The Big Four: Market Power in Auditing and What It Means for Trust

Why it matters who audits the auditors

When you present financial statements to a customer, a bank, or an investor, the reader relies on someone independent having checked the figures. For large companies, that someone almost always comes from one of four firms: PwC, KPMG, EY, or Deloitte, together known as the Big Four. Until 2002 there were five. Then Arthur Andersen went under in the wake of the Enron scandal.

Such a strong position raises a question that goes beyond the audit industry: Does the concentration on four providers weaken trust in audits, or strengthen it? To answer it, we first clarify how concentration is measured, then look at the figures for Germany, weigh two readings, and transfer the result to small and mid-sized businesses.

How do you measure market power? The Herfindahl-Hirschman Index

The common measure of concentration is the Herfindahl-Hirschman Index (HHI). You take the market shares of all providers in percent, square them, and add up the results. A single provider with 100 percent gives 10,000 points; many small providers give a value close to zero. Squaring ensures that large shares weigh more heavily than many small ones.

For context: since their 2023 merger guidelines, the US competition authorities classify markets above 1,800 points as highly concentrated. Under the European Commission's 2004 guidelines, mergers in markets below 1,000 points are generally unproblematic. Applying the measure to the audit of the 40 DAX companies in 2021 gives a clear picture. According to Audit Analytics, PwC audited 37 percent, KPMG 33 percent, EY 25 percent, and Deloitte 5 percent of the companies. That yields an HHI of about 3,100.

An everyday analogy: if a small town has only two doctors, hardly anyone switches after poor treatment, because the other one is just as busy. The dissatisfaction remains; the signal to the doctors becomes weak.

What the figures show for Germany

Germany's audit oversight body APAS regularly analyzes the market for audits of public-interest entities, mainly listed companies, banks, and insurers. According to its market analysis for 2021 to 2025, the number of such entities fell from 1,014 to 922. In 2025, 53 audit firms were still active in this segment.

Concentration has thus fallen slightly but remains very high. Two further figures stand out. Audit fees rose by around 40 percent to 832 million euros despite fewer mandates. Fees for non-audit services, that is, advice from the auditor, grew by about a third to 289 million euros, and around 95 percent of this increase went to the Big Four.

The Wirecard case also brought movement. In April 2023, APAS barred EY for two years from taking on new audit mandates at public-interest entities, as Chronicle of an accounting scandal recounts. According to press reports, the firm has since lost numerous DAX mandates to the other three. The criminal proceedings in the case have not been concluded; the presumption of innocence applies to everyone involved.

Two readings: does concentration harm or help?

Elbardan, Kotb, and Ishaque (2023) reviewed 108 empirical studies from 39 journals published between 1967 and mid-2021. Their finding: concentration has risen over time and in almost all countries, up to a tight oligopoly, a market with few suppliers, and in rare cases even a duopoly. Whether this leads to excessive prices or poorer audit quality, however, the studies answer inconsistently.

DeFond and Zhang (2025) connect both sides. They consider it one reason reputational damage hardly prevents audit failures that large companies can only choose among four firms, all of which have had audit failures, and that audits are legally mandatory. At the same time, they warn against breaking up the Big Four, as was demanded in the UK Parliament after the insolvency of the construction group Carillion. Smaller auditors might resist client pressure less well, and more competition could increase the pressure to please clients.

I therefore do not consider the number of providers the most important lever, but independence within the relationship: rotation, limits on advisory services, and effective oversight. The article How independent are auditors? describes this. More providers help mainly when they give clients genuine alternatives without compromising on quality.

A market with four providers protects itself poorly through competition. It has to protect itself through rules and oversight.

What the end of Arthur Andersen shows about the risk

How quickly five providers can become four was shown in 2002 by the end of Arthur Andersen. The firm audited the energy group Enron, which filed for bankruptcy in December 2001. Andersen was convicted in 2002 of obstruction of justice because employees had destroyed documents. The US Supreme Court overturned the verdict in 2005, but by then the firm had long since lost its audit business. The article Enron 2001 discusses the case.

Since then, people have also spoken of a too-few-to-fail problem with the Big Four: if another firm failed, many large companies would have hardly any choice left, and some might find no permissible auditor at all because of the independence rules. This strengthens the auditors' negotiating position with regulators and politicians, even if nobody explicitly seeks it.

What this means for small and mid-sized businesses

For a mid-sized business, the market looks different. In my assessment, mid-sized companies are mostly audited by small and medium-sized firms, and many businesses work only with their tax adviser. There is plenty of choice. The lesson from the audit market still transfers, because it concerns every relationship in which you depend on few providers.

1. Know the alternatives

   Know which two or three firms or auditors you could approach if you had to switch. If you know no alternative, you negotiate weakly and oversee poorly.

2. Run through a switch

   Check what a switch would cost: documents, access rights, knowledge. The higher the hurdle, the more important your own complete records become.

3. Compare performance

   Every few years, ask for a comparison quote, even if you are satisfied. It sharpens your view of price and performance.

4. Limit dependence

   If one adviser audits, advises, and supplies software at the same time, a tie arises that is hard to undo. Distribute roles deliberately.

You know the same pattern from sales, just with the roles reversed. When a few customers carry a lot of revenue, risk rises, as Concentration risk describes. When a few platforms control access to customers, they set the rules, as Dependence on platforms shows.

Transferability and limits

Concentration in the audit market is no accident but a consequence of economies of scale. Groups with subsidiaries in dozens of countries need auditors with a global network. That is why the market for large mandates will remain concentrated for the foreseeable future. The APAS figures show, however, that rotation and stricter rules can bring movement: mid-sized firms have doubled their share.

The limits of these statements are clear. The review by Elbardan, Kotb, and Ishaque (2023) notes that most studies examine listed companies in the US, the UK, and Australia and measure concentration in very different ways. For Germany's small and mid-sized businesses there are hardly any data. Whether more competition improves quality there cannot be derived from the research.

Conclusion: trust needs alternatives or strong rules

To the guiding question: the concentration on four firms weakens one important source of trust, namely the possibility of leaving a poor auditor. It strengthens another, namely the ability of large auditors to withstand client pressure. The Herfindahl index shows a highly concentrated market, the APAS figures a slight decline. Because the market does not discipline itself, trust depends more on oversight, rotation, and limits on advisory work than on competition.

For your business, the conclusion is simpler: know your alternatives. Those who could switch rarely have to.

• Note an alternative for every important adviser.
• Roughly estimate the cost of switching and complete your own records.
• Obtain a comparison quote every three to five years.
• Check whether one provider holds several roles that ought to check each other.