The impact of competition on audit firms in Malta : an analysis

Abstract

Purpose: The objective of this study was (i) to ascertain and evaluate the effectiveness of the regulatory framework relating to competition among audit firms in Malta; (ii) to analyse the key competitive pressures audit firms face in Malta and assess their impact on specific identified factors, and (iii) to recommend whether, and in what ways, the level and nature of competition in the Maltese audit market should be adjusted to serve the public interest and strengthen the audit profession. Design: A predominantly qualitative mixed-methods research approach was adopted to achieve the research objectives. Thirteen semi-structured interviews were carried out. Findings: The findings indicate that the Maltese audit market is highly competitive. Competitive pressures have heightened fee undercutting, talent retention issues and time pressures. Some adverse effects on audit quality and independence were also noted. Although the regulatory framework is generally considered adequate, inconsistent enforcement is a concern. Furthermore, mandatory audit firm rotation was found to raise competition levels modestly. Ultimately, while competition can encourage innovation and efficiency, it may also lead to unethical practices if strong regulatory oversight and internal cultures are not in place. Conclusions: The study concludes that competition in the audit market brings benefits and challenges. Thus, it is essential that competition is not extreme and that a balanced competitive environment, which encourages innovation and efficiency without compromising audit quality, is in place. Implications: This study aims to better understand the benefits and challenges of competition, together with the regulatory framework. The recommendations made strive to aid firms, regulators and educators in creating a fair and healthy competitive environment.