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JOURNAL OF APPLIED BUSINESS AND ECONOMICS
The Capture of Government Regulators by the Big 4
Accounting Firms: Some Evidence
Author(s): Kalpana Pai, Thomas D. Tolleson
Citation: Kalpana Pai, Thomas D. Tolleson, (2012) "The Capture of Government Regulators by the Big 4 Accounting Firms: Some Evidence," Vol. 13, Iss. 1, pp. 84 - 94
Article Type: Research paper
Publisher: North American Business Press
Abstract:
This paper examines evidence that government regulators have been captured by the Big 4 accounting firms. Economists characterize the auditing services marketplace as an oligopoly. The collapse of Arthur Anderson in 2002 reduced the then Big 5 accounting firms to the Big 4. Government regulators acknowledge that the increased market power of the Big 4 firms has negative implications. They have, however, failed to indict any of the Big 4 for known criminal actions. A skeptic might question whether government regulators have been captured by these key market players. One outcome of this “capture” is moral hazard, which implies that the Big 4 accounting firms may place less emphasis on quality audits. Such an approach to the audit function places the self-interests of the audit firm above the public interest. The paper provides suggestions to protect the public interest and to help rectify the market power of the Big 4.
