Rational of topic:
Recently, the EU Audit Regulation will effective from 17th June 2016 draw the attention of people. Continuous renewal on audits’ regulatory framework performed that regulators are making great efforts on increasing strictly regulated environment on audit market. Under the new policy companies could be forced to switch auditors every seven, ten or 14 years, therefore the demand of audit service is possible to break the Big Four’s dominance of the large company audit market. As thus, the danger of a Big Four firm collapsing as a result of a damages claim is very real.
Although, it has been 15 years since the collapse of its auditor, Arthur Andersen, which reduced the number of large global audit firms from five to four. From that time on, big four — Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers — have dominated the audit market. Following the Enron crisis there was a major government review and an increase in regulation with the creation of the Financial Reporting Council. What would happen if another major audit firm exited the market? How bad would that be? How much it would impact on capital market? The question has been raised in policy circles, by the United Kingdom’s Competition Commission during an investigation of audit market competition that begin in 2011. Thus it can be seen, the risk of collapsing one of big four is brought to the forefront today. The seriousness of the problem needs to be recognized by everyone.
In this assignment I will answer the question “What would happen if another major audit firm exited the market? ” by explain why the dander of “big four become big three ” is real at the behind of the research. And then I will give three possible results that might arise because of the reformed audit market. Via doing this research, I can make contribution on draw people’s attention on importance of the independent of the audit, on the other hand remind people what big changes might happen if the big four turn to big three come true.
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