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News < Back Sarbanes Oxley : Auditing : Back Office Five Steps to Increased Choice and Competition for Public Companies and Auditors
?Sarbanes-Oxley ? not to mention the numerous accounting failures leading up to it ? has dramatically changed the audit environment,? CEO Ed Nusbaum told members of The National Press Club in Washington. ?But there is also another, less-reported factor in play, and that?s the ongoing consolidation and resulting concentration in the accounting profession.? Citing a Government Accountability Office (GAO) study, which found that 97 percent of public companies with sales between $250 million and $5 billion are audited by the Big Four, Mr. Nusbaum said that the high level of concentration in the accounting profession is the result of decades of consolidation, the fall of Andersen, and unchecked liability exposure that prevents smaller firms from competing. Misperceptions among capital markets influencers who believe only the four largest firms are capable of auditing public companies further limits company choice, he added. Managing Partner of Strategic Relationships Cono Fusco further explained that there is an array of firms capable of serving the varying and diverse needs of public companies. ?Effectively matching company size and requirements with firm size and capabilities allows companies to find the best combination of quality, service, value and reach, and protects markets by spreading risk among a greater number of firms,? he said. To accomplish this objective and to protect markets, Grant Thornton LLP proposes the following Five Steps to Increased Choice and Competition for Public Companies and Auditors: 1. The SEC and our nation?s stock exchanges should encourage, as a best practice, that public companies conduct a periodic review of their audit firm options. As a matter of good governance and good business, companies should be encouraged to periodically evaluate their audit firm to be sure they are getting the best combination of quality, service, value and reach from their firm. 2. Public company boards and audit committees, in this changed audit environment, should ?right-size? their audit firm. Matching company size, complexity and requirements with firm size and capabilities, companies may very well reaffirm their decision to continue working with their current audit firm. But, they also may find that another firm combines the same or better technical expertise with service, attention and market or industry expertise that makes for a better fit. 3. Companies and other capital markets influencers ? including investors, analysts, commercial and investment bankers, and attorneys ? should open the door to more audit firm choices. There are more than four audit firms capable of serving public companies, but misperceptions in the capital markets pre-empt company choices. This cannot be allowed to continue. Influencers must reach out to the broader array of audit firm choices and conduct proper due diligence before discouraging a company from selecting a non-Big Four firm better suited to meet its needs. Auditors must facilitate this process by reaching out to and increasing their visibility with gatekeeper groups. 4. The PCAOB and the audit profession should implement coordinated best practices for the audit process. All firms should periodically assess whether or not they have the requisite attributes to serve specific clients. Sharing best practices ? including audit procedures, evaluation of fraud risk and possibly even audit software ? among the leading audit firms would significantly enhance audit effectiveness and increase public confidence in quality audits. Because the best audits are completed when companies and audit firms are appropriately matched, auditors should also evaluate their resources in relation to client needs to determine if they are still appropriately matched in terms of size and service capabilities. 5. A debate and discussion on the topic of caps on auditor liability exposure should begin. The possibility of being held responsible not only for the magnitude of an error but also for the current market psychology and valuation levers for an individual company creates what could become unlimited liability. This makes it difficult for smaller firms to compete. To eliminate this barrier to entry and promote competition in the accounting profession, the insurance industry, elected officials, the accounting profession, businesses and others in the capital markets must work together to implement liability caps. Firms should be accountable for their work, but not for the vagaries of market psychology. Grant Thornton LLP is the U.S. member firm of Grant Thornton International, a global accounting, tax and business advisory organization. Through member firms in 110 countries, including 49 offices in the United States, the partners and employees of Grant Thornton member firms provide personalized attention and the highest quality service to public and private clients around the globe. For more information visit www.GrantThornton.com 
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