Final Report Lot 1 - 2011 11 09 - Part 2 - V...

II AAPPPPEENNDDIICCEESS

II..11 CCoonntteexxtt aanndd oobbjjeeccttiivveess ooff tthhiiss rreeppoorrtt

I.1.1 Context

The audit function, which plays a key role in the global economy, is facing four main questions:

What is the situation regarding concentration level in each EU Member State?

Is there a lack of rotation of audit firms with their clients (some audit firms having worked

with the same client for over a decade)?

Is there a systemic risk in the case of a collapse of one of the ‘Big Four’?

What are the key legislative and regulatory differences in the different Member States

relating to auditors?

A number of papers1 have been published to steer the debate among European stakeholders and to

contribute to recommendations, including:

A “Study on Auditors' Liability” in October 2006;

A “Study on ownership rules” in October 2007;

A public consultation on ownership rules and other possible ways to open up the audit

market in the EU, launched in November 2008;

A resolution of the European Parliament on the implementation of the Directive by the

Member States, issued in March 2009.

Several action steps have already been taken by the European Union and the European Commission:

Three key instruments composing the acquis in the area of statutory audit:

o Directive 2006/43/EC on statutory audits of annual and consolidated accounts, that

aimed at harmonising the statutory audit function throughout the EU, enhancing

audit quality and restoring the trust in the audit function, following the Enron or

Parmalat reporting scandals;

o Commission Recommendation of 5 June 2008 concerning the limitation of the civil

liability of statutory auditors and audit firms, aiming at encouraging the growth of

additional audit firms in the European market;

o Commission Recommendation of 6 May 2008 on external quality assurance for

statutory auditors and audit firms auditing public interest entities, aiming at

providing guidance to Member States on how to establish an independent and

effective system of inspections on the basis of the Directive on Statutory Audits;

A Green Paper on « Audit Policy: Lessons from the Crisis », issued by the European

Commission in October 2010.

1 These background documents (as well as others) can be found at http://ec.europa.eu/internal_market/auditing/communications/index_en.htm.

Study on the effects of the implementation of the acquis on statutory audits of annual and consolidated accounts including the consequences on the audit market – Lot 1

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I.1.2 Objectives of the present study

The European Commission specified the following three objectives for Lot 1 of this study:

1. Provide a description of the market in which audit firms are active and its evolution over the

last five years;

2. Enumerate criteria that should be used to assess the functioning of the market;

3. Propose measures that could be taken at EU level to better meet these criteria.

I.1.3 Information sources

The information provided in this report comes from a wide range of data sources (see Appendices

for details):

Desk research and statistical analyses, mainly using:

o National statistics institutes (the 27 institutes have all been contacted);

o Business information providers and research institutes (such as Datamonitor and

Euromonitor);

o Financial databases (e.g. Thomson Research and One Banker, Bureau Van Dijk

(Amadeus and Osiris databases) and Mergermarket);

o Annual reports of a wide range of listed companies (the annual reports of all

companies listed on the main index in each of the 27 Member States).

An extensive review of existing literature, with the analysis of ca. 95 academic articles,

studies and reports from economic and accounting journals, regulators and other official

bodies;

158 responses to an online survey that was sent by email to regulators or official bodies,

audit firms, companies and other stakeholders (e.g. academics, stock exchanges, etc.);

51 face‐to‐face or telephone interviews with high‐level representatives of regulators or

professional bodies, audit firms (mainly mid‐tier), public entities or companies using audit

services;

Five focus groups carried out in France, Germany, Italy, Spain and the UK representing key

stakeholders or interested parties.


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I.1.4 Structure of the report

This report is divided into four sections:

The methodology used is outlined in the first section, with details on the overall approach

and how each module contributes to the overall objectives;

A description of the audit market in the 27 Member States is provided in the second section,

using the following criteria:

o Size of the M69.2 market (in volume and in value), and evolution in recent years;

o Share of audit fees vs. non‐audit fees in the market, and evolution in recent years;

o Key market and competitive trends in recent years (mainly consolidation and

mergers and acquisitions);

The third section covers the seven criteria for assessment of the functioning of the market:

o Changes to network structures and description of consolidation (2005‐ 2011);

o Current concentration levels and evolution of this level over the past five years;

o Barriers to entry and development of mid‐tier firms with listed companies;

o Risk of demise of one of the Big 4;

o Audit price levels;

o Independence of audit firms;

o Audit quality.

The final section concludes on the possible measures to implement, with potential action

steps to be taken at European level, and presents the costs and benefits of the main

recommendations to improve the overall functioning of the audit market.

Appendices provide more detailed information on a number of sections. The relevant appendices

are flagged in each section of the core report.

I.1.5 Acknowledgements

We would like to thank all stakeholders involved in the survey, qualitative interviews and focus

groups, for the valuable insights they provided, especially regarding:

Key characteristics of each Member State’s market environment and concentration levels;

The assessment of how critical the different issues identified are for the functioning of the

audit market and the European economy;

The discussion of costs and benefits of the key potential action steps to be taken.


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I.2.1 Existing literature

105 different sources of information have been used in this report (academic articles,

studies/reports from economic and accounting journals, regulators and other official bodies, etc.):

Accountancy Market Reports, Key Note (2005‐2010)

Activity Report, Federal Audit Oversight Authority ‐ Switzerland (2009)

Activity Report, Federal Audit Oversight Authority ‐ Switzerland (2010)

An Assessment of the Implications for Competition of a Cap on Auditors' Liability, Office of Fair Trading (2004)

An International Study of Crosssectional Variations in Audit Fees, International Journal of Auditing (2002)

Annual Report, FRC – Audit Inspection Unit (2010, 2011)

Annual Report, Commissione Nazionale per la Societa e la Borsa, CONSOB, (Rome, Mars 2010)

Audit Committee Perspectives on the European Commission’s Green Papers, Tapestry Networks (April 2011)

Audit Fees and Non‐Audit Fees, An Eight Year Trend, Audit Analytics (May 2011)

Audit Fees Survey, Financial Director (2007)

Audit Fees Survey, Financial Director (2009)

Audit Fees, Big Four Premium and Institutional Settings: The Devil is in the Details!, ESSEC KPMG Financial Reporting Center (March 2011)

Audit Partner Rotation, Earnings Quality and Earnings Conservatism, Jane Hamilton, Caitlin Ruddock, Donald Stokes and Stephen Taylor (October 2005)

Audit Partner Tenure, Audit Fees, Tenure and Discretionary Accruals: Does Long Auditor Tenur Impair Audit Quality?, Chih‐Ying Chen, Chan‐Jane Lin and Yu‐Chen Lin (2004)

Non‐audit Services and Earnings Conservatism: Is Auditor Independence Impaired?, Caitlin Ruddock, Sarah Taylor and Stephen Taylor (April 2004)

Non‐audit Services Provided to Audited Entities, APB Ethical Standard 5, The Auditing Practices Board (December 2010)

Ownership Rules of Audit Firms and Their Consequences for the Audit Market Concentration, Oxera (October 2007)

Policies on Non‐assurance Services (DPM 1420), Deloitte (2010)

Position Paper ‐ Audit Reform, EGIAN (June 2011)

Preface to the International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services, IAASB (December 2009)

Profil Financier du CAC 40 (Financial profile of the CAC 40 Index), Ricol Lasteyrie (2010)

Public Oversight and Audit Quality: Evidence from Public Oversight of Audit Firms in the Netherlands, Katrien Van de Poel, Martijn van Opijnen, Steven Maijoor and Ann Vanstraelen (2009)

Rapport final sur le comité d’audit, AMF, (22 juillet 2010)

Regulating Non‐audit Services: Towards a Principles Based Approach to Regulation, Marianne Ojo (December 2009)

Regulating the International Audit Market and the Removal of Barriers to Entry: the Provision of Non‐audit Services by Audit Firms and the 2006 Statutory Audit Directive,


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Auditor Independence and the Provision of Non‐Audit Services: Perceptions by German Investors, Quick and Warming‐Rasmussen (June 2009)

Auditor’s Liability Towards Third Parties within the EU: a Comparative Study between the United Kingdom, the Netherlands, Germany and Belgium, Ingrid De Poorter (2008)

Auditors: Market Concentration and their Role, Volume I: Report, House of Lords (March 2011)

Auditors: Market Concentration and their Role, Volume II: Evidence, House of Lords (March 2011)

Audits of Public Companies, Continued Concentration in Audit Market for Large Public Companies Does not Call for Immediate Action, US Government Accountability Office (January 2008)

Choice in the UK Audit Market, Financial Reporting Council (October 2007 report and June 2010 update)

Code of Ethics for Professional Accountants, International Ethics Standards Board for Accountants, International Federation of Accountants (2006)

Commission Recommendation Concerning the Limitation of the Civil Liability of Statutory Auditors and Audit Firms, Impact Assessment, European Commission (June 2008)

Comparison of the 2009 Code of Ethics to the 2006 Code of Ethics, International Ethics Standards Board for Accountants (September 2009)

Competition and Choice in the UK Audit Market, Oxera (2006)

Competition in the audit market: Features of the market that prevent, restrict or distort competition, Office of Fair Trading, OFT, (June 2011)

Concept release on auditor independence and audit firm rotation; PCAOB Release No. 2011‐006, (August 16, 2011)

Cozy auditor‐client ties scrutinized in US, REUTERS, (August 2011)

Defining "Non‐Audit" Services: The Audit

Marianne Ojo (2009)

Report on audit policy: lessons from the crisis (2011/2037(INI)), Committee on Legal Affairs, European Parliament, (May 2011)

Report on general findings regarding audit quality and quality control monitoring, AFM, (September 2010)

Report on the Observance of Standards and Codes (ROSC) ‐ Hungary, The World Bank Group (June 2004)

Report of the Auditor Oversight Commmission on the results of the inspections according to § 62b WPO, AOC, (2007‐2010)

Required Study on the Potential Effects of Mandatory Audit Firm Rotation, US General Accounting Office (November 2003)

Should Auditors' Liability be Limited? The Effects of Liability Size on Behavior under Risk and Ambiguity, Christopher Koch and Daniel Schunk (2007)

Statistics in Focus: Industry, Trade and Services in the EU, Eurostat (2008)

Statutory audit ‐Consultation on the OFT's provisional decision to make a market investigation reference to the Competition Commission of the supply of statutory audit services to large companies in the UK, Office of Fair Trading – OFT, (July 2011)

Study on the Economic Impact of Auditors’ Liability Regimes, London Economics (2006)

Summary of Responses to the EC Green Paper, Audit policy: Lessons from the Crisis, European Commission (February 2011)

Survey of Fees Paid to Statutory Auditors and their Networks for 2009 by CAC 40 and EURO STOXX 50 Companies, Autorité des Marchés Financiers (2010)

Survey of the European Management


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Committee's Role, Nine prohibited activities courtesy of Sarbanes‐Oxley, Charles Hecht (2002)

Do Non‐audit Service Fees Impair Auditor Independence? Evidence from Going‐concern Audit Opinions, Mark L. DeFond, K. Raghunandan and K.R. Subramanyam (January 2002)

Do Non‐audit Services Compromise Auditor Independence? Further Evidence, Hollis Ashbaugh, Ryan LaFond and Brian W. Mayhew (February 2003)

Does Auditor Rotation Influence Audit Quality: The Contested Hypotheses tested on Swedish Data, Torbjorn Tagesson, Linus Sjodahl, Sven‐Olof Collin, Hanna Olsson, Johan Svensson, Kristianstadt University College (2006)

Does the Performance of Non‐Audit Services by Auditors Impair Independence? Evidence from Firms Post‐Service Performance, Thomas Sing‐Chiu Lau and Yaw M. Mensah (April 2009)

Earnings Management within Europe: the Effects of Member State Audit Environment, Audit Firm Quality and International Capital Markets, Steven J. Maijoor and Ann Vanstraelen (2006)

Etude sur la Perception de la Justification des Appréciations des Commissaires aux Comptes, CNCC (February 2011)

European Business: Facts and Figures, Eurostat (2009)

Evidence Submitted to the Committee on its Inquiry into: "Auditors: Market concentration and their role", House of Lords (2011)

Financial Reforms and the Big 4 Audit Firms, The American Antitrust Institute (2010)

Horizontal Merger Guidelines, US Department of Justice and Federal Trade Commission (April 2010)

Industry Profile: Accountancy in Belgium, Datamonitor (2010)

Industry Profile: Accountancy in Europe, Datamonitor (2010)

Industry Profile: Accountancy in France, Datamonitor (2010)

Industry Profile: Accountancy in Germany,

Consultancy, Feaco (2009‐2010)

Survey on the Regulation of Non‐audit Services Provided by Auditors to Audited Companies, Technical Committee and Emerging Markets Committee of the International Organization of Securities Commissions (March 2007)

The Contrasting Role of Auditors in UK and Swiss Banking Supervision, Scottish Institute (2010)

The Effect of Big Four Office Size on Audit Quality, Jere R. Francis and Michael D. Yu (2007)

The Future of Regulatory Compliance, Strategies for a second wave of regulation, Business Insights (2007)

The Green Paper, Audit Policy: Lessons from the Crisis, European Commission (October 2010)

The Handbook of International Quality Control, Auditing, Review, Other Assurance and related Services Pronouncement, International Federation of Accountants (2010)

The Handbook of the Code of Ethics for Professional Accountants, International Federation of Accountants (2010)

The Provision of Non‐audit Services by Auditors: Let the Market Evolve and Decide, International Review of Law and Economics (1999)

The Reliability, Role and Relevance of the Audit: a Turning Point, James R. Doty (May 2011)

Trans‐national Organisations and Practices within the Accountancy Profession, The Federation of European Accountants (April 2008)

Unintended Consequences of Accelerated Filings: Do Mandatory Reductions in Audit Delay Lead to Reductions in Earnings Quality? Tamara A. Lambert, Joseph F. Brazel


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Datamonitor (2010)

Industry Profile: Accountancy in Italy, Datamonitor (2010)

Industry Profile: Accountancy in Spain, Datamonitor (2010)

Industry Profile: Accountancy in the Netherlands, Datamonitor (2010)

Industry Profile: Accountancy in the UK, Datamonitor (2010)

Industry Profile: Global Accountancy, Datamonitor (2010)

Infra‐industry Spillovers and R&D Cooperation: Theory and evidence, Luca Lambertini, Francesca Lotti and Enrico Santarelli (June 2004)

Internal Control Weaknesses and Client Risk Management, Randal Elder, Yan Zhang, Jian Zhou and Nan Zhou (2008)

La Proposition de Directive Européenne sur le Contrôle Légal des Comptes (European Recommendation on Audit Control), Thieffry & Associés (2004)

La Réglementation de l’Audit Est‐Elle dans l’Intérêt Public: Quelques Enseignements du Modèle Français (Does Regulating Audit Serve Public Interest, Learnings from the French Model), Charles Piot and Alain Schatt (June 2010)

Les Cabinets d’Audit et d’Expertise Comptable, Défis et Stratégies à l’Heure du Basculement vers une Logique de Marché (Auditors' Strategies in Facing Market Pressure), Xerfi (2011)

Mandatory Audit Firm Rotation in Spain: a Policy that Was Never Applied, Gomez‐Aguilar, Barbadillo, Carrera and Humphrey (May 2006)

Master Thesis Assurance Services Financial Reporting Quality and Non‐audit Services: Evidence from the Netherlands, Van Houtert, Maastricht University (2010)

and Keith L. Jones (November 2008)

17 selected papers from the European Accounting Association, Rome Conference (May 2011):

Cross‐country Differences in Audit Market and Audit Quality, Francis (40 countries)

Big 4 and non‐Big 4 Audit Production Costs: Office Level Audit Technology and the Impact on Audit Fees, Marmousez (US)

Factors Affecting Audit Fees in Europe: France, Germany and the UK, Rekik (France, Germany and UK)

Audit Pricing and Nature of Controlling Shareholders: Evidence from France, Chiraz (France)

The Influence of Auditor‐client Economic Bonding on Audit Quality, Van Raak (Belgium)

An Analysis of External Auditor Fees Following SEC Comment Letters, Pettinicchio (US)

Audit Committees: Management Watchdog or Personal Friend of the CEO? Cardinaels (Italy)

Mandatory Auditor Rotation, Audit Fees and Audit Quality, Florio (Italy)

Auditor Rotation: Partner Level or Firm Level, Mandatory or Voluntary? Rui (China)

Audit Firm Tenure and Earnings Management: the Impact of Changing Accounting Standards and Audit Firm Size, El‐Guindy

Do Joint Audits Offer Value for Money? Abnormal Accruals, Earnings Conservatism and Auditor Remuneration in a Setting of Voluntary Joint Audits, Haapamäki (Sweden)


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Implications of Differences in Country‐specific Caps on Auditor Liability, on Audit Quality and Equity Valuation, Pettersson (14 Member States)

The Effect of Non‐audit Services and Related Threats on Investors’ Perceptions of Auditor Independence: an Experiment, Warming Rasmussen (Germany)

Auditors’ Ability and Willingness to Signal Going Concern Problems and Predict Bankruptcy, Tagesson (Sweden)

Do Audit Firms Use Transparency Reports to Signal Audit Quality to the Market? Van Buuren (Austria, Belgium, France, Germany, Netherlands and UK)

Audit Firm Governance: Do Transparency Reports Reveal Audit Quality? Vanstraelen

Independent Audit Oversight Authorities: Study of the US, the UK and France, Hazgui

I.2.2 Survey questionnaire

Table 1 : Online survey questionnaire

# Criteria to assess Question Companies / associations

Independent regulators / government

bodies

Audit firms Other

stakeholders

Criteria to assess / Possible measure

1.a Degree of satisfaction Overall

Are you on the whole satisfied with your auditors?‐ Yes ‐ No

X Criteria to assess

1.b Degree of satisfaction Overall

Are you on the whole satisfied with auditors?‐ Yes ‐ No

X X Criteria to assess

2.a Degree of satisfaction Overall

How satisfied (on a scale of 1 (extremely unsatisfied) to 5 (extremely satisfied) are you in respect of the following criteria in respect of your auditors ‐ Overall quality of the services ‐ Technical knowledge ‐ Industry‐specific knowledge ‐ Use of appropriately trained personnel ‐ Responsiveness to address specific accounting and audit‐related questions

‐ Identification of potential internal control weaknesses ‐ Identification of errors and misstatements ‐ Compliance with internal financial reporting deadlines ‐ Coordination of its network ‐ Level of fees



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bodies

Audit firms Other

stakeholders


2.b Degree of satisfaction Overall

How satisfied (on a scale of 1 (extremely unsatisfied) to 5 (extremely satisfied) are you in respect of the following criteria in respect of auditors ‐ Overall quality ‐ Overall communication with your category of stakeholder ‐ Level of information provided in the auditor’s report on financial statement on certain assumptions / estimates made by the company

‐ Level of information in respect of the methodology and its inherent limitations

‐ Range of information on which the auditors issue reports ‐ Independence ‐ Level of fees

X X Criteria to assess

3

Degree of satisfaction External communication

Should the audit report includes appreciation of a company’s choices or use of accounting methods, of material or sensitive accounting estimates? ‐ Yes ‐ No

X X X X Possible measure

4

Degree of satisfaction External communication

In order to bridge the expectation gap regarding the role of auditors, do you think that the further details on the methodology should be provided ‐ Within the audit report ‐ Alongside the audit report ‐ In a specific document which could be accessible through the company’s web site

‐ None of the above



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bodies

Audit firms Other

stakeholders


5

Degree of satisfaction Internal communication

In order to improve the communication between auditors and audit committee providing detailed reporting such as long form report, should be seen as ‐ Mandatory ‐ Unnecessary ‐ Optional


6

Degree of satisfaction External communication & scope of services

Should the communication between auditors and stakeholders be improved by providing, for all Public Interest Entities, review report on half‐yearly interim financial information? ‐ Yes ‐ No



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bodies

Audit firms Other

stakeholders


7.a Degree of satisfaction Scope of services

This questions relates to non audit services, please confirm whether this services were provided to you by your auditor ‐ Agreed‐upon procedures ‐ Comfort letters (with respect to debt issuance for example) ‐ Internal control review ‐ Internal audit services ‐ IT systems services ‐ Valuation services ‐ Tax compliance services ‐ Tax optimization services ‐ Litigation services ‐ Due diligences services ‐ Other corporate finance services ‐ Recruitment services ‐ Other services



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bodies

Audit firms Other

stakeholders


7.b Degree of satisfaction Scope of services

This questions relates to audit related and non audit services, please state which services you would expect an auditor to provide to its audit client (considering that it would not impair its independence) ‐ Agreed‐upon procedures ‐ Comfort letters (with respect to debt issuance for example) ‐ Internal control review ‐ Internal audit services ‐ IT systems services ‐ Valuation services ‐ Tax compliance services ‐ Tax optimization services ‐ Litigation services ‐ Due diligences services ‐ Other corporate finance services ‐ Recruitment services ‐ Other services

X X X X Criteria to assess

8 Fair contribution paid to audit services

Do you think that the pressure on auditors’ fee may have an impact on the quality of the audit? ‐ Yes ‐ No



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bodies

Audit firms Other

stakeholders



Did you request your auditors to decrease their audit fees over the last 5 years? ‐ Yes ‐ No


10

Fair contribution paid to audit services

If you requested a decrease, was is agreed by your auditors ‐ Yes, between 0 and 5% ‐ Yes, between 6% and 10% ‐ Yes, between 11 and 15% ‐ Yes, more than 15% ‐ No


11

Fair contribution paid to audit services

What were the reasons if you requested a decrease? ‐ Decrease in the company’s activity ‐ Lower level of risks ‐ Part of a overall reduction in G&A expenses ‐ Unsatisfactory quality of the services rendered compared to the fees ‐ Expected efficiency and productivity gains thanks to past experience ‐ Other (specify)



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bodies

Audit firms Other

stakeholders



Could you, please, range from the higher (1) to the lower (5) your perception of the level of fees invoiced by the following services providers (in term of hourly rate for example): ‐ Banks ‐ Law firms ‐ Credit Rating Agencies ‐ Audit firms ‐ Consulting firms



Should the responsibility of the auditors (civil, criminal, administrative,…) be taken into account in order to assess the fair contribution to be paid for the services rendered? ‐ Yes ‐ No


14

Fair contribution paid to audit services Independence

In order to reinforce both the independence of auditors and the quality of the audit, should the fees be: ‐ Decided by the audit committee and paid by the company ‐ Decided by the relevant regulator and paid by the company ‐ Decided by the audit committee but submitted for comment to the relevant regulator

‐ Other (specify)



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bodies

Audit firms Other

stakeholders


15

Choice of auditors Range / Perceived size of the market

Apart from the Big 4, how many mid‐tier audit firms are in a position to provide audit services to large and/or multinational companies in your country? ‐ 1 to 3 ‐ 4 to 6 ‐ More than 6

Could you please list their names?


16

Choice of auditors Range / Perceived size of the market

In your country, apart from the Big 4, how many mid‐tier audit firms are in a position to provide audit services to large and/or complex financial institutions (banks, insurance, pension funds), as opposed to a small regional deposit taker for example? ‐ 1 to 3 ‐ 4 to 6 ‐ More than 6



17

Choice of auditors Range /

Perceived size of

the market

Apart from the Big 4, how many mid‐tier audit firms are in a position to provide audit services to listed companies other than financial institutions or large companies in your country? ‐ 1 to 3 ‐ 4 to 6 ‐ More than 6




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bodies

Audit firms Other

stakeholders


18

Choice of auditors Criteria

Could you please range from the most appropriate (1) to the least appropriate (12) the following criteria when choosing an audit firm ‐ Size of the audit firm ‐ Geographical coverage ‐ Fees ‐ Capacity to provide an integrated audit of the group and its subsidiaries with an overall minimum level of quality

‐ Diversity of expertise ‐ Knowledge by the audit firm of the company ‐ Knowledge by the audit firm of the industry(ies) in which the company operates

‐ Previous experience by the company with audit firm ‐ References from others about the audit firms ‐ Range and size of existing clients of the audit firms ‐ Audit firm’s corporate governance ‐ Reputation ‐ Other (specify)



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bodies

Audit firms Other

stakeholders


19

Choice of auditors Barriers to entries

How important (on a scale of 1 (least important) to 5 (most important) do you rate the following factors as barriers for audit firms other than the Big 4 to provide audit services to listed companies usually audited by Big 4? ‐ Audit firm are too small and lack capacity to handle audit assignments undertaken typically by large audit firm

‐ Audit firm cannot provide services covering many countries ‐ Audit firm lack of sector knowledge and experience ‐ Audit firm lack of technical capacity regarding IFRS ‐ Audit firm lack of technical capacity in certain area of expertise such as IT, actuarial affairs, financial instruments

‐ Reputation of Big 4 firms ‐ Client switching inertia ‐ Audit liability risk ‐ Lack of adequate audit liability insurance



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bodies

Audit firms Other

stakeholders


20

Choice of auditor Independence

In order to reinforce the independence of auditors, should the appointment process be modified by (Multiple choice) ‐ Increasing the role played by the Audit Committee ‐ Advising the details of the proposed auditor appointment in advance to the relevant regulator for certain PIEs such as banks and other financial institutions ‐ Giving the whole responsibility of the appointment to a regulator ‐ All of the above ‐ None of the above

X

X

X

X

Possible measure

21

Choice of auditors Transparency

Regarding the process of appointment in PIEs, should it be recommended that Audit Committee document their proposed choice of auditors by providing qualitative information such as geographical coverage, fees, quality of technical answers, reputation, to: ‐ The shareholders ‐ The relevant regulators ‐ Both of the above ‐ None of the above



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bodies

Audit firms Other

stakeholders


22

Choice of auditor Transparency

How many auditors are considered by the audit committee when making its proposals? ‐ Among Big 4 audit firms ‐ Among non Big 4 audit firms ‐ What would be the reason for such a choice? X

Criteria to assess

23

Choice of auditors Decision maker

Who in practice chooses the audit services providers, not in term of formal approval process but in term of influence? ‐ The company’s management ‐ The company’s CFO / Finance Director ‐ The company’s CEO or chairman ‐ The company’s board ‐ The company’s audit committee ‐ The company’s shareholders ‐ Other (please elaborate)



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bodies

Audit firms Other

stakeholders


24

Rotation of auditors Frequency

How many years has your current audit firm served you as your auditor: ‐ 1 to 3 years ‐ 4 to 6 years ‐ 7 to 10 years ‐ 11 to 15 years ‐ Above 15 years

X

Criteria to assess

25

Criteria to assess

Rotation of auditors

If your current audit firm has served you as your auditor for 7 to 10 years, was it appointed following the demise of Arthur Andersen

X Frequency ‐ Yes

‐ No

‐ Not applicable

26

Rotation of auditors Tender process

Please specify the year when the company ran last formal tender process? ‐ Year: ‐ No formal tender process over the last 10 years ‐ Reasons for not running a formal tender process

X

Criteria to assess


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bodies

Audit firms Other

stakeholders


27.a

Rotation of auditors Criteria for rotation

If the company changed its auditor over the last six years, what were the reasons for doing so? (Multiple choice ∙ Regulatory requirement ∙ Resignation or failure to seek re‐appointment by audit firm ∙ Appointment of group auditor ∙ Company merger or take over ∙ Conflict of interest of audit firm ∙ Unsatisfied with quality of audit work of incumbent audit firm ∙ Different opinion regarding the financial statements ∙ Not enough “advisory suggestions” from incumbent audit firm ∙ Audit fees of incumbent to high relative to fees rates of competitors ∙ Advisory fees of incumbent to high relative to fees rates of competitors ∙ Firm policy or regular rotation of audit firm ∙ New policy to procure separately audit and advisory services ∙ Changing needs of the company as a result of greater international presence ∙ Changing needs as a result of becoming a listed company ∙ Views of the investors ∙ Views of the creditors ∙ Other (specify)

X

Criteria to assess


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bodies

Audit firms Other

stakeholders


27.b

Rotation of auditors Criteria for rotation

What could be the reasons for changing its auditor? (Multiple choice) ∙ Regulatory requirement ∙ Resignation or failure to seek re‐appointment by audit firm ∙ Appointment of group auditor ∙ Company merger or take over ∙ Conflict of interest of audit firm ∙ Unsatisfied with quality of audit work of incumbent audit firm ∙ Different opinion regarding the financial statements ∙ Not enough “advisory suggestions” from incumbent audit firm ∙ Audit fees of incumbent to high relative to fees rates of competitors ∙ Advisory fees of incumbent to high relative to fees rates of competitors ∙ Firm policy or regular rotation of audit firm ∙ New policy to procure separately audit and advisory services ∙ Changing needs of the company as a result of greater international presence ∙ Changing needs as a result of becoming a listed company ∙ Views of the investors ∙ Views of the creditors ∙ Other (specify)

Criteria to assess

X X X X


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bodies

Audit firms Other

stakeholders


28.a

X

Criteria to assess


If the company did not change its auditor over the last six years, what were the reasons for doing so? (Multiple choice)

Criteria for lack of rotation

∙ The company was satisfied with the quality of the services provided by its current auditors

∙ The company did not perceive such change as crucial

∙ Lack of choice

∙ Increased audit risk due to the new auditor’s lack of knowledge of the company

∙ Increased audit risk due to lower fees

∙ Red flag signal to investors

∙ Increased audit fees

∙ Selection costs

∙ Support costs incurred in supporting the new auditor to understand the company

∙ Loss of knowledge due to the lack of rules dealing with access the previous auditors and its audit documentation

∙ Practical difficulties to implement the rotation to all international subsidiaries

∙ other (specify)


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bodies

Audit firms Other

stakeholders


28.b

X

X

X

X

Criteria to assess


What could be the reasons for not rotating its auditor? (Multiple choice)

Criteria for lack of rotation

∙ The company was satisfied with the quality of the services provided by its current auditors

∙ The company did not perceive such change as crucial

∙ Lack of choice

∙ Increased audit risk due to the new auditor’s lack of knowledge of the company

∙ Increased audit risk due to lower fees

∙ Red flag signal to investors

∙ Increased audit fees

∙ Selection costs

∙ Support costs incurred in supporting the new auditor to understand the company

∙ Loss of knowledge due to the lack of rules dealing with access the previous auditors and its audit documentation

∙ Practical difficulties to implement the rotation to all international subsidiaries

∙ other (specify)


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bodies

Audit firms Other

stakeholders


29

Rotation of auditors Frequency

Should the rotation of audit firms become mandatory, how long should be the mandate (please range from higher (1) to lower(6) ∙ 3 years ∙ 4 years ∙ 3+3 years ∙ 4+4 years ∙ 6+6 years ∙ any other combination, please specify

X

X

X

X

Possible measure

30

Should the joint audit become mandatory, the rotation of the two auditors should

Possible measure

Joint auditors be :

∙ the same year X X X X

∙ a different year (specify)

31


Audit’s firm Corporate governance

What are the corporate governance measures implemented in your audit firm?

Source: ESCP Europe.

I.2.3 List of organisations interviewed

51 interviews were carried out, with the following contacts:

Table 2: List of people interviewed

Member state

Country or region represented

Type of organisation

Organisation Title of contact interviewed

Austria Austria Professional Body

KWT (Austrian Accountants Chamber)

Expert

Belgium Belgium Audit Firm Callens Pirenne & Co Partner

Belgium Belgium Professional Body

Institut des réviseurs d'entreprises Secretary General

Belgium Belgium Professional Body

Institut des Experts‐Comptables et des Conseils Fiscaux

Responsable Relations Internationales

Cyprus Cyprus Professional Body

Institute of Certified Public Accountants of Cyprus (ICPAC)

General Manager

Czech Republic Czech Republic Audit Firm Ernst & Young Partner

Czech Republic Czech Republic Statistics Office Czech Statistical Office Information Manager

Denmark Denmark Audit Firm RSM Managing Partner

Denmark Denmark Audit Firm Crowe Horwath Partner

Denmark Denmark Audit Firm KPMG Partner

Denmark Europe Audit Firm Praxity/Mazars Partner

Finland Finland Audit Firm KHT Office Manager

France France Public company GDF Suez Senior Vice President Accounting

France France Public company Warwick International Hotels Financial Director

Germany Europe Audit Firm AGN International Managing Partner

Germany Germany Audit Firm Liebhart & Kollegen (IAPA) Senior Partner

Greece Greece Audit Firm Orion Certified Auditors S.A. Partner

Ireland Ireland Audit Firm Deloitte Partner

Ireland Ireland Professional Body

The Institute of Certified Public Accountants of Ireland

Director

Italy Italy Audit Firm Baker Tilly Consulaudit Spa International Contact Partner

Italy Italy Professional Body

Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili

International Affair Department Manager

Latvia Latvia Audit Firm Ernst & Young Partner

Latvia Latvia Statistics Office Statistika Latvijas Information Manager

Lithuania Lithuania Audit Firm Crowe Horwath Baltic Partner

Lithuania Lithuania Audit Firm Deloitte Partner

Luxembourg Luxembourg Audit Firm Mazars Partner

Netherlands Europe Audit Firm Cabinet Vandelanotte (Leading Edge)

Partner

Poland Poland Audit Firm BW Corporate Services S.A. (AGN International)

Partner


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Portugal Portugal Audit Firm Baker Tilly Senior Manager

Portugal Portugal Audit Firm Deloitte Partner

Portugal Portugal Statistics Office Statistics Portugal Information Manager

Romania Romania Audit Firm Deloitte Partner

Romania Romania Professional Body

Council for the Public Oversight of the Activity of the statutory audit

President

Slovakia Slovakia Statistics Office Slovastat Information Manager

Slovenia Slovenia Professional Body

Slovensky Institut za Revizijo Director

Spain Spain Audit Firm Barcelona Auditors Partner

United Kingdom Europe Audit Firm HLB International Quality Manager

United Kingdom Europe Audit Firm Grant Thornton International Partner

United Kingdom Europe Audit Firm Grant Thornton International Partner

United Kingdom Europe Audit Firm MSI Global Chief Executive

United Kingdom Europe Audit Firm HW Fisher & Company (Leading Edge)

Partner

United Kingdom Europe Audit Firm RSM International Partner

United Kingdom Europe Audit Firm PKF International Senior Partner

United Kingdom Europe Audit Firm Moore Stephens Quality Development Manager

United Kingdom Europe Audit Firm Baker Tilly Senior Partner ‐ European Relations

United Kingdom Europe Audit Firm Kreston Director of Quality and Professional Standards

United Kingdom United Kingdom Audit Firm Price Waterhouse Coopers Partner

United Kingdom United Kingdom Audit Firm Price Waterhouse Coopers Director

United Kingdom United Kingdom Professional Body

The Association of Chartered Certified Accountants

Head of Auditing Practice

United States Worldwide Audit Firm UHY Chairman

United States Worldwide Audit Firm RSM International Chief Executive Officer


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I.2.4 List of participants and summary of focus groups

I.2.4.1 France

Participants

Type of stakeholders who participated to Focus Group 1 (FRANCE):

o Audit firms: two participants (1 big 4 and 1 SMP);

o Companies: two participants;

o Regulators: three participants;

o Professional bodies: one participant;

o Professors or experts: one participant (professor);

o Lawyers: one participant.

Key findings

General comments

“Concentration issues need to be raised at the level of large listed companies, instead of

small/mid‐size organisations.” Professional body

“The main barrier to development for the mid‐tier firms are their lack of geographical reach:

international companies need a point of contact from the same firm in all key markets.”

Audit firm

“The 8th Directive was a minimal harmonisation of national legislation, and little progress has

been made.” Company

Joint audit

Participants are overall in favour of joint audits, potentially with restrictions on the appointment of

two Big 4

“This is the key measure to lower concentration levels by favouring the development of mid‐

tier firms.” Professional Body

“It could be of more impact if companies had to appoint at least one firm outside the Big 4.”

Audit firm

Advantages:

o “Having two auditors raises the level of confidence investors will have in financial

statements.” Company

Potential drawbacks:

o “Responsibility sharing and task allocation is complex and needs to be clarified: both

auditors need to take on similar amounts of work.” Audit firm

o “More complex for companies, that prefer to have a single auditor.” Regulator


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o “Perceived 10% higher cost, but this is probably overstated or even untrue.”

Company

“Denmark removed joint audit because there were no detailed rules on task sharing between

the two audit firms.” Regulator

Mandatory rotation

Participants were overall opposed to mandatory rotation

Partner rotation is currently in place in many European countries and it is considered enough

to prevent overfamiliarity, but fails to tackle the concentration issue

Audit firm rotation would not have any significant impact on concentration levels, since the

largest companies are likely to rotate only with the Big 4 firms

Rotation is an issue for both large and small companies, since changing auditor increases the

time spent on the audit

o “It takes two to three years for an audit team to understand how a company

operates.” Company

Mandatory tendering

Participants were overall opposed to mandatory tendering

“This practice is already in place in large companies.” Company

“This would probably not change anything in terms of concentration.” Audit firm

“When a tender is made by a large company, its point is to lower audit fees, while generally

keeping the same audit firm. This typically allows a price decrease of up to 20%, but does not

allow a competitor to gain the client.” Professional body

Limit non‐audit services

Participants were overall in favour of limiting non‐audit services

“The French model is the way forward to ensure independence of audit firms.” Regulator

“An audit firm delivering non‐audit services to a ‘statutory audit’ client has the risk of losing

its full objectivity.” Audit firm

“Non‐audit should not be banned, since the non‐audit business enables audit firms to

develop an expertise in specific sectors.” Audit firm

“When a company appears unsure whether a non‐audit service can be performed, the project

should be submitted to the audit committee for approval.” Regulator

“The question of limiting non‐audit services provision by mid‐size firms needs to be assessed:

there is a lack of service providers that have an extensive knowledge of the business.”

Regulator


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Limited liabilities

Participants do not consider the current absence of limited liabilities to be a major barrier to entry

for mid‐tier firms

“There are higher‐priority issues to tackle.” Regulator

“The UK trial to implement a cap has proved relatively useless.” Regulator

“Implementing this measure would be completely different depending on company law in the

different countries.” Company

Reinforcement of the role of audit committees

No clear position emerged among participants on the reinforcement of the role of audit committees

“The audit committee already plays a significant role.” Company

“Only large listed companies have an active audit committee in place.” Professional body

“Audit committees should be more involved in the details of the audits, including the

planning of a whole programme.” Regulator

Dismantle the Big 4

No clear position emerged among participants on dismantling the Big 4:

“This will be the next step if joint audit fails to change the current functioning of the market.”

Regulator

“Monopolistic companies have historically been dismantled in the US, so why not?”

Professional body

Implementation of ISAs

Participants expressed a positive view on the implementation of ISAs

“ISAs are already relatively widespread across Europe.” Regulator

Long form reports/comments on methodology used

Participants had mixed opinions on the pros and cons of long form reports

“Interesting concept, but beware of not giving away too sensitive information.” Company

“Investors and regulators have enough information on audited companies.” Audit firm

“There are different views on the merits (and problems) of using German long‐form reports

and the French general audit report – section‐.” Regulator


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“Appreciation of risks as currently done in France has low impact: key sentences have been

written by lawyers to protect audit firms, and are hardly changed from year to year/from

company to company.” Lawyer

“The real issue would be to study the role of the auditor, and whether the firm should work

directly with banks/lawyers/etc. In forming a judgement on a company’s financial position.”

Audit firm

“Going concern’ means that audit firms already express a judgement on whether a company

is operating normally.” Audit firm


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I.2.4.2 Germany

Participants

Type of stakeholders who participated to Focus Group 1 (GERMANY):

o Audit firms: three participants (1 mid‐tier, 2 SMP);


o Regulators: one participants;


o Professors or experts: two participants (professors);

o Lawyers: one participant.

Key findings

Concentration of the Audit Market

Participants described an increasing concentration in the German audit market, with additional

legislation potentially furthering this development. The participants jointly underlined, that for

understanding the German audit market, it was crucial to differentiate the market for large

corporations from the market for small‐ and medium‐sized enterprises (SME).

For large, listed companies, the Big‐4 were described as dominating the auditing business as almost

exclusive auditors. This situation has been driven by the legal requirements for the auditing of stock‐

oriented companies in Germany, which made offering auditing services to large corporations only

economically worthwhile for a few, large auditors (e.g., special certificate and testing required).

However, market forces also led to this development. For instance, large internationally active

companies require auditors represented in multiple countries.

Besides the activity of large corporations, all participants agreed that a significant share of economic

activity and auditing work in Germany was centred on SME. Particularly “large” medium‐sized

companies were described as the backbone of the German economy. In auditing SME, small and

mid‐tier auditing firms were found to be still dominant, although the Big‐4 were increasingly tapping

into this market.

It was discussed that any changes in legislation (e.g. introduction of mandatory auditor rotation or

joint auditing) could further increase the market power of the Big‐4. Different arguments for this

view were voiced. Firstly, any additional legislation would require further specialization of the

auditors, which the Big‐4 could more easily adapt to than smaller auditors. Secondly, auditor

rotation could force Big‐4 auditors out of their long‐developed mandates and into other sources of

revenue, namely auditing SME companies currently serviced by small and mid‐tier auditors. Finally,

any increase in auditing complexity (e.g., additional work effort from handing over audit mandates in

a rotation system, or alignment requirements in joint auditing) would likely increase costs for the

auditors, disadvantaging small and mid‐tier auditors financially, in an environment of already fierce

price competition.


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Generally the view predominated, that the current level of competition was not a problem due to

the split of the overall market into two segments – the first for large, stock‐oriented companies

(dominated by the Big‐4) and the second for SME (still largely dominated by small and mid‐tier

auditors). The main competition was described as currently centred around the first market for large

companies, where the Big‐4 waged a price war among themselves. At the moment, the participants

did not find a dominance of the Big‐4 in the second, SME market. Only if the Big‐4 also dominated

the SME market would trust issues arise.

Independence of Auditors

Market‐driven external rotation (i.e. change of auditing firms) was described as currently not

common in the German M69.2 market. Particularly for SME, the additional efforts of introducing a

new auditor to the company were described as significant. Even, for SME, a potential lack in

background and insight into the business model by any new auditor was described as potentially

harmful to the auditor’s performance.

Concerns were raised with regards to legally enforced rotation. Again, participants differentiated

between auditing large corporations and SME. For large companies, rotation systems were described

as possible (e.g. with long stints of ~10 years and an overlap of the different auditors for multiple

years), though requiring more work. It was mentioned that even for large companies, the current

system of partner rotation was more efficient. For SME, on the other hand, the general view was

that the additional work requirements from rotation were not bearable. Generally, concerns were

raised that short rotation periods could decrease the auditor’s independence, as success in frequent

tenders might require proximity to the views of company management. Generally, if any legislation

on rotation were to be implemented, the differences between the two levels of companies audited

(i.e., large vs. SME) would have to be taken into account.

It was perceived that a system of joint auditing could potentially be implemented. However,

participants disagreed on the amount of additional workload to be expected.

Because offering auditing services to large, listed companies had become increasingly difficult in

terms of legal requirements over the past years, particularly small and mid‐tier auditors had

increasingly started to offer consulting services. The opinions on the compatibility of auditing and

other services (namely: consulting) were mixed. Participants, particularly on the investor side,

opposed joint auditing and consulting, as auditors were not the best available specialists for

consulting services. Other participants, however, highlighted the inseparability of auditing and

consulting, particularly for smaller enterprises.

Auditors’ Role and Reporting

Participants explained the German system of auditors commenting on a written report of the

supervisory board on the state of the company (“Lagebericht”). This commentary by the auditors

was widely described as very positive. Because the auditors’ comments contained both statements


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on the current performance and next year’s financial outlook, as described by the company’s

supervisory board, it offered investors viable guidance. It was not discussed, whether auditor should

comment on a company’s long‐term projections. Different views existed with regards to the

complexity of auditors’ comments (i.e. if the comments should be accessibly only for business‐ or

also for laymen). Any comments on the current or future performance of a company were described

as particularly relevant for smaller, non‐listed companies, because no external analysts were

evaluating the performance of these companies.

A participant mentioned that it would be meaningful to introduce internationally accepted

benchmark numbers into German auditing standards. Furthermore, the publication of benchmark

levels on the European level was discussed.

The auditor’s role was generally described as critical external source of evaluation. Particularly for

smaller auditors, a reputation for quality was seen as key necessity to generate business. This

requirement created automatic quality controls. A limits to auditors’ independence and the need for

a critical view were discussed and the danger of resorting to a check‐list audit approach of given

requirements (i.e. very formalistic auditing) vs. critically evaluating the company’s business and its

financial positions.

International Harmonization

Participants shared the view that current legislation was already setting very high requirements on

auditing firms, with further international harmonization creating an additional burden. In particular,

the harmonization of company law, on the one hand, and capital market requirements, on the other,

are increasing complexity for the auditors. This complexity calls for specialization, which favours

large audit firms vs. small auditors. There seemed to be an understanding, that international

harmonization would not decrease the market dominance of the Big‐4. Current internationalization

efforts (namely: IFRS) were evaluated critically.

Furthermore, the participants highlighted the unknown consequences of potential international

harmonization. The legal repercussions for existing European harmonization, e.g., in terms of court

decisions, were still unknown. Additionally, potential trickle‐down effects of legislation targeted at

the internationally active Big‐4 could not be estimated. In particular, participants voiced concern

about unexpected effects which Big‐4 legislation might have for SME. To prevent unexpected effects,

a participant called for “testing ground” for any potential legislation.


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I.2.4.3 Italy

Participants

Participants of Focus Group 1 (ITALY):

o Audit firms: one participant (a Big 4);



o Professors or experts: two participants (a professor and a management consultant).

Key findings

Concentration of Italian audit market

The Italian market is characterised by two different segments of companies needing external

auditing:

1. Listed companies/big companies;

2. SME:

o The two segments require different needs and competencies, which implies they can

be served by audit firms with different characteristics (e.g. organization structure,

number of countries covered, etc.);

o D.Lgs. 2010, n. 39 further regulates the activities regarding external audit for the

SME opening new space in the market;

o This two‐segment structure of the market thus permits both Big 4 and smaller audit

firms to have enough demand for auditing services in their own segment.

General agreement on the fact the Italian audit market is dominated by the Big 4:

o Exclusive presence of the Big 4 in the segment of the big clients and listed

companies;

o Second‐tier are too small for proposing their services to big clients;

o SME served mainly by second‐tier, smaller audit firms, and sole practitioners (both

as single external auditors, or as part of company’s Collegio Sindacale).

General agreement that the power of the Big 4 in the market could represent a serious risk

for the whole system;

General agreement that more and more audit firms are moving away from their core activity

to become a 360° service providers, thereby increasing the risk on independence between

auditor and client.


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Italian audit market price level

General agreement that the concentration level of the market does not impact prices

Feeling of the participants that audit services are more and more perceived as a commodity

and that this impacts pricing dramatically

The trend observed by participants is that the price level of audit services is reducing:

o Price of service is becoming a differentiation factor used by clients in choosing the

audit firm;

o More and more clients, especially big ones, ask for discounts;

o The big audit firms can better cope with this general decrease in prices due to their

work volumes and the fact that they are selling a wide range of consultancies and

non‐audit services to the same client;

o One of the main levers activated by audit firms to counterbalance the price decrease

is the widening of the range and nature of consultancies and non‐audit services: this

creates more service volume to balance the decrease of price of a given single

service.

Main entry barriers discussed by the focus group participants:

Ability of Big 4 to manage and absorb decreasing prices (not possible for smaller audit firms)

Lack of visibility of mid‐tier firms (whereas this is not seen as a problem in other European

markets such as France)

Reputation of an audit firm is key for clients, especially the big ones:

o Reputation of the Big 4 is the ultimate factor assuring client development;

o Lack of reputation of mid‐tier firms;

o Mid‐tiers are not able to compete with the strong brand of Big 4.

Need and feasibility of creating a 5th big player in the Italian audit market

General agreement on the fact that a 5th (6th, 7th, …) player is needed both in the Italian and

in the European audit market:

o The presence of just four big players represents a systemic risk for the whole

financial world and credibility;

o The failure of one of the Big 4 could bring down others.

There is not a second‐tier firm able to become, in the short term, a 5th big player in the

Italian audit market:


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o All second‐tiers are far too small compared to the Big 4, in terms of turnover and

organisation.

General agreement that a 5th player should emerge from a bottom‐up initiative:

o Ie: mergers between mid‐tier firms.

Overall effectiveness, quality and performance of audit

The group did not agree with the Green Paper on the need to review audits reports:

o Audits reports follow international standards, it would be a huge effort to change

them;

o General agreement that more qualitative comments on the overall health and

stability of the company audited should be included in the reports provided to

clients;

o There was general agreement that an effective dialogue, between the external

auditor, the internal audit department and the audit committee, does exist.

Communications by the external auditor include a letter to the Board, containing

qualitative suggestions and recommendations on points arising from the audit.

General agreement of need to adopt IAS at EU level, even if, in the Italian case, the national

standards are fully aligned to the international standards.

Independence of audit firms from their clients

The independence of auditors is guaranteed by regulations for listed companies, and also by

the contractual terms contained in the audit assignment letter.

The rotation rule introduced in the Italian system is not effective in increasing the level of

independence between audit firms and clients:

o It has not brought any real change;

o The rotation mechanism effectively means that large clients rotate between the Big

4;

o Rotation gives rise to move audit costs: acquiring a new client requires an

investment for obtaining and understanding information on a company’s activities,

organization and processes. If the audit mandate term is too short, the auditor’s

investments could be compromised.

The rotation of partners instead of audit firms seems to be a more viable and effective

measure to safeguard independence.

Possible initiatives to reduce overfamiliarity and lack of independency could be the

limitation of non‐audit services that an audit firm can provide to the same client:


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o This raises another issue to be solved: too many services are today included under

the audit label, they should be rationalised.

Joint‐audit seems to be a more effective solution to guarantee independence of audit firms

from the client:

o It guarantees a better continuity of service, without the loss of the initial investment

made by the first audit firm, and it enables the second audit firm to acquire

experience with the client;

o The real problem of joint‐audit is the theme of liability: who is finally responsible for

the audit report issued by two different audit companies?

Main conclusion of the focus group

Need to support mid‐tiers firm’s growth and competitiveness, to mitigate against the strong

concentration in the market:

o Recommendations proposed:

‐ Encourage mid‐tier firms to build their own brand and reputation;

‐ Stimulate mid‐tiers to specialise in their professional services (e.g. focus on a

single sector, focus on a market niche, etc.);

‐ Introduce joint‐audit in the Italian system.

The current trend of audit fee reductions is seen as a consequence of competitive market

pressures which could, over time, affect audit quality:

o Recommendations proposed:

‐ Efforts should be made on quality of audit, which seem to be the only

sustainable way to maintain the prices.

The main entry barrier in the audit market is reputation;

Need to have a 5th (6th, 7th, etc.) audit firm with the capacity to serve the largest client

segments:

o Recommendations proposed to allow the creation of a 5th big player:

- Stimulate the creation of networks of smaller audit firms;

- Enable and support the growth of mid‐tier and smaller players by initiatives

such as joint‐audit.

Audit quality service is considered adequate and there is no need to revise audit report

contents;


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The rotation mechanism has disadvantages both for audit firms and for the continuity of

audit services provided to the company. The joint‐audit mechanism seems to be a better

solution.


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I.2.4.4 Spain

Participants

Participants of Focus Group 1 (SPAIN)

o Audit firms: three participants (1 Big 4 and 2 SMP);

o Companies: three participants;

o Professors or experts: two participants (a professor and a consultant for the World Bank).

Key Findings

Five themes have been discussed:

Role and mission of the auditor;

Audit firm governance and independence;

Concentration and structure of Audit firms;

Creation of a European Market;

Simplification of the rules for She’s and smaller audit firms.

Role and mission of the auditor

In general, participants deem that the current mission of the auditor is sufficient. The

auditor should only validate the accounts in accordance with professional standards. The

auditor should not provide consultancy services to its clients nor be involved in the

company’s management. Indeed, auditors have not in any way been held responsible for the

financial crisis.

This role rests on two key pillars:

o The control of the company’s internal audit;

o The oversight bodies.

The auditor is not responsible for the risks involved in the clients activities;

However, this role is evolving, in two main directions:

o The development of the notion of risk in auditing;

o The development of internal auditing. The role of auditing is also to provide advice

in terms of optimal management and decision making, but at the same time

remaining fully independent;


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One can rightly question this evolution, particularly with the current financial crisis. To what

extent may the auditor’s role evolve? The only certainty is that the auditor must be provided

with a precise legal framework to assume its certification role;

In any case, the auditor’s mission could be developed, but it would be pointless if the

internal audit of the company is not playing its role; this could be compared to parents

asking the education system to raise their children, while they are not doing it themselves.

Audit firm governance and independence

Participants approve of the compulsory rotation of audit firms but with some provisions.

First of all, rotation is not easy to apply: it entails an additional cost for the company,

because the company must be presented in detail to each new auditor. It takes

approximately 2 to 3 years for an auditor to be fully operational.

Besides, the process to select a new auditor is costly and time‐consuming for the teams.

In Spain, the minimum audit term is 3 years but it may be indefinitely prorogued. So the

shortest rotation period could be 8 to 9 years. Another idea could be to require a change of

auditor, but within the same firm (Partner rotation).

Of course, this does not concern small companies, fir which the rotation period seems to be

a relevant rule.

On the other hand, the guaranteed duration of a mandate encourages the independence of

the auditor. If the company is in a position to change its auditors on a very frequent basis,

this could incite the audit firm to write reports in order not to displease its client.

However, the independence of auditor is mainly supported by two pillars:

o The company’s structure, which should support the independence of the auditors.

For instance, the company’s organisation and structure should insure that members

of the auditing committee are independent;

o Defining explicit criteria to guarantee this independence. Do not use generic terms

but specific rules on what may and may not be done.

Certain participants noted that instead of seeing rotation as a guarantee of independence,

another measure should be considered: the weight of fees for each client in the audit firm’s

total fees. However, it is difficult to use this as a measure of independence. For instance, a

firm auditing a company from the IBEX 35 will necessarily be very dependent on this client:

so the larger the client, the less independent the audit firm.

The independence of the audit firm could also be guaranteed by a stricter internal quality

control in audit firms, and b y specific internal controls ensuring the firm’s independence.


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Concentration and structure of audit firms

All the participants working in companies indicated that using large audit firms was more of

an advantage. This makes sense, since it is a rule of free competition, and smaller audit firms

often do not have the means to audit larger companies. The size of the audit firm should be

related to the size of the company being audited. Besides, having the same auditor in all

countries warrants a better quality of the audit, which makes inevitable for large companies

to work with one of the large audit firms.

Concerning joint auditing, some participants are against it as it may affect the quality of the

audit.

This solution is more aesthetic than truly operational. Both auditing firms will have to work

together anyway, and if one firm is much smaller, it will be treated as a subcontractor by the

other.

This may generate problems in many areas: logistics, coordination of teams, overlapping of

the work conducted, etc. And most important of all, each auditor only has a partial view of

the company. This may raise problems in terms of attributing responsibility.

The Partner of the Mazars firm explains that joint auditing works perfectly in France and has

allowed the development of smaller firms. It is true that it entails additional costs in terms of

coordination, but never exceeding 4 %.

Some participants agreed that joint auditing may help develop audit quality as it motivates a

healthy competition between the collaborating auditors.

Creation of a European market

All participants think this is a good idea but have noted that all major firms have overcome

this issue as they are already present throughout Europe, and it is quite simple for them to

use local networks. Besides, participants deem that there are much more urgent matters

before reaching this stage.

Simplification of the rules for SME and smaller audit firms

A participant pointed out that the average‐sized company may access and supply very

detailed information thanks to new technologies, so the focus should be on small

businesses.

In general, participants think that the same audit rules should apply to everyone. Basic

principles should be the same for all companies and audit firms. Shareholders should be

protected in the same way whatever the size of the company. Besides, when an SME is a

subcontractor for a larger company, the viability of its accounts has an impact on the larger

company’s management. The audit is all the more important for SME as they do not have

significant internal control means (large companies have internal audit departments).

However, it would be positive to have slightly higher levels of tolerance in the audits of SME.


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I.2.4.5 United Kingdom

Participants

Participants of Focus Group 1 (UK):

o Audit firms: two participants (2 mid‐tier firms);

o Companies: one participant;


o Professors or experts: two participants (chairman trustee of ESCP Europe and a professor).

Key findings

Market concentration

Despite the strong perceived concentration of the UK market, no real alternative emerged in the

discussions:

Among the top 500 firms, 100 % work with the Big 4. The UK market is highly concentrated;

It is important to give clients a choice between audit firms, even with a limited number of

firms, and despite the limited differentiation in service lines;

There is a debate as to whether a real choice is possible in this context;

For big companies (e.g. HSBC), audit firms bring a limited added value compared to what

they bring to small companies;

The participants are not favourable to the creation of a 5th big player as this would be

artificial.

Audit firm rotation

Participants are not in favour of mandatory audit firm rotation, and have mixed opinions on the

benefits:

Some believe that that changing audit firms every 10 years gets a fresh insight and is a good

idea, more especially for mid‐size companies. It should not be mandatory but should be

encouraged;

Others consider that mandatory rotation does not work; they question the difference it

makes, and the fact that it does not address quality issues;

In order to be carried out correctly (to the extent that it provides significant benefits), it is

considered extremely costly. The Eastern European model is not considered applicable.

Joint audit

Participants point out that responsibility and price are the main issues for joint audit, and overall

participants are not favourable:

There is a strong consensus against mandatory rotation (what about quality?) and against

joint audit, audit consortia, etc.:


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o Examples are given showing that consortia are not quality efficient;

o In principle joint audit could make sense with big companies having subsidiaries and

allocating smaller audit firms to these subsidiaries but it is not considered efficient.

Responsibility and related issues are also a barrier for smaller firms:

o Smaller firms can be cheaper but are not selected by big companies because of the

brand and reputation of the Big 4, especially for international companies which want

“brands” for all their subsidiaries (e.g. a Japanese company that has a subsidiary in

the UK). Price is not always the issue;

o Big 4 firms not only have the reputation but they can provide an insurance in case

there is a problem (deep pocket theory).

There is a strong consensus that transparency is the key. Decision criteria to choose or

change auditor (tendering) are necessary and can be sufficient.

Quality Issues

No major evolution in quality standards was considered a priority by participants:

Participants stress the difficulty to impose a European solution; European standardization is

considered important, but at the bottom of the to do list:

o As an illustration, a participant pointed out that German reports, extremely long and

detailed, but would not be suited for the UK (this characteristic being nearly a

cultural issue);

Furthermore, participants consider that one should be careful with international standards,

and suggest keeping the status of an audit as statutory. Further insurances could be added

but outside of the statutory audit reports;

A concern was raised on potential quality issues in a context of decreasing prices, as there is

a direct correlation between quality and price.

Independence

Regarding independence guidelines, which are deemed satisfactory given the market constraints,

participants do not consider that imposed European guidelines would be adequate:

All participants think that audit committees should appoint the auditors;

A participant pointed out that increasing independence improves quality but absolute

independence is a fiction. Complete independence could give rise to an audit firm not

understanding the company it audits and its industry;

Participants stress the need to define guidelines for distinguishing non audit and audit

services, but with a caveat: what is called audit in France is not necessary called audit in the

UK. Being too strict could lead to question the independence of auditors, because of less

flexibility to investigate;


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The participants would be favourable to the creation of a European market but not to the

creation of European supervisory authority. They would rather have close cooperation

between the National audit supervisions;

In Britain, a limit to the proportion of fees an audit firm can receive from a single audit client

cannot be more that 10% of the total fees received by the firm.

Legal aspects

Participants stressed the need to keep the British/national code of governance, even though equality

issues between countries could be better addressed:

There is no problem with the cooling off, which is two years in Britain;

Codes of governance for audit firms, which is the British system, are considered the best

system, nothing should be imposed by a European regulation;

More globally, (national) codes of ethics are the most important to rule independence and

conflicts of interest;

Liabilities vary among countries. There is a need for further equalization between countries.


of 253

II..33 DDeessccrriippttiivvee 2277 ccoouunnttrryy pprrooffiilleess

I.3.1 Introduction: rationale for using NACE class M69.2 as a proxy for the audit

market

To be convinced on the fact that conclusions drawn on the M69.2 market could be extrapolated to

the audit market, we demonstrated that the registered audit firms (according to local audit

regulators and financial authorities) appear to be dominant within the NACE class M69.2, based on

calculations for the largest 10 Member States in M69.2 turnover:

The average turnover of registered audit firms can be estimated above €1.43 M while the

average turnover per M69.2 firm equals €0.29 M, i.e. +390% (meaning that audit firms are

about five times larger in turnover compared to average M69.2 firms);

The registered audit firm account for 6% of M69.2 firms (19,950 registered audit firms vs.

341,600 M69.2 firms);

Therefore, the conclusions drawn from the evolution of the market represented by NACE

class M69.2 is also representative for the market of audit firms and the reasons explaining

this evolution will highly depend on evolutions in the market of audit firms.

This is outlined below:

More specifically on how data was pulled out and collected from national statistics institutes:

The data request was made for NACE class M69.2, or the equivalent code in each national

industry nomenclature (no nomenclature mismatch was detected).

To get the relevant data and comments on their coverage or scope, all national institutes

were contacted;

For Member States or years not provided by National statistics, we applied the growth rate

of Datamonitor “Accountancy” industry profiles to the data available from national statistics;

Member

States

Total

turnover of

firms within

M69.2

(in €M)

Corresponding

number of

firms within

M69.2

Average

turnover

per M69.2

firm

Total

turnover of

top 10 audit

firms

(in €M)

Corresponding

number of

firms

Average

turnover

per top 10

audit firm

Total number

of registered

audit firms

(according to

local audit

regulators and

financial

authorities)

Average

turnover per

registered

audit firm

(assuming

that the top

10 audit firms

account for

the whole

audit market

Germany € 23 800 M 45 040 € 0,53 M € 5 297 M 10 € 530 M 2 631 € 2,01 M

UK&Ireland € 17 900 M 33 270 € 0,54 M € 7 963 M 10 € 796 M 7 843 € 1,02 M

France € 14 400 M 23 309 € 0,62 M € 4 372 M 10 € 437 M 4 500 € 0,97 M

Italy € 10 900 M 104 177 € 0,10 M € 1 389 M 10 € 139 M 321 € 4,33 M

Spain € 11 000 M 58 063 € 0,19 M € 1 694 M 10 € 169 M 1 354 € 1,25 M

Netherlands € 9 800 M 18 400 € 0,53 M € 3 484 M 10 € 348 M 481 € 7,24 M

Belgium € 3 800 M 12 902 € 0,29 M € 828 M 5 € 166 M 513 € 1,61 M

Sweden € 2 700 M 17 587 € 0,15 M € 1 278 M 10 € 128 M 125 € 10,22 M

Poland € 2 700 M 22 158 € 0,12 M € 1 815 M 10 € 182 M 1 804 € 1,01 M

Austria € 2 700 M 6 694 € 0,40 M € 389 M 5 € 78 M 378 € 1,03 M


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Eurostat was used as a complementary source of information when neither national statistics

institute nor Datamonitor was available.

I.3.2 Overview of the audit market in Austria

I.3.2.1 Austrian audit regulatory requirements

I.3.2.1.1 Scope of statutory audit in Austria

Table 3: Scope of statutory audit in Austria

Company legal status / Sectors Company size

Austria

Listed companies;

Private companies;

Not for profit.

All companies that meet at least two of the three following criteria for two years running:

Total balance sheet over €4.84 M;

Net turnover over €9.68 M;

Employees over 50.

Sources: EC Consultation of Accounting Regulatory Committee Members , IFAC and September 2011 EU report

on the responses received to the consultation of accounting regulatory committee members on the use of

options within the accounting directives.

Austrian statutory audit thresholds for small companies are slightly higher than the thresholds

defined in the EU 4th Company Law Directive on “the annual accounts of certain types of

companies”2.

I.3.2.1.2 Regulatory characteristics in Austria

Table 4: Key regulatory characteristics in Austria

Mandatory audit partner rotation

Austria

5 years for partners and other key personnel (all persons who are important for the

audit team).

Sources: EC Consultation of Accounting Regulatory Committee Members, IFAC and September 2011 EU report



Austrian regulation on audits applies the lowest mandatory partner rotation length.

2 Maximum thresholds defined in the 2006 amendments to the EU 4th Company Law Directive: Annual net

turnover under €8.8 M; Balance sheet under €4.4 M; Number of employees under 50 (for two consecutive

years).


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I.3.2.2 Size of the M69.2 market and historical evolution in Austria

Figure 1 : Size and evolution of the M69.2 market in Austria

Caveat: Total number of firms under NACE class M69.2 (“accounting, bookkeeping, auditing activities

and tax consultancy.”)

According to QKB, the number of firms with audit and audit‐related activities only, is estimated at 378.

From 2005 to 2009, the M69.2 market was relatively dynamic in Austria, with a +6.7% growth p.a.

thanks to the combined effect of the increase of the number of firms and the average turnover per

firm, outperforming annual GDP growth (+3.0% p.a. over the same period), but slightly under the

average European growth (+7.2% p.a. between 2005 and 2009).

The size of the M69.2 market as a percentage of GDP (0.99%) is in line with the European average.

Average audit firm size is significantly higher than the European average (€400 k vs. €296 k at

European level).

Audit Market in Austria: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

2,094 2,2012,339

2,6022,716

0

500

1,000

1,500

2,000

2,500

3,000

2005 2006 2007 2008 2009

Total turnover, ( € M)

Share of audit turnover in GDP

Total number of firms

Average turnover per firm ( € k)

Source: Statistik Austria.

0.86% 0.86% 0.86% 0.92% 0.99%

EU average

1.02%( 25 countries,

2008)

5,745 6,031 6,275 6,591 6,694

364 365 373 395 406296

(24 countries, 2008)

14,691(23 countries,

2008)

05 -09 CAGR

+6.7%

+7.2 %( 14 countries)

EU average


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I.3.2.3 M&A activity in Austria

Table 5: M&A transactions per type of acquirer (mid 1998‐2004, 2005‐mid 2011)

1998‐2004 2005‐2011

Total Big 4 Mid‐Tier Others Total Big 4 Mid‐Tier Others

Austria 0 0 0 0 3 1 1 1

EU Average 8 2 2 4 14 2 5 8

Sources: ESCP Europe analysis based on data from Bureau Van Dijk, Mergermarket and Thomson One Banker.

Three operations have been identified in Austria between 1998 and 2011:

One acquisition by Deloitte, one by BDO and one by a smaller firm: Deloitte acquired its Swiss

subsidiary, while BDO partners bought BDO Auxilia Treuhand GmbH;

All the acquisitions were in the auditing and accounting services.

Compared to the European average between 1998 and 2011, the M&A activity has been limited in

Austria.


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I.3.2.4 Analysis of concentration levels in Austria

I.3.2.4.1 Current concentration levels in Austria

Notes:

Concentration ratios by number of mandates are calculated based on the number of

mandates, that can be higher than the number of companies since some companies have

several audit firms.

Differences between concentration ratios by number of mandates and by turnover come

from the fact that the companies audited by the 4 or 8 largest audit firms usually account for

a very significant share of the total turnover of audited companies in a given category. As a

consequence, even when CR4 or CR8 does not equal 100% by number of mandates, it can

equal 100% by turnover, i.e. amount to more than 99.5%, since CR were rounded up to the

nearest integer.

Table 6: Current concentration levels in Austria (by number of mandates)

Population Number of

companies

Concentration ratios for 2009 by number of mandates

CR1 CR4 CR8 HHI Delta HHI

All listed Austria 75 35% 75% 91% 1884

+26% EU Average 391 25% 65% 78% 1491

Regulated

market

Austria 67 38% 77% 91% 2044 +17%

EU Average 184 28% 74% 88% 1754

Main index Austria 20 40% 90% 100% 2750

‐1% EU Average 24 37% 90% 98% 2786

Sources: ESCP Europe analysis based on data from Thomson, Bureau Van Dijk and Annual Reports.

Underlined figures: there were less than four audit firms or less than eight audit firms on this audited

population.


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Table 7: Current concentration levels in Austria (by turnover)


companies

Concentration ratios for 2009 by turnover


All listed Austria 75 36% 83% 99% 2281

‐16% EU Average 391 38% 90% 98% 2709

Regulated

market

Austria 67 36% 83% 99% 2283 ‐26%

EU Average 184 44% 94% 99% 3094

Main index Austria 20 34% 90% 100% 2482

‐28% EU Average 24 46% 96% 100% 3432



population.

Austria appears highly concentrated in terms of number of mandates:

Concentration ratios calculated by number of mandates are much higher than the EU average on

the overall market and the regulated market;

Concentration ratios calculated by turnover are much lower than the EU average. I.3.2.4.2 Evolution of concentration levels in Austria

Table 8: Evolution of concentration levels in Austria (by number of mandates)

Population Year Number of

companies

Concentration ratios by number of mandates


Regulated

market

2009 67 38% 77% 91% 2044 ‐8%

2004 44 40% 78% 91% 2212

Main index 2009 20 40% 90% 100% 2750

+0% 2004 22 42% 83% 100% 2743



population.


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Table 9: Evolution of concentration levels in Austria (by turnover)


companies

Concentration ratios by turnover


Regulated

market

2009 67 36% 83% 99% 2283 ‐29%

2004 44 43% 93% 96% 3198


Austrian concentration ratios have remained rather stable when calculated by number of

mandates;

Concentration ratios calculated by turnover show a strong decrease (delta HHI of ‐29%). The CR4

decline suggests a loss of market shares from the Big 4 benefitting the other market players.


of 253

I.3.2.4.3 Concentration levels by industry on companies listed on Regulated national stock

exchange in Austria

Table 10: Concentration levels by category of industry in Austria (by number of mandates)

Industry Number of

companies

Number of

mandates


CR1 CR4 CR8 HHI

Energy 2 2 50% 100% 100% 5000

Materials 6 6 33% 100% 100% 2778

Industrials 20 21 29% 95% 100% 2336

Consumer

Discretionary 7 7 43% 100% 100% 3061

Consumer Staples 4 5 20% 80% 100% 2000

Health Care 1 1 100% 100% 100% 10000

Financials 18 18 61% 83% 100% 4012

Information

Technology 4 4 50% 100% 100% 3750

Telecommunicati

on Services 1 1 100% 100% 100% 10000

Utilities 4 4 50% 100% 100% 3750



population.

Note: total number of mandates is higher than total number of companies because some companies voluntarily

chose to use more than one auditor.


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Table 11: Concentration levels by category of industry in Austria (by turnover)

Industry Number of

companies

Number

of

mandates


CR1 CR4 CR8 HHI

Energy 2 2 99% 100% 100% 9727

Materials 6 6 84% 100% 100% 7259

Industrials 20 21 49% 100% 100% 3502

Consumer Discretionary 7 7 45% 100% 100% 3534


Health Care 1 1 100% 100% 100% 10000

Financials 18 18 45% 99% 100% 3523

Information Technology 4 4 95% 100% 100% 9074

Telecommunication Services 1 1 100% 100% 100% 10000

Utilities 4 4 52% 100% 100% 4431



population.




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I.3.3 Overview of the audit market in Belgium

I.3.3.1 Belgian audit regulatory requirements

I.3.3.1.1 Scope of statutory audit in Belgium

Table 12: Scope of the statutory audit in Belgium

Legal company forms/Sectors Company forms Size

Belgium

Listed companies;

Private companies.

All companies that meet at least one of the two following criteria for two years running:



Number of employees over 50.




Belgian thresholds for statutory audits are slightly under the thresholds defined in the EU 4th

Company Law Directive on “the annual accounts of certain types of companies”3.

I.3.3.1.2 Regulatory characteristics in Belgium

Table 13: Key regulatory characteristics in Belgium

Maximum audit mandate duration


Recent changes in regulation

Belgium

3 years 6 years (for listed companies, credit institutions and insurance companies)

Since 2005, additional types of entities/activities have been subject to statutory audit (e.g. non‐profit making organisations, public health institutions, etc.)




3 Maximum thresholds defined in the 2006 amendments to the EU 4th Company Law Directive: Annual net turnover under €8.8 M; Balance sheet under €4.4 M; Number of employees under 50 (for two consecutive years).


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I.3.3.2 Size of the M69.2 market and historical evolution in Belgium

Figure 2: Size and evolution of the M69.2 market in Belgium

Caveat: Total number of firms under NACE class M69.2 (“accounting, bookkeeping, auditing activities

and tax consultancy.”)

According to Belgian public oversight authority, the number of firms with audit and audit‐related

activities only, is estimated at 513.

From 2005 to 2010, the M69.2 market was relatively dynamic in Belgium, with a +2.8% growth p.a.,

mainly driven by the increase of the average turnover per firm and in line with its GDP annual

growth (+3.1% p.a. over the same period), but it is below the European average growth (+7.2% p.a.

between 2005 and 2010).

This growth is due to an increase in the average turnover between 2005 and 2010 rather than the

number of firms in the market, which decreased over the same period (‐ 1.1% p.a.). This is also due

to successive changes in regulations that led to an increased number of mandates (e.g. additional

company categories such as non‐profit making organizations, public health institutions that must

now be audited).

The size of the M69.2 market compared to GDP is slightly below the European average, audit firms

accounting for 0.90% of GDP in Belgium.

Audit Market in Belgium: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

2 763 2 8733 128

3 343

3 803

3 176

0

500

1 000 1 500 2 000 2 500 3 000 3 500 4 000

2005 2006 2007 2008 2009 2010

Total turnover, (€M)



Average turnover per firm (€k)

Source: Statbel.

0.91% 0.90% 0.93% 0.97% 1.12%

EU average

12,992 13,141 13,213 13,244 12,902

213 219 237 252 295296



2008)

05- 09 CAGR

+8.3%

EU average

0.90%

12,269

259

1.02%(25 countries,

2008)

+7.2% (14 countries)

05- 10 CAGR

+2.8%


of 253

I.3.3.3 M&A activity in Belgium


1998‐2004 2005‐2011


Belgium 8 4 3 1 5 1 2 2

EU Average 8 2 2 4 14 2 5 8


Thirteen transactions have been identified in Belgium between 1998 and 2011 and five since 2005.

The share between Big 4 firms, Mid‐tier and other firms is well balanced.

The Big 4 firms that acquired other firms were Deloitte and Ernst & Young.

12 out 13 of the acquisitions were in the auditing and accounting services.


Belgium.


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I.3.3.4 Analysis of concentration levels in Belgium

I.3.3.4.1 Current concentration levels in Belgium

Notes:









nearest integer.

Table 15: Current concentration levels in Belgium (by number of mandates)


companies



All listed Belgium 151 24% 55% 75% 1044

‐30% EU Average 391 25% 65% 78% 1491

Regulated

market

Belgium 125 28% 65% 82% 1363 ‐22%

EU Average 184 28% 74% 88% 1754

Main index Belgium 20 35% 91% 100% 2401

‐14% EU Average 24 37% 90% 98% 2786



population.


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Table 16: Current concentration levels in Belgium (by turnover)


companies



All listed Belgium 151 32% 88% 100% 2256

‐17% EU Average 391 38% 90% 98% 2709

Regulated

market

Belgium 125 32% 89% 100% 2260 ‐27%

EU Average 184 44% 94% 99% 3094

Main index Belgium 20 31% 92% 100% 2361

‐31% EU Average 24 46% 96% 100% 3432



population.

Belgium appears as moderately concentrated when concentration ratios are calculated by number

of mandates and highly concentrated when concentration ratios are calculated by turnover.

The Belgian concentration levels are systematically below EU averages.

I.3.3.4.2 Evolution of concentration levels in Belgium

Table 17: Evolution of concentration levels in Belgium (by number of mandates)


companies



All listed 2009 151 24% 55% 75% 1044

33% 2004 140 21% 49% 62% 788

Regulated

market

2009 125 28% 65% 82% 1363 ‐5%

2004 135 27% 70% 84% 1431

Main index 2009 20 35% 91% 100% 2401

18% 2004 19 25% 88% 100% 2031



population.


of 253

Table 18: Evolution of concentration levels in Belgium (by turnover)


companies



All listed 2009 151 32% 88% 100% 2256

‐19% 2004 140 47% 85% 96% 2797

Regulated

market

2009 125 32% 89% 100% 2260 ‐28%

2004 135 48% 96% 97% 3119


Concentration levels over 2004‐2009 have evolved heterogeneously:

The HHI has remained rather stable in the regulated market when calculated by number of

mandates, while it has strongly decreased when calculated by turnover;

On the all listed market, the HHI has strongly decreased when calculated by number of

mandates (‐28%) while it has strongly increased when calculated by number of mandate.

(+33%)

On the regulated market, this suggests that mid‐tier firms or small audit firms have gained a few

large mandates over the Big 4 in the last five years. This hypothesis is also supported by the fact that

the Belgian market has experienced a strong increase in value during the five past years while the

number of firms has remained fairly stable.


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exchange in Belgium

Table 19: Concentration levels by category of industry in Belgium (by number of mandates)

Industry Number of

companies

Number of

mandates

Concentration ratios for 2009 by number of

mandates

CR1 CR4 CR8 HHI

Energy 3 3 67% 100% 100% 5556

Materials 13 13 31% 77% 100% 1953

Industrials 12 14 29% 64% 93% 1531

Consumer

Discretionary 10 11 27% 64% 100% 1570


Health Care 14 14 36% 79% 100% 2143

Financials 39 40 35% 70% 85% 1750

Information

Technology 17 17 35% 71% 94% 1903

Telecommunication

Services 3 3 33% 100% 100% 3333

Utilities 3 6 33% 83% 100% 2222



population.




of 253

Table 20: Concentration levels by category of industry in Belgium (by turnover)

Industry Number of

companies

Number of

mandates

Concentration ratios for 2009 by

turnover

CR1 CR4 CR8 HHI

Energy 3 3 53% 100% 100% 5014

Materials 13 13 46% 98% 100% 3623

Industrials 12 14 68% 89% 100% 4858



Health Care 14 14 60% 99% 100% 4729

Financials 39 40 36% 99% 100% 2808



Utilities 3 6 33% 100% 100% 3313



population.




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I.3.4 Overview of the audit market in Bulgaria

I.3.4.1 Bulgarian audit regulatory requirements

I.3.4.1.1 Scope of statutory audit in Bulgaria

Table 21: Scope of statutory audit in Bulgaria


Bulgaria

Listed entities; Private companies;

Not for profit.


Total balance sheet over BGN1.5 M (€0.8 M4);

Net turnover over BGN2.5 M (€1.3 M6);

Employees over 50.




Bulgarian statutory audit thresholds are among the lowest in the European Union.

I.3.4.1.2 Regulatory characteristics in Bulgaria

Table 22: Key regulatory characteristics in Bulgaria

Mandatory audit partner rotation Other specific regulations

Bulgaria

5 years for Public Interest Entities. Restrictions on the provision of non‐audit services to audit clients;




4 Exchange rates as of October, 1st 2011.


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I.3.4.2 Size of the M69.2 market in Bulgaria

Figure 3: Size of the M69.2 market in Bulgaria

Caveat: The figures above correspond to the total number of firms under NACE class M69.2

(“accounting, bookkeeping, auditing activities and tax consultancy.”)

According to the Bulgarian Commission for Public Oversight of Statutory Auditors (CPSOA), the number

of firms with audit and audit‐related activities only, is estimated at 94.

The share of the M69.2 market in the economy is lower in Bulgaria than the European average. The

market is mainly composed of small companies, with on average low turnover (similar to Czech

Republic).

Audit Market in Bulgaria: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

Source: Eurostat.

Share of audit turnover in GDP(2008)

Total number of firms(2008)

Average turnover per company (2008)

0.62%

1.02%

0.0%

0.5%

1.0%

1.5%

Bulgaria EU average

(25 countries)

6,959

14,691

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

BulgariaEU average

(23 countries)

31

296

0

50

100

150

200

250

300

350

Bulgaria EU average

(24 countries)

Total turnover of the audit market in Bulgaria:€219 M


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I.3.4.3 M&A activity in Bulgaria


1998‐2004 2005‐2011


Bulgaria 0 0 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


No significant M&A operations were identified in Bulgaria between 1998 and 2011.

I.3.4.4 Analysis of concentration levels in Bulgaria

I.3.4.4.1 Current concentration levels in Bulgaria

Notes:









nearest integer.


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Table 24: Current concentration levels in Bulgaria (by number of mandates)


companies



All listed Bulgaria 218 5% 19% 28% 170

‐89% EU Average 391 25% 65% 78% 1491

Main index Bulgaria 15 20% 67% 93% 1467

‐47% EU Average 24 37% 90% 98% 2786


Table 25: Current concentration level in Bulgaria (by turnover)


companies



All listed Bulgaria 218 18% 50% 76% 873

‐68% EU Average 391 38% 90% 98% 2709

Main index Bulgaria 15 23% 77% 100% 1749

‐49% EU Average 24 46% 96% 100% 3432


Bulgaria is one of the least concentrated markets in the European Union:

Bulgaria is the least concentrated market on listed companies;

Bulgaria is the second least concentrated market on the main index (behind Latvia) when

concentration ratios are calculated by number of mandates and the least concentrated

market when concentration ratios are calculated by turnover.

As Bulgaria entered the EU in 2007, comparison with 2004 concentration levels is not available (the

London Economics study did not cover this country).


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I.3.5 Overview of the audit market in Cyprus

I.3.5.1 Cypriot audit regulatory requirements

I.3.5.1.1 Scope of statutory audit in Cyprus

Table 26: Scope of statutory audit in Cyprus


Cyprus

Listed companies;

Private companies;

Governmental;

Not for profit.


Total balance sheet over C£2 M (€3.4 M);

Net turnover over C£4.1 M (€7 M);

Employees over 50.




Cypriot thresholds for statutory audits are quite in line with the thresholds defined in the EU 4th


I.3.5.1.2 Regulatory characteristics by country

Table 27: Key regulatory characteristics in Cyprus


Cyprus

7 years. Restrictions on the provision of non‐audit services to audit clients;






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I.3.5.2 Size of the M69.2 market and historical evolution in Cyprus

Figure 4: Size and evolution of the M69.2 market in Cyprus



According to FEE, the number of firms with audit and audit‐related activities only, is estimated at 250.

The M69.2 market has been booming in Cyprus, with a +19.5% annual growth. This growth can be

explained both by the increase in the number of companies (+8.0% p.a.) and the increase of the

average turnover of the players in the market (+10.7% p.a.). The M69.2 market outperformed GDP

growth over the period (+5.5% p.a.), thus gaining share in the economy (from 1.29% in 2005 to

2.12% in 2009).

The high share of the audit market as a percentage of GDP (2.12% in Cyprus vs. 1.02% on average in

Europe) can be explained by the high share of financial intermediation among foreign investors in

Cyprus (financial intermediation representing 56% of total Foreign Direct Investment in 2009), which

requires more audit work6. The important volume of foreign investment and foreign companies

established in Cyprus (around 1,000 corporations according to market experts), is also a contributing

factor.

6 “Foreign Investments in Cyprus”, Department of Trade Ministry of Commerce, Industry and Tourism.

Audit Market in Cyprus: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

176208

260

341359

0

50

100

150

200

250

300

350

400

2005 2006 2007 2008 2009

Total turnover, ( €M)




Source: Statistical Service of Cyprus.

1.29% 1.42% 1.63% 1.97% 2.12%

EU average

451 462 472 504 612

391 450 550 676 587296



2008)

05-09 CAGR

+19.5%

EU average


2008)

+7.2%(14 countries)


of 253

I.3.5.3 M&A activity in Cyprus


1998‐2004 2005‐2011


Cyprus 0 0 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


No significant M&A operations were identified in Cyprus between 1998 and 2011.


of 253

I.3.5.4 Analysis of concentration levels in Cyprus

I.3.5.4.1 Current concentration levels in Cyprus

Notes:









nearest integer.

Table 29: Current concentration levels in Cyprus (by number of mandates)


companies



All listed Cyprus 112 38% 77% 88% 2178

+46% EU Average 391 25% 65% 78% 1491

Main index Cyprus 20 40% 90% 100% 2800

+1% EU Average 24 37% 90% 98% 2786



population.

Table 30: Current concentration levels in Cyprus (by turnover)


companies



All listed Cyprus 112 32% 94% 98% 2737

+1% EU Average 391 38% 90% 98% 2709

Main index Cyprus 20 36% 99% 100% 3162

‐8% EU Average 24 46% 96% 100% 3432


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population.

The Cypriot audit market is highly concentrated on all considered populations. Nevertheless,

concentration levels are relatively in line with EU average (except for all listed companies when

calculated by number of mandates):

Concentration ratios calculated by number of mandates: Cyprus is far above the European

average on listed companies (but with a lower number of companies than European

average) and in line with EU average on main index companies;

Concentration ratios calculated by turnover: Cyprus is in line with the European average on all populations.


of 253

I.3.5.4.2 Evolution of concentration levels in Cyprus

Table 31: Evolution of concentration levels in Cyprus (by number of mandates)


companies



All listed 2009 112 38% 77% 88% 2178

+12% 2004 124 30% 76% 87% 1951

Main index 2009 20 40% 90% 100% 2800

‐26% 2004 20 50% 95% 100% 3800



population.

Table 32: Evolution of concentration levels in Cyprus (by turnover)


companies



All listed 2009 112 32% 94% 98% 2737

‐3% 2004 124 37% 86% 94% 2826


Overall concentration levels have not significantly changed on listed companies over 2004‐2009. The

HHI calculated by number of mandates on the main index has strongly decreased (‐26%), as two

mid‐tier firms (Moore Stephens International and Grant Thornton) have entered the market with

one mandate each.


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I.3.6 Overview of the audit market in Czech Republic

I.3.6.1 Czech audit regulatory requirements

I.3.6.1.1 Scope of statutory audit in Czech Republic

Table 33: Scope of statutory audit in Czech Republic


Czech Republic

Joint‐stock and listed companies that meet at least one of three criteria;

Private companies;

Other entities required to prepare their annual statutory financial statements (if they meet at least two of the three criteria);

Public sector entities (if these are governmental entities) must have their activities checked either by the auditor or the state officer;

Not‐for‐profit: certain entities after meeting required limits.


Total balance sheet over CZK 40 M (€1.6 M);

Net turnover over CZK 80 M (€3.2 M);

Employees over 50.




Czech Republic statutory audit thresholds are similar to the thresholds implemented in Hungary.

I.3.6.1.2 Regulatory characteristics in Czech Republic

Table 34: Key regulatory characteristics in Czech Republic


Czech Republic

7 years.





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I.3.6.2 Size of the M69.2 market and historical evolution in Czech Republic

Figure 5: Size and evolution of the M69.2 in Czech Republic

Caveat: The figures above correspond the total number of firms under NACE class M69.2


According to the Ministry of finance, the number of firms with audit and audit‐related activities only, is

estimated at 357.

The share of the audit market as a percentage of GDP is in line with the European average. The share

decreased between 2005 and 2008, as the audit market grew slower than GDP (+7.5% p.a. for the

audit market compared to +8.2% p.a. for GDP).

The audit market seems to have been more resilient to the economic crisis between 2008 and 2009,

with a 3.7% decrease compared with a 5.3% decrease for GDP.

Audit Market in Czech Republic: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

1,1591,271

1,401

1,611 1,5501,626

0

200

400

600

800

1,000 1,200 1,400 1,600 1,800

2005 2006 2007 2008 2009 2010




1.16% 1.12% 1.10% 1.09% 1.13%

EU average

n.r. n.r. n.r. n.r. n.r.14,691


05- 09 CAGR

+7.5%

Source: Czech Statistical Office.

EU average

0.97%

n.r.


2008)

+7.2 %(14 countries)

05- 10 CAGR

+7.0%


of 253

I.3.6.3 M&A activity in Czech Republic


1998‐2004 2005‐2011


Czech Republic 0 0 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


No significant M&A operations were identified in the Czech Republic between 1998 and 2011.


of 253

I.3.6.4 Analysis of concentration levels in Czech Republic

I.3.6.4.1 Current concentration levels in Czech Republic

Notes:









nearest integer.

Table 36: Current concentration levels in Czech Republic (by number of mandates)


companies



Regulated

market

Czech Republic 18 26% 74% 95% 1634 ‐7%

EU Average 184 28% 74% 88% 1754

Main index Czech Republic 15 25% 75% 100% 1641

‐41% EU Average 24 37% 90% 98% 2786


Table 37: Current concentration levels in Czech Republic (by turnover)


companies



Regulated

market

Czech Republic 18 33% 90% 100% 2402 ‐22%

EU Average 184 44% 94% 99% 3094

Main index Czech Republic 15 34% 92% 100% 2488

‐28% EU Average 24 46% 96% 100% 3432



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The Czech Republic appears moderately concentrated on all categories when concentration ratios

are calculated by number of mandates, and highly concentrated when concentration ratios are

calculated by turnover.

The Czech Republic’s concentration levels are systematically below EU averages. This being said, the

number of companies is relatively low, which makes comparisons less relevant.

I.3.6.4.2 Evolution of concentration levels in Czech Republic

Table 38: Evolution of concentration levels in Czech Republic (by number of mandates)


companies



Regulated

market

2009 18 26% 74% 95% 1634 +6%

2004 36 29% 65% 82% 1540

Main index 2009 15 25% 75% 100% 1641

‐45% 2004 9 40% 100% 100% 3000



population.

Table 39: Evolution of concentration levels in Czech Republic (by turnover)


companies



Regulated

market

2009 18 33% 90% 100% 2402 ‐36%

2004 36 56% 94% 99% 3754



The HHI has remained rather stable on regulated markets when calculated by number of

mandates while it has strongly decreased when calculated by turnover;

On the main index, the HHI has strongly decreased when calculated by number of mandates

(‐45%).


large mandates over the Big 4 in the last five years.


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exchange in Czech Republic

Table 40: Concentration levels by category of industry in Czech Republic (by number of mandates)

Industry Number of

companies

Number of

mandates


CR1 CR4 CR8 HHI

Energy ‐ ‐ ‐ ‐ ‐ ‐

Materials 3 3 67% 100% 100% 5556

Industrials ‐ ‐ ‐ ‐ ‐ ‐

Consumer

Discretionary 4 4 50% 100% 100% 3750


Health Care ‐ ‐ ‐ ‐ ‐ ‐

Financials 5 6 33% 100% 100% 2778

Information

Technology 1 1 100% 100% 100% 10000

Telecommunication

Services 1 1 100% 100% 100% 10000

Utilities 3 3 33% 100% 100% 3333



population.




of 253

Table 41: Concentration levels by category of industry in Czech Republic (by turnover)

Industry Number of

companies

Number of

mandates


turnover

CR1 CR4 CR8 HHI

Energy ‐ ‐ ‐ ‐ ‐ ‐

Materials 3 3 96% 100% 100% 9236





Financials 5 6 54% 100% 100% 4377



Utilities 3 3 86% 100% 100% 7462



population.




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I.3.7 Overview of the audit market in Denmark

I.3.7.1 Audit regulatory requirements in Denmark

I.3.7.1.1 Scope of statutory audit in Denmark

Table 42: Scope of statutory audit in Denmark


Denmark

Listed companies;

Private companies.


Total balance sheet over DKK36 M (€4.8 M);

Net turnover over DKK72 M (€9.7 M);

Employees over 50.




Danish thresholds for statutory audits are close to the thresholds defined in the EU 4th Company Law

Directive on “the annual accounts of certain types of companies”7.

I.3.7.1.2 Regulatory characteristics in Denmark

Table 43: Key regulatory characteristics in Denmark


Denmark

7 years An audit firm must not have a share of more than

20 % of its turnover with the same customer for

five consecutive years;

Restrictions on the provision of non‐audit services to audit clients.






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I.3.7.2 Size of the M69.2 market and historical evolution in Denmark

Figure 6: Size and evolution of the M69.2 market in Denmark

Caveat: The figures above correspond the total number of firms under NACE class M69.2


According to Danish Commerce and Companies Agency, the number of firms with audit and audit‐

related activities only, is estimated at 1835.

The Danish M69.2 market has outperformed the GDP growth, with an annual growth of +7.3%

compared to +1.8% for the economy over the 2005‐2009 period. As a consequence, the share of

auditing as a percentage of GDP, increased to reach 0.95% in 2009, which is in line with the

European average.

Growth is due to an increase of the average turnover by company (+7.5% between 2005 and 2008)

rather than to an increase in the number of firms (+2.4% between 2005 and 2008).

Audit Market in Denmark: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

1,587

1,9682,145 2,118 2,104

0

500

1,000

1,500

2,000

2,500

2005 2006 2007 2008 2009





Source: Denmark statistics.

0.77% 0.90% 0.94% 0.91% 0.95%

EU average

5,847 5,974 6,161 6,274 n.a.

271 329 348 338 n.a.296



2008)

05-09 CAGR

+7.3%

EU average


2008)

+7.2%(14 countries)


of 253

I.3.7.3 M&A activity in Denmark


1998‐2004 2005‐2011


Denmark 6 1 1 4 6 3 3 0

EU Average 8 2 2 4 14 2 5 8


Twelve M&A operations were identified between 1998 and mid‐2011 in Denmark:

Four operations were effected by Big 4 and four by mid‐tiers;

Eleven of these twelve targets were audit and accounting services firms.

In addition to these past operations, the acquisition of Grant Thornton by PricewaterhouseCoopers

is currently being finalised in Denmark.


of 253

I.3.7.4 Analysis of concentration levels in Denmark

I.3.7.4.1 Current concentration levels in Denmark

Notes:









nearest integer.

Table 45: Current concentration levels in Denmark (by number of mandates)


companies



All listed Denmark 167 27% 76% 94% 1786

+20% EU Average 391 25% 65% 78% 1491

Regulated

market

Denmark 159 27% 79% 96% 1876 +7%

EU Average 184 28% 74% 88% 1754

Main index Denmark 20 33% 95% 100% 2834

+2% EU Average 24 37% 90% 98% 2786



population.


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Table 46: Current concentration levels in Denmark (by turnover)


companies



All listed Denmark 167 53% 96% 100% 3493

+29% EU Average 391 38% 90% 98% 2709

Regulated

market

Denmark 159 53% 96% 100% 3495 +13%

EU Average 184 44% 94% 99% 3094

Main index Denmark 20 52% 100% 100% 3594

+5% EU Average 24 46% 96% 100% 3432



population.

Danish concentration levels appears in line with the EU average when considering the main index,

but more concentrated when all listed companies are taken into account.

This is linked to the relatively low number of listed companies in the country (167).


of 253

I.3.7.4.2 Evolution of concentration levels in Denmark

Table 47: Evolution of concentration levels in Denmark (by number of mandates)


companies



All listed 2009 167 27% 76% 94% 1786

+11% 2004 126 26% 74% 87% 1611

Regulated

market

2009 159 27% 79% 96% 1876 +43%

2004 175 21% 68% 86% 1314

Main index 2009 20 33% 95% 100% 2834

+55% 2004 19 26% 78% 100% 1833



population.

Table 48: Evolution of concentration levels in Denmark (by turnover)


companies



All listed 2009 167 53% 96% 100% 3493

+54% 2004 126 33% 87% 99% 2265

Regulated

market

2009 159 53% 96% 100% 3495 +92%

2004 175 30% 77% 98% 1824


Concentration levels have strongly increased in Denmark over 2004‐2009 on all categories. This

situation is partly due to the relatively high number of consolidation operations compared to the

audit market size in Denmark.

The Big 4 have gained almost all main index mandates (Grant Thornton having one mandate), and

more specifically, the market leader (KPMG) moved up to a market share of half of the mandates in

turnover (one third in number of mandates).


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exchange in Denmark

Table 49: Concentration levels by category of industry in Denmark (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials 8 9 44% 89% 100% 2840

Industrials 34 37 46% 86% 100% 2885

Consumer

Discretionary 21 23 35% 83% 100% 2212


Health Care 16 16 50% 100% 100% 3984

Financials 61 64 25% 75% 100% 1641

Information

Technology 8 9 44% 100% 100% 3333

Telecommunication

Services 1 1 100% 100% 100% 10000

Utilities 2 2 50% 100% 100% 5000



population.




of 253

Table 50: Concentration levels by category of industry in Denmark (by turnover)

Industry Number of

companies

Number of

mandates


turnover

CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials 8 9 52% 95% 100% 3855

Industrials 34 37 47% 97% 100% 3652



Health Care 16 16 70% 100% 100% 5534

Financials 61 64 82% 98% 100% 10000



Utilities 2 2 63% 100% 100% 5363



population.




of 253

I.3.8 Overview of the audit market in Estonia

I.3.8.1 Audit regulatory requirements in Estonia

I.3.8.1.1 Scope of statutory audit in Estonia

Table 51: Scope of statutory audit in Estonia


Estonia


Governmental companies;

Not‐for‐profit companies.

‐




According to the Estonian answer to the EC Consultation of Accounting Regulatory Committee

Members, no thresholds were in place as of July, 1st 2010.

I.3.8.1.2 Regulatory characteristics in Estonia

Table 52: Key regulatory characteristics in Estonia


Estonia

7 years. Restrictions on the provision of non‐audit services to audit clients;

Banks and Insurance companies are required to

perform ISA‐compliant audit.





of 253

I.3.8.2 Size of the M69.2 market in Estonia

Figure 7: Size of the M69.2 market in Estonia



According to Estonian Auditors Activities Register, the number of firms with audit and audit‐related


The Estonian market is smaller than the European average when looking at its share in GDP. There

are fewer audit firms in Estonia, and they are, on average, smaller than in the rest of Europe.

Audit Market in Estonia: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

Source: Eurostat.




0.67%

1.02%

0.0%

0.5%

1.0%

1.5%

Estonia EU average

(25 countries)

1,778

14,691

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

EstoniaEU average

(23 countries)

61

296

0

50

100

150

200

250

300

350

EstoniaEU average

(24 countries)

Total turnover of the audit market in Estonia:€108 M


of 253

I.3.8.3 M&A activity in Estonia


1998‐2004 2005‐2011


Estonia 0 0 0 0 2 0 1 1

EU Average 8 2 2 4 14 2 5 8


Two M&A transactions were identified between 1998 and 2011: one by BDO and the other by a

smaller firm, both in the auditing and accounting services market.


of 253

I.3.8.4 Analysis of concentration levels in Estonia

I.3.8.4.1 Current concentration levels in Estonia

Notes:









nearest integer.

Table 54: Current concentration levels in Estonia (by number of mandates)


companies



Main index Estonia 15 60% 100% 100% 4756

+71% EU Average 24 37% 90% 98% 2786



population.

Table 55: Current concentration levels in Estonia (by turnover)


companies



Main index Estonia 15 53% 100% 100% 4714

+37% EU Average 24 46% 96% 100% 3432



population.

The Estonian audit market is highly concentrated on the main index. Estonia is the second most

concentrated market in the EU on this population regardless of the method of calculation used.


of 253

I.3.8.4.2 Evolution of concentration levels in Estonia

Table 56: Evolution of concentration levels in Estonia (by number of mandates)


companies


CR1 CR4 CR8 HHI Delta

HHI

Main index 2009 15 60% 100% 100% 4756

+116% 2004 10 30% 90% 100% 2200



population.

The concentration level on Estonia’s main index has more than doubled over 2004‐2009. Three firms

(KPMG, Pricewaterhouse Coopers and Alliott Kangust OÜ) audit 100% of listed companies, while the

Big 4 and a few mid‐tier / small audit firms were active in this segment in 2004.


of 253

I.3.9 Overview of the audit market in Finland

I.3.9.1 Audit regulatory requirements in Finland

I.3.9.1.1 Scope of statutory audit in Finland

Table 57: Scope of statutory audit in Finland


Finland


Governmental;

Not for profit; Co‐operatives Partnerships and other entities subject to bookkeeping requirements.

All companies that meet one of the three following criteria:


Net sales over €7.3 M;

Employees over 50.




Finnish thresholds for statutory audits are close to the thresholds defined in the EU 4th Company Law


I.3.9.1.2 Regulatory characteristics in Finland

Table 58: Key regulatory characteristics in Finland

Mandatory audit partner

rotation Other specific regulations

Finland

7 years. Restrictions on the provision of non‐audit services to audit clients.






of 253

The audit market regulatory characteristics are the same as most Member States’.

I.3.9.2 Size of the M69.2 market and historical evolution in Finland

Figure 8: Size and evolution of the M69.2 market in Finland



According to AB3C, the number of firms with audit and audit‐related activities only, is estimated at 74.

The audit market in Finland was more dynamic than the Finnish economy (+9.5% vs. +2.1% p.a. for

GDP growth) and than the audit market in Europe (+7.2% p.a.). This growth can be explained more

by the increase in turnover per company (+7.5% p.a.) rather than by the increase in the number of

players on the market (+1.8% p.a.). As a consequence, the share of audit activities grew in the

economy from 0.50% in 2005 to 0.66% in 2009, which is still relatively low compared to the

European average (1.02% in 2008).

Audit Market in Finland: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

787

918980

1,0751,130

0

200

400

600

800

1,000

1,200

2005 2006 2007 2008 2009





Source: Statistic Centralen.

0.50% 0.55% 0.55% 0.58% 0.66%

EU average

4,449 4,451 4,639 4,715 4,780

177 202 211 228 236296



2008)

05-09 CAGR

+9.5%

EU average


2008)

+7.2%(14 countries)


of 253

I.3.9.3 M&A activity in Finland


1998‐2004 2005‐2011


Finland 24 7 3 14 62 7 20 35

EU Average 8 2 2 4 14 2 5 8


M&A activity was particularly strong between 1998 and 2009, with 86 operations:

More than half of the operations were realized by small companies (Big 4 only accounts for

14 acquisitions and mid‐tiers for 23 acquisitions);

More than 80% (70 operations) of the targets were auditing and accounting services companies.


of 253

I.3.9.4 Analysis of concentration levels in Finland

I.3.9.4.1 Current concentration levels in Finland

Notes:









nearest integer.

Table 60: Current concentration levels in Finland (by number of mandates)


companies



Regulated

market

Finland 117 32% 93% 96% 2690 +53%

EU Average 184 28% 74% 88% 1754

Main index Finland 25 40% 100% 100% 3408

+22% EU Average 24 37% 90% 98% 2786



population.

Table 61: Current concentration levels in Finland (by turnover)


companies



Regulated

market

Finland 117 58% 99% 100% 4000 +29%

EU Average 184 44% 94% 99% 3094

Main index Finland 25 59% 100% 100% 4071

+19% EU Average 24 46% 96% 100% 3432



of 253


population.

Finland appears highly concentrated regardless of the category considered or the method of

calculation used. Finland stands out as one of the most concentrated markets in the EU well above

other Northern countries (i.e. Denmark and Sweden).


of 253

I.3.9.4.2 Evolution of concentration levels in Finland

Table 62: Evolution of concentration levels in Finland (by number of mandates)


companies



Regulated

market

2009 117 32% 93% 96% 2690 ‐11%

2004 148 43% 94% 97% 3038

Main index 2009 25 40% 100% 100% 3408

‐14% 2004 25 56% 100% 100% 3984



population.

Table 63: Evolution of concentration levels in Finland (by turnover)


companies



Regulated

market

2009 117 58% 99% 100% 4000 ‐32%

2004 148 74% 100% 100% 5893



population.

Concentration levels have strongly decreased in Finland over 2004‐2009 on all categories. The drop

is even more marked when ratios are calculated by turnover (delta HHI of ‐32%).


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exchange in Finland

Table 64: Concentration levels by category of industry in Finland (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials 9 10 40% 90% 100% 2800

Industrials 40 40 35% 98% 100% 2913

Consumer

Discretionary 14 14 43% 100% 100% 3163


Health Care 5 5 80% 100% 100% 6800

Financials 12 12 33% 92% 100% 2500

Information

Technology 25 25 40% 100% 100% 3216

Telecommunication

Services 3 3 67% 100% 100% 5556

Utilities 1 1 100% 100% 100% 10000



population.




of 253

Table 65: Concentration levels by category of industry in Finland (by turnover)

Industry Number of

companies

Number

of

mandates


turnover

CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials 9 10 39% 100% 100% 3361

Industrials 40 40 62% 100% 100% 4571



Health Care 5 5 99% 100% 100% 9727

Financials 12 12 66% 100% 100% 5394



Utilities 1 1 100% 100% 100% 10000



population.




of 253

I.3.10 Overview of the audit market in France

I.3.10.1 Audit regulatory requirements in France

I.3.10.1.1 Scope of statutory audit in France

Table 66: Scope of the statutory audit in France


France


Not‐for‐profit.

All companies that meet at least two of the

following criteria:

o Annual net turnover over €0.267 M;

o Balance sheet over €0.534 M;

o Number of employees over 10.




French thresholds for statutory audits are among the lowest thresholds of the eight largest Member

States by GDP and are clearly under the thresholds defined in the EU 4th Company Law Directive on

“the annual accounts of certain types of companies”9.



of 253

I.3.10.1.2 Regulatory characteristics in France

Table 67: Key regulatory characteristics in France



Other specific regulations


France


Mandatory joint

audit for:

o Companies that

need to

consolidate

o Credit institutions

o Certain political

parties/associatio

ns

Severe restriction

on the provision of

non‐audit services

to audit clients: it is

prohibited for audit

clients and

restricted for the

subsidiaries of audit

clients

Successive regulation changes have increased the overall number of mandates, by broadening the scope of statutory audit to structures such as universities, work councils and public health institutions. On the other hand, since 2009 and under certain conditions (see previous table), SASs10 have been exempted from statutory audit requirements




France is the sole Member State requiring a joint audit, and it maintains strict restrictions on the

provision of non‐audit services for statutory audit clients.

10 Simplified corporate structures under French law.


of 253

I.3.10.2 Size of the M69.2 market and historical evolution in France

Figure 9: Size and evolution of the M69.2 market in France



According to CNCC, the number of firms with audit and audit‐related activities only, is estimated at

4500.

The French M69.2 market has grown faster than the GDP growth, with an annual growth of +2.8%

compared to +2.4% for the economy over the 2005‐2010 period. The share of auditing in GDP did

not increase at the same level and was compensated by the growth of the number of firms over the

same period (+ 6.2% p.a. between 2005 and 2008). French share of audit turnover in GDP is

relatively low compared to the European average (1.02% in 2008).

Audit Market in France: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

12 64712 930

13 619

14 16514 443 14 454

11 500

12 000

12 500

13 000

13 500

14 000

14 500

15 000

2005 2006 2007 2008 2009 2010





Source: Insee.

0.74% 0.72% 0.72% 0.73% 0.76%

EU average

19,437 19,233 20,338 23,309 n.a.

651 672 670 608 n.a.296



2008)

05- 09 CAGR

+3.4%

EU average

0.75%

n.a.

n.a.

1.02%(25 countries,

2008)


05- 10 CAGR

+2.8%


of 253

I.3.10.3 M&A activity in France


1998‐2004 2005‐2011


France 6 2 3 1 41 11 10 20

EU Average 8 2 2 4 14 2 5 8


France has experienced a large increase in the number of M&A transactions. M&A activity increased

in the second period (2005‐2011) with forty‐one transactions which is above the European average.

Since 2005,

Eleven operations were effected by Big 4;

Ten operations were effected by Mid‐Tier firms;

And twenty operations were effected by other firms.

36 targets were audit and accounting services firms. Among 5 remaining targets, 4 were acquired by

Big 4 firms.


of 253

I.3.10.4 Analysis of concentration levels in France

I.3.10.4.1 Current concentration levels in France

Notes:









nearest integer.

Table 69: Current concentration levels in France (by number of mandates)


companies



All listed France 761 14% 46% 58% 599

‐60% EU Average 391 25% 65% 78% 1491

Regulated

market

France 550 15% 51% 65% 740 ‐58%

EU Average 184 28% 74% 88% 1754

Main index France 40 25% 84% 100% 2038

‐27% EU Average 24 37% 90% 98% 2786



population.


of 253

Table 70: Current concentration levels in France (by turnover)


companies



All listed France 761 24% 81% 97% 1831

‐32% EU Average 391 38% 90% 98% 2709

Regulated

market

France 550 24% 81% 97% 1840 ‐41%

EU Average 184 44% 94% 99% 3094

Main index France 40 25% 84% 100% 2050

‐40% EU Average 24 46% 96% 100% 3432



population.

France’s concentration levels appear as one of the least concentrated market in EU with HHI under

1000 when calculated by number of mandates on both all listed and regulated markets.

When calculated by turnover, France’s concentration ratio appears as moderately concentrated for

all listed companies and regulated market companies.

Whatever the population considered, France’s concentration ratio is below EU averages.

When considering the main index, France appears as concentrated (above 2000), whatever the

calculation method.


of 253

I.3.10.4.2 Evolution of concentration levels in France

Table 71: Evolution of concentration levels in France (by number of mandates)


companies



All listed 2009 761 14% 46% 58% 599

N.A. 2004 0 0% 0% 0% 0

Regulated

market

2009 550 15% 51% 65% 740 34%

2004 489 15% 42% 58% 551

Main index 2009 40 25% 84% 100% 2038

12% 2004 40 30% 73% 96% 1818



population.

Table 72: Evolution of concentration levels in France (by turnover)


companies



All listed 2009 761 24% 81% 97% 1831

N.A. 2004 0 0% 0% 0% 0

Regulated

market

2009 550 24% 81% 97% 1840 17%

2004 489 28% 71% 90% 1577


Concentration levels have strongly increased in France over 2004‐2009 on the regulated market,

whatever the calculation method.

The French regulated market tends to be more concentrated but remains not concentrated.

The French main index became highly concentrated with HHI above 2000 but its CR4 decreased since

2004 which means that mid‐tier firms or small audit firms have gained a few large mandates over

the Big 4 in the last five years


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exchange in France

Table 73: Concentration levels by category of industry in France (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 8 15 40% 67% 93% 2089

Materials 36 72 19% 53% 69% 910

Industrials 94 180 18% 57% 67% 895

Consumer

Discretionary 117 229 15% 48% 62% 697


Health Care 34 68 19% 53% 72% 926

Financials 98 163 16% 56% 75% 946

Information

Technology 105 209 14% 44% 62% 627

Telecommunication

Services 4 8 25% 75% 100% 1875

Utilities 11 22 23% 77% 95% 1612



population.

Note: total number of mandates is equal or lower than twice the number of companies because joint audit is

mandatory in France only for companies that prepare consolidated (group) financial statements.


of 253

Table 74: Concentration levels by category of industry in France (by turnover)

Industry Number of

companies

Number of

mandates


turnover

CR1 CR4 CR8 HHI

Energy 8 15 46% 96% 100% 3921

Materials 36 72 45% 90% 98% 2902

Industrials 94 180 29% 81% 97% 1942



Health Care 34 68 39% 88% 96% 2823

Financials 98 163 34% 91% 99% 2525



Utilities 11 22 31% 99% 100% 2544



population.

Note: total number of mandates is equal or lower than twice the number of companies because joint audit is

mandatory in France only for companies that prepare consolidated (group) financial statements.


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I.3.11 Overview of the audit market in Germany

I.3.11.1 German audit regulatory requirements

I.3.11.1.1 Scope of statutory audit in Germany

Table 75: Scope of the statutory audit in Germany


Germany


Governmental;

Not‐for‐profit.

All companies that meet at least two of the following criteria for two years running:

Total balance sheet over € 4.015.000; Net turnover over € 8.030.000; Number of employees over 50.




German thresholds for statutory audits are slightly higher than the thresholds defined in the EU 4th


I.3.11.1.2 Regulatory characteristics in Germany

Table 76: Key regulatory characteristics in Germany

Maximum audit mandate

duration Mandatory audit partner

rotation Recent changes in regulation

Germany

1 year 7 years Recent restriction on the provision of non‐audit services to audit clients






of 253

I.3.11.2 Size of the M69.2 market and historical evolution in Germany

Figure 10: Size and evolution of the M69.2 market in Germany



According to WPK, the number of firms with audit and audit‐related activities only, is estimated at

2631.

From 2005 to 2010, the audit market was relatively dynamic in Germany, with a +6.6% growth p.a.,

outperforming its GDP annual growth (+2.2% p.a. over the same period), but slightly under the

European average growth (+7.2% p.a. between 2005 and 2010).

This increase is mainly due to the average turnover that grew faster at 6.8% p.a. between 2005 and

2008 rather than the growth of the number of firms in the market (+1.1% p.a.)

The size of the audit market compared to GDP is in line with the European average, audit firms

accounting for 0.96% of GDP in Germany, which is slightly under the European average of 1.02% in

2008.

Germany stands out as one of the largest audit markets in Europe with a relatively high number of

firms compared to the European average.

Audit Market in Germany: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

17 47119 585

21 66423 463 23 830 24 075

0

5 000

10 000

15 000

20 000

25 000

30 000

2005 2006 2007 2008 2009 2010





Source: Destatis.

0.78% 0.84% 0.89% 0.95% 0.99%

EU average

43,572 44,564 44,771 45,040 n.a.

401 439 473 521 n.a.296



2008)

05- 09 CAGR

+8.1%

EU average

0.96%

n.a.

n.a.

1.02%(25 countries,

2008)


05- 10 CAGR

+6.6%


of 253

I.3.11.3 M&A activity in Germany


1998‐2004 2005‐2011


Germany 4 1 0 3 10 3 7 0

EU Average 8 2 2 4 14 2 5 8

Sources: ESCP Europe analysis based on data from Bureau Van Dijk, Mergermarket and Thomson One

Banker.

Fourteen transactions were identified in Germany since 1998. The activity became more active in

the second period (2005‐2011) with ten transactions. Since 2005, 3 transactions were effected by Big

4 firms and seven by Mid‐Tier firms.

Only four targets out of the ten were in the business of auditing and accounting services.


of 253

I.3.11.4 Analysis of concentration levels in Germany

I.3.11.4.1 Current concentration levels in Germany

Notes:









nearest integer.

Table 78: Current concentration levels in Germany (by number of mandates)


companies



All listed Germany 781 17% 50% 63% 744

‐50% EU Average 391 25% 65% 78% 1491

Regulated

market

Germany 527 22% 61% 75% 1110 ‐37%

EU Average 184 28% 74% 88% 1754

Main index Germany 30 56% 100% 100% 4121

48% EU Average 24 37% 90% 98% 2786



population.


of 253

Table 79: Current concentration levels in Germany (by turnover)


companies



All listed Germany 781 40% 97% 98% 3244

20% EU Average 391 38% 90% 98% 2709

Regulated

market

Germany 527 42% 97% 99% 3294 6%

EU Average 184 44% 94% 99% 3094

Main index Germany 30 48% 100% 100% 3944

15% EU Average 24 46% 96% 100% 3432



population.

Germany appears as heterogeneously concentrated on almost all populations:

Concentration ratios calculated by number of mandates are higher than the EU average for all

listed companies on the German regulated market;

Concentration ratios calculated by turnover are above the EU average on all types of population.

When calculated by number of mandates, Germany appears as not concentrated with a HHI under

1000 for all listed companies, and extremely concentrated with HHI above 4000 on the German main

index.

When considering concentration ratios calculated by turnover, Germany stands out as concentrated

on all type of population.


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I.3.11.4.2 Evolution of concentration levels in Germany

Table 80: Evolution of concentration levels in Germany (by number of mandates)


companies



All listed 2009 781 17% 50% 63% 744

N.A. 2004 0 0% 0% 0% 0

Regulated

market

2009 527 22% 61% 75% 1110 21%

2004 541 19% 55% 66% 918

Main index 2009 30 56% 100% 100% 4121

2% 2004 30 53% 97% 100% 4022



population.

Table 81: Evolution of concentration levels in Germany (by turnover)


companies



All listed 2009 781 40% 97% 98% 3244

N.A. 2004 0 0% 0% 0% 0

Regulated

market

2009 527 42% 97% 99% 3294 ‐17%

2004 541 57% 92% 96% 3976


Concentration ratios on the German regulated market have increased when calculated by number of

mandates (+21%), and decreased when calculated by turnover (‐16% on regulated market over

2004‐2009). This suggests mid‐tier / smaller audit firms have increased their share of the larger

company mandates.

The evolution of the concentration ratios of the main index remains highly concentrated between

2004 and 2009.


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exchange in Germany

Table 82: Concentration levels by category of industry in Germany (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 3 3 33% 100% 100% 3333

Materials 27 30 40% 87% 100% 2378

Industrials 101 105 18% 65% 81% 1198

Consumer

Discretionary 99 109 22% 56% 72% 1043


Health Care 49 53 25% 62% 79% 1221

Financials 82 91 26% 64% 78% 1267

Information

Technology 125 137 20% 56% 73% 996

Telecommunication

Services 7 9 33% 89% 100% 2593

Utilities 12 13 38% 85% 100% 2426



population.




of 253

Table 83: Concentration levels by category of industry in Germany (by turnover)

Industry Number of

companies

Number of

mandates


turnover

CR1 CR4 CR8 HHI

Energy 3 3 60% 100% 100% 4698

Materials 27 30 74% 99% 100% 5721

Industrials 101 105 37% 95% 98% 2930

Consumer

Discretionary 99 109 45% 98% 99% 3584


Health Care 49 53 37% 97% 100% 2911

Financials 82 91 76% 100% 100% 6319

Information

Technology 125 137 56% 84% 93% 3444

Telecommunication

Services 7 9 51% 100% 100% 4910

Utilities 12 13 88% 100% 100% 7811



population.




of 253

I.3.12 Overview of the audit market in Greece

I.3.12.1 Audit regulatory requirements in Greece

I.3.12.1.1 Scope of statutory audit in Greece

Table 84: Scope of statutory audit in Greece


Greece

Listed companies;

Private companies;

Banks; Insurance companies

Some specialized companies.



Net turnover over €5 M;

Employees over 50.




Greek thresholds are lower than the 4th EU Company Law Directive recommendations12.

I.3.12.1.2 Regulatory characteristics in Greece

Table 85: Key regulatory characteristics in Greece


Greece







of 253

I.3.12.2 M&A activity in Greece


1998‐2004 2005‐2011


Greece 1 1 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


Banker.

There was only one acquisition in Greece between 1998 and 2011: the acquisition of Ernst & Young

Turkey by the Greek office.


of 253

I.3.12.3 Analysis of concentration levels in Greece

I.3.12.3.1 Current concentration levels in Greece

Notes:









nearest integer.

Table 87: Current concentration levels in Greece (by number of mandates)


companies



Regulated

market

Greece 256 30% 68% 91% 1563 ‐11%

EU Average 184 28% 74% 88% 1754

Main index Greece 20 35% 90% 100% 2350

‐16% EU Average 24 37% 90% 98% 2786



population.

Table 88: Current concentration levels in Greece (by turnover)


companies



Regulated

market

Greece 256 30% 73% 98% 1734 ‐44%

EU Average 184 44% 94% 99% 3094

Main index Greece 20 39% 88% 100% 2490

‐27% EU Average 24 46% 96% 100% 3432



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population.

Concentration levels in Greece consistently stand below EU averages:

On the regulated market, the Greek audit market appears as moderately concentrated;

On the main index, Greece appears as highly concentrated.

I.3.12.3.2 Evolution of concentration levels in Greece

Table 89: Evolution of concentration levels in Greece (by number of mandates)


companies



Regulated

market

2009 256 30% 68% 91% 1563 ‐2%

2004 292 34% 66% 84% 1600

Main index 2009 20 35% 90% 100% 2350

‐8% 2004 20 40% 90% 100% 2550



population.

Table 90: Evolution of concentration levels in Greece (by turnover)


companies



Regulated

market

2009 256 30% 73% 98% 1734 ‐3%

2004 292 31% 73% 97% 1784


Concentration levels in Greece have remained rather stable over 2004‐2009.


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exchange in Greece

Table 91: Concentration levels by category of industry in Greece (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 4 4 50% 100% 100% 3750

Materials 35 35 26% 69% 91% 1494

Industrials 52 53 30% 72% 89% 1648

Consumer

Discretionary 64 65 40% 80% 97% 2308


Health Care 8 8 50% 100% 100% 3438

Financials 35 35 29% 77% 97% 1739

Information

Technology 20 21 33% 86% 100% 2245

Telecommunication

Services 2 2 50% 100% 100% 5000

Utilities 4 4 25% 100% 100% 2500



population.




of 253

Table 92: Concentration levels by category of industry in Greece (by turnover)

Industry Number of

companies

Number of

mandates


CR1 CR4 CR8 HHI

Energy 4 4 57% 100% 100% 4401

Materials 35 35 32% 82% 99% 2055

Industrials 52 53 28% 72% 94% 1637

Consumer

Discretionary 64 65 57% 90% 100% 3780


Health Care 8 8 72% 100% 100% 5429

Financials 35 35 40% 94% 100% 2732

Information

Technology 20 21 32% 89% 100% 2275

Telecommunication

Services 2 2 99% 100% 100% 9769

Utilities 4 4 92% 100% 100% 8469



population.




of 253

I.3.13 Overview of the audit market in Hungary

I.3.13.1 Audit regulatory requirements in Hungary

I.3.13.1.1 Scope of statutory audit in Hungary

Table 93: Scope of statutory audit in Hungary


Hungary

Listed companies;

Private companies;

Governmental;

Not for profit.

All companies that meet one of the three following criteria:

Total balance sheet over HUF 500 M (€1.7 M);

Net turnover over HUF1,000 M (€3.4 M);

Employees over 50.




Hungarian statutory audit thresholds are similar to the thresholds implemented in Czech Republic.

I.3.13.1.2 Regulatory characteristics in Hungary

Table 94: Key regulatory characteristics in Hungary


Hungary

5 years for Public Interest Entities.






of 253

I.3.13.2 Size of the M69.2 market in Hungary

Figure 11: Size and evolution of the M69.2 market in Hungary



According to the Chamber of Auditors, the number of firms with audit and audit‐related activities only,

is estimated at 2000.

The Hungarian market has grown faster than GDP between 2005 and 2008 (+13.1% p.a. compared to

+6.3% for GDP) and accounts for a higher average share of the GDP compared to the EU average

(1.28% vs. 1.02% in 2008). Audit firms appear smaller than average, with a low turnover per firm

(€46 k vs. €296 k in Europe) but significanty increasing over the last four years.

Audit Market in Hungary: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

9441,035

1,2271,366

0

200

400

600

800

1,000

1,200

1,400

1,600

2005 2006 2007 2008





Source: Hungarian Central Statistical Office.

1.07% 1.15% 1.22% 1.28%

EU average

28,846 28,686 29,306 29,551

33 36 42 46296



2008)

05-08 CAGR

+13.1%

+12.6%(19 countries)

EU average


2008)


of 253

I.3.13.3 M&A activity in Hungary


1998‐2004 2005‐2011


Hungary 0 0 0 0 1 0 1 0

EU Average 8 2 2 4 14 2 5 8


Only one significant acquisition was identified in Hungary between 1998 and 2011: the acquisition of

Metrum Konyvszakerto Kft, a local auditing and accounting firm, by Mazars in 2006.


of 253

I.3.13.4 Analysis of concentration levels in Hungary

I.3.13.4.1 Current concentration levels in Hungary

Notes:









nearest integer.

Table 96: Current concentration levels in Hungary (by number of mandates)


companies



Regulated

market

Hungary 44 16% 45% 57% 702 ‐60%

EU Average 184 28% 74% 88% 1754

Main index Hungary 12 33% 83% 100% 2222

‐20% EU Average 24 37% 90% 98% 2786



population.

Table 97: Current concentration levels in Hungary (by turnover)


companies



Regulated

market

Hungary 44 55% 98% 99% 3912 +26%

EU Average 184 44% 94% 99% 3094

Main index Hungary 12 58% 100% 100% 4255

+24% EU Average 24 46% 96% 100% 3432



of 253


population.

When considering concentration ratios calculated by number of mandates, Hungary stands far below

EU averages:

Hungary appears as not concentrated on the regulated market (with a HHI of 702, Hungary is

the least concentrated market within the EU);

The Hungarian audit market is highly concentrated on the main index;

When considering concentration ratios calculated by turnover, Hungary stands far above EU

averages with HHIs above 3,900 for all categories.


of 253

I.3.13.4.2 Evolution of concentration levels in Hungary

Table 98: Evolution of concentration levels in Hungary (by number of mandates)


companies



Regulated

market

2009 44 16% 45% 57% 702 ‐45%

2004 36 25% 64% 75% 1280

Main index 2009 12 33% 83% 100% 2222

‐54% 2004 12 64% 100% 100% 4876



population.

Table 99: Evolution of concentration levels in Hungary (by turnover)


companies



Regulated

market

2009 44 55% 98% 99% 3912 ‐8%

2004 36 60% 99% 99% 4247


Concentration levels have strongly decreased over 2004‐2009 when calculated by number of

mandates and have slightly decreased when calculated by turnover.


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exchange in Hungary

Table 100: Concentration levels by category of industry in Hungary (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 2 2 50% 100% 100% 5000

Materials 4 4 25% 100% 100% 2500

Industrials 3 3 67% 100% 100% 5556

Consumer

Discretionary 6 6 17% 67% 100% 1667


Health Care 4 4 25% 100% 100% 2500

Financials 15 15 20% 47% 73% 1022

Information

Technology 3 3 67% 100% 100% 5556

Telecommunication

Services 2 2 50% 100% 100% 5000

Utilities 2 2 100% 100% 100% 10000



population.


of 253

Table 101: Concentration levels by category of industry in Hungary (by turnover)

Industry Number of

companies

Number

of

mandates


CR1 CR4 CR8 HHI

Energy 2 2 100% 100% 100% 9991

Materials 4 4 91% 100% 100% 8315

Industrials 3 3 92% 100% 100% 8605



Health Care 4 4 69% 100% 100% 5658

Financials 15 15 88% 99% 100% 7788



Utilities 2 2 100% 100% 100% 10000



population.


of 253

I.3.14 Overview of the audit market in Ireland

I.3.14.1 Audit regulatory requirements in Ireland

I.3.14.1.1 Scope of statutory audit in Ireland

Table 102: Scope of statutory audit in Ireland


Ireland

Listed companies;

Private companies;

Governmental;

Not for profit.




Employees over 50.




Irish thresholds for statutory audits are under the thresholds defined in the EU 4th Company Law


I.3.14.1.2 Regulatory characteristics in Ireland

Table 103: Key regulatory characteristics in Ireland


Ireland

7 years. Rotation for selected other personnel in addition to the key partners.

Sources: IFAC, Financial Standards Foundation, audit firms websites and National standard setters.



of 253

I.3.14.2 Size of the M69.2 market and historical evolution in Ireland

Figure 12: Size and evolution of the M69.2 market in Ireland



According to auditregister.org.uk and Register of Statury Auditors, the number of firms with audit and

audit‐related activities only in Ireland is estimated at 1520.

The Irish audit market outperformed the European audit market and the Irish GDP growth (+3.5%

p.a. over the 2005‐2008 period). This dynamism is mainly due to an increase in the average turnover

per firm (+10.1% p.a. in average turnover between 2006 and 2008 vs. +3.5% p.a. in number of firms

between 2006 and 2008).

Audit Market in Ireland: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

1,529 1,799

2,0702,290

0

500

1,000

1,500

2,000

2,500

2005 2006 2007 2008





Source: CSO, Eurostat .

0.94% 1.01% 1.09% 1.27%

EU average


2008)

n.r. 4,533 4,684 4,760

- 397 442 481296



2008)

05-08 CAGR

+14.4%


EU average


of 253

I.3.14.3 M&A activity in Ireland


1998‐2004 2005‐2011


Ireland 9 0 5 4 6 0 4 2

EU Average 8 2 2 4 14 2 5 8


Banker.

15 M&A operations were identified in Ireland between 1998 and 2011:

Nine operations were conducted by mid‐tiers, and none by Big 4 firms;

Two thirds of targets (10 companies) were auditing and accounting services companies.


of 253

I.3.14.4 Analysis of concentration levels in Ireland

I.3.14.4.1 Current concentration levels in Ireland

Notes:









nearest integer.

Table 105: Current concentration levels in Ireland (by number of mandates)


companies



All listed Ireland 40 46% 88% 100% 2957

+98% EU Average 391 25% 65% 78% 1491

Regulated

market

Ireland 28 41% 93% 100% 3127 +78%

EU Average 184 28% 74% 88% 1754

Main index Ireland 20 40% 95% 100% 3350

+20% EU Average 24 37% 90% 98% 2786



population.


of 253

Table 106: Current concentration levels in Ireland (by turnover)


companies



All listed Ireland 40 40% 98% 100% 2995

+11% EU Average 391 38% 90% 98% 2709

Regulated

market

Ireland 28 40% 98% 100% 3002 ‐3%

EU Average 184 44% 94% 99% 3094

Main index Ireland 20 43% 98% 100% 3069

‐11% EU Average 24 46% 96% 100% 3432



population.

The Irish audit market is highly concentrated with almost all HHIs above 3.000:

Ireland appears as the most concentrated market in the EU on listed companies and the

regulated market when concentration ratios are calculated by number of mandates;

Nevertheless, this assessment needs to be interpreted with caution as the number of Irish

listed companies is far below EU average, which mechanically increases the computed HHI;

When concentration ratios are calculated by turnover, Ireland appears more in line with EU

average.

I.3.14.4.2 Evolution of concentration levels in Ireland


of 253

Table 107: Evolution of concentration levels in Ireland (by number of mandates)


companies



All listed 2009 40 46% 88% 100% 2957

+88% 2004 57 28% 70% 81% 1571

Regulated

market

2009 28 41% 93% 100% 3127 Not

relevant142004 65 25% 80% 89% 1756

Main index 2009 20 40% 95% 100% 3350

+12% 2004 20 45% 95% 100% 3000



population.

Table 108: Evolution of concentration levels in Ireland (by turnover)


companies



All listed 2009 40 40% 98% 100% 2995

+190% 2004 57 22% 56% 57% 1033

Regulated

market

2009 28 40% 98% 100% 3002 Not

relevant142004 65 41% 99% 100% 3488



population.

Concentration levels have strongly increased in Ireland over 2004‐2009 on all categories. The

increase in HHI is even stronger when ratios are calculated by turnover.

14 Due to a change in the scope of companies listed on the regulated market, a comparison between

concentration levels in 2005 and 2009 is less relevant on this category.


of 253


exchange in Ireland

Table 109: Concentration levels by category of industry in Ireland (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 2 2 50% 100% 100% 5000

Materials 4 4 25% 100% 100% 2500

Industrials 6 6 33% 100% 100% 2778

Consumer

Discretionary 2 2 50% 100% 100% 5000


Health Care 3 3 100% 100% 100% 10000

Financials 5 6 33% 100% 100% 2778

Information

Technology 1 1 100% 100% 100% 10000

Telecommunication

Services ‐ ‐ ‐ ‐ ‐ ‐

Utilities ‐ ‐ ‐ ‐ ‐ ‐



population.




of 253

Table 110: Concentration levels by category of industry in Ireland (by turnover)

Industry Number of

companies

Number

of

mandates


CR1 CR4 CR8 HHI

Energy 2 2 99% 100% 100% 9754

Materials 4 4 74% 100% 100% 6113

Industrials 6 6 55% 100% 100% 4308



Health Care 3 3 100% 100% 100% 10000

Financials 5 6 52% 100% 100% 4819


Telecommunication Services ‐ ‐ ‐ ‐ ‐ ‐




population.




of 253

I.3.15 Overview of the audit market in Italy

I.3.15.1 Audit regulatory requirements in Italy

I.3.15.1.1 Scope of statutory audit in Italy

Table 111: Scope of statutory audit in Italy


Italy

Listed companies;

Private companies;

Governmental. A few other, specific company forms.




Employees over 50.




Italy strictly applies the thresholds defined in the EU 4th Company Law Directive on “the annual

accounts of certain types of companies”15.

I.3.15.1.2 Regulatory characteristics in Italy

Table 112: Key regulatory characteristics in Italy

Maximum audit mandate duration Mandatory audit partner rotation

Italy

3 years Mandatory rotation of audit firm after a maximum of 9 years (3 mandates) for listed companies and some other companies identified by law




Italy is the only Member State requiring mandatory rotation audit firm.



of 253

I.3.15.2 Size of the M69.2 market and historical evolution in Italy

Figure 13: Size and evolution of the M69.2 market in Italy



According to CNDCEC, the number of firms with audit and audit‐related activities only, is estimated at

321. 21 audit firms registered with CONSOB and approximately 300 firms registered with CCRC.

The Italian audit market has remained rather stable between 2005 and 2010 with a 1.4% growth p.a.

The size of the audit market is relatively low compared to other European countries and Italy stands

out far below EU average of 1.02% in GDP with only 0.72% of GDP.

Italy has a relatively high number of firms, and consequently a low average turnover per firm, and it

is below the European average. Market experts highlight the large number of very small audit and

accounting firms in countries like Italy and Spain, which reflects the overall market fragmentation in

these countries (there are around 65 SME per 1,000 inhabitants in Italy, which is well above the EU‐

27 average of ca. 4016).

16 EC SBA Fact Sheet Italy, 2007.

Audit Market in Italy: Total turnover of the M69.2 market, share ofturnover in GDP, number of firms and average turnover per firm

10 349

14 791

11 225 11 45610 890 11 081

0

2 000 4 000 6 000 8 000

10 000 12 000 14 000 16 000

2005 2006 2007 2008 2009 2010





Source: Istat.

0.72% 1.00% 0.73% 0.73% 0.72%

EU average

99,418 101,587 104,177 n.a. n.a.

104 146 108 n.a. n.a.296



2008)

05- 09 CAGR

+1.3%

EU average

0.72%

n.a.

n.a.

1.02%(25 countries,

2008)


05- 10 CAGR

+1.4%


of 253

I.3.15.3 M&A activity in Italy


1998‐2004 2005‐2011


Italy 2 0 1 1 3 0 3 0

EU Average 8 2 2 4 14 2 5 8


Five M&A transactions were identified in Italy between 1998 and 2011; among them:

four transactions were conducted by mid‐tiers;

one by another firm;

and none by Big 4 firms.

All target firms were auditing and accounting services companies.


Italy.


of 253

I.3.15.4 Analysis of concentration levels in Italy

I.3.15.4.1 Current concentration levels in Italy

Notes:









nearest integer.

Table 114: Current concentration levels in Italy (by number of mandates)


companies



All listed Italy 269 28% 86% 97% 2047

37% EU Average 391 25% 65% 78% 1491

Regulated

market

Italy 260 29% 87% 97% 2064 18%

EU Average 184 28% 74% 88% 1754

Main index Italy 39 30% 98% 100% 2482

‐11% EU Average 24 37% 90% 98% 2786



population.


of 253

Table 115: Current concentration levels in Italy (by turnover)


companies



All listed Italy 269 40% 98% 100% 2786

3% EU Average 391 38% 90% 98% 2709

Regulated

market

Italy 260 40% 98% 100% 2787 ‐10%

EU Average 184 44% 94% 99% 3094

Main index Italy 39 43% 99% 100% 2916

‐15% EU Average 24 46% 96% 100% 3432



population.

*The Italian audit market is highly concentrated with all HHIs above 2000:

Italy appears even more concentrated when concentration ratios are calculated by turnover

than when calculated by number of mandates (all HHIs above 2700);

Italian concentration ratios are much higher than the EU average on the compared

populations with the exception of the main index, which is less concentrated than the EU

average.


of 253

I.3.15.4.2 Evolution of the concentration levels in Italy

Table 116: Evolution of concentration levels in Italy (by number of mandates)


companies



All listed 2009 269 28% 86% 97% 2047

N.A. 2004 0 0% 0% 0% 0

Regulated

market

2009 260 29% 87% 97% 2064 1%

2004 276 27% 88% 93% 2053

Main index 2009 39 30% 98% 100% 2482

‐7% 2004 40 35% 100% 100% 2662



population.

Table 117: Evolution of concentration levels in Italy (by turnover)


companies



All listed 2009 269 40% 98% 100% 2786

N.A. 2004 0 0% 0% 0% 0

Regulated

market

2009 260 40% 98% 100% 2787 5%

2004 276 34% 100% 100% 2651



population.

Italian HHIs have remained rather stable between 2004 and 2009, and remains highly concentrated.


of 253


exchange in Italy

Table 118: Concentration levels by category of industry in Italy (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 10 10 50% 100% 100% 4286

Materials 14 15 40% 100% 100% 3156

Industrials 48 50 34% 88% 100% 2280

Consumer

Discretionary 65 71 28% 87% 97% 2093


Health Care 10 12 33% 92% 100% 2639

Financials 52 55 27% 91% 100% 2152

Information

Technology 28 29 28% 86% 100% 2010

Telecommunication

Services 4 6 50% 100% 100% 3333

Utilities 18 19 32% 89% 100% 2188



population.




of 253

Table 119: Concentration levels by category of industry in Italy (by turnover)

Industry Number of

companies

Number of

mandates


turnover

CR1 CR4 CR8 HHI

Energy 10 10 94% 100% 100% 8857

Materials 14 15 44% 100% 100% 3081

Industrials 48 50 71% 99% 100% 5301



Health Care 10 12 35% 95% 100% 2535

Financials 52 55 39% 100% 100% 3121



Utilities 18 19 72% 100% 100% 5524



population.




of 253

I.3.16 Overview of the audit market in Latvia

I.3.16.1 Audit regulatory requirements in Latvia

I.3.16.1.1 Scope of statutory audit in Latvia

Table 120: Scope of statutory audit in Latvia

Company legal status / Sectors

Company size

Latvia

Listed companies;

Private companies;

Governmental: only municipalities.

All companies for which at least two of the following three criteria exceeded the limits on the last day of the reporting period:

Total balance sheet over LVL0.25 M (€0.35 M);

Net sales over LVL0.5 M (€0.7 M);

Employees over 25.




Latvian thresholds for statutory audits are much lower than the thresholds defined in the EU 4th


I.3.16.1.2 Regulatory characteristics in Latvia

Table 121: Key regulatory characteristics in Latvia



Latvia





Latvia, as for Lithuania and Estonia, applies mandatory audit partner rotation and restrictions on the

provision of non‐audit services to audit clients.



of 253

I.3.16.2 Size of the M69.2 market and historical evolution in Latvia

Figure 14: Size and evolution of the M69.2 market in Latvia



According to LACA, the number of firms with audit and audit‐related activities only, is estimated at

160.

The audit market grew strongly in Latvia between 2005 and 2008 exclusively driven by the increase

of the number of firms, in line with GDP growth (+23.7% p.a. for the audit market compared to

+21.0% p.a. for GDP).

The Latvian audit market is relatively small compared to the rest of Europe, accounting for a smaller

share of the economy, and mainly composed of numerous small companies.

Audit Market in Latvia: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

77

95

131145

0

20

40

60

80

100

120

140

160

2005 2006 2007 2008





Source: Statistika Latvijas.

0.59% 0.59% 0.62% 0.63%

EU average

1,003 1,285 1,569 1,936

76 74 83 75296



2008)

05-08 CAGR

+23.7%


EU average


2008)


of 253

I.3.16.3 M&A activity in Latvia


1998‐2004 2005‐2011


Latvia 0 0 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


Banker.

No significant M&A operations were identified in Latvia between 1998 and 2011.


of 253

I.3.16.4 Analysis of concentration levels in Latvia

I.3.16.4.1 Current concentration levels in Latvia18

Notes:


mandates that can be higher than the number of companies since some companies have







nearest integer.

Table 123: Current concentration levels in Latvia (by number of mandates)


companies



Main index Latvia 32 13% 41% 63% 664

‐76% EU Average 24 37% 90% 98% 2786


Table 124: Current concentration levels in Latvia (by turnover)


companies



Main index Latvia 32 34% 87% 97% 2217

‐35% EU Average 24 46% 96% 100% 3432


18 Concentration ratios on all listed companies were not relevant as there are few companies on the market and no non‐regulated market.


of 253

Latvia is one of the least concentrated markets in the EU:

It is the only not concentrated market on the main index when the HHI is calculated by

number of mandates;

When the HHI is calculated by turnover, it comes out as the second least concentrated

market (behind France).

This can be linked to the relatively limited reach of listed Latvian companies on international

markets, enabling mid‐tier firms or small national audit firms to take on some of the largest

companies’ mandates (e.g. Latvijas Balzams, the second largest firm, operates only in Latvia and has

chosen BDO International as its auditor).

I.3.16.4.2 Evolution of concentration levels in Latvia

Table 125: Evolution of concentration levels in Latvia (by number of mandates)


companies



Main index 2009 32 13% 41% 63% 664 Not

relevant 2004 5 40% 100% 100% 3600


Due to profound changes in Latvia’s main index composition (from 5 companies identified in 2004 by

the London Economics study to 32 companies in 2009), a comparison between concentration levels

in 2004 and 2009 is less relevant.


of 253

I.3.17 Overview of the audit market in Lithuania

I.3.17.1 Audit regulatory requirements in Lithuania

I.3.17.1.1 Scope of statutory audit in Lithuania

Table 126: Scope of statutory audit in Lithuania


Lithuania

Listed companies;

Private companies;

Governmental;

Not for profit; Financial institutions; Insurance companies.

All companies for which at least two of the following three criteria exceeded the limits on the last day of the reporting period:

Total balance sheet over LTL5.9 M (€1.7 M);

Net sales over LTL10 M (€2.9 M);

Employees over 15.




Lithuanian thresholds for statutory audits are slightly lower than thresholds defined in the EU 4th


I.3.17.1.2 Regulatory characteristics in Lithuania

Table 127: Key regulatory characteristics in Lithuania



Lithuania

5 years for Public Interest Entities;

7 years for other entities.







of 253

I.3.17.2 Size of the M69.2 market and historical evolution in Lithuania

Figure 15: Size and evolution of the M69.2 market in Lithuania



According to the Chamber of Auditors (LCA), the number of firms with audit and audit‐related


The audit market boomed in Lithuania, with a +30.0% annual growth between 2005 and 2008 and

outperformed GDP growth (+15.7% p.a. over the period) thanks to the increase of both the number

of firms and the average turnover per firm.

This very high growth rate can be partly explained by a catch up of the audit market compared to

other Member states in Europe. Nevertheless, the audit market still represents a very low share of

the economy compared to the European average (0.32% in Lithuania compared to a 1.02% average

in Europe in 2008). According to market experts, this low percentage is partly explained by the

Lithuanian economy structure, in which services and industrial activities have a lower share than in

other European states.

Audit Market in Lithuania: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

4757

80

103

0

20

40

60

80

100

120

2005 2006 2007 2008





Source: Statistics Lithuania.

0.22% 0.24% 0.28% 0.32%

EU average

506 563 689 780

93 101 116 132296



2008)

05-08 CAGR

+30.0%


EU average


2008)


of 253

I.3.17.3 M&A activity in Lithuania


1998‐2004 2005‐2011


Lithuania 0 0 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


No significant M&A operations were identified in Lithuania between 1998 and 2011.


of 253

I.3.17.4 Analysis of concentration levels in Lithuania

I.3.17.4.1 Current concentration levels in Lithuania

Notes:









nearest integer.

Table 129: Current concentration levels in Lithuania (by number of mandates)


companies



Regulated

market

Lithuania 34 30% 86% 97% 2053 +17%

EU Average 184 28% 74% 88% 1754

Main index Lithuania 27 29% 86% 100% 2194

‐21% EU Average 24 37% 90% 98% 2786


Table 130: Current concentration levels in Lithuania (by turnover)


companies



Regulated

market

Lithuania 34 41% 95% 100% 3080 0%

EU Average 184 44% 94% 99% 3094

Main index Lithuania 27 47% 98% 100% 3354

‐2% EU Average 24 46% 96% 100% 3432



of 253

The Lithuanian audit market appears highly concentrated according to EU thresholds (all HHIs are

above 2,000 when calculated by number of mandates and above 3,000 when calculated by

turnover).

Concentration ratios calculated by number of mandates show that Lithuania stands above

EU average on the regulated market but is below EU average on the main index;

Concentration approximates the EU average when considering concentration ratios

calculated by turnover.


of 253

I.3.17.4.2 Evolution of concentration levels in Lithuania

Table 131: Evolution of concentration levels in Lithuania (by number of mandates)


companies



Regulated

market

2009 34 30% 86% 97% 2053 +25%

2004 43 23% 79% 93% 1644

Main index 2009 27 29% 86% 100% 2194

‐6% 2004 21 29% 95% 100% 2340



population.

Table 132: Evolution of concentration levels in Lithuania (by turnover)


companies



Regulated

market

2009 34 41% 95% 100% 3080 ‐36%

2004 43 68% 93% 100% 4802


Concentration levels indicate mixed changes in Lithuania:

Concentration level in number of mandates has increased on the regulated market from

moderately concentrated to highly concentrated while it remained rather stable on the main

index;

Concentration ratios by turnover show a drop in HHI on the regulated market. This decrease

seems due to more balanced shares between the top eight firms as revealed by the limited

changes in concentration ratios CR1, CR4 and CR8.


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exchange in Lithuania

Table 133: Concentration levels by category of industry in Lithuania (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials 2 2 50% 100% 100% 5000

Industrials 5 6 33% 100% 100% 2778

Consumer

Discretionary 7 7 57% 100% 100% 4286


Health Care 1 1 100% 100% 100% 10000

Financials 3 3 33% 100% 100% 3333

Information

Technology ‐ ‐ ‐ ‐ ‐ ‐

Telecommunication

Services 1 1 100% 100% 100% 10000

Utilities 4 5 40% 100% 100% 2800



population.




of 253

Table 134: Concentration levels by category of industry in Lithuania (by turnover)

Industry Number of

companies

Number of

mandates


turnover

CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials 2 2 88% 100% 100% 7825

Industrials 5 6 45% 100% 100% 3577



Health Care 1 1 100% 100% 100% 10000

Financials 3 3 55% 100% 100% 4316

Information Technology ‐ ‐ ‐ ‐ ‐ ‐


Utilities 4 5 40% 100% 100% 3339



population.




of 253

I.3.18 Overview of the audit market in Luxembourg

I.3.18.1 Audit regulatory requirements in Luxembourg

I.3.18.1.1 Scope of statutory audit in Luxembourg

Table 135: Scope of statutory audit in Luxembourg


Company size

Luxembourg

Listed companies;

Private companies;

Not for profit.




Employees over 50.




Luxembourg thresholds for statutory audits are slightly lower than the thresholds defined in the EU

4th Company Law Directive20.

I.3.18.1.2 Regulatory characteristics in Luxembourg

Table 136: Key regulatory characteristics in Luxembourg



Luxembourg

7 years. Rotation for other key personnel in addition to the key partners.






of 253

I.3.18.2 Size of the M69.2 market and historical evolution in Luxembourg

Figure 16: Size and evolution of the M69.2 market in Luxembourg



According to CSSF, the number of firms with audit and audit‐related activities only, is estimated at

100.

The share of audit in the Luxembourg economy is higher than in other European countries, with

3.5% in 2008. This is mainly due to the importance of financial and banking activities in the economy

of Luxembourg. Financial services require more complex auditing work and thus higher fees (60% to

70% of the audit firms’ revenues according to experts).

Between 2005 and 2008, the audit market was very dynamic in Luxembourg (+23.5% p.a.),

outperforming the European market and GDP growth (+9.4% p.a. between 2005 and 2008) mainly

driven by the increase of the average turnover per firm.

Audit Market in Luxembourg: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

737866

1,142

1,389

0

200

400

600

800

1,000

1,200

1,400

1,600

2005 2006 2007 2008





Source: Statec Luxembourg.

2.43% 2.55% 3.05% 3.50%

EU average

928 986 1,045 1,069

794 878 1,092 1,299296



2008)

05-08 CAGR

+23.5%

EU average

+7.2%(14 countries)


2008)


of 253

I.3.18.3 M&A activity in Luxembourg


1998‐2004 2005‐2011


Luxembourg 0 0 0 0 1 1 0 0

EU Average 8 2 2 4 14 2 5 8


Banker.

Only one significant operation was effected by a Big 4 firm, in Luxembourg between 1998 and 2011:

the acquisition of Progena, an auditing and accounting services company, by

PricewaterhouseCoopers in 2011.


of 253

I.3.18.4 Analysis of concentration levels in Luxembourg

I.3.18.4.1 Current concentration levels in Luxembourg

Notes:









nearest integer.

Table 138: Current concentration levels in Luxembourg (by number of mandates)


companies



Regulated

market

Luxembourg 19 25% 75% 95% 1600 ‐9%

EU Average 184 28% 74% 88% 1754

Main index Luxembourg 12 31% 85% 100% 2189

‐21% EU Average 24 37% 90% 98% 2786



population.

Table 139: Current concentration levels in Luxembourg (by turnover)


companies



Regulated

market

Luxembourg 19 63% 99% 100% 4474 +45%

EU Average 184 44% 94% 99% 3094

Main index Luxembourg 12 65% 99% 100% 4641

+35% EU Average 24 46% 96% 100% 3432



population.


of 253

Concentration levels appear relatively low when calculated by number of mandates but far above EU

average when calculated by turnover.

Luxembourg‘s audit market is the second most concentrated in the EU on the regulated market and

the third most concentrated on the main index.

This situation is due to the large differences in turnover among listed companies. For instance,

Deloitte reaches a 63% market share because the firm audits the largest listed company in the

country (i.e. Arcelor Mittal) whose turnover is six times higher than that of the second largest

company.


of 253

I.3.18.4.2 Evolution of concentration levels in Luxembourg

Table 140: Evolution of concentration levels in Luxembourg (by number of mandates)


companies



Regulated

market

2009 19 25% 75% 95% 1600 0%

2004 27 30% 74% 100% 1604

Main index 2009 12 31% 85% 100% 2189

‐5% 2004 11 31% 92% 100% 2307



population.

Table 141: Evolution of concentration levels in Luxembourg (by turnover)


companies



Regulated

market

2009 19 63% 99% 100% 4474 +32%

2004 27 46% 96% 100% 3389



population.

Concentration ratios have slightly decreased when calculated by number of mandates, and strongly

increased when calculated by turnover (+32% on regulated market over 2004‐2009). This suggests

that the Big 4 have consolidated their hold on the largest companies, while mid‐tier / smaller audit

firms have gained a few lower‐range mandates. Moreover, the merger of Arcelor and Mittal Steel in

2006 has increased the imbalance of market share by turnover, by becoming the largest company on

the regulated market.


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exchange in Luxembourg

Table 142: Concentration levels by category of industry in Luxembourg (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy ‐ ‐ ‐ ‐ ‐ ‐

Materials 2 2 100% 100% 100% 10000


Consumer

Discretionary 2 3 33% 100% 100% 3333



Financials 10 10 30% 80% 100% 2000

Information


Telecommunication


Utilities 1 1 100% 100% 100% 10000



population.




of 253

Table 143: Concentration levels by category of industry in Luxembourg (by turnover)

Industry Number of

companies

Number of

mandates


CR1 CR4 CR8 HHI

Energy ‐ ‐ ‐ ‐ ‐ ‐

Materials 2 2 100% 100% 100% 10000





Financials 10 10 50% 100% 100% 4807

Information Technology ‐ ‐ ‐ ‐ ‐ ‐

Telecommunication


Utilities 1 1 100% 100% 100% 10000



population.




of 253

I.3.19 Overview of the audit market in Malta

I.3.19.1 Audit regulatory requirements in Malta

I.3.19.1.1 Scope of statutory audit in Malta

Table 144: Scope of statutory audit in Malta


Company size

Malta

All companies. All companies that meet at least one of the two following criteria:


Net turnover over €5.1 M.




The thresholds for statutory audit in Malta are under the thresholds defined in the EU 4th Company Law Directive on “the annual accounts of certain types of companies”21.

I.3.19.1.2 Regulatory characteristics in Malta

Table 145: Key regulatory characteristics in Malta



Malta







of 253

I.3.19.2 M&A activity in Malta


1998‐2004 2005‐2011


Malta 0 0 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


No significant M&A operations were identified in Malta between 1998 and 2011.


of 253

I.3.19.3 Analysis of concentration levels in Malta

I.3.19.3.1 Current concentration levels in Malta

Notes:









nearest integer.

Table 147: Current concentration levels in Malta (by number of mandates)


companies



Regulated

market

Malta 19 32% 95% 100% 2742 +56%

EU Average 184 28% 74% 88% 1754

Main index Malta 18 33% 100% 100% 3025

+9% EU Average 24 37% 90% 98% 2786



population.

Table 148: Current concentration levels in Malta (by turnover)


companies



Regulated

market

Malta 19 32% 100% 100% 2808 ‐9%

EU Average 184 44% 94% 99% 3094

Main index Malta 18 32% 100% 100% 2825

‐18% EU Average 24 46% 96% 100% 3432



population.


of 253

Malta appears highly concentrated regardless of the category or the method of calculation:

The country stands far above EU averages when concentration ratios are calculated by

number of mandates;

It stands below EU averages when concentration ratios are calculated by turnover.

Yet, comparison with EU average needs to be used with caution, considering that only 19 listed

companies operate in the country.


of 253

I.3.19.3.2 Evolution of concentration levels in Malta

Table 149: Evolution of concentration levels in Malta (by number of mandates)


companies



Regulated

market

2009 19 32% 95% 100% 2742 ‐13%

2004 14 43% 100% 100% 3163

Main index 2009 18 33% 100% 100% 3025

‐4% 2004 14 43% 100% 100% 3163



population.

Table 150: Evolution of concentration levels in Malta (by turnover)


companies



Regulated

market

2009 19 32% 100% 100% 2808 ‐47%

2004 14 63% 100% 100% 5328



population.

Concentration levels have decreased over 2004‐2009 on the regulated market while the

concentration level on the main index has remained rather stable.


of 253


exchange in Malta

Table 151: Concentration levels by category of industry in Malta (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials ‐ ‐ ‐ ‐ ‐ ‐

Industrials 2 2 50% 100% 100% 5000

Consumer

Discretionary 2 2 50% 100% 100% 5000

Consumer Staples ‐ ‐ ‐ ‐ ‐ ‐


Financials 7 7 43% 100% 100% 3469

Information

Technology 4 4 50% 100% 100% 3750

Telecommunication

Services 1 1 100% 100% 100% 10000




population.

Caveat: there are 19 regulated companies in Malta but 2 are not classified by GICS code.


of 253

Table 152: Concentration levels by category of industry in Malta (by turnover)

Industry Number of

companies

Number

of

mandates


CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials ‐ ‐ ‐ ‐ ‐ ‐

Industrials 2 2 50% 100% 100% 5000




Financials 7 7 46% 100% 100% 4047






population.

Caveat: there are 19 regulated companies in Malta but 2 are not classified by GICS code.


of 253

I.3.20 Overview of the audit market in the Netherlands

I.3.20.1 Audit regulatory requirements in the Netherlands

I.3.20.1.1 Scope of statutory audit in the Netherlands

Table 153: Scope of statutory audit in the Netherlands


Netherlands

Listed companies;

Private companies;

Governmental;

Not for profit: if their commercial activities exceed EUR 3,5 million or if required by the articles of association.

All companies that meet at least two of the

following criteria for two years running:

o Annual net turnover over €4.4 M;

o Balance sheet over €8.8 M;

o Number of employees over 50.




The Netherlands strictly apply the thresholds defined in the EU 4th Company Law Directive on “the

annual accounts of certain types of companies”22.

I.3.20.1.2 Regulatory characteristics in Netherlands

Table 154: Key regulatory characteristics in the Netherlands




Netherlands

1 year 7 years Since 2006, no statutory audit of a company incorporated in the Netherlands can be performed without a license granted by the Netherlands Authority for the Financial Markets






of 253

I.3.20.2 Size of the M69.2 market and historical evolution in the Netherlands

Figure 17: Size and evolution of the M69.2 market in the Netherlands



According to AFM, the number of firms with audit and audit‐related activities only, is estimated at

481: 15 audit firms registered with AFM for audits of PIEs and 466 auditors of companies registered

with AFM

Between 2006 and 2010, the M69.2 market was quite dynamic in the Netherlands (+4.0% p.a.),

outperforming its GDP growth (+2.9% p.a. between 2005 and 2009) but it remains under the

European average of +7.2%. The increase of the Deutch M69.2 market can be explained by the

increase of the total number of firms.

The number of firms in the market increased of 5.4% p.a. over the same period. As a consequence,

the share of audit in the Netherlands economy increased from 1.53% in 2006 to 1.64% in 2010, and

it is clearly above the European average of 1.02% in 2008.

Audit Market in Netherlands: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

8 288

8 988

9 6359 828

9 710

7 500

8 000

8 500

9 000

9 500

10 000

2005 2006 2007 2008 2009 2010




Average turnover per firm (€ k)

Source: CBS Nederland Statistics.

n.a. 1.53% 1.57% 1.62% 1.72%

EU average

n.a. 15,710 16,745 17,820 18,400

n.a. 528 537 541 534296



2008)

06-09 CAGR

+5.8%

EU average

1.64%

19,365

501

1.02%(25 countries,

2008)

+7.2%(14 countries)

06-10 CAGR

+4.0%


of 253

I.3.20.3 M&A activity in the Netherlands


1998‐2004 2005‐2011


Netherlands 10 3 0 7 47 1 11 35

EU Average 8 2 2 4 14 2 5 8


The Netherlands, like France has experienced a strong increase in the number of M&A transactions.

M&A activity increased in period 2 (2005‐2011) with forty‐eight transactions. The Netherlands is

strongly above the European average.

Since 2005,

One operations was effected by a Big four firm (Deloitte)

Eleven operations were effected by Mid‐Tier firms;

Thirty‐five operations were effected by other firms.

78% of targets were audit and accounting services firms.


of 253

I.3.20.4 Analysis of concentration levels in the Netherlands

I.3.20.4.1 Current concentration levels in the Netherlands

Notes:









nearest integer.

Table 156: Current concentration levels in the Netherlands (by number of mandates)


companies



All listed Netherlands 135 25% 87% 100% 2007

35% EU Average 391 25% 65% 78% 1491

Regulated

market

Netherlands 131 26% 88% 100% 2019 15%

EU Average 184 28% 74% 88% 1754

Main index Netherlands 25 33% 100% 100% 2702

‐3% EU Average 24 37% 90% 98% 2786



population.


of 253

Table 157: Current concentration levels in the Netherlands (by turnover)


companies



All listed Netherlands 135 34% 91% 100% 2353

‐13% EU Average 391 38% 90% 98% 2709

Regulated

market

Netherlands 131 34% 91% 100% 2353 ‐24%

EU Average 184 44% 94% 99% 3094

Main index Netherlands 25 49% 100% 100% 3308

‐4% EU Average 24 46% 96% 100% 3432



population.

The Netherlands’s concentration levels appear high for all type of populations, with HHIs above

2000.

When calculated by number of mandates, The Netherlands concentration ratios are frequently

above EU averages.

Although the Netherlands is a highly concentrated market, its HHIs are systematically below EU

average when calculated by turnover.


of 253

I.3.20.4.2 Evolution of concentration levels in the Netherlands

Table 158: Evolution of concentration levels in the Netherlands (by number of mandates)


companies



All listed 2009 135 25% 87% 100% 2007

10% 2004 183 23% 85% 92% 1832

Regulated

market

2009 131 26% 88% 100% 2019 ‐6%

2004 140 25% 89% 96% 2147

Main index 2009 25 33% 100% 100% 2702

4% 2004 23 32% 100% 100% 2608



population.

Table 159: Evolution of concentration levels in the Netherlands (by turnover)


companies



All listed 2009 135 34% 91% 100% 2353

‐20% 2004 183 34% 99% 100% 2923

Regulated

market

2009 131 34% 91% 100% 2353 ‐8%

2004 140 29% 100% 100% 2551



population.


Concentration ratios have remained rather stable whatever the method of calculation.

The HHI has slightly increased regarding all listed companies when calculated by number of

mandates, whereas it decreased over the period for all listed companies when calculated by

turnover.

On regulated markets the HHI has slightly decreased over the period;

On the main index, the HHI has remained fairly stable.

For all listed companies, this suggests that mid‐tier firms or small audit firms have gained a few large

mandates over the Big 4 in the last five years.


of 253


exchange in the Netherlands

Table 160: Concentration levels by category of industry in the Netherlands (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 3 3 67% 100% 100% 5556

Materials 9 9 44% 100% 100% 3333

Industrials 25 26 35% 88% 100% 2663

Consumer

Discretionary 18 18 39% 89% 100% 2469


Health Care 7 7 57% 100% 100% 4286

Financials 32 33 42% 91% 100% 2746

Information

Technology 20 20 30% 85% 100% 2000

Telecommunication

Services 4 4 25% 100% 100% 2500

Utilities 1 3 33% 100% 100% 3333



population.




of 253

Table 161: Concentration levels by category of industry in the Netherlands (by turnover)

Industry Number of

companies

Number of

mandates


turnover

CR1 CR4 CR8 HHI

Energy 3 3 98% 100% 100% 9602

Materials 9 9 66% 100% 100% 4823

Industrials 25 26 49% 100% 100% 3672



Health Care 7 7 60% 100% 100% 5163

Financials 32 33 81% 100% 100% 6772



Utilities 1 3 33% 100% 100% 3333



population.




of 253

I.3.21 Overview of the audit market in Poland

I.3.21.1 Audit regulatory requirements in Poland

I.3.21.1.1 Scope of statutory audit in Poland

Table 162: Scope of statutory audit in Poland


Poland

Listed companies;

Private companies;

Governmental;

Not for profit; Banks; Other Financial Institutions; Insurance Companies.


Total balance sheet over €2 M;


Employees over 50.




Polish threshold levels are lower than levels recommended in the 4th EU Company Law Directive23.

I.3.21.1.2 Regulatory characteristics in Poland

Table 163: Key regulatory characteristics in Poland


Poland

5 years for Public Interest Entities, no obligation for other

companies.

Restrictions on the provision of non‐audit services to audit clients;






of 253

I.3.21.2 Size of the M69.2 market in Poland

Figure 18: of the M69.2 market in Poland



According to the Ministry of Finance, the number of firms with audit and audit‐related activities only,


The Polish M69.2 market is slightly smaller than other European countries when compared to GDP. It

is mainly composed of a relatively high number of small companies.

Audit Market in Poland: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

Source: Eurostat.




0.75%

1.02%

0.0%

0.5%

1.0%

1.5%

Poland EU average

(25 countries)

22,158

14,691

0

5,000

10,000

15,000

20,000

25,000

PolandEU average

(23 countries)

123

296

0

50

100

150

200

250

300

350

Poland EU average

(24 countries)

Total turnover of the audit market in Poland:€2,730M


of 253

I.3.21.3 M&A activity in Poland


1998‐2004 2005‐2011


Poland 1 1 0 0 6 0 1 5

EU Average 8 2 2 4 14 2 5 8


There were seven M&A operations in Poland between 1998 and 2011:

Only one operation was conducted by a Big 4: the acquisition of Andersen by Ernst & Young

in 2002;

One acquisition by a mid‐tier firm;

Five operations by other companies.

Half of the targets were auditing and accounting services companies, two of them Management

consultancy firms, and one a financial advisor.


of 253

I.3.21.4 Analysis of concentration levels in Poland

I.3.21.4.1 Current concentration levels in Poland

Notes:









nearest integer.

Table 165: Current concentration levels in Poland (by number of mandates)


companies



Regulated

market

Poland 138 18% 57% 76% 1010 ‐42%

EU Average 184 28% 74% 88% 1754

Main index Poland 20 30% 90% 100% 2200

‐21% EU Average 24 37% 90% 98% 2786



population.

Table 166: Current concentration levels in Poland (by turnover)


companies



Regulated

market

Poland 138 35% 88% 97% 2272 ‐27%

EU Average 184 44% 94% 99% 3094

Main index Poland 20 39% 98% 100% 2762

‐20% EU Average 24 46% 96% 100% 3432



population.


of 253

Poland appears moderately concentrated on the regulated market when concentration ratios are

calculated by number of mandates, and highly concentrated on other categories and methods of

calculation.

Poland’s HHIs are consistently below EU averages.


of 253

I.3.21.4.2 Evolution of concentration levels in Poland

Table 167: Evolution of concentration levels in Poland (by number of mandates)


companies



Regulated

market

2009 138 18% 57% 76% 1010 +69%

2004 236 15% 41% 61% 597

Main index 2009 20 30% 90% 100% 2200

‐30% 2004 20 44% 100% 100% 3150



population.

Table 168: Evolution of concentration levels in Poland (by turnover)


companies



Regulated

market

2009 138 35% 88% 97% 2272 ‐34%

2004 236 56% 83% 94% 3417


Concentration levels have shown various changes over 2004‐2009:

On the regulated market, with concentration ratios calculated by number of mandates, the

HHI has strongly increased (+69%);

On the regulated market, with concentration ratios calculated by turnover, the HHI has

strongly decreased (‐34%);

On the main index, with concentration ratios calculated by number of mandates, the HII has

also strongly decreased (‐30%).

On the main index, less than three firms were operating in 2004, while all the Big 4 along with Baker

Tilly International and Grant Thornton had mandates in 2009.


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exchange in Poland

Table 169: Concentration levels by category of industry in Poland (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 5 5 40% 100% 100% 2800

Materials 14 14 36% 57% 86% 1735

Industrials 29 32 16% 47% 69% 801

Consumer

Discretionary 25 25 20% 64% 88% 1264


Health Care 3 3 33% 100% 100% 3333

Financials 24 24 38% 83% 100% 2326

Information

Technology 18 18 28% 50% 72% 1235

Telecommunication

Services 3 3 67% 100% 100% 5556

Utilities 5 5 60% 100% 100% 4400



population.




of 253

Table 170: Concentration levels by category of industry in Poland (by turnover)

Industry Number of

companies

Number of

mandates


CR1 CR4 CR8 HHI

Energy 5 5 66% 100% 100% 5444

Materials 14 14 39% 83% 97% 2608

Industrials 29 32 20% 78% 91% 1582



Health Care 3 3 93% 100% 100% 8697

Financials 24 24 41% 99% 100% 2876



Utilities 5 5 68% 100% 100% 5632



population.




of 253

I.3.22 Overview of the audit market in Portugal

I.3.22.1 Audit regulatory requirements in Portugal

I.3.22.1.1 Scope of statutory audit in Portugal

Table 171: Scope of statutory audit in Portugal


Portugal

Listed companies;

Private companies;

Governmental;

Not for profit.




Employees over 20.




Portuguese thresholds for statutory audits are lower than thresholds defined in the EU 4th Company

Law Directive24, due to a lower than average size of companies and a high share of very small

companies in the corporate landscape.

I.3.22.1.2 Regulatory characteristics in Portugal

Table 172: Key regulatory characteristics in Portugal



Portugal

7 years for Public Interest Entities.





The audit market characteristics in Portugal are the same as in most other Member States.



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I.3.22.2 Size of the M69.2 market and historical evolution in Portugal

Figure 19: Size and evolution of the M69.2 market in Portugal



According to CMVM & Ordem dos Revisores Oficiais de Contas, the number of firms with audit and

audit‐related activities only, is estimated at 189.

The share of the M69.2 market in the Portuguese economy is in line with European average.

The M69.2 market is mainly composed of small audit firms. It is the only Member State with a

significant decrease in the number of firms between 2005 and 2009 (‐5.1% p.a.). According to

market experts, this is mainly explained by the economic crisis and the severe price decrease over

the period. As a result, small audit firms could not resist price wars and fiercer competition, and the

weakest went bankrupt.

Audit Market in Portugal: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

1,470

1,830 1,843 1,836 1,774

0

200

400

600

800

1,000 1,200 1,400 1,600 1,800 2,000

2005 2006 2007 2008 2009





Source: Statistics Portugal.

0.96% 1.14% 1.09% 1.07% 1.05%

EU average

29,913 31,075 29,371 24,922 24,302

49 59 63 74 73296



2008)

05-09 CAGR

+4.8%

EU average

+7.2%(14 countries)


2008)


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I.3.22.3 M&A activity in Portugal


1998‐2004 2005‐2011


Portugal 1 1 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


Only one significant operation, which was conducted by a Big 4, was identified in Portugal between

1998 and 2011: the acquisition of Andersen by Deloitte in 2002.


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I.3.22.4 Analysis of concentration levels in Portugal

I.3.22.4.1 Current concentration levels in Portugal

Notes:









nearest integer.

Table 174: Current concentration levels in Portugal (by number of mandates)


companies


CR1 CR4 CR8 HHI Delta

HHI

Regulated

market

Portugal 51 35% 71% 84% 1821 +4%

EU Average 184 28% 74% 88% 1754

Main index Portugal 20 48% 91% 100% 3195

+15% EU Average 24 37% 90% 98% 2786



population.


of 253

Table 175: Current concentration levels in Portugal (by turnover)


companies



Regulated

market

Portugal 51 47% 94% 99% 3246 +5%

EU Average 184 44% 94% 99% 3094

Main index Portugal 20 53% 97% 100% 3689

+7% EU Average 24 46% 96% 100% 3432



population.

Portugal appears as:

Moderately concentrated on the regulated market when concentration ratios are calculated

by number of mandates;

Highly concentrated on the regulated market when concentration ratios are calculated by

turnover;

Highly concentrated on the main index for both calculation methods.

Portugal appears slightly above EU average, the difference being stronger on the main index.


of 253

I.3.22.4.2 Evolution of concentration levels in Portugal

Table 176: Evolution of concentration levels in Portugal (by number of mandates)


companies



Regulated

market

2009 51 35% 71% 84% 1821 ‐21%

2004 52 42% 73% 83% 2300

Main index 2009 20 48% 91% 100% 3195

+6% 2004 20 50% 85% 100% 3000



population.

Table 177: Evolution of concentration levels in Portugal (by turnover)


companies



Regulated

market

2009 51 47% 94% 99% 3246 ‐29%

2004 52 64% 93% 99% 4553


Over 2004‐2009, concentration levels on the regulated market have strongly decreased while the

concentration level on the main index has remained rather stable.


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exchange in Portugal

Table 178: Concentration levels by category of industry in Portugal (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials 10 12 42% 92% 100% 3056

Industrials 9 10 50% 80% 100% 3000

Consumer

Discretionary 14 15 33% 67% 93% 1733



Financials 6 6 33% 100% 100% 2778

Information

Technology 4 4 50% 100% 100% 3750

Telecommunication

Services 2 2 100% 100% 100% 10000

Utilities 3 3 67% 100% 100% 5556



population.




of 253

Table 179: Concentration levels by category of industry in Portugal (by turnover)

Industry Number of

companies

Number of

mandates


CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials 10 12 58% 100% 100% 4327

Industrials 9 10 70% 99% 100% 5318




Financials 6 6 55% 100% 100% 4638


Telecommunication

Services 2 2 100% 100% 100% 10000

Utilities 3 3 96% 100% 100% 9211



population.




of 253

I.3.23 Overview of the audit market in Romania

I.3.23.1 Audit regulatory requirements in Romania

I.3.23.1.1 Scope of statutory audit in Romania

Table 180: Scope of statutory audit in Romania


Romania

Listed companies;

Private companies;

Governmental;

Not for profit.




Employees over 50.




Romanian thresholds are close to the level recommended in the 4th EU Company Law Directive25.

I.3.23.1.2 Regulatory characteristics in Romania

Table 181: Key regulatory characteristics in Romania


Romania 7 years for Public Interest Entities and key partners.

Restriction on the provision of non‐audit services to audit clients;






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I.3.23.2 Size of the M69.2 market in Romania

Figure 20: Size of the M69.2 market in Romania



According to the Chamber of Auditors, the number of firms with audit and audit‐related activities only,


Romania’s M69.2 market is one of the smallest in GDP percentage (0.33%). This small market is

mainly composed of small firms, as illustrated by the average turnover per firm of €54 k in 2008.

Audit Market in Romania: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

350

455

0

50

100

150

200

250

300

350

400

450

500

2007 2008





Source: Eurostat.

0.28% 0.33%

EU average

7,627 8,399

46 54296



2008)

07-08 CAGR

+30.0%


EU average


2008)


of 253

I.3.23.3 M&A activity in Romania


1998‐2004 2005‐2011


Romania 0 0 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


No significant M&A operations were identified in Romania between 1998 and 2011.

I.3.23.4 Analysis of concentration levels in Romania

I.3.23.4.1 Current concentration levels in Romania

Notes:









nearest integer.


of 253

Table 183: Current concentration levels in Romania (by number of mandates)


companies



All listed Romania 157 10% 28% 38% 290

‐81% EU Average 391 25% 65% 78% 1491

Main index Romania 10 40% 80% 100% 2400

‐14% EU Average 24 37% 90% 98% 2786



population.

Romania is the second least concentrated market for listed companies.

On the main index, Romania is highly concentrated but remains below the EU average.

As Romania entered the EU in 2007, comparison with 2004 concentration levels is not available (the

London Economics study did not cover the country).


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I.3.24 Overview of the audit market in Slovakia

I.3.24.1 Audit regulatory requirements in Slovakia

I.3.24.1.1 Scope of statutory audit in Slovakia

Table 184: Scope of statutory audit in Slovakia


Slovakia

Listed companies;

Private companies;

Governmental;

Not for profit; Joint‐ stock companies.


Total balance sheet over €1 M;


Employees over 30.




Slovakian statutory audit threshold are under the thresholds defined in the EU 4th Company Law Directive on “the annual accounts of certain types of companies”26.

I.3.24.1.2 Regulatory characteristics in Slovakia

Table 185: Key regulatory characteristics in Slovakia



Slovakia 5 years. Restrictions on the provision of non‐audit services to

audit clients;






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I.3.24.2 Size of the M69.2 market and historical evolution in Slovakia

Figure 21: Size and evolution of the M69.2 market in Slovakia



According to FEE Udva, the number of firms with audit and audit‐related activities only, is estimated at

237.

The M69.2 market slightly outperformed GDP growth in Slovakia, resulting in a small increase in the

share of auditing in the economy (from 0.80% in 2005 to 0.87% in 2009). Two different periods can

be outlined:

Between 2005 and 2007: very dynamic market growth (+27.4% p.a.), with both an increasing

number of firms and a higher average turnover per firm;

Between 2007 and 2009: slower market growth (+5.1% p.a. between 2007 and 2009), mainly

coming from a higher number of players, compensating the decrease in average turnover

per firm.

Audit Market in Slovakia: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

306

398

497548 549

591

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009 2010





Source: Slovstat.

0.80% 0.89% 0.91% 0.85% 0.87%

EU average

1,783 2,061 2,430 3,003 3,363

172 193 204 182 163296


14,691( 23 countries,

2008)

05-09 CAGR

+15.7%

EU average

0.90%

3,870

152


2008)

+7.2%(14 countries)

05-10 CAGR

+14.0%


of 253

I.3.24.3 M&A activity in Slovakia


1998‐2004 2005‐2011


Slovakia 0 0 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


No significant M&A operations were identified in Slovakia between 1998 and 2011.


of 253

I.3.24.4 Analysis of concentration levels in Slovakia

I.3.24.4.1 Current concentration levels in Slovakia27

Notes:









nearest integer.

Table 187: Current concentration levels in Slovakia (by number of mandates)


companies



Regulated

market

Slovakia 20 15% 45% 70% 850 ‐52%

EU Average 184 28% 74% 88% 1754

Main index Slovakia 5 40% 100% 100% 3600

+29% EU Average 24 37% 90% 98% 2786



population.



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Table 188: Current concentration levels in Slovakia (by turnover)


companies



Regulated

market

Slovakia 20 71% 97% 99% 5302 +71%

EU Average 184 44% 94% 99% 3094

Main index Slovakia 5 91% 100% 100% 8404

+145% EU Average 24 46% 96% 100% 3432



population.

Regulated market: Slovakia appears as not concentrated when concentration ratios are calculated by

number of mandates (with a HHI of 850, Slovakia is the third least concentrated market in the EU on

this category and method of calculation);

Main index: Slovakia comes out as highly concentrated with concentration ratios calculated by

number of mandates (in line with EU average);

When concentration ratios are calculated by turnover, Slovakia appears as the most concentrated

market in the EU.

Nevertheless, these assessments should be considered with caution as the number of firms in the

different categories in Slovakia is relatively low, which makes the comparison with other Member

States not fully relevant.


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I.3.24.4.2 Evolution of concentration levels in Slovakia

Table 189: Evolution of concentration levels in Slovakia (by number of mandates)


companies



Regulated

market

2009 20 15% 45% 70% 850 Not

relevant 2004 7 29% 100% 100% 2040

Main index 2009 5 40% 100% 100% 3600

0% 2004 5 40% 100% 100% 3600



population.

Table 190: Evolution of concentration levels in Slovakia (by turnover)


companies



Regulated

market

2009 20 71% 97% 99% 5302 Not

relevant 2004 7 95% 98% 100% 8998


The HII calculated by number of mandates on the main index has remained stable over 2004‐2009.

Due to a change in the scope of companies listed on the regulated market, a comparison between

concentration levels in 2004 and 2009 is less relevant on this category.


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exchange in Slovakia

Table 191: Concentration levels by category of industry in Slovakia (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials 1 1 100% 100% 100% 10000

Industrials 4 4 25% 100% 100% 2500

Consumer

Discretionary 1 1 100% 100% 100% 10000


Health Care 1 1 100% 100% 100% 10000

Financials 6 6 33% 83% 100% 2222

Information

Technology 1 1 100% 100% 100% 10000

Telecommunication


Utilities 1 1 100% 100% 100% 10000



population.

Caveat: there are 16 regulated companies in Slovakia but 4 are not classified by GICS code.




of 253

Table 192: Concentration levels by category of industry in Slovakia (by turnover)

Industry Number of

companies

Number of

mandates


CR1 CR4 CR8 HHI

Energy 1 1 100% 100% 100% 10000

Materials 1 1 100% 100% 100% 10000

Industrials 4 4 82% 100% 100% 6934



Health Care 1 1 100% 100% 100% 10000

Financials 6 6 47% 100% 100% 4129


Telecommunication Services ‐ ‐ ‐ ‐ ‐ ‐

Utilities 1 1 100% 100% 100% 10000



population.

Caveat: there are 16 regulated companies in Slovakia but 4 are not classified by GICS code.




of 253

I.3.25 Overview of the audit market in Slovenia

I.3.25.1 Audit regulatory requirements in Slovenia

I.3.25.1.1 Scope of statutory audit in Slovenia

Table 193: Scope of statutory audit in Slovenia


Slovenia

Listed companies;

Private companies.




Employees over 50.




Slovenia strictly applies the thresholds defined in the EU 4th Company Law Directive on “the annual

accounts of certain types of companies”28.

I.3.25.1.2 Regulatory characteristics in Slovenia

Table 194: Key regulatory characteristics in Slovenia



Slovenia





Slovenian audit market characteristics are in line with most European States.



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I.3.25.2 Size of the M69.2 market and historical evolution in Slovenia

Figure 22: Size and evolution of the M69.2 market in Slovenia



According to Anr.si, the number of firms with audit and audit‐related activities only, is estimated at 52.

The share of audit activities among the Slovenian economy is under European average (0.78% of

GDP in 2008 vs. a European average of 1.02%).

Audit Market in Slovenia: Total number of firms of the M69.2 market, share of turnover in GDP, turnover of the audit market and average turnover per firm

Source: Statistical Office of the Republic of Slovenia, Eurostat.




0.78%

1.02%

0.0%

0.5%

1.0%

1.5%

Slovenia EU average

(25 countries)

3,937

14,691

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

SloveniaEU average

(23 countries)

74

296

0

50

100

150

200

250

300

350

SloveniaEU average

(24 countries)

Total turnover of the audit market in Slovenia:€291 M


of 253

I.3.25.3 M&A activity in Slovenia


1998‐2004 2005‐2011


Slovenia 0 0 0 0 0 0 0 0

EU Average 8 2 2 4 14 2 5 8


No significant M&A operations were identified in Slovenia between 1998 and 2011.


of 253

I.3.25.4 Analysis of concentration levels in Slovenia

I.3.25.4.1 Current concentration levels in Slovenia29

Notes:









nearest integer.

Table 196: Current concentration levels in Slovenia (by number of mandates)


companies



Regulated

market

Slovenia 41 34% 66% 88% 1672 ‐5%

EU Average 184 28% 74% 88% 1754

Main index Slovenia 6 67% 100% 100% 5556

+99% EU Average 24 37% 90% 98% 2786



population.

Slovenia appears moderately concentrated on the regulated market, where it is in line with EU

average.

On the main index, Slovenia is the most concentrated market in the EU (with concentration ratios

calculated by number of mandates). This is linked to the fact that only KPMG and Ernst & Young

audit the six companies listed on the main index.

The small number of firms listed in Slovenia makes the comparison with other Member States less

relevant.



of 253

I.3.25.4.2 Evolution of concentration levels in Slovenia

Table 197: Evolution of concentration levels in Slovenia (by number of mandates)


companies



Regulated

market

2009 41 34% 66% 88% 1672 ‐16%

2004 15 40% 73% 100% 2000

Main index 2009 6 67% 100% 100% 5556

+178% 2004 15 40% 73% 100% 2000



population.

The changes in concentration levels have varied over 2004‐2009:

On regulated market, the HHI has dropped by ‐16%;

On the main index, the HHI has strongly increased by + 178%.

This is linked to that fact that:

On the main index, only two firms KPMG and Ernst & Young are active while there were

more than four audit firms operating in this segment in 2004;

On the regulated market, a few players entered the segment (88% CR8 in 2009, while there

were under 8 audit firms in 2004).


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exchange in Slovenia

Table 198: Concentration levels by category of industry in Slovenia (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 2 2 100% 100% 100% 10000

Materials 4 4 75% 100% 100% 6250

Industrials 6 6 33% 83% 100% 2222

Consumer

Discretionary 5 5 40% 100% 100% 2800


Health Care 2 2 50% 100% 100% 5000

Financials 5 5 60% 100% 100% 4400

Information


Telecommunication

Services 1 1 100% 100% 100% 10000




population.

Caveat: there are 41 regulated companies in Slovenia but 10 are not classified by GICS code.


of 253

I.3.26 Overview of the audit market in Spain

I.3.26.1 Spanish regulatory requirements

I.3.26.1.1 Scope of statutory audit in Spain

Table 199: Scope of statutory audit in Spain


Spain


Governmental;

Not‐for‐profit; Credit and Insurance companies;

Companies receiving grants from the Government;

Exchange offices; Sport companies;

Real estate investment funds;

Mutual guarantees companies;

Social work entities.








Spanish thresholds for statutory audits are significantly under the thresholds defined in the EU 4th


I.3.26.1.2 Regulatory characteristics in Spain

Table 200: Key regulatory characteristics in Spain

Maximum audit mandate

duration Mandatory audit partner rotation

Spain31 9 years 7 years




30 Maximum thresholds defined in the 2006 amendments to the EU 4th Company Law Directive: Annual net turnover under €8.8 M; Balance sheet under €4.4 M; Number of employees under 50 (for two consecutive years). 31 In 1989, Spain adopted mandatory audit firm rotation after a maximum of 9 years, which included a mandatory retention of 3 years. This system was dropped in 1995.


of 253

I.3.26.2 Size of the M69.2 market and historical evolution in Spain

Figure 23: Size and evolution of the M69.2 market in Spain



According to the Spanish Registry, the number of firms with audit and audit‐related activities only, is

estimated at 1354.

The M69.2 market in Spain was slightly more dynamic than the Spanish economy (+3.8% vs. +3.2%

p.a. for GDP growth) but is under the European average over the same period (+7.2% p.a.). This

growth can mainly be explained by the number of firms in the market that increased by +4.7% p.a.

between 2005 and 2009 while the average turnover remained stable.

Spain has a relatively high number of firms and consequently a low average turnover per firm, and is

below the European average. Market experts highlight the large amount of very small audit and

accounting firms in countries like Italy and Spain, which reflects the overall market fragmentation in

these countries.

The size of the M69.2 market compared to GDP is in line with the European average, audit firms

accounting for 1.03% of GDP in Spain.

Audit Market in Spain: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

9 084

10 465 10 794 11 201 10 983 10 965

0

2 000

4 000

6 000

8 000

10 000

12 000

2005 2006 2007 2008 2009 2010





Source: Instituto Nacional de Estadísticas.

1.00% 1.06% 1.02% 1.03% 1.04%

EU average

48,251 52,187 52,314 59,139 58,063

188 201 206 189 189296



2008)

05-09 CAGR

+4.9%

EU average

1.03%

n.a.

n.a.

1.02%(25 countries,

2008)

+7.2%(14 countries)

05-10 CAGR

+3.8%


of 253

I.3.26.3 M&A activity in Spain


1998‐2004 2005‐2011


Spain 4 0 2 2 3 0 2 1

EU Average 8 2 2 4 14 2 5 8


Seven transactions have been identified in Spain between 1998 and 2011.

None of them were effected by Big four firms;

Four operations were effected by Mid‐Tier firms;

Three operations were effected by other firms.

5 out of 7 of targets were audit and accounting services firms


Spain.


of 253

I.3.26.4 Analysis of concentration levels in Spain

I.3.26.4.1 Current concentration levels in Spain

Notes:









nearest integer.

Table 202: Current concentration levels in Spain (by number of mandates)


companies



All listed Spain 155 36% 80% 88% 2033

36% EU Average 391 25% 65% 78% 1491

Regulated

market

Spain 154 36% 80% 88% 2040 16%

EU Average 184 28% 74% 88% 1754

Main index Spain 35 46% 100% 100% 3110

12% EU Average 24 37% 90% 98% 2786



population.


of 253

Table 203: Current concentration levels in Spain (by turnover)


companies



All listed Spain 155 58% 99% 100% 4050

49% EU Average 391 38% 90% 98% 2709

Regulated

market

Spain 154 58% 99% 100% 4050 31%

EU Average 184 44% 94% 99% 3094

Main index Spain 35 58% 100% 100% 4105

20% EU Average 24 46% 96% 100% 3432



population.

The Spanish audit market is highly concentrated on all considered populations, and one of the most

concentrated markets when calculating the ratios by turnover (HHIs above 4000).

Spanish concentration levels remain far above EU averages.

I.3.26.4.2 Evolution of concentration levels in Spain

Table 204: Evolution of concentration levels in Spain (by number of mandates)


companies



All listed 2009 155 36% 80% 88% 2033

192% 2004 1805 16% 47% 63% 696

Regulated

market

2009 154 36% 80% 88% 2040 ‐29%

2004 115 44% 91% 97% 2854

Main

index

2009 35 46% 100% 100% 3110 ‐24%

2004 35 50% 97% 100% 4100



population.


of 253

Table 205: Evolution of concentration levels in Spain (by turnover)


companies



All listed 2009 155 58% 99% 100% 4050

N.A. 2004 0 0% 0% 0% 0

Regulated

market

2009 154 58% 99% 100% 4050 ‐36%

2004 115 78% 99% 100% 6334


The number of companies for the category “all listed” cannot be compared due to a change of

scope.

The HHI has strongly decreased compared to 2004 on all type of populations (‐28% on Spanish

regulated market, ‐24% on the Spanish main index) when calculated by number of mandates.

The HHI has strongly decreased compared to 2004 when calculated by turnover on regulated market

(‐37%).


large mandates over the Big 4 in the last five years.


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exchange in Spain

Table 206: Concentration levels by category of industry in Spain (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 6 9 33% 100% 100% 2840

Materials 18 22 27% 77% 95% 1860

Industrials 27 31 48% 97% 100% 3278

Consumer

Discretionary 17 21 43% 81% 100% 2426


Health Care 11 12 33% 92% 100% 2361

Financials 49 64 33% 67% 80% 1558

Information

Technology 4 4 50% 100% 100% 3750

Telecommunication

Services 2 2 100% 100% 100% 10000

Utilities 8 11 36% 91% 100% 2397



population.




of 253

Table 207: Concentration levels by category of industry in Spain (by turnover)

Industry Number of

companies

Number of

mandates


CR1 CR4 CR8 HHI

Energy 6 9 94% 100% 100% 8946

Materials 18 22 83% 99% 100% 6983

Industrials 27 31 62% 100% 100% 4440



Health Care 11 12 37% 94% 100% 2970

Financials 49 64 72% 99% 100% 5556



Utilities 8 11 45% 100% 100% 3088



population.




of 253

I.3.27 Overview of the audit market in Sweden

I.3.27.1 Audit regulatory requirements in Sweden

I.3.27.1.1 Scope of statutory audit in Sweden

Table 208: Scope of the statutory audit in Sweden


Sweden

Listed entities; Private companies.


Total balance sheet over SEK25 M (ca. €2.7 M);

Net turnover over SEK50 M (ca. €5.4 M);





Swedish thresholds for statutory audits are under the thresholds defined in the EU 4th Company Law Directive on “the annual accounts of certain types of companies”32.

I.3.27.1.2 Regulatory characteristics in Sweden

Table 209: Key regulatory characteristics in Sweden





Sweden


Restriction on the provision of non‐audit services to audit clients (limited companies)

Audit exemption thresholds for small companies have been implemented very recently (2010) and are comparatively low vs. other countries






of 253

I.3.27.2 Size of the M69.2 market and historical evolution in Sweden

Figure 24: Size and evolution of the M69.2 market in Sweden



According to the Supervisory Board of Public Accountants, the number of firms with audit and audit‐

related activities only, is estimated at 125.

The Swedish M69.2 market has grown faster than its GDP growth between 2005 and 2009, with an

annual growth of +2.6% compared to ‐0.6% for the economy which is slightly under the European

average. Audit services increase contributed 0.93% to GDP in 2009.

The growth in auditing is mainly due to the number of firms that increased of +2.5% p.a. between

2005 and 2009, while the average turnover in 2009 remained at the same level as in 2005.

Audit Market in Sweden: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

2 449 2 6042 849

2 9882 712

0

500

1 000

1 500

2 000

2 500

3 000

3 500

2005 2006 2007 2008 2009





Source: Statistika Centralbyrån .

0.82% 0.82% 0.84% 0.90% 0.93%

EU average

1.03%(24 countries,

2008)

15,918 16,612 16,782 17,200 17,587

154 157 170 174 154296


14,691 (23 countries,

2008)

05-09 CAGR

+2.6%

+8.2%(12 countries)

EU average


of 253

I.3.27.3 M&A activity in Sweden


1998‐2004 2005‐2011


Sweden 2 1 0 1 8 5 0 3

EU Average 8 2 2 4 14 2 5 8


Ten transactions have been identified in Sweden between 1998 and 2011 and eight since 2005.

Sweden has been more active in M&A activity since 2005:

5 transactions were effected by Big 4 firms, all of them by Price Waterhouse Coopers.

3 transactions were effected by other firms.

67% of the targets were auditing and accounting business services.


Sweden.


of 253

I.3.27.4 Analysis of concentration levels in Sweden

I.3.27.4.1 Current concentration levels in Sweden

Notes:









nearest integer.

Table 211: Current concentration levels in Sweden (by number of mandates)


companies



All listed Sweden 391 33% 85% 97% 2163

45% EU Average 391 25% 65% 78% 1491

Regulated

market

Sweden 260 36% 93% 100% 2463 40%

EU Average 184 28% 74% 88% 1754

Main index Sweden 29 40% 100% 100% 3089

11% EU Average 24 37% 90% 98% 2786



population.


of 253

Table 212: Current concentration levels in Sweden (by turnover)


companies



All listed Sweden 391 48% 99% 100% 3437

27% EU Average 391 38% 90% 98% 2709

Regulated

market

Sweden 260 48% 100% 100% 3457 12%

EU Average 184 44% 94% 99% 3094

Main index Sweden 29 53% 100% 100% 3894

13% EU Average 24 46% 96% 100% 3432



population.

Sweden appears as a highly concentrated market, with HHI higher than 3000 when calculating ratios

by turnover.

Sweden’s concentration level appears above EU average on all considered populations, whatever the

calculation method.

Sweden’s HHI is far above EU average (+45%) when calculated by number of mandates.

I.3.27.4.2 Evolution of concentration levels in Sweden

Table 213: Evolution of concentration levels in Sweden (by number of mandates)


companies



All listed 2009 391 33% 85% 97% 2163

N.A. 2004 0 0% 0% 0% 0

Regulated

market

2009 260 36% 93% 100% 2463 4%

2004 272 30% 93% 99% 2370

Main index 2009 29 40% 100% 100% 3089

11% 2004 30 34% 100% 100% 2792



population.


of 253

Table 214: Evolution of concentration levels in Sweden (by turnover)


companies



All listed 2009 391 48% 99% 100% 3437

N.A. 2004 0 0% 0% 0% 0

Regulated

market

2009 260 48% 100% 100% 3457 25%

2004 272 37% 99% 100% 2766


Concentration levels remained stable or slightly increased over 2004‐2009 on all populations when

comparing the number of mandates.

Concentration ratios strongly increased when calculating ratios by turnover. The Regulated market in

Sweden is highly concentrated.


of 253


exchange in Sweden

Table 215: Concentration levels by category of industry in Sweden (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 5 5 60% 100% 100% 4400

Materials 14 14 36% 93% 100% 2653

Industrials 67 69 42% 97% 100% 2850

Consumer

Discretionary 38 40 43% 93% 100% 2800


Health Care 30 30 30% 87% 100% 2156

Financials 41 44 27% 91% 100% 2159

Information

Technology 53 53 38% 91% 100% 2424

Telecommunication

Services 4 4 50% 100% 100% 3750

Utilities 1 1 100% 100% 100% 10000



population.




of 253

Table 216: Concentration levels by category of industry in Sweden (by turnover)

Industry Number of

companies

Number of

mandates


CR1 CR4 CR8 HHI

Energy 5 5 96% 100% 100% 9308

Materials 14 14 70% 100% 100% 5335

Industrials 67 69 35% 100% 100% 2967



Health Care 30 30 82% 100% 100% 6963

Financials 41 44 63% 98% 100% 4553



Utilities 1 1 100% 100% 100% 10000



population.




of 253

I.3.28 Overview of the audit market in the United Kingdom

I.3.28.1 Audit regulatory requirements in the UK

I.3.28.1.1 Scope of statutory audit in the UK

Table 217: Scope of the statutory audit in the UK


United Kingdom


Not‐for‐profit.


Total balance sheet over £3.26 M (ca. €3.6 M);

Net turnover over £6.5 M (ca. €7.2 M);





United Kingdom thresholds for statutory audits are slightly under the thresholds defined in the EU

4th Company Law Directive on “the annual accounts of certain types of companies”33.

I.3.28.1.2 Regulatory characteristics in the UK

Table 218: Key regulatory characteristics in the UK

Maximum audit mandate duration Mandatory audit partner rotation

United Kingdom 1 year 5 years34




33 Maximum thresholds defined in the 2006 amendments to the EU 4th Company Law Directive: Annual net turnover under €8.8 M; Balance sheet under €4.4 M; Number of employees under 50 (for two consecutive years). 34 Up to two years extension when approved by the Audit Committee.


of 253

I.3.28.2 Size of the M69.2 market and historical evolution in the UK

Figure 25: Size and evolution of the M69.2 market in the UK



According to auditregister.org.uk and Register of Statutory Auditors, the number of firms with audit

and audit‐related activities only in the UK is estimated at 6323.

The United Kingdom M69.2 market has outperformed its GDP growth, with an annual growth of

+1.3% compared to ‐1.6% p.a. for the economy between 2005 and 2010. As a consequence, the

audit increase contributed to 1.08% to GDP in 2010, which is slightly above European average (+1.2%

in 2008).

The number of audit firms increased significantly in the UK with a +8.6% growth p.a. between 2005

and 2010 and as a consequence the average turnover per firm decreased over the same period. The

strong increase in number of firms between 2007 and 2008 is due to a change of scope, and the

classification of data by the national statistics institute in the UK.

Generally, the national statistics institutes register the number of companies reporting VAT,

however, since 2008, the UK database has registered companies based on VAT‐ and/or PAYE (PAYE‐

based companies are usually companies with an annual turnover under £70 k (ca. €76.4 k), i.e.

exempt from VAT), whereas they were VAT‐based up to 2007.

Audit Market in the UK: Total turnover of the M69.2 market, share of turnover in GDP, number of firms and average turnover per firm

17 245

18 999

20 155

18 23117 907

18 351

15 500 16 000 16 500 17 000 17 500 18 000 18 500 19 000 19 500 20 000 20 500

2005 2006 2007 2008 2009 2010





Source: National Statistics.

0.94% 0.98% 0.98% 1.00% 1.14%

EU average

21,815 22,485 23,080 34,815 33,270

791 845 873 524 538296



2008)

05- 09 CAGR

+0.9%

EU average

1.08%

32,980

556

1.02%(25 countries,

2008)


05- 10 CAGR

+1.3%


of 253

I.3.28.3 M&A activity in the UK


1998‐2004 2005‐2011


UK 142 19 44 79 172 14 54 104

EU Average 8 2 2 4 14 2 5 8


The United Kingdom is the Member State with the highest number of M&A transactions. This is

partly due to the Big 4 (14 transactions since 2005) but mostly due to the historically intense M&A

activity of mid‐tier and smaller‐sized firms (category other).

Since 2005, small‐sized firms have experienced an intense activity in the UK with 104 transactions.

Since 2005, 79% of the targets acquired by Big 4, Mid‐Tier or smaller firms were in the auditing and

accounting services.


of 253

I.3.28.4 Analysis of concentration levels in the UK

I.3.28.4.1 Current concentration levels in the UK

Notes:









nearest integer.

Table 220: Current concentration levels in the UK (by number of mandates)


companies



All listed

United

Kingdom 2061 16% 55% 80% 969

‐35%

EU Average 391 25% 65% 78% 1491

Regulated

market

United

Kingdom 1023 22% 72% 86% 1394

‐20%

EU Average 184 28% 74% 88% 1754

Main index

United

Kingdom 99 37% 99% 100% 2666

‐4%

EU Average 24 37% 90% 98% 2786



population.


of 253

Table 221: Current concentration levels in the UK (by turnover)


companies



All listed

United

Kingdom 2061 43% 98% 100% 2884

6%

EU Average 391 38% 90% 98% 2709

Regulated

market

United

Kingdom 1023 43% 99% 100% 2926

‐5%

EU Average 184 44% 94% 99% 3094

Main index

United

Kingdom 99 47% 100% 100% 3237

‐6%

EU Average 24 46% 96% 100% 3432



population.

The UK appears as moderately concentrated when concentration ratios are calculated by number of

mandates and highly concentrated when concentration ratios are calculated by turnover.

The UK’s concentration levels are in line with the EU averages when calculated by number of

mandates and slightly above EU average when calculated by turnover.


of 253

I.3.28.4.2 Evolution of concentration levels in the UK

Table 222: Evolution of concentration levels in the UK (by number of mandates)


companies



All listed 2009 2061 16% 55% 80% 969

‐8% 2004 1850 18% 61% 81% 1057

Regulated

market

2009 1023 22% 72% 86% 1394 ‐47%

2004 316 37% 98% 100% 2654

Main

index

2009 99 37% 99% 100% 2666 ‐8%

2004 100 43% 99% 100% 2912



population.

Table 223: Evolution of concentration levels in the UK (by turnover)


companies



All listed 2009 2061 43% 98% 100% 2884

7% 2004 1850 38% 98% 99% 2699

Regulated

market

2009 1023 43% 99% 100% 2926 10%

2004 316 36% 100% 100% 2660



population.

Concentration levels have decreased in the UK over 2004‐2009 on all populations when calculated

by number of mandates. The number of companies in the Regulated market has seen a huge growth

from 316 to 1023. As a consequence, the market is less concentrated with a drop of 47% compared

to 2004.

When calculated by turnover, the UK market has become slightly more concentrated since 2004.

Concentration remains stable since 2004 when regarding the main index.


of 253


exchange in the UK

Table 224: Concentration levels by category of industry in the UK (by number of mandates)

Industry Number of

companies

Number of

mandates


mandates

CR1 CR4 CR8 HHI

Energy 33 33 36% 82% 97% 2213

Materials 55 56 27% 70% 84% 1422

Industrials 140 141 29% 79% 89% 1826

Consumer

Discretionary 155 160 23% 75% 88% 1550


Health Care 35 35 29% 80% 94% 1820

Financials 472 477 18% 66% 87% 1301

Information

Technology 71 71 23% 69% 85% 1331

Telecommunication

Services 11 11 36% 91% 100% 2562

Utilities 13 13 31% 92% 100% 2308



population.




of 253

Table 225: Concentration levels by category of industry in the UK (by turnover)

Industry Number of

companies

Number of

mandates


CR1 CR4 CR8 HHI

Energy 33 33 53% 100% 100% 4661

Materials 55 56 48% 100% 100% 3284

Industrials 140 141 40% 99% 100% 2997



Health Care 35 35 52% 100% 100% 4246

Financials 472 477 37% 100% 100% 2968


Telecommunication

Services 11 11 61% 100% 100% 4862

Utilities 13 13 53% 100% 100% 4333



population.



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of 253

Table 226: Number of M&A transactions, per member State, between 1998 and 2011

Phase 1 (1998‐2004) Phase 2 (2005‐2011)

Total Big Four Mid Tier Other Total Big Four Mid Tier Other

Austria 0 7 1 5 1

Belgium 6 2 3 1 6 1 2 3

Bulgaria 0 0

Cyprus 0 0

Czech Republic 0 0

Denmark 6 1 1 4 6 3 3 0

Estonia 0 2 0 1 1

Finland 24 7 3 14 62 7 20 35

France 6 2 1 3 41 11 8 22

Germany 5 1 0 4 11 3 7 1

Greece 1 1 0 0 0

Hungary 0 1 0 1 0

Ireland 9 0 5 4 6 0 4 2

Italy 2 0 1 1 3 0 3 0

Latvia 0 0

Lithuania 0 0

Luxembourg 0 1 1 0 0

Malta 0 0

Netherlands 10 3 0 7 48 2 13 33

Poland 1 1 0 0 6 0 1 5

Portugal 1 1 0 0 0

Romania 0 0

Slovakia 0 0

Slovenia 0 0

Spain 4 0 2 2 3 0 2 1

Sweden 2 1 0 1 9 5 0 4

UK 143 19 43 81 172 14 50 108

Total 220 39 59 122 384 48 120 216



of 253

Table 227: Number of M&A transactions, between 1998 and 2004, by type of target

1998‐2004 Auditing and accounting services

Financial advisory services

Management consultancy services

Other advisory services

Tax consultancy services

Total général

Big 4 16 2 6 5 1 30

Mid Tier 37 4 0 9 0 50

Other 99 3 1 13 4 120

Total général 152 9 7 27 5 200


Table 228: Number of M&A transactions, between 2005 and 2011, by type of target

2005 ‐ 2011 Auditing and accounting services





Total général

Big 4 21 0 7 17 3 48

Mid Tier 87 11 6 11 5 120

Other 193 2 7 15 2 219

Total général 301 13 20 43 10 387



of 253

Table 229: Breakdown of M&A transactions, between 1998 and 2004, by type of target, in percenrtage

% Auditing and accounting services





Total général

Big 4 8% 1% 3% 3% 1% 15%

Mid Tier 19% 2% 0% 5% 0% 25%

Other 50% 2% 1% 7% 2% 60%

Total général 76% 5% 4% 14% 3% 100%


Table 230: Breakdown of M&A transactions, between 2005 and 2011, by type of target, per percentage

2005 ‐ 2011 Auditing and accounting services





Total général

Big 4 5% 0% 2% 4% 1% 12%

Mid Tier 22% 3% 2% 3% 1% 31%

Other 50% 1% 2% 4% 1% 57%

Total général 78% 3% 5% 11% 3% 100%



of 253

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of 253

Table 231: Evolution of audit and non‐audit fees, per member State, between 2005 and 2009, in €M

2005 2006 2007 2008 2009

France

Share of total market covered 2,580 2,088 1,832 5,325 1,932

20% 16% 13% 38% 13%

Audit & accounting incomes 1,922 1,524 1,210 3,247 1,394

75% 73% 66% 61% 72%

Non audit & non accounting incomes 658 564 622 2,078 539 25% 27% 34% 39% 28%

Germany


20% 26% 26% 27% 26%


49% 49% 48% 49% 46%

Non audit & non accounting incomes 1,820 2,630 2,882 3,277 3,391 51% 51% 52% 51% 54%

Italy

Share of total market covered 353 114 896 976 1,283

3% 1% 8% n.a. n.a.

Audit & accounting incomes 287 71 551 529 664

81% 63% 61% 54% 52%

Non audit & non accounting incomes 66 42 346 447 620 19% 37% 39% 46% 48%

Netherlands


n.a. 40% 41% 35% 39%


57% 57% 42% 55% 50%


Spain

Share of total market covered 698 n.a. n.a. 1,311 1,852

8% n.a. n.a. 12% 17%

Audit & accounting incomes 368 n.a. n.a. 811 905

53% n.a. n.a. 62% 49%


of 253

2005 2006 2007 2008 2009

Non audit & non accounting incomes 329 n.a. n.a. 500 946

47% n.a. n.a. 38% 51%

Sweden

Share of total market covered n.a. n.a. n.a. 822 n.a.

n.a. n.a. n.a. 28% n.a.

Audit & accounting incomes n.a. n.a. n.a. 633 n.a.

n.a. n.a. n.a. 77% n.a.

Non audit & non accounting incomes n.a. n.a. n.a. 189 n.a. n.a. n.a. n.a. 23% n.a.

UK


40% 42% 42% 42% n.a.


39% 40% 37% 40% 36%


Poland

Share of total market covered n.a. n.a. 1,172 1,453 1,534

n.a. n.a. 43% 53% 56%

Audit & accounting incomes n.a. n.a. 518 687 768

n.a. n.a. 44% 47% 50%

Non audit & non accounting incomes n.a. n.a. 654 766 766

n.a. n.a. 56% 53% 50%

Ireland

Share of total market covered n.a. n.a. 223 n.a. 338

n.a. n.a. 11% n.a. 15%

Audit & accounting incomes n.a. n.a. 86 n.a. 149

n.a. n.a. 38% n.a. 44%

Non audit & non accounting incomes n.a. n.a. 137 n.a. 189

n.a. n.a. 62% n.a. 56%

Source: ESCP Europe analysis based on data from IAB.


of 253

Table 232: Breakdown of audit and non‐audit incomes, per Member State, in 2009, in €M

Audit &

accounting

incomes

Tax services

incomes

Management

consulting

incomes

Corporate finance

incomes

Corporate

recovery /

insolvency

incomes

Litigation support

incomes

Other sources of

incomes Total

France (2008) 3247 494 110 40 6 24 1,404 5,325

Germany 2,899 1,704 466 558 65 56 542 6,290

Ireland (2007) 149 81 30 28 24 5 21 338

Italy 664 170 340 42 3 13 52 1,283

Netherlands 1925 1070 228 67 4 4 533 3,831

Poland 768 346 112 54 0 10 244 1,534

Spain 905 408 297 57 2 3 178 1,852

Sweden (2008) 633 108 61 14 2 0 5 822

UK 3557 2547 2148 477 278 20 933 9,959



of 253

Table 233: Breakdown of audit and non‐audit incomes, per Member State, in 2009, per percentage

Audit &

accounting

incomes

Non audit & non

accounting

incomes

Tax services

incomes

Management

consulting

incomes

Corporate finance

incomes

Corporate

recovery /

insolvency

incomes

Litigation support

incomes

Other sources of

incomes

France (2008) 61% 39% 9% 2% 1% 0% 0% 26%

Germany 46% 54% 27% 7% 9% 1% 1% 9%

Ireland 44% 56% 24% 9% 8% 7% 1% 6%

Italy 52% 48% 13% 27% 3% 0% 1% 4%

Netherlands 50% 50% 28% 6% 2% 0% 0% 14%

Poland 50% 50% 23% 7% 4% 0% 1% 16%

Spain 49% 51% 22% 16% 3% 0% 0% 10%

Sweden (2008) 77% 23% 13% 7% 2% 0% 0% 1%

UK 36% 64% 26% 22% 5% 3% 0% 9%



of 253

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of 253

Table 234: Breakdown of audit and non‐audit fees paid by companies listed on the main index, by Member

State, in 2009

Country Number of companies listed on the main

index

Share of companies disclosing audit, audit‐

related and non‐audit fees

Audit and audit‐related fees share in total fees charged to companies listed on the main

exchange

Non‐audit fees share in total fees charged to companies listed on the main exchange

Austria 20 100% 82.9% 17.1%

Belgium 20 95% 90.0% 10.0%

Bulgaria 15 7% n.r. n.r.

Cyprus 20 25% n.r. n.r.

Czech Republic 15 73% 87.7% 12.3%

Denmark 20 100% 60.5% 39.5%

Estonia 15 20% n.r. n.r.

Finland 25 100% 72.4% 27.6%

France 40 98% 94.7% 5.3%

Germany 30 100% 85.4% 14.6%

Greece 20 50% n.r. n.r.

Hungary 12 25% n.r. n.r.

Ireland 20 85% 76.5% 23.5%

Italy 39 95% 86.1% 13.9%

Latvia 32 22% n.r. n.r.

Lithuania 27 26% n.r. n.r.

Luxembourg 12 58% 92.0% 8.0%

Malta 18 94% 80.4% 19.6%

Netherlands 25 92% 89.0% 11.0%

Poland 20 95% 82.4% 17.6%

Portugal 20 80% 66.7% 33.3%

Romania 10 40% n.r. n.r.

Slovakia 5 60% 74.4% 25.6%

Slovenia 6 100% 89.5% 10.5%

Spain (2008) 35 94% 71.4% 28.6%

Sweden 29 100% 76.6% 23.4%

UK (2008) 131 73% 72.0% 28.0%

UK (2008) 131 31% 72.0% 28.0%

Sources: ESCP Europe analysis based on AMF, Annual reports and Financial Director. Data was

considered as non relevant when less than half of the companies disclosed their fee.

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