Question

In times of economic recession, would you expect the demand for audits to increase or decrease? Would you expect clients to shift from large (Big-4) auditors to national auditors or from national auditors to Big-4 auditors? Why or why not?

Answer 1

Economic recession means tremendous slowdown of business.Demands are at low levels , pressure on profits is huge.Business is not growing but struggling to sustain.Under such circumstances any opportuinity to save a penny will not be sparred by business.As far as mandated audits are concerned those will have to be done because recession doesnot gives exemption from Compliance but yes the cost of this can always be controlled.Big 4 firms no doubt have image and worldwide presence but as they say all premium things come at a cost.Fees charged by Big 4 for same work will be very high as by any non Big 4 firm.Thus there is every possibility that business would like to save money here by appointing less expensive firms.Also special audit assignments that are over and above mandated audits will be kept at minimum almost to nil.Getting such audits done would be considered a luxury in times of recession.This is a major way for Finance function to contribute in the targeted saving objectives of an Organization being a service function.

Firms behaviour is no different from Individuals.When there is adundance of funds with Individuals they indulge in luxury but when there are pressure on resource then they cut down on the fat.