Auditing & Assurance: Best Practices for Accuracy

Arguments in favour of the break-up of the Big Four 

The key reasons that support that the Big Four must break their operations are because of the fact that the size of the firms play an important role in assessing the quality of the audit that is being carried out by the firms. Currently, the big four are hugely involved in a number of practices such as consultancy, auditing, tax compliance, etc. due to this reason, it is understood that the efficiency of the firms get divided to a great extent. Such is the case that the firms are generally not able to concentrate their efforts on a specific operation of the business. On the contrary, auditing, being an excessively important part of financial ethics, needs concentrated efforts in order to ensure reliability of the audit reports. Thus, with the split in the operations, the efforts of the companies are going to become more justified. At the same time, the auditing firms would also be able to put in the adequate level of resources in the specific field and at the same time, the revenues and the profits from the same would be judged in a better manner. More specifically, if auditing is made to become a specific domain being addressed, then it would apparently become easier for the audit firms to comply with the rules and regulations related to auditing as they would be having a better understanding of the audit standards.

It must genuinely be considered that if the Big Four break-up, then it will affect the competition in the market as well because it will apparently become obvious that the number of firms present in the market is apparently going to increase and all of them are going to thrive out for excellence in the market. As a result of this, the dominance of the Big Four that was there in the market previously would break down and the other firms might also get a chance to come up in the market. This is mainly because the financial as well as the non-financial resources of the firms are going to get divided, which are apparently going to bring the Big four down to the level of the various other firms that are operational in the market as well. With this, the underlying competition in the market is apparently going to increase as all the firms will try to take up more audits and provide the best results as far as possible.

With an increase in the competition between the audit firms, the quality of the audit being delivered by the audit firms is also going to increase to a great extent. This is going to be excessively helpful to the various companies that are operational in the market as well as for their stakeholders and the society as a whole because the primary reason for which audit is performed is in order to evaluate if professional practices in auditing are being carried out or not, At the same time, it also help in understanding as to what extent the companies are able to record their financial transactions in a true and fair manner. The efforts being put in the financial assessment are also going to increase due to the same reason.

Arguments against the break-up of the Big Four 

No, big four are not to blame for the decrease in the quality of the audit services being provided. Breaking of the big four would not improve the quality of auditing. Some of the people has argued that audit quality depends on the independence and competence of the auditors instead of the structuring and the size of the firm they are working in. hence, breaking of the services provided by big four would eventually have a reduction in the ability with which they invest in the technology, innovation and training and would also limit the access they have to the global expertise and network. Further, such breaking of the big four would increase the level of cost and the risk involved in the audit services. Such cost increase would be there for the clients as well as audit firms. It is not only them and their services due to which the downfall in the audit service quality has been observed. Other auditing firms are also part of such consequence. Further, the services provided by the big four are improving day by day, resulting in better checking of the financial records of entities and identification of errors or frauds. The fault could be on the company's side, as they are the ones who prepare the financial statements in incorrect manner. Big four are the ones who provides skilled auditors and better auditing services to its clients.

In the viewpoint of various studies conducted, it can be said that there will be no negative effect on the quality of the audit services on the size of the audit firm. Auditing is an extensive process which requires a lot of human efforts and expertise on the subject. Big 4 companies have access to the expertise and the latest means to educate the auditors on the topic. These firms have the most advanced methods of training, which results in a high quality level of auditors in the business. This benefits of availability of better human resource, expertise and technology helps these firms to excel on the task provided and results in the better quality of the audit. On the other hand, in case of small firms, there might be difficulty in completing with the expertise of Big 4, as they have fewer resources, which can be allocated towards the education and training of the auditors. This overall factor suggests that there might be no negative effect or improvement in the quality of services which are provided by big audit firms and small audit firms.

From the prospective theoretical perspective, it is unclear what kind of effect audit market competition has on equilibrium on the overall audit quality. On the flip side, greater competition could foster process of audit innovation as well as reduce auditor complacency, such as audit procedure which are rigorous as well as financial statements that strictly adhere to the GAAP, which means Generally accepted principles. Further, in order to extent the overall clients of audit bear the overall cost of low quality as well as demand the high quality audits as a result, various competition could strengthen reputational intensives to the auditors in order to supply high audit quality. On the flip side, different competition could lower various quality of audit if it leads different auditors in order to focus on appeasing all the clients through minimizing professional scepticism as well as allowing several clients in excessive reporting of financials. Specifically, it is observed that the overall production of audits requires staff of audit in order to spend certain amount of time at the different location of time, as well as time spent commuting between office of auditors and this impacts the overall cost of conducting an audit.

It is agreed that there are some of the other factors which may impact the breakup process of audit firms after size and competition constraints. Such other factors are Quality of auditing; Audit firms make audits of the client firms, which basically impacts the level of the goodwill and share in marketplaces they are holding currently. It also provides an exposure for the legal-type risks and regulations provided by the authority under sanctions. It is also impacted by the term of the audit firms, Rotation procedure of such firms, competency level of the auditors involved in auditing process and their independence. Hence, it is concluded that if the Big 4 firms broke down into multiple firms, then the quality of the client audit would be affected, which would not be better for client business and its stability. Fees of audit firms: audit firms charge some of the amount for providing auditing services to clients. Hence it is known that if the Audit function is divided into different firms, then the amount charged by different firms would increase the cost for the client. Hence, breaking the audit firm is not beneficial for client side, while the revenues in such case would increase for audit firm. Each firm would charge different amount for the concerned function.

CONCLUSION 

It can be concluded by saying that the breaking up of the big auditing firms will cause a split in the resources of the firm and overall may affect the working pressure on the employees of the company. Assignment Help could be useful in understanding the impact of such organizational changes on firms. It may also result in the formation of different small departments to ensure smooth functioning. The breaking up of the Big Four would result in an increase in the level of cost incurred by the clients. Such an increase in the cost related to the provision of auditing services would not be affordable for every client. Further, as the Big Four are the ones who provide expert services to businesses, breaking up their services would likely result in a reduction in the quality of services provided.

REFERENCES

Books and Journals

Antunes Ferreira de Souza, P., 2020. The Structural Break-up of the Big Four Accountancy Firms to Restore Market Confidence in Audit Services (Doctoral dissertation, Griffith College.).

Bhaskar, K., Flower, J. and Sellers, R., 2019. Disruption in the audit market: The future of the big four. Routledge.

Choi, J.H., Kim, J.B., Zang, Y. Do Abnormally High Audit Fees Impair Audit Quality ?. Auditing: Journal of Practice & Theory 29: 115-140. (2010)

Peterson, J., 2017. Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms. Emerald Group Publishing.

Sirois, L.P., and Simunic, D.A. Auditor Size and Audit Quality Revisited: The Importance of Audit Technology. University of British Columbia. (2011)

Sori, Z.M., Mohamad, S., Karbhari, Y. Auditor Reputation and Auditor Independence: Evidence from An Emerging Market. Retrieved from http://www.econ.upm.edu.my/zms/ [20/09/2011] (2006).

ONLINE

21 Scandals, Settlements and Corporate Crimes of Big 4 Accounting Firms in 2019 [online] available through <https://facelesscompliance.com/7604/21-scandals, settlements, and corporate crimes of big 4 accounting firms in 2019

Neate, R., 2019. Big four accounting firms should break up, say MPs, 2019 [online] available through <https://www.theguardian.com/business/2019/apr/02/big-four-accountancy-firms-should-break-up-say-mps>

Why the Big Four breakup won't be easy, 2020 [online] available through <https://cfo.economictimes.indiatimes.com/news/why-the-big-four-breakup-wont-be-easy/65958231>

Why the Big Four provide higher quality audits, 2020 [online] available through <https://www.bi.edu/research/business-review/articles/2020/08/why-the-big-four-provide-higher-quality-audits/>

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