More Companies Pick Smaller Audit Firms

When it comes to choosing auditors, the size of the firm doesn’t seem to matter as much as it did in the past.

More and more companies are switching from the Big Four accounting firms to smaller, boutique firms.

Last year, of the 510 clients of the Big Four that switched auditors, about 280, or 55 percent, chose a firm not among that group, according to the Dallas Morning News, which cited data from AuditAnalytics.com. So far this year, 60 percent of the 279 clients that have switched auditors chose smaller firms.

As recently as 2000, just 39 percent of the companies that switched auditors selected smaller firms, according to the paper. "It used to be that if you were a public company, hiring a Big Four firm was a prerequisite, sort of a status symbol,'' Julie Lindy, editor of Inside Public Accounting, told the paper. "But that aura of elitism has been smashed."

Smaller public companies are now more willing to look beyond the Big Four for audit services because of price and service, she said.

Among the reasons for the trend toward favoring smaller auditors are that the Big Four have aggressively hiked their fees; they’re less interested in taking on financially risky companies as audit clients; and they’re more selective in their clientele because they already have more work than they can do.

Clearly, the Sarbanes-Oxley Act has added to the amount of time an auditor must spend on a client. Further, that’s likely to get worse later this year when Section 404 goes into effect. Under that Sarbox provision, companies will have to document their internal controls, and auditors must sign off on these reports.

Maribess Miller, a PwC managing partner in its Dallas office, estimates that the cost of an audit has increased 40 percent to 50 percent for companies with well-documented internal systems and considerably more than that for those with more complex control systems, according to the report.