Auditor Consolidation: Views From The Fortune 1000
Earlier this summer, The General Accounting Office issued a report on the effects of consolidation in the auditing profession, resulting in the Big Four firms which audit the majority of public companies. The GAO has issued a supplemental report, providing views of CEOs and CFOs on the consolidation of the industry.
Among the findings identified in the supplemental report:
- Most of the public companies responding to the survey said they were satisfied with their current auditor, half had used their current auditor for 10 years or more, and almost all used their auditor of record for other nonaudit services.
- More than three-quarters of the respondents said that they were satisfied with their relationship with their current auditor of record.
- The survey also found an association between audit tenure and satisfaction. The longer respondents had been with their current auditors, the more satisfied they were. Company-auditor relationships averaged 19 years, ranging from less than 1 year to 94 years.
- Although 61 of the 159 respondents had switched auditors since 1987, 37 of the 61 were former clients of Arthur Andersen that had switched since 2001. Aside from the dissolution of Andersen, other reasons cited for changing auditors included concerns about auditor reputation, concern about the fees charged for audit and attest services, mergers and other ownership or management changes, and the desire to obtain a “fresh perspective.”
- When looking for a new auditor, most respondents said quality of services, the auditor’s reputation, industry specialization or expertise, and the engagement team’s chemistry or perceived ability to work with the company were of “great” or “very great” importance.
- Almost all the respondents used their auditor of record for a variety of services besides audit and attest, such as tax-related services and assistance with company debt and equity offerings.
- Respondents had differing views about whether the past consolidation of public accounting firms had some influence on audit fees, but most believed that it had little or no influence on audit quality or auditor independence.
- Although most (93 percent) respondents indicated that
audit fees had increased over the past decade, they were split evenly between those who thought that the consolidation among the largest public accounting firms had an “upward influence” on audit fees and those who thought that it had “little or no influence” (47 percent versus 46 percent).
- More than twice as many respondents believed that audit quality increased over the past decade than decreased (44 percent compared to 18 percent) and a majority (63 percent) believed that accounting firm consolidation had little or no influence on changes in audit quality.
- Rather than consolidation, some respondents cited other reasons for changes in audit quality, such as new regulations resulting from the Sarbanes-Oxley Act and a change in the audit partner in charge of their audit.
- Similarly, while many respondents (59 percent) agreed that independence had increased over the past decade, 72 percent of respondents believed that the past consolidation had little or no influence on auditor independence.
- While a majority of respondents believed that past consolidation had little or no impact on competition, many were concerned that the limited number of choices they have for audit services might create problems, given that 88 percent of the respondents said that they would not consider using a non-Big 4 firm for audit and attest services. The reasons they cited for choosing a Big 4 over a non-Big 4 firm included industry and technical expertise, reputation, and geographic presence.
- While over half of the 158 respondents said that the options their company currently had were adequate, some companies expressed concerns about having too few alternatives if they were to change auditors. Respondents cited multiple reasons to explain their concerns about limited choices among the Big 4, including auditor independence rules and their companies’ need for certain industry expertise.
- Moreover, a large majority (86 percent) of respondents said that they would prefer a market with more than four big firms. Many of these respondents also commented that they did not want to see further consolidation within the Big 4.
- Almost two-thirds of all respondents said that they would not suggest any actions, such as government intervention, to increase competition in the provision of audit and attest services for large national and multinational companies.