Despite dire predictions by critics of the Sarbanes-Oxley Act that the accounting reform law would freeze smaller CPA firms out of the audit business, just the opposite appears to be happening, Public Company Accounting Oversight Board Chairman William J. McDonough told Congress.

Testifying before the House Financial Services Committee on April 21, McDonough said that, while SOX has given auditors "a good bit more anxiety," it hasn't caused the kind of market shift than many anticipated.

In contrast to warnings that the accounting oversight requirements imposed by SOX would "impose a barrier to small firms' ability to compete for public company audit clients," it has been the major CPA firms that have experienced slippage over the past two years, McDonough said.

A number of small accounting firms "have actually increased the number of public companies that they audit, as the larger firms have reduced their number of smaller public company clients," he told the committee.

One study cited by the PCAOB chairman reported that the Big Four accounting firms experienced a net loss of 400 audit clients during 2004, while the next four largest firms added 117 clients, and smaller accounting firms posted a net gain of 217. That study, conducted by researchers at Glass, Lewis & Co., concluded that "the larger firms appear to be more selective these days in accepting smaller companies to audit," while smaller CPA firms "may be one of the largest beneficiaries of" SOX.

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