Second, even though PWC did better in the audit quality stakes last year than some of its supposed competitors that does not mean that they still have anything to shout about: the fact that audit quality remains a concern when profit is so high still suggests that there is a lack of investment in the core market from which this and other firms earn their right to make supernormal returns.
Is audit profit high? I thought that was generally workaday margins and the moolah comes from “advice”?
The information is rarely, if ever, disclosed so I don’t know what the current margins are like but there is ample reason to think that you are right. There have to be regular competitions for audit appointments at least every ten years but not for the role of tax adviser – so competition reduces audit margins but not those for advice.
Some years ago it was very clear that most of the profit of the big 5 came from advice and Accenture was heavily subsidising the remainder of Arthur Andersen to the extent that it launched an unsuccessful lawsuit over it.