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CFOs Dish On the Big Four

Why does one audit firm stand out?
Alix Stuart, CFO.com | US
May 26, 2011

The Big Four may have a lock on much of the auditing market for public companies, but that doesn't mean they have a lock on customer satisfaction. About 40% of finance executives at large publicly traded companies that use a Big Four firm do not recommend the firm to others, and 18% are actively considering changing firms, according to a recent BTI Consulting survey of more than 230 finance executives.

That being said, one Big Four firm emerged as the clear favorite, with 67% of its clients saying they typically recommend it to others: PricewaterhouseCoopers. The lowest-rated firm was KPMG, with 54% of clients saying they would recommend it. Ernst & Young and Deloitte were recommended by 61% and 58% of clients, respectively.

The report, which was independently funded and executed by BTI Consulting Group, a research firm specializing in the professional services industry, explored the audit firms' performance in 17 different areas, giving each one a chance to shine in some dimension.

"The differences are more stark than one might have expected, considering most people refer to the Big Four as if they're one entity," says Michael Rynowecer, president of BTI. "They're different, and clients see those differences."

So why do CFOs love PwC? "PwC takes the top spot because compared to the other three, they have a deep commitment to deliver a streamlined audit," making it "a set of tasks that needs to get done" rather than an open-ended exploration of a company's back office, says Rynowecer.

Deloitte, on the other hand, brings a level of emotional engagement and empathy to its audits that give its brand the highest favorability rating of all four firms, the report indicates. The firm "does a really good job at understanding the client and delivering value," so that clients feel like they've gotten more than a basic audit, says Rynowecer. Low turnover also contributes to the positive aura around the firm.

Audit fee chart

Meanwhile, E&Y was perceived as providing a good expert network and handling problems well when they arose. And KPMG was seen as the "no-frills"-quality audit firm, delivering the basics well but with less depth or breadth in service offerings than the other three firms. 

On the negative side, all but KPMG were tagged as struggling with bureaucracy and leaning too heavily on the national office. PwC was perceived as the most arrogant of the Big 4, and as being "too good" for smaller companies.  

The report also looked at audit fees, which CFOs aren't expecting to change much this year. The average company currently spends 0.35% of revenue, or $3.3 million, on audit fees, although that figure varies quite a bit by company size and industry (see chart). As CFO reported last year in "Auditing Your Auditor," audit fees have dropped in recent years, but the size of the decrease can vary substantially by auditing firm. In light of that reality, 18% of survey respondents say they are aggressively managing audit fees, a stance which includes issuing RFPs for the audit work, refusing to pay for add-on work that is not preapproved in writing, and demanding across-the-board fee reductions.

Still, the Big Four are likely to stay the Big Four, at least for now. While only 5% of respondents said there is no viable alternative to them, few other audit firms received a widespread approval rating. Grant Thornton was considered the top alternative by 32% of respondents, with BDO a distant second.

Indeed, despite the reported dissatisfaction, fewer companies are actually switching away from their Big Four auditors, according to data from Audit Analytics. Last year, 275 companies left their Big Four auditor, most (80%) switching to another Big Four firm. That figure was down slightly from 2009 and sharply from 2007, when nearly 400 firms switched. So far this year, only 48 companies have switched auditors, with 27 heading for another Big Four firm and 21 heading for a second-tier firm. "We are definitely noticing that the rate of auditor changes is decreasing each year," says Daniel O'Connell, a research analyst with Audit Analytics.




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