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Will This Lead To a Big Four Audit Market Dominance?
External auditing (hereafter referred to as auditing) has evolved from a routine checking of the books of account to a vital part of the governance process of companies. Factors such as the volume of transactions, information technology, globalisation and the constant increase in the complexity and number of laws, regulations and standards governing entities and their auditors have all impacted drastically on the evolving role of the registered auditing profession. The corporate collapses, business failures and fraudulent financial reporting scandals of the late 1990s and early 2000s led to a very turbulent time and resulted in a credibility crisis for the auditing profession. One of the consequences of this was the demise of Arthur Andersen and the resultant decrease in the number of big audit firms from five to four. A further consequence was the drastic interventions by governments, regulators and the auditing profession itself, which have given rise to various and onerous new laws, regulations and standards that govern financial reporting and the auditing thereof. This is described as follows by Knechel, et al. (2007:xiii):
The period 2000 through 2006 has been a very turbulent time for the auditing profession, a period that witnessed numerous scandals and their aftermath (Enron, WorldCom, Parmalat), strident calls for changes in the way that auditors practise their profession, and regulatory initiatives that significantly change the way the profession is governed. Long-held attitudes and customary practices have been challenged and found to be deficient by the media, the investing public, and those charged with regulating financial reporting and auditing. Issues of auditor independence, the role of corporate governance, the responsibilities of management, the appropriateness of consulting services, and the overall professional obligations of auditors have all been discussed and debated by a broad array of interested groups and individuals. The theme linking these debates has often been 'what is wrong with the auditing profession?' and its close relative 'what can be done to improve the auditing profession?' As a result, this period has probably resulted in more substantive changes to the auditing profession than any other period in modern day business history.
The above developments also gave rise to the risk of a...