Grant Thornton executives this week urged regulators, public company boards and executives, and auditors to move to protect capital markets and investors by taking steps to increase choice and competition for public companies and auditors.

"Sarbanes-Oxley -- not to mention the numerous accounting failures leading up to it -- has dramatically changed the audit environment," chief executive Ed Nusbaum told members of the National Press Club in Washington. "But there is also another, less-reported factor in play, and that's the ongoing consolidation and resulting concentration in the accounting profession."

Nusbaum noted a Government Accountability Office study that found that 97 percent of public companies with sales between $250 million and $5 billion are audited by the Big Four.

"Effectively matching company size and requirements with firm size and capabilities allows companies to find the best combination of quality, service, value and reach, and protects markets by spreading risk among a greater number of firms," added Cono Fusco, managing partner of strategic relationships.

Leaders of the Chicago-based firm proposed the following five steps to increased choice and competition for public companies and auditors:

1. The SEC and the nation's stock exchanges should encourage, as a best practice, public companies to conduct a periodic review of their audit firm. As a matter of good governance and good business, companies should be encouraged to periodically evaluate their audit firm to be sure that they are getting the best combination of quality, service, value and reach from their firm.

2. Public company boards and audit committees should embrace the new market realities and "right-size" their audit firm. Matching company size, complexity and requirements with firm size and capabilities, companies may very well reaffirm their decision to continue working with their current audit firm. But they also may find that another firm combines the same or better technical expertise with service, attention and market or industry expertise that makes for a better fit.

3. Companies and other capital markets influencers should recognize the new paradigm between companies and their external audit firms and open the door to more audit firm choices. There are more than four audit firms capable of serving public companies, but misperceptions in the capital markets pre-empt company choices. Influencers must reach out to the broader array of audit firm choices and conduct proper due diligence before discouraging a company from selecting a non-Big Four firm better suited to meet its needs. Auditors must facilitate this process by reaching out to and increasing their visibility with gatekeeper groups.

4. The PCAOB and the audit profession should implement coordinated best practices for the audit process, and firms must periodically assess whether or not they have the requisite attributes to serve specific clients. Because the best audits are completed when companies and audit firms are appropriately matched, auditors should also evaluate their resources in relation to client needs to determine if they are still appropriately matched in terms of size and service capabilities, according to GT.

5. A debate and discussion on the topic of caps on auditor liability exposure should begin. The possibility of being held responsible not only for the magnitude of an error but also for the current market psychology and valuation levers for an individual company creates what could become unlimited liability. This makes it difficult for smaller firms to compete. To eliminate this barrier to entry and to promote competition in the accounting profession, the insurance industry, elected officials, the accounting profession, businesses and others in the capital markets should work together to implement liability caps.

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