30 April 2019

Study on EU statutory audit reform Impact on costs, concentration and competition

On 24 April 2019, Professor Marleen Willekens presented to & discussed with the Board of Accountancy Europe as well as with the Chairs and members of working groups the findings of her team’s recent study on the early effects of the Audit Reform. The study was carried out on request by the Economic and Monetary Affairs Committee (ECON) of the European Parliament.

Recap: objectives of the Audit Reform

The overall objective of the Audit Reform was to strengthen confidence in companies’ financial information and to improve audit quality. To achieve this, the new audit legislation aimed, amongst others, to make the top end of the audit market more dynamic and enhance auditors’ independence.

Focus and Key findings of the study

The study focused on investigating the Audit Reform’s effects on costs, concentration and competition in the EU statutory audit market based on data from the years 2013-2017.

Professor Willekens presented to Accountancy Europe’s members the study’s three key research questions as well as related findings:

1. Is there a quantifiable result of the Audit Reform in terms of reduced market concentration and increased market competition in the EU?

Competition and non-Big 4 audit market share increase

The study finds that although the concentration did decrease in almost half of the Member States, the aggregate EU market concentration did not change significantly after the Audit Reform.

However, Professor Willekens pointed out that at the same time, competition in the audit market had increased. The study’s results suggest an increase in rivalry and market share mobility, i.e. more clients switched auditor and the non-Big 4 auditors gained market share compared to the situation before the Audit Reform. These effects were stronger in the financial sector compared to the total market.

“We see more rivalry and switches of audit suppliers.”


2. Is there a material difference in costs for auditees after the Reform?

Audit fees increase while non-audit fees decrease

The study shows a modest increase in audit fees after the Audit Reform driven by increases in audit hours and complexities. The non-audit fees show a reverse development as they decreased after the Audit Reform. Professor Willekens stressed that the study does not prove, however, whether these changes are caused by the Audit Reform or by other factors and that more research is required to prove any causality.

3. Are there inconsistencies in implementation of the Audit Reform by Member States and what are the effects of specific aspects of the Audit Reform on concentration, competition and costs in the EU?

Variation in implementation of key aspects by Member States’ results in different developments in national markets   

Strict rules on mandatory audit firm rotation have led to lower concentration and Big 4 market share

Countries with stricter rotation regimes (i.e. more frequent rotation of auditor with less engagement extension options) noted a decrease in market concentration and Big 4 market share, especially in the financial sector.

In addition, the findings show that for both strict and flexible rotation regimes, there is an increase in audit firm switches. These occur, however, mostly between the same types of audit firms, i.e. switches from Big 4 to Big 4 and switches from non-Big 4 to non-Big 4 auditors.

Joint audit rates increase

The findings show a slight increase in the joint audit rates in countries where an extension of mandatory audit firm rotation is allowed in case of joint audit. This trend was particularly strong in the financial sector.

Less non-audit services provided to public interest entity (PIE) audit clients

The provision of non-audit services to PIE audit clients has decreased. The research evidence also shows an increase of audit-only clients in the financial sector after the Audit Reform.

Conclusion & limitations

The study suggests that the top end of the audit market is becoming more dynamic thanks to more rivalry and increased auditor switches. However, Professor Willekens highlighted that the study presented preliminary evidence and it was therefore too early to draw any conclusions or make policy decisions based on it. This is due to, amongst other limitations as listed in the study, the fact that the study was carried out very early after the implementation of the new legislation and also due to limitations resulting from the studied sample. In particular, the study is based on the market data on stock-listed PIEs meaning that it leaves non-stock listed PIEs out of the analysis, which could create a certain bias.

Although the study indicates the earlier listed movements in the market, it does not examine whether these were caused by the Audit Reform. Importantly, the study does not analyse the market changes’ impact on audit quality.

To conclude, Professor Willekens stressed that before considering any further changes to the audit legislation, a more long-term analysis based on a richer set of data was needed to see the full effects of the Audit Reform.


“It is too early to see the full effects of the Audit Reform…Wait and study [the effects] further before introducing new reforms.”


Accountancy Europe encourages further engagement between Professor Willekens and the ECON Committee of the European Parliament and awaits the Committee’s reactions to the findings.


Watch Prof. Willekens and Accountancy Europe Deputy President & Chair of AAPG Myles Thompson interviews below:

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