Improve Auditor-change Disclosure: CFOs

Two-thirds of respondents to a recent survey believe that the Securities and Exchange Commission should revise the 8-K disclosure rules for audit-f...
Stephen TaubApril 19, 2007

Companies should be required to give reasons when they dismiss an auditor, or when an auditor resigns or chooses not to stand for re-election, according to a recent survey from audit firm Grant Thornton.

Of the 135 chief financial officers and controllers who responded to the survey, 67 percent said that the Securities and Exchange Commission should revise the 8-K disclosure rules for audit-firm changes. Grant Thornton itself has also called on the SEC to amend its “outdated policies” regarding these disclosures.

“The lack of required transparency perpetuates old thinking that an auditor change signals a negative event, thus concealing many other beneficial reasons for changing audit firms,” Cono Fusco, a Grant Thornton managing partner, in a press release.

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Fusco explained that the current 8-K regulations require companies to give a reason for changing audit firms only when there is a disagreement between the company and the firm or when one of four “reportable events” occur. Some companies voluntarily report other reasons, he added, but there is no standard for such reporting.

“The SEC and the capital markets need to recognize the reality that more companies are changing audit firms over the past five years — seeking a better combination of quality, service, value, and reach,” Fusco asserted. “There are many legitimate business reasons motivating audit firm changes, and these reasons must be communicated to investors.”

Grant Thornton’s survey also found that 29 percent of respondents plan to retire or to leave their company within the next three years, and that 60 percent expect their company’s prospects to improve in 2007.

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