Fewer CPA Firm Choices for Big Business Audits: Better Quality, Excessive Fees or Countervailing Power?

A GAO survey found that 82% of the larger publicly-traded companies believed that they were effectively limited to three or fewer firms and 60% thought that competition in the audit provision market was insufficient. At the same time, smaller publicly-traded firms said that they were satisfied with audit choice options and larger businesses agreed that the quality of audits had improved. Finally, some smaller (probably more like medium to medium-large) CPA firms were attempting to compete in the large client market, but big business felt that these firms lacked sufficient personnel and specialized technical knowledge to handle these audits.

At least three points of view are possible in looking at the audit provision market for large businesses: [1] use of the big CPA firm is necessary to achieve a "good" enough audit in today's regulatory climate, [2] oligopolistic tendencies by the "Big Three" or "Big Four" are leading to excessive audit fees and "overauditing" as a safeguard against legal liability, [3] as the largest businesses grew, CPA firms became more concentrated as a means of being able to match the "market power" of the Exxons, Walmarts, etc. of business. This last explanation is somewhat like John Kenneth Galbreith's explanation for the growth of the federal government and labor unions not long after the "trusts" of the late 18th century. The points of view are not necessarily mutually exclusive; one could accept more than one of the three premises above.