965,only37differentCPAfirmswereinvolvedintheseaudits,and599ofthecompanieswereauditedbyjust16differentCPAfirms.ThisrapidreductioninthesuppliersofauditscausedconcernthatthestructureoftheauditmarkethadchangedandthatthecompetitivebehaviorofCPAfirmsinthemarketwasaffected.

3.1EVIDENCEOFHIGHMARKETCONCENTRATIONS

EarlyworkemployeddescriptivemeasuresofindividualCPAfirms'marketsharesatpointsintime.ZeffandFossum[1967]describedthemarketshareofindividualCPAfirmsinthemarketcomposedofcompanieslistedinthe1965FortuneDirectory,extrapolatingmarketsharefromclientrevenues,assets,andincomebyindustryandindustrygroupings.TheyfoundthattheBig8firmsdominatedthemarketgenerally,buttheextentofdominationvari