I’ve always subscribed to the belief that you lose your edge in the absence of competition. In my humble opinion, the more heated the competition, the better.Coming from the New York area, I witnessed such now-defunct retailers as Herman’s World of Sporting Goods and Pergament Home Centers inexplicably remain in business for years — powered solely by a disastrous tandem of high prices and poor service. Normally, that one-two recipe for disaster would result in soaped-up windows. They managed to survive only because they were relatively competition-free in their respective channels. However, once national powerhouses such as Sports Authority, Home Depot and, later, Lowe’s arrived on the scene, they disappeared faster than Tony Soprano at an FBI convention.
The same principle of competition obviously applies to the auditing profession. Would, say, Deloitte, the country’s largest accounting firm, be as motivated to secure new audit clients or retain its current book of business if it didn’t have Ernst & Young, KPMG or RSM McGladrey ready to step in if it faltered?
More choices and more competition should, on paper at least, segue into higher quality and quite likely lower fees.
Apparently many chief financial officers and senior controllers feel much the same way. Recently, Grant Thornton polled a number of them and, to no one’s surprise, nearly 70 percent of them felt that more competition in the accounting profession would increase service quality and decrease audit fees.
In addition, more than half of those polled felt that there are currently too few accounting firms to ensure competition. With over 40,000 firms in the country and roughly 1,800 of them registered to perform audits of public companies, I’m not so sure I’m on board with that philosophy. No matter what sized company you are, I’m sure there’s an auditor fit somewhere.
Interestingly, 59 percent of the surveyed group felt that the market doesn’t react negatively when a company decides to switch independent accountants.
The subject of audit firm choice, or lack thereof, has kicked around for years. However, the issue really leap-frogged to center stage with the collapse of Arthur Andersen. It wasn’t until something happened that was unfathomable that the profession finally sat up and took notice. That set in motion a lot of scrambling on Capitol Hill to examine precautionary measures to ensure that another major audit firm didn’t fold. The scenario also elicited a report from the Government Accountability Office outlining the dynamic should another accounting implosion reduce the current choice of four global audit firms to the Big Three.
I don’t think that will happen — unless, of course, there’s a mega-merger. But as the annals of business have demonstrated, healthy competition can only hone market conditions and serve as motivation to improve. I’m sure there are former executives and employees from Pergament and Herman’s Sporting Goods who could speak volumes about that.
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