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Title: Pricing of audit services in the UK, 1991-1995
Author: Pong, Christopher Kam Man
Awarding Body: University of Edinburgh
Current Institution: University of Edinburgh
Date of Award: 2001
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Developments in the audit services market and the issues surrounding them provided the backdrop to this study and defined its major objectives. The latter are threefold. First, to examine the extent of concentration in the audit services market during the period from 1991 to 1995 (in the wake of the mergers between Ernst & Whinney and Arthur Young, and between Coopers & Lybrand and Deloitte, Haskins & Sells). Second, to analyse changes in the level of audit prices during the relevant period. Third, to provide a theoretical framework to explain audit prices in a competitive environment. The investigation of these three related subjects rested substantially on a statistical analysis of data on audit fees. This data was collected from a variety of sources including Datastream and FT Extel. The major findings of the study are as follows. The analysis of the structure of the audit services market revealed that there was a small increase in concentration during the five year period. It was discovered that it was companies who switched from small audit firms to the [then] 'Big Six' audit firms, together with newly listed companies which chose a 'Big Six' auditor. It was these tendencies which accounted for the increase in the market share achieved by the 'Big Six'. The result was that by 1995, 75% of the fully listed and USM companies were audited by the 'Big Six'. Contrary to expectations, the increased concentration observed in the supply of audit services did not appear to translate into oligopolistic pricing behaviour among large audit firms. Over the five-year period studied, there was, on average, a 9% decrease in inflation-adjusted audit fees. In accord with the third objective of the dissertation, a theoretical framework was developed which attempted to explain the differences in the prices charged by audit firms according to factors such as audit quality, specialisation, and audit firm size. Empirical tests were performed which partial support to the theory and confirm its utility for future investigations of fee setting on the audit services market. The dissertation concludes with suggestions for further research.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available