A report this week by The Washington Post reveals that many accounting firms are reducing the number of audits performed for public companies, and, in some cases, firms are giving up providing public company audit services altogether. The exodus from providing these services is a direct result of the recent auditor independence rules and the creation of the new Public Company Accounting Oversight Board.
The PCAOB rules state that any public accounting firm that wishes to perform audits of public companies must be registered with the Board by October 22, 2003. However, there is a 45-day review period in place, which effectively means that any firm must file its registration by the first week of September - less than 10 days from now. Of the current 850+ public accounting firms that performed audits of publicly held companies last year, only 88 have registered with the PCAOB so far as of August 27. (A list of firms that have applied for registration is now available on the PCAOB Web site. This link is to the list dated August 27, 2003.)
Citrin Cooperman & Co. of New York, the 49th largest U.S. accounting firm, Grassi & Co. of New York, the 74th largest firm, and many other firms have announced they will cease audit work for public companies, or at least significantly cut back on such work.
The General Accounting Office issued a report earlier this month citing concerns about the lack of competition among accounting firms for the public company audits. The report referred to the audit services market as a "tight oligopoly" and indicated that the Big Four accounting firms now audit 97 percent of public companies with annual revenues exceeding $250 million. This percent is expected to increase in future years.
In addition to blaming the changes in audit rules and oversight for a decrease in the willingness of small firms to provide audit services to publicly owned companies, the GAO report referred to the difficulty small accounting firms face in auditing large, publicly held companies, noting that the small accounting firms "generally lack the staff, technical expertise, and global reach" necessary to audit such companies.
Besides the concern for the lack of competitive options in selecting an audit firm, the GAO noted that, as more of the public company audit work is isolated among the Big Four firms, smaller publicly-held companies will find it more difficult to find an auditor willing to take their work.