Graduation Year

2015

Date of Submission

4-2015

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics-Accounting

Rights Information

© 2015 Sian H. Chai

Abstract

Currently, the Big Four accounting firms – PwC, EY, Deloitte, and KPMG – dominate the audit oligopoly. Many have raised the question: “Are the Big Four too big or too few to fail?” This paper looks at the history leading up to the establishment of the Big Four, cases since the fall of Arthur Andersen, and empirical evidence on the probability of a Big Four failure to conclude that it is not likely for a Big Four to fail under current circumstances. However, if the Big Four are truly too few to fail, it raises problems of moral hazard in the industry. This paper explores the inclination of the Big Four towards moral hazard by examining the reasons auditors might be less inclined to act in the best interest of financial statement users. In exploring solutions, this paper finds that the best way to ensure auditor’s act in the interest of public investors is to align their financial incentives with independent third parties rather than management or board members.

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