NOTE: this page contains PAQ 1.27 & 1.30

Text PAQ 1.27 Big 4 v non-Big 4 Assurance providers

Required:

1. Find the websites for (a) a Big 4 audit firm and (b) a mid-tier audit firm. Compare them on: (i)the range of services provided; (ii) geographic coverage (i.e., where their offices are located); (iii) staff numbers and special skills offered; (iv) industries in which they claim specialization; (v) publications and other materials provided to their clients or the general public; (vi) marketing message.

The solution will depend on the accounting firm chosen and the date of the analysis. However, the answers should show for the Big 4: greater geographic coverage, larger numbers of staff and broader range of skills offered, greater claims to specialisation and industry coverage, more publications available (particularly from the international offices), more consistent and sophisticated marketing.

Text PAQ 1.30 Assurance providers

Required:

In times of economic recession would you expect:

(a) the demand for audits to increase or decrease?

Financial report audits are mandatory for most companies, so overall demand is largely fixed or determined by economic conditions affecting the number of companies. However, for organisations that are not required by legislation to have an audit, there are two opposing pressures in times of economic recession. First, cost-cutting would result in fewer audits. Second, organisations with less credible financial reports will face most difficulty in borrowing during a credit squeeze. This suggests that demand for auditing will increase in difficult times, because an audit will increase the credibility of the reports and thus increase access to external finance.

(b) clients to shift from large (Big-4) auditors to smaller auditors, or from smaller auditors to Big-4 auditors? Why or why not?

Shifting from a smaller auditor to a Big 4 auditor would increase both costs and financial reporting credibility for a company. Therefore, it can be argued that firms with greater need to reduce costs will shift ‘down’ from Big 4 auditors to smaller auditors, but firms with greater need for credibility (and financial advice) will shift ‘up’ from smaller auditors to Big 4 auditors.