The purpose of the study is to examine pre and post-merger levels of concentration.

1. BKAA5013
ISSUES IN AUDITING AND INVESTIGATION
SECOND SEMESTER 2015/2016 (A152)
PREPARED FOR:
DR. ROHAMI BIN SHAFIE
PREPARED BY:
Aliyu Usman Shehu 818419

2. 1) The research problem and issue
2) The purpose of the study
3) The motivation of the study
4) In depth review of the literature
5) The theories behind the study
6) The research method and rational to use the method .
7) The findings and the discussion of the study.
8) Implications of the study
9) Future study
10)Limitation of The study
2
2
Table of Contents

3. 3
The research problem and issueThe research problem and issue
This paper examines three issues raised by the two mergers of Big 8
accounting firms.
First, the paper examines, through the use of concentration ratios and
Herfindahl indices, the effects of the mergers upon concentration on NYSE,
AMEX, and OTC companies.
Second, concentration is examined on the basis of the audit fees of the
major accounting firms.
Third, the paper concludes with a discussion of the impacts of the mergers,
both at the level of the individual firms involved, and at the level of the large
client audit industry. 3

4. The purpose of the study
4
 The purpose of the study is to examine pre and post-merger
levels of concentration.
4

5. 5
The motivation of the studyThe motivation of the study
5
Along with this growth through merger, it has come
persistent apprehension by individuals in the public
sector regarding the effect of increasing concentration
on competition among accounting firms. Concerns
have focused on possible monopoly power, the loss of
objectivity and independence and the related impact
on the value of the audit report if a few firms were
allowed to dominate the industry.

6. In depth review of the literature
6
 There is a growing body of literature given by Goldberg (1973) which found
no significant increase in the market share or growth rate of 44 companies
that had merged. In a much larger study of a 1,000 companies, Mueller
(1985), concluded that companies involved in mergers did not increase
their market shares or growth rates when compared to companies that did
not merge. And, Perry and Porter (1985, 226) argued that "the output of the
merged firm declines relative to that of its partners prior to the merger.”
 Tomczyk and Read (1989) examined concentration directly using major
accounting firms' audit revenues and found the audit market less
concentrated than when surrogates for audit fees were used.
6

7. 7
Cont…………
Copley (1993) investigated the impact of the Big 8 mergers on the local
availability of Big 8 of- fices and on municipal audit fees. Results in-
dicated that a reduction in available Big 8 firms occurred in locations
with four or more pre-merger firms. No evidence was found to indicate
that the number of Big 8 firms com- peting at the local level affected
audit pricing.
Minyard and Tabor (1991) and Tonge and Wootton (1991) both
examined the pro forma impact of the 1989 Big 8 mergers. Although the
two studies used different measures of concentration (Herfindahl index,
Minyard and Tabor; concentration ratios, Tonge and Wootton), the
studies reported similar conclu- sions. Specifically, both studies predicted
that the mergers would have little impact on com- petition and,
because of a more balanced mar- ket, could actually increase
competition in the audit industry.

8. 8
The theories behind the studyThe theories behind the study
8
 This study uses both concentration ratios and Herfindahl
indices to analyze concentration within the large client audit
industry.

9. 9
The research method and rational to use the methodThe research method and rational to use the method
The use of a broad diverse population base
(such as a stock exchange) allows the re-
searcher to determine whether auditor con-
centration is present within an audit market not
merely within a selected industry. We in- clude
NYSE, AMEX, and OTC companies, as prior
studies (McConnell 1984; Tonge and Wootton
1991) have shown that each of these three
security markets provides a unique market for
audit services. Accounting firms that are
successful in seeking and securing clients in
one audit market are not always as successful
in (or focus their efforts on) the other audit
markets.
9

10. Cont…..
Companies listed on the NYSE, AMEX, or traded on the
OTC market were obtained from the May 1989 and 1992
series of Compact Dis- closure for fiscal year ends 1988
and 1991, respectively. Companies that were acquired,
went private, or had information missing were excluded.
The usable data sets were 5,962 companies for fiscal year
1988 and 5,777 com- panies for fiscal year 1991. The
decrease rep- resents the net of 59 fewer AMEX
companies, 188 fewer OTC companies, and 62 additional
NYSE companies in the 1991 data set.
10

11. 11

12. The Findings and the discussion of the study
 The results indicate that the mergers resulted in
increased concentration ratios, whether measured by
the number of firms audited, client revenues, or audit
fees, at the four, six, and eight firm levels.
 A comparison of the pre and post-merger four and six
firm Herfindahl indices indicate fairly consistent
movement toward the equal size (1/n) index.
12

13.  The eight firm Herfindahl indices indicate that the
difference between the pre-merger Big 8 firms, and the
largest eight firms today is significantly different.
 So, while the access to the market for audit services
appears to be more balanced among the largest firms,
the distinction between the first tier firms and other firms
is greater than ever.
Cont…..
13

14. Implication of the Study
This study does not guarantee increased
competition, but it does indicate a market with
generally equal access by the top firms. As
would be expected, the eight firm Herfindahl
indices indicate that the difference between the
pre-merger Big 8 firms and the largest eight firms
today is significantly different.
14

15. 15
Conclusion
There is no direction for future study
15
Future study

16. 16
Limitation Of the Study
1.There were no Hypothesis development:- The
researchers did not develop hypothesis .

17. 17
17
Thank you for listening to our Presentation