In 2002, the Sarbanes-Oxley Act (SOX) was passed in response to a number of major corporate and accounting scandals involving prominent companies in the United States like Enron, Arthur Andersen, and WorldCom. These scandals resulted in a loss of public trust in accounting and reporting practices .
It is now the goal of the Sarbanes-Oxley law to restore public trust in the corporate world for shareholders and all other stakeholders like banks, employees, tax authorities, etc. In the slipstream of this vast legislation in all these jurisdictions, audit firms are facing certain restrictions. For example, providing legal services to Security and Exchange Commission (SEC)-registered companies and all their subsidiaries and affiliates wherever in the world is now prescribed if you are the auditor of one of those entities. Tax advisory services for SEC audit clients are allowed, provided you follow certain procedures .
These regulations and the increased awareness of corporate governance issues have affected the profession of auditors. It has in many cases forced the auditing firm Ernst & Young to redefine its relationship with clients and reestablish its expectations and its deliverables. In most countries you see an increase of demand for audit and tax services. But the market shows some shifting. There is not only a competition amongst the Big Four (Ernst & Young, KPMG, PricewaterhouseCoopers, Deloitte Touche Tohmatsu), but also with a few other companies.
The goal of this paper is to define the market of Ernst & Young through describing its relationship to the competitors in terms of restrictions like the SOX and to measure its market structure.
Table of Contents
- 1. Introduction
- 2. The history of Ernst & Young
- 3. The relevant market
- 3.1. Services and clients of Ernst & Young
- 3.2. Competition among the Big Four
- 3.3. Other competitors
- 4. Measuring the market structure of Ernst & Young
- 4.1. With the concentration ratio
- 4.2. With the Herfindahl-Hirschman Index
- 4.3. With financial results
- 5. Conclusion
Objectives and Key Themes
This paper aims to define the market of Ernst & Young by describing its competitive landscape, considering restrictions like the Sarbanes-Oxley Act (SOX), and measuring its market structure. The analysis considers the firm's history, services, client base, and competitive advantages within the context of the broader auditing industry.
- The impact of the Sarbanes-Oxley Act on Ernst & Young and the auditing industry.
- The competitive landscape of the Big Four accounting firms.
- The market structure of Ernst & Young, analyzed through various metrics.
- The services offered by Ernst & Young and their target industries.
- The role of public trust and reputation in the auditing market.
Chapter Summaries
1. Introduction: This chapter introduces the Sarbanes-Oxley Act (SOX) of 2002, passed in response to major corporate accounting scandals. It highlights the act's goal of restoring public trust and the subsequent restrictions placed on audit firms, particularly concerning the provision of certain services to SEC-registered companies. The chapter establishes the paper's objective: to define Ernst & Young's market and measure its market structure within this regulatory context, considering the competition among the Big Four and other firms.
2. The history of Ernst & Young: This chapter traces the history of Ernst & Young, detailing the founding and development of Arthur Young & Co. and Ernst & Ernst, including key mergers and partnerships that shaped the firm into a global player. It highlights significant milestones, such as the formation of Ernst & Whinney and the subsequent merger with Arthur Young & Co. to create Ernst & Young. The chapter also mentions the firm's expansion into new service areas and its strategic decisions, such as the sale of its consultancy business and the attempted merger with KPMG, providing context for the firm's current position in the market.
3. The relevant market: This chapter delves into the market in which Ernst & Young operates. It begins by outlining the firm's core services, including assurance & advisory, tax, and legal services, and identifies the industries it serves. The chapter then focuses on the competitive landscape, specifically analyzing the competition among the Big Four accounting firms (Ernst & Young, KPMG, PwC, and Deloitte), highlighting their comparable services, global reach, and the critical role of public trust and reputation as a competitive advantage.
Keywords
Ernst & Young, Big Four, auditing, Sarbanes-Oxley Act (SOX), market structure, competition, public trust, accounting scandals, tax services, advisory services, market concentration, Herfindahl-Hirschman Index, regulatory restrictions.
Ernst & Young Market Analysis: Frequently Asked Questions
What is the purpose of this document?
This document provides a comprehensive overview of a market analysis focusing on Ernst & Young (EY). It includes a table of contents, objectives, key themes, chapter summaries, and keywords, offering a structured and professional analysis of EY's market position within the auditing industry.
What topics are covered in the analysis of Ernst & Young?
The analysis covers EY's history, its services and client base, the competitive landscape (particularly within the "Big Four" accounting firms), the impact of the Sarbanes-Oxley Act (SOX), and a measurement of EY's market structure using various metrics such as concentration ratios and the Herfindahl-Hirschman Index. The role of public trust and reputation is also explored.
What is the scope of the market analysis regarding Ernst & Young's competitive landscape?
The analysis examines the competitive landscape of the Big Four accounting firms (EY, KPMG, PwC, and Deloitte), comparing their services, global reach, and the importance of public trust and reputation in their competitive advantages. It also considers other competitors in the market.
How does the Sarbanes-Oxley Act (SOX) impact the analysis of Ernst & Young?
The Sarbanes-Oxley Act of 2002 is a central theme. The analysis explores SOX's impact on EY and the auditing industry as a whole, highlighting the act's role in restoring public trust and the resulting restrictions placed on audit firms, particularly regarding services provided to SEC-registered companies.
What methods are used to measure Ernst & Young's market structure?
The analysis utilizes several methods to measure EY's market structure. These include the concentration ratio, the Herfindahl-Hirschman Index, and an examination of the firm's financial performance and results.
What are the key services offered by Ernst & Young?
Ernst & Young provides a range of services, including assurance & advisory, tax, and legal services. The analysis details the industries these services target.
What is the significance of public trust and reputation in the analysis?
Public trust and reputation are identified as crucial competitive advantages in the auditing market. The analysis explores their role in shaping the competitive landscape and the success of firms like Ernst & Young.
What is included in the chapter summaries?
The document includes concise summaries for each chapter. These summaries cover the introduction (setting the stage with SOX), the history of Ernst & Young, a detailed look at the relevant market and its competitive dynamics, and finally, a conclusion.
What are the key words associated with this analysis of Ernst & Young?
Key words include: Ernst & Young, Big Four, auditing, Sarbanes-Oxley Act (SOX), market structure, competition, public trust, accounting scandals, tax services, advisory services, market concentration, Herfindahl-Hirschman Index, and regulatory restrictions.
- Quote paper
- M.A. Timo Duits (Author), 2005, Ernst & Young - The firm's market, Munich, GRIN Verlag, https://www.grin.com/document/61409
