Relative importance of auditing to the accounting profession: Is auditing a profit center?;

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The Relative Importance of Auditing to the Accounting Profession: Is Auditing a Profit Center?
Norman R. Walker Michael D. Doll
Price Waterhouse
This paper deals with certain aggregated financial, statistical, and other information relating to the US operations of the Big Eight firms—Arthur Andersen & Co., Arthur Young & Co., Coopers & Lybrand, Deloitte Haskins + Sells, Ernst & Whinney, Peat Marwick Main & Co., Price Water-house, and Touche Ross & Co.—primarily their accounting and auditing components. The Big Eight segment of the accounting profession was chosen because of its dominance in auditing publicly-held companies and because information concerning these firms was the most readily available.
Introduction
If you were to read the myriad of articles which have recently appeared in business publications and professional accounting and auditing journals, you might be led to believe that the outlook for the future and profitability of the auditing profession is rather dim. For example:
• The standard audit report is often viewed as a commodity. There are those who believe that there are few means to distinguish between auditing firms except on the basis of price.
• So-called competitive pricing for audit engagements is often punctu­ated
by underbidding, or "low-balling.'' The perception is that an accounting firm "buys" the audit of a company in an attempt to obtain lucrative tax and management consulting work.
• Merger/acquisition activity has reduced the number of major publicly-traded companies. The recurring audit of these giant companies had been considered by many to be the "bread and butter" of the Big Eight firms.
• Firms in financial services and other commercial activities, often paying higher salaries, increasingly seem to attract the more capable undergraduate and MBA students who might otherwise choose auditing as a career. Many of these students view the work done by staff accountants (at least in their first several years) as repetitive and uninteresting. These prospective auditors do not relish the thought of sitting for a difficult examination after graduation in order to obtain a license as a CPA. At the same time, they perceive the work done in the arenas of finance and investment banking as both challenging and rewarding (mentally and financially).
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