Client Consulting Opportunities and the Reemergence of Big 4 Consulting Practices : Implications for the Audit Market

Consulting service lines have again become a focus for the Big 4 accounting firms. Since SOX prohibits the provision of many types of non-audit services to audit clients, this means firms and many of their clients must likely choose between an audit and a consulting relationship. We use a machine learning method to develop a measure of client consulting needs (i.e., “consulting opportunities”). After validating our measure, we use it to investigate the audit market ramifications of this shift in focus. We find that our measure relates positively to auditor switches and negatively to Big 4 auditor selection. We also find that auditor turnover rate increases and Big 4 market share decreases faster in markets with more consulting opportunities. Together, our results suggest the regulatory decision to limit the consulting services provided to audit clients may have inadvertently reduced Big 4 audit market share