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The Big 4’s Stranglehold on the Audit Market Is Worse Than You Thought

Posted on by Caleb Newquist

In a speech entitled "Accountability: Protecting Investors, the Public Interest and Prosperity," PCAOB member Jeanette Franzel shares some numbers:  

Currently, about 2,360 firms are registered with the PCAOB, including about 915 non-U.S. firms located in 85 jurisdictions.
 
Not all PCAOB-registered firms regularly issue audit reports for issuers, but we inspect those that do — approximately 714 firms, including more than 240 non-U.S. firms. Additionally, approximately 118 registered firms do not regularly issue audit reports for issuers; however, they report that they play a substantial role in the audits of issuers.
Accounting Today picked out the little nugget from her speech that stated 923 registered firms do not currently conduct audits that would subject them to PCAOB oversight, therefore the Board is "examining the extent of this practice and the risks that may arise from gaps in expectations about what a PCAOB registration may signify."
 
So that's interesting. But it's not quite as interesting as this: 
Together, these firms audit or play a substantial role in the audits of the previously mentioned more than 9,755 U.S. issuer companies that have approximately $26.4 trillion in global market capitalization.
 
Based on 2012 year-end data, the four largest registered public accounting firms and their global affiliates audited more than 98 percent of the global market capitalization of U.S. issuers. The next three firms and their global affiliates audited another 1.1 percent of this market capitalization.
 
This level of concentration, which has increased significantly since the 1980s, has been studied extensively. The dynamics of this market provide complexities for the Board's oversight programs and present challenges within the market for choice among audit firms.
You can crunch those numbers if you want.
 
Anyway, I think Member Franzel showed considerable restraint here by simply stating that this "level of concentration" results in "complexities" and "challenges."
 
Some in the UK haven't been so reserved and they have been much aggressive in discussing the Big 4 oligopoly. Meanwhile, here in the States our legislators are passing bills that abolish policies that aren't even being seriously considered.   
 
"Too Few to Fail" doesn't even do this justice. 
 

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Late yesterday, PwC’s lead over Reznick Group completely vanished. I speculated to my parter-in-crime that based on the sheer volume coming out of the Virginia/Maryland region that it had to be some sort of a concerted effort on the part of Reznick Group. Turns out I was right; more right than I could possibly know.


This email went out to all Reznick Group offices. Yes. All.

And here’s the victory lap/dancing on PwC’s grave:

We knew America would land with Reznick Group accountants being the coolest bean counters around. With the underground movement of getting clients, family and friends to help vote along with a huge push from our India employees motivating a billion voters, hard to stop the Reznick Group momentum.

Bring on the next contender!

So for the firms left – this is what you’re up against. I’m not suggesting that you should undertake similar efforts but that’s because I have to remain neutral in this regard.

It should be noted that based on the numbers accumulated by Vizu, it appears very few Reznick people bothered voting on any of the other match-ups. This isn’t exactly the kind of participation we had in mind but since most of RG is probably new to the site, we’ll let it slide. The question now is whether this amounts to a “Reznick win” or a “PwC loss.” Please discuss. We’ll updated you with the match-ups for the second round later today and the voting rolling tomorrow.

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