External Audit Services Market Trends
Category Intelligence on External Audit Services covers the following
- Information relating to market, supply, cost, and pricing analysis
- Hard to find data on cost and TCO models, supplier details, and performance benchmarks
- Macroeconomic and regional trends impacting cost, supply, and other market dynamics
- Category-specific negotiation and sourcing advice
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.
