Auditing

Auditors Rotating at a Dizzying Pace

The 2,514 changes over the past two years represents more than one-fourth of all U.S. publicly traded companies.
Stephen TaubFebruary 18, 2005

More than 1,600 companies changed their outside accounting firm in 2004, up a whopping 78 percent from 2003, reported the The Wall Street Journal, citing date from proxy research firm Glass Lewis & Co. The 2,514 changes over the past two years represents more than one-fourth of all U.S. publicly traded companies.

Smaller businesses were more likely to changes auditors. According to the study, 85 percent of the companies that did so rang up $100 million or less in revenues last year.

The most common reasons that companies switched auditors? Audit firms discontinuing public-client work because of extra regulatory demands; corporate mergers; and lower fees at the new firm, according to the report. Only 19 companies last year — compared with 27 a year earlier — switched auditors because of disagreements over accounting matters.

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The increased changes are “inconsistent with the arguments put forth in the past by the accounting firms, that changing auditors reduced audit quality,” Glass Lewis analyst Jason Williams reportedly asserted.

The biggest beneficiaries are the second-tier audit firms, which enjoyed a net gain of 117 clients last year, the Big Four — Deloitte & Touche, Ernst & Young, KPMG, and PricewaterhouseCoopers — netted a loss of 400 clients. BDO Seidman picked up the most new clients, 109; on the downside, 200 clients bid adieu last year to Ernst & Young.

Further, 61 companies changed auditors at least twice last year; most had less than $25 million in revenue. The report chalked this up to “opinion shopping.”