External Audit Services
Market, Supplier, Risk and
Competitive Intelligence

Industry Outlook & Drivers

In 2019, the global external audit services industry was valued approx. $96 billion, and it is expected to grow at approx. 4–5 percentto reach
$100 billion in 2020.

Market Drivers and Constraints

Drivers
• Statutory audit is a mandatory requirement worldwide
• Emerging regulatory issues and standards are driving demand for high quality audit

Constraints
• Supplier focus on non-audit services
• Commoditized nature of audit services
• Talent retention

Supplier Power:

• Factors responsible for high supplier power: High auditor switching costs* and absence of substitutes in the industry. Big Four command greater bargaining power owing their greater market share
• *Note: Auditor switching costs are usually 20–50 percent of the annual audit fee.
• Factors limiting supplier power: Mature buyer organizations, presence of tier II firms and commoditized nature of services.

Barriers to New Entrants:

• Barriers to entry: Highly regulated industry. Key entry barriers: capital investment*, intense industry competition, existing buyer–supplier relationships, and experience/reputation of existing suppliers
• *Note: Capital investment on labor and technology
• Enablers for new entrants: Mandatory auditor rotation regulation and upcoming economic reforms in the developing economies

Intensity of Rivalry:

• High Industry Rivalry: Intensity of rivalry is high, due to concentrated nature of the industry, commoditized nature of services and two third market share of Big Four firms
• Forces acting against intense competition: high auditor switching costs; product differentiation via technology and client service

Threat of Substitutes:

• Mandatory legal requirement: Audit is a legal requirement for all public companies, government institutions, and privately owned companies by all jurisdictions (and regulators) around the world. Globally, there is no substitute available for external audit

Buying Power:

• Factors responsible for sufficient buyer power: Mature buyers having considerable audit spend, well-defined quality/service parameters and internal control procedures. Presence of tier II firms also increases buyer power
• Factors limiting buyer power: High auditor switching costs and Big Four audit firms service quality.