Statistics from research firm Audit Analytics indicate that the Big Four firms are dropping clients at record rates, and the trend is increasing. Since the auditing nightmares at Enron were exposed three years ago, audit firm resignations among the Big Four have increased from 18% of all departures from auditing assignments in 2001 to 34% in 2004. Just in the first three quarters of this year, the Big Four firms have resigned from a total of 157 U.S. audits.
The firms are attributing the resignations to a variety of factors, with limited resources as a result of Sarbanes-Oxley legislation being the most prominent reason. The Sarbanes-Oxley Act of 2002 placed additional burdens on auditors and is leaving accounting firms in a position of having to be more selective in choosing the clients whose audits can be performed most efficiently.
In addition, firms are weeding out clients with risk factors that can affect the reliability of financial statement information. Earlier this fall, PricewaterhouseCoopers resigned from the audit of Pegasus Communications Corp., citing "material weaknesses in the application of accounting principle and policies that led to the restatement of the Company's financial statements," as the reason for the resignation.
A side effect of the Big Four's paring down of its clients is the boon to second tier national firms such as Grant Thornton, BDO Seidman, and McGladrey & Pullen. USA Todayreports that many of the companies being booted by the Big Four are turning to these smaller firms and finding a benefit in lower costs and better access to top accounting professionals.
In order to meet the added demands of Sarbanes-Oxley, the Big Four and the smaller accounting firms are scrambling to find and hire talent, which is good news for accountants seeking jobs. It's reported that both the types of jobs available for accountants and the starting salaries are improving. "More of [the accounting graduates] are getting jobs with the better firms than in the past few years," said Edward Ketz, an accounting professor at Penn State's Smeal College of Business. And Robert Half International anticipates starting salaries for auditors to increase from 5 percent to 13.4 percent in 2005.