Smaller Accounting Firms Reap Benefits from SOX
Many companies, both large and small, have complained that the tough accounting and corporate governance standards of the Sarbanes-Oxley Act are far too costly.
For mid-level and regional accounting firms, however, SOX has created an opportunity to provide tax services to corporations that need to divvy up work among various firms. SOX restricts the number of non-audit services the Big Four firms can provide for their clients, and smaller companies are rushing to fill the gap.
"Certainly Sarbanes-Oxley sent a shock wave through corporate America, but that means more work now that companies are separating out certain tax services besides the internal and external audits," Ben Bender, managing partner with Grant Thornton LLP in Houston, told the Houston Business Journal. "We're getting the opportunity to meet with auditing committees and management teams (at bigger companies) that we weren't getting before."
The Business Journal reported that nationally, Grant Thornton expects its second consecutive year of 30 percent revenue growth, to more than $800 million.
Still, the Big Four maintains a tight hold on the biggest companies. A Government Accounting Office report says that the Big Four firms audit virtually all firms with more than $5 billion revenue.
Grant Thornton's CEO, Edward E. Nusbaum, argued for more competition in an article in April's Financial Executive magazine.
“While the very largest - Fortune 500 size - public companies may be confined to the Big Four, other companies can be served as well, and in some cases better, I believe, by other global, national or regional firms with skill sets tailored to their market segment or industry,” he wrote.
Meanwhile, some small companies are looking to avoid the costs of SOX altogether by going private.
For example, Utah's Pioneer Oil & Gas, with four employees, said it will to abandon its status as a fully reporting company with the Securities and Exchange Commission (SEC) because to do so would mean an increase in costs of $250,000 a year.
"The costs associated with being an SEC-reporting company no longer are justified by the benefits," Don Colton, Pioneer's president, told the Salt Lake Tribune. "To remain a fully reporting company, we would have to quintuple the number of our accounting employees, and much of our time would be devoted to financial compliance issues instead of exploring for oil and gas."