Changes in the Concentration of the Audit Services Market in the Context of Mandatory Auditor Rotation in Poland and the United Kingdom

Justyna Godawska, Małgorzata Kutera
European Research Studies Journal, Volume XXIV, Issue 3B, 372-385, 2021
DOI: 10.35808/ersj/2471


Purpose: The aim of the paper is to identify and analyse changes in the concentration of the audit services market after the introduction of the mandatory rotation of audit firms in Poland and in the UK. Design/Methodology/Approach: The Polish sample consists of 352 companies listed on the Warsaw Stock Exchange Main Market and the UK sample covers 341 companies listed in the FTSE 350 Index on the London Stock Exchange. We calculated the market share of each audit firm based on the number of statutory audits of financial statement performed for analysed companies for 2018-2020 years. The data was hand collected from the auditor reports posted on companies’ websites. The audit market concentration was measured by means of the ‘Big 4’, indicator, the ‘10KAP’ indicator, the 4-firm concentration ratio CR4, the 8-firm concentration ratio CR8, and the Herfindahl-Hirschman index. Findings: The research findings reveal that the UK market is much more concentrated than the Polish one. In both countries, the market share of Big 4 firms is decreasing (although in Poland at a much faster rate). The introduction of the mandatory rotation of the audit firm had little impact on the improvement of competitiveness on the audit services market, especially in the United Kingdom. Practical Implications: The research results may be helpful for the relevant regulatory institutions in assessing the effectiveness of introducing the obligation to rotate an audit firm in the context of reducing the concentration of the audit services markets. In addition, the results may serve as a basis for future research. Originality/Value: To the best of the authors' knowledge, the paper is the first attempt to assess the changes in the concentration of the Polish and British markets after the introduction of the mandatory rotation of audit firms. In the analysis of changes in audit firms, the direction of these changes was assessed, taking into account the division into Big 4 firms, 10 key audit players and other audit firms.

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