Big Four Seen Shedding Small Clients

Sarbox rules stretch audit firms' resources, E&Y chief executive claims.
Stephen TaubSeptember 21, 2004

Small companies are finding that hiring the services of the four largest accounting firms is becoming increasingly hard.

In the past seven weeks alone, Deloitte & Touche LLP, KPMG LLP, and Ernst & Young LLP have dropped at least eight small US audit clients, according to Bloomberg.

This trend is the flip side of another recent development in which more and more small firms voluntarily switch from the Big Four to small accounting firms in order to save money.

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Bloomberg reported that the Big Four—which also includes PricewaterhouseCoopers–say they are dropping small firms because they are overworked. Their major burden reportedly is the need to help their largest clients gear up for Nov. 15, the day most companies with market capitalizations over $75 million must comply with Section 404 of the Sarbanes-Oxley Act.

Top SEC officials are reportedly not buying this excuse. “I’ve expressed my view to the CEOs of the big firms that I think it is their responsibility not to run away from the marketplace,” SEC Chief Accountant Donald Nicolaisen told the wire service. The requirements in the 2002 law “should not be a convenient tool for them to manage their business. They do have a responsibility [to] the public trust.”

So far, however, the trend is not yet a “major epidemic,” Nicolaisen acknowledged.

For their part, big companies are still getting the undivided attention of the big four. In 2003, the firms audited all but one of the 100 largest companies in terms of total revenues, according to the report, which cited Ernst & Young’s chief executive, James Turley.

“The Sarbanes-Oxley Act’s requirements and pressures put a great strain on our ability to retain sufficient personnel,” Turley reportedly told the Senate Banking Committee Sept. 9. The law has “strained resources across the profession.”

The wire service reported that the small firms that were recently dropped by the Big Four have market capitalizations ranging from $12 million to $383 million.

The wire service reported that E&Y spokesman Ken Kerrigan said his firm doesn’t comment on clients. KPMG spokesman Alec Houston declined comment, and Deloitte spokeswoman Deborah Harrington said client matters are confidential.

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