How Do Audit Firms Conduct Industry Research?

Audit firms conduct industry research in two distinct ways. At engagement level, auditing standards such as ISA 315 require teams to understand a client’s industry, regulation and market forces in order to assess risk. At firm level, practice leaders commission market sizing, buyer surveys and competitor benchmarking to decide which sectors and services to grow.

Most articles on this topic cover only the first meaning. Managing partners live with both, and the two are more connected than they look. The firm that researches a sector well at practice level walks into engagement planning, and into pitches, already knowing the terrain. What follows covers both layers, the sources and methods each relies on, and a practical process for building sector research that compounds instead of being reinvented engagement by engagement.

Key Takeaways

• Engagement-level industry research is a requirement, not a choice. Risk assessment standards, ISA 315 internationally and AS 2110 in the US, oblige auditors to understand the entity’s industry, regulatory and market environment.
• Firm-level research drives growth decisions in a market projected to expand from US$250.5 billion in 2025 to roughly US$330 billion by 2030, with growth concentrated in newer assurance services (The Business Research Company, 2025) [2].
• The research agenda is widening. 73% of large global companies now obtain assurance over some sustainability disclosures (IFAC, 2025) [3], and 72% use or pilot AI in financial reporting (KPMG, 2024) [4], both of which demand new sector knowledge.
• Frequency matters. Firms that research their target markets at least quarterly outperform occasional researchers on growth and profitability (Hinge Marketing, 2024) [5].
• The best-run firms connect the two layers, turning engagement-level sector knowledge into reusable practice assets and using firm-level studies to sharpen engagement risk assessment.

Layer One: Industry Research Inside the Audit

Every audit methodology starts from the same premise: you cannot assess the risk of material misstatement in a business you do not understand. ISA 315 (Revised 2019) [1] requires the auditor to obtain an understanding of the entity and its environment, explicitly including industry factors such as the competitive landscape, supplier and customer relationships, technology change and the regulatory framework. The PCAOB’s AS 2110 imposes an equivalent obligation for US issuer audits.

In practice, engagement teams build that understanding from a familiar toolkit:

• Regulatory and standards material: sector-specific reporting requirements, prudential rules, licensing regimes.
• Industry data and benchmarks: margin norms, inventory cycles, loss ratios, occupancy rates, whatever the sector’s vital signs are, used to set expectations for analytical procedures.
• Company and peer filings: annual reports and investor material from the client and its competitors, to spot where the client’s numbers or accounting choices diverge from the pack.
• Trade press, broker research and association reports: early signals of demand shifts, input cost pressure or distress patterns.
• Inquiry: management, audit committee, internal audit and, where useful, the firm’s own sector specialists.

Analytical procedures give this research its teeth. An auditor who knows that sector gross margins cluster in a band has an evidence-based expectation, and a client sitting far outside it has some explaining to do. Industry knowledge converts analytics from arithmetic into skepticism.

The demands on this layer are rising. Sustainability assurance requires understanding emissions profiles and value chains sector by sector, and with 73% of large global companies already obtaining assurance over some sustainability disclosures (IFAC, 2025) [3], that is no longer a niche skill. Meanwhile 72% of large companies are piloting or using AI in financial reporting (KPMG, 2024) [4], which means understanding an industry increasingly includes understanding how its finance functions automate.

Layer Two: Industry Research for Firm Strategy

The second layer answers a different question. Not whether this client’s revenue is misstated, but which sectors and services the firm should bet on. With the global auditing services market projected to grow from US$250.5 billion in 2025 to around US$330.2 billion by 2030 (The Business Research Company, 2025) [2], and growth skewed toward newer assurance lines, sector selection has real money attached.

Firm-level industry research typically includes:

• Market sizing and segmentation: how much assurance and advisory spend exists in a sector, split by service, company size and geography.
• Buyer research: surveys and depth interviews with CFOs, audit committee chairs, general counsel and heads of sustainability to understand purchase criteria, unmet needs and switching triggers. Proprietary B2B panels matter here, because these audiences are hard to reach through generic panels.
• Competitor benchmarking: which rivals serve the sector, at what price points, with what capability claims and win rates.
• Regulatory horizon scanning: upcoming mandates, sustainability assurance being the recent example, that create demand or reshape it.
• Talent mapping: whether the specialists a sector strategy requires can actually be hired, a live question given falling accounting graduate numbers in the US.

The frequency evidence applies here with some force. Firms that research their target markets at least quarterly grow more and are more profitable than firms that research occasionally or not at all (Hinge Marketing, 2024) [5]. An annual planning binder does not meet that bar.

The Two Layers Compared

The overlap is the underexploited asset. Sector teams that pool engagement-level knowledge, anonymized and respecting confidentiality, build a house view of an industry that improves the next risk assessment and the next pitch. Firms that never connect the layers pay twice for the same understanding.

A Practical Process for Building Sector Research

For firms formalizing this, the sequence below is the one we most often help clients implement. It works for a national mid-tier practice and scales down to a single-office firm picking two focus sectors.

1. Choose sectors deliberately. Score candidate industries on market size, growth, regulatory tailwinds, competitive intensity and fit with existing clients and skills. Three well-chosen sectors beat eight aspirational ones.
2. Build the secondary base. Assemble the regulatory map, key data series, major players and fee landscape from public and licensed sources. This is fast and cheap, and it frames the questions primary research must answer.
3. Commission primary research where stakes are high. Buyer surveys and depth interviews resolve what secondary data cannot: what buyers actually value, what they pay, why they switch. At Phronesis Partners we run these through proprietary B2B and specialist panels reaching senior finance, legal and sustainability decision makers across financial services, healthcare, technology and professional services.
4. Benchmark the competition. Establish who wins in the sector and why, through win-loss interviews and structured tracking of rivals’ hires, launches and deals.
5. Turn findings into assets. Sector risk briefings for engagement teams, point-of-view content for BD, pricing guidance for partners. Research that never changes a document or a decision was a hobby.
6. Refresh on a rhythm. Quarterly tracking of the fast-moving indicators, annual deep refresh. Assign an owner, because unowned research programs quietly stop.

A candid note on step three. Firms sometimes try to substitute partner conversations for structured buyer research, on the theory that partners talk to clients constantly. They do, but clients tell their auditor what they tell their auditor. Independent, anonymized interviews reliably surface franker answers about fees, service irritations and competitor comparisons, which is precisely the material a sector strategy needs.

Where This Is Heading

Two developments will reshape both layers over the next few years. AI is compressing the mechanical parts of research, summarizing filings, scanning trade press and flagging anomalies at speeds no junior can match, which shifts the value toward asking sharp questions and interpreting answers. And the widening assurance agenda, sustainability today and AI assurance visibly next, keeps expanding what understanding an industry includes. The firms handling this well treat sector knowledge as infrastructure: funded, owned, refreshed and shared, rather than as something each engagement or pitch team rebuilds from scratch.

Frequently Asked Questions

Why are audit firms required to research their clients’ industries?

Auditing standards require it as the foundation of risk assessment. ISA 315 (Revised 2019) [1] and the PCAOB’s AS 2110 oblige auditors to understand the entity’s industry, regulatory and market environment, because industry conditions such as demand shifts, margin pressure and regulation shape where material misstatement risk sits and what analytical expectations are reasonable.

What sources do audit firms use for industry research?

Engagement teams typically combine regulatory materials, industry benchmarks and data series, client and peer filings, trade and broker research, and inquiry of management and specialists. At firm level, practices add market sizing studies, surveys and interviews with buyers through B2B panels, competitor benchmarking and talent mapping.

How is engagement-level research different from firm-level market research?

Engagement-level research supports the risk assessment for a single audit and is required by standards. Firm-level research supports strategy: which sectors to target, what to charge, which services to build. The methods overlap, but the questions, owners and cadence differ, and well-run firms deliberately connect the two.

How often should an audit firm refresh its sector research?

Engagement-level understanding is refreshed at least annually as part of planning. For firm-level research, the evidence favours a quarterly rhythm, since firms that research their target markets at least quarterly grow more and are more profitable than occasional researchers (Hinge Marketing, 2024) [5].

Phronesis Partners is a global market research and insights firm. We help audit, accounting and consulting firms build sector research programs, from market sizing and buyer studies to competitor benchmarking, using full-service qualitative and quantitative methods and proprietary B2B panels.

References

1. IAASB, ISA 315 (Revised 2019): Identifying and Assessing the Risks of Material Misstatement, 2019, https://www.iaasb.org/publications/isa-315-revised-2019-identifying-and-assessing-risks-material-misstatement
2. The Business Research Company, Auditing Services Global Market Report, 2025, https://www.thebusinessresearchcompany.com/report/auditing-services-global-market-report
3. IFAC, AICPA and CIMA, More Global Companies Seek Assurance on Sustainability Reporting, 2025, https://www.ifac.org/news-events/2025-05/more-global-companies-seek-assurance-sustainability-reporting-study-ifac-aicpa-cima-shows
4. KPMG, AI Transforming Financial Reporting Globally, 2024, https://kpmg.com/xx/en/media/press-releases/2024/05/ai-transforming-financial-reporting-globally-with-near-universal-adoption-expected-in-the-next-three-years.html
5. Hinge Research Institute, High Growth Study 2025, 2025, https://hingemarketing.com/library/article/high-growth-study-2025-executive-summary