Smaller accounting firms are scrutinizing potential clients like never before.
Accounting firms of all sizes and their clients are approaching each other far differently than they did in the pre-Enron business environment. Firms are looking for “safer” companies, and higher-risk companies are searching long and hard to find the right firms, the American City Business Journal Wire Service reported.
"The client-acceptance standards clearly have been raised, certainly by Grant Thornton, and, I believe, by all the firms," said Richard D. Gebert, Philadelphia managing partner and technology practice co-leader for accounting firm Grant Thornton LLP. "It's probably directly connected to all the scandals that have been out there. I do see it as a trend."
Gebert estimated his firm gained 1,000 new clients formerly with Big Four firms during the past year. "But I think some of the weaker clients, some of the more risky clients, are struggling with trying to get the appropriate firms."
Gebert believes riskier companies are looking toward regional or local players that handle public companies.
However, some firms are finding that the costs of registering with the Public Company Accounting Oversight Board to do public work are not worth the hassle the companies can bring them. Michael F. Dubin, managing partner of McGladrey & Pullen LLP of Blue Bell, Pa., said accounting firms “don't want to be involved with ... companies that are likely to get significant amounts of negative or adverse press, or those that are more likely to have errors or frauds because of the lack of good governance.”
Dubin isn't aware of any accounting firms that specialize in risky clients. At the same time, "it would be ludicrous and completely naive to suggest that every firm had the same acceptance criteria. There are clearly firms out there that will accept clients that other firms will not accept."
Although no company is without risk, fewer accounting firms than ever before will be willing to accept substandard clients, Gebert said. "Firms just cannot afford to have a bad client.”