Will the Auditing Industry Become a Tighter or Looser Oligopoly?

By the end of the 20th century, the competitive structure of the public accounting industry evolved into a tight oligopoly. We predict a reversal of this trend, because new issuers of public equity, who steadily replace legacy companies in the set of public companies, display less verifiable assets, more complex accounting estimates, and higher audit risks. Unlike their predecessors, these new issuers appear less and less attractive to Big N auditors. Smaller auditors service the growing market of riskier companies. Given the stickiness of the auditor-client relationships, we predict a trend of deconsolidation in the audit industry.