Does the Big 4 have an unfair monopoly?

Michelle writes:
This NY Times article discusses the Big four’s dominance over the accounting industry. According to the writer’s research, the Big 4 currently handles the books of 98% of American companies, and they charge a high price for it. After the passage of the Sarbanes Oxley Act, fees for their services jumped about 45%. The writer points out how that seems like a significant amount, and maybe there should be more firms involved in the industry. I agree. I understand the value of specialization and experience, but that percentage increase in fees seems excessive. Do you think that instead of just the big four there should be the big eight as the article suggests?

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.


  1. I think more competition in the audit industry would definitely be beneficial to everyone. This is because when there are more, readily available substitutes, in order to at minimum keep the current amount business companies will begin to increase the quality of their product and/or decrease the fees. Since all public companies and many private companies need their financial statements to be audited, auditors probably won't change the amount of fees they charge by a material amount. In my mind this leaves the option of improving the quality of the service provided. This is extremely beneficial for investors, clients, and a confidence gain by the public in the auditing industry. Since all four of the Big Four's audit fees are about the same, the motivation clients will have for changing auditors is the quality of the services provided. The only reason why I do not think the audit industry will become more competitive without regulatory intervention is because partners and management have a very "buddy-buddy" relationship. Partners and management play golf, tennis, etc. with each other on the weekends. Some firms have had the same clients for decades. This has caused a change a from professional environment to more of a "we've had them as a client for decades, we don't want to lose their fees, and I play golf with the CEO and Board at their country club on the weekends" environment. I feel because of this, the only way to make the industry more competitive and auditors more independent is for regulators to intervene.

  2. I agree that there should be more competition amongst accounting firms and that the Big Four should not be monopolizing 98% of American businesses. According to the article, the increase in fees is not a result of “price gouging” but instead in response to the additional work required from the passage of new rules. Therefore, I do not believe that rising fees is an issue, just the mere fact of restrained competition. When such prestige is tied to the title of “Big Four” it is no wonder why big companies want to be associated with one of the four firms. There should definitely be efforts taken to go back to the days of the Big Eight. One opposing view that I must note however, is that with increased competition, there will be increase pressure to retain clients. Problems may arise from auditors feeling the need to look the other way to appease their clients in fear that they may take their work elsewhere.

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