Alix Stuart, CFO.com | US
January 24, 2008

The facts about changing from the Big 4

A search of Audit Analytics database of auditor changes reveals that since January 1, 2006 154 Big 4 clients with revenues between $100 Million and $500 Million have made a change in auditor, 91 of these companies (59%) left the Big 4 completely.

Many of the concerns listed in the article appear to be propoganda generated by the larger audit firms afraid of the "new" competition.

There are at least 4 firms in the top 20 other than the Big 4 with extensive International operations that are not just loosely tied alliance networks, but are "branded" International organizations set up exactly like the Big 4.

In addition a change in auditor does not spark an automatic SEC review and to imply such is extremely misleading.

Finally, besides the clients leaving the Big 4 there are many good firms with partners who were previously partners at Big 4 firms but have moved away from the larger firms because it allows them to better service the dynamic mid market client.

Posted by Kevin McCarthy | Jan 25, 2008 10:05 AM ET

Serious Auditor Ethics and Independence Issues

An individual in the article states: "There are other internationally recognized firms, but clearly the Big Four [are] the gold standard,?

The gold standard of what? Ethics which is the entire backbone of any profession? I think not. Look at corporate failures, litigations, breach of overtime laws, breach of employment contracts, etc. Need I go on?

The article states: "Three of the Big Four firms are currently represented on the Financial Accounting Standards Board's advisory council, for example, while only one second-tier firm, Crowe Chizek, has a seat."

That is not good news. That means there is a lack of independence between standard setting and auditing to those standards. Thus, loose interpretation is more likely to occur, which heightens the risk of audit failures.

The article states: "It?s not that other audit firms can?t do the work very well, it?s that Deloitte doesn?t take on companies unless they have a very strong regard for the company?s management team," says IPG?s Mammen.

That is precisely the problem with many audit relationships: too cozy with management such that independence is again threatened. I have seen a former PwC audit partner sit on the Audit Committee of a public company he used to audit, while PwC is still the auditor, and the former company CEO is on the Board. An independence issue for this company? That is a good example of a former partner and manager scratching each other's back and doing so with the auditor there in the old boys club.

Posted by David Newman | Jan 24, 2008 1:42 PM ET