Auditing

More Companies Pick Smaller Audit Firms

An increasing number of corporations are going below the Big Four. One reported reason? Higher costs at the bigger firms.
Stephen TaubSeptember 8, 2004

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.

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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.