The effect of audit structure on the audit market

One way in which audit firms have begun to differentiate themselves is in the degree of structure employed in the audit approach. In this paper we argue that audit structure affects the relative competitiveness of the auditor in different client-market segments. No single audit structure represents an optimal choice for all clients. Rather, the attractiveness of each category of audit structure is contingent upon the degree of stability in the client's environment. Trends in intra-Big Eight market shares over the period 1976 to 1986 show that the auditor preferences of consumers of audit services are consistent with the environment in which the clients operate. The client's preference for a structured auditor increases with increased stability in the client's operating environment. Clients in unstable environments seem to have a preference for unstructured auditors. We attribute these changes to cost advantages that structured auditors have in stable environments, and that unstructured auditors have in unstable environments.