In recent analyses, Audit Analytics explored audit firm market share for SEC registrants, based on company-reported filer status. This snapshot provides a look at the audit firm market share based on market cap.
The varying filer statuses – Large Accelerated, Accelerated, Non-Accelerated and Smaller Reporting Company – have different reporting requirements under SEC guidelines. For example, registrants identifying as a Non-Accelerated filer or Smaller Reporting Company have scaled disclosure requirements. These smaller companies are not required to provide an auditor attestation of management’s assessment of internal control over financial reporting (ICFR) and are granted a longer timeframe for filing reports.
Filer status thresholds are determined based on revenues and public float. An important component of filer status determination is when, in a company’s fiscal cycle, the threshold assessment is made. To meet the definition of a Large Accelerated filer, registrants use conditions as of the end of their fiscal year. Conversely, registrants determine whether they qualify as a Smaller Reporting Company as of the last business day of their second fiscal quarter.
This method of filer status determination can result in a registrant identifying as multiple filer statuses in the span of one year. While uncommon, some companies can even qualify as both a Large Accelerated Filer and a Smaller Reporting Company. In 2020, 22 SEC registrants identified as both a Large Accelerated Filer and Smaller Reporting Company, compared to just two in 2019.
Does filer status matter? Yes. Besides different reporting requirements for different filer statuses, the SEC has expressed interest in registrant-disclosed filer status, as evidenced by a comment letter conversation with Owens & Minor in December 2019.
SEC registrant filer statuses provide one option for looking at audit firm market share. Another perspective on market share can be gained by looking at another dynamic financial metric: market cap. In this analysis, Audit Analytics further disaggregates the Who Audits Public Companies – 2021 Edition market share to look at which firms audit SEC registrants based on market caps below $75 million and above $75 million, as of the most recent fiscal year.
The audit firm market share for companies with a market cap less than $75 million is significantly different than the market share for larger companies.
Of the 2,119 SEC registrants with a market cap less than $75 million, the top ten audit firms by public company count collectively hold 38.6% of the market. In comparison, of the 3,890 SEC registrants with a market cap greater than $75 million, the top ten firms audit 85.1% of the population.
In the smaller market cap audit market, there is significantly more competition for fewer companies. In total, 236 firms compete to audit 2,119 total registrants. Collectively, the Big Four hold just 10.9% of the market. The top audit firms for this population includes Marcum, BF Borgers, and Withum.
The top audit firms for SEC registrants with a market cap less than $75 million received a boost to their market share partially from the high number of blank check and special purpose acquisition companies (SPACs) in 2020. There are special considerations and nuances for auditing and preparing financial statements for blank checks and SPACs, as these companies lack normal operations and established business plans. Due to these complexities, it is not surprising that some audit firms have specialized teams to focus on that section of the market, while others prefer to focus business elsewhere.
As would be expected, the Big Four hold two-thirds of the audit market for SEC registrants with a market cap greater than $75 million. The remaining third is shared among 150 other firms; none of which individually hold more than 5% of the market.
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