One of the great lines in the long-running TV series M*A*S*H came when the show’s main character, Hawkeye Pierce, explained how predictable the world was when he was growing up. As he told it, “Roosevelt was always president, Joe Louis was always heavyweight champ and Paul Muni played everybody.”With respects to Alfred Lord Tennyson, the old order changeth, whether in politics, sports or show business. You can also toss auditing into that discussion.

For years, the choice of auditing firms for smaller public filers was, for the most part, limited to the Big Four and the national firms just below them. That selection — or lack thereof — has fueled discussion and commentary within the profession, ranging from practitioners to professional associations all the way to our nation’s capital and the Government Accountability Office.

A while back, the investigative arm of Congress released a widely read report warning of the dangers of too few auditor choices should another global firm such as Andersen collapse. More recently, however, the office unveiled the preliminary results of a survey that showed small public companies have a larger buffet of audit firms from which to choose.

The findings were disclosed in December, at the second meeting of the Treasury Department’s Advisory Committee on the Auditing Profession. That panel, comprised of high-profile accounting and financial executives, is due to submit its recommendations to Treasury Secretary Henry Paulson by midyear.

The poll conducted by the Auditor General revealed a sizeable rise in the number of small, publicly traded companies using second- and third-tier auditors. And apparently, that’s been going on since 2002. According to the GAO, only 22 percent of the 3,643 companies with less than $100 million per year in annual revenues used Big Four auditing firms in 2006.

The percentage is roughly half of what it was in 2002, when the GAO conducted its last survey on auditor choices. Not coincidentally, that also happened to be the year that Sarbanes-Oxley was signed into law. Since the passage of the sweeping corporate reform law, there’s been a less-than-subtle shift in auditing firm culture — partly fueled by SOX service prohibitions for audit clients and a strategy to capture more profitable service niches and farm out the audit work to lower-tier firms.

Among businesses with $100 million to $500 million in revenues, the use of Big Four firms declined to 71 percent, from 90 percent. Not surprisingly, large companies — defined by the GAO as those with more than $1 billion in sales — remain tethered to the Big Four for audit services, with 98 percent of them being clients of the current quartet of global firms. The survey also showed a slight decline for businesses with between $500 million and $1 billion in annual sales, with 92 percent choosing a Big Four firm, versus 95 percent some four years earlier.

Historically, the auditing profession has not exactly forged a reputation as an agent of change. Yet little by little the old order is changing.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access