Auditing, Consulting, and Audit Market Concentration

Christopher Bleibtreu () and Ulrike Stefani ()
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Christopher Bleibtreu: Department of Economics, University of Konstanz, Germany
Ulrike Stefani: Department of Economics, University of Konstanz, Germany

No 2011-28, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

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.

Keywords: auditing; Audit Fees; Knowledge Spillovers; Audit Market Concentration; Auditor Independence (search for similar items in EconPapers)
JEL-codes: D43 L11 M42 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2011-08-02
New Economics Papers: this item is included in nep-acc and nep-com
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