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Audit Firm Tenure for Companies with Revenue Between $10M and $150M

This is the second part of a two-part post exploring market share of audit firms for companies with revenues $10 million to $150 million. Get caught up on part one here. 

To gain insight on the length of auditor engagements, the number of years an audit firm has been engaged at one company within this population was examined.

There is a direct relationship between tenure length and the percent of companies in this population. For all revenue groups, 58.95% of registrants have an auditor engagement tenure between 1 and 10 years. 10.83% of companies have engaged an audit firm for longer than 21 years and only 2.88% of companies have engaged an audit firm for longer than 26 years.

On average, companies in this population engage an audit firm for 10 years, with a median of 8 years. Excluding the Big Four firms, this average tenure decreases to 8 years, with a median of 6 years. While nearly 60% of companies fall in this average range, there are exceptions with auditor tenures in this revenue population.

Six companies have engaged an audit firm for longer than 45 years. Of those six companies, two have revenues less than $50 million.

As of 2018, there are six non-Big Four audit firms with tenures longer than 30 years. As a notable contrast to the Big Four top tenure spots, there is only one company out of the six that has revenue greater than $100 million.

To explore average tenure length and its relationship to market share, we compared average tenure of non-Big Four audit firms to the overall market share percentage (including the Big Four) that was calculated in Part 1 of this post. For a more comprehensive average, only non-Big Four firms with more than ten company engagements were included in the analysis.

There is not a strong indication that a bigger overall market share means longer audit tenure.

An analysis of the 25 non-Big Four audit firms that are engaged by ten or more companies with revenues $10 million to $150 million revealed an average tenure of less than 15 years.

Of the top audit firm average tenures, only three firms of the twelve have an overall market share greater than 1.00%: Tait Weller & Baker, Crowe and Grant Thornton.  Each of those firms are engaged by more than 20 companies and have average tenure length greater than 8 years.

For this population, a smaller market share is not directly related to shorter tenure. Cherry Bekaert is engaged by ten companies with a market share of 0.49%, but has an average tenure length of 8.10 years. That average tenure length is only slightly shorter than the average tenure for Grant Thornton, which has over six times the market share of Cherry Bekaert.

Comparing average audit firm tenure based on company filer status reveals a similar pattern when the Big Four are included, as well as excluded, from the averages.

Based on the 1,393 companies in the population of registrants with an available filer status, Large Accelerated Filers and Accelerated Filers are more likely to have longer audit firm tenures, while Smaller Reporting Companies are more likely to have the shortest average firm tenure.

Of note, there are only two non-Big Four firms that have each been engaged by one company with a Did Not Disclose filer status for 12 years, resulting in a 12 year average for Non-Big Four firms with DND filers. Aside from this, the average length of audit firm tenure, regardless of the Big Four, follows relatively the same trend for all filers.

A particularly interesting point is that 46 Smaller Reporting Companies are audited by Big Four firms; when these are removed from the equation, the average firm tenure decreases by a marginal 0.24 years, indicating a stable average tenure length across all audit firms for Smaller Reporting Companies.

Overall, average audit firm tenures for companies with revenues between $10 million and $150 million is ten years. This average tenure slightly varies across filer types, but audit firm tenure averages are not significantly impacted by general market share.

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