New York (Sept. 21, 2004) -- A trend among the nation's four largest accounting firms of dropping small audit clients reportedly has the Securities and Exchange Commission's chief accountant concerned.

Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers have dropped at least eight U.S. audit clients in the past seven weeks, because they say that they are overworked helping their biggest and most profitable clients meet a Nov. 15 Sarbanes-Oxley deadline to improve financial reporting systems, Bloomberg News reported.

"I've expressed my view to the CEOs of the big firms that I think it is their responsibility not to run away from the marketplace," SEC chief accountant Donald Nicolaisen told Bloomberg News. The requirements in the 2002 law "should not be a convenient tool for them to manage their business. They do have a responsibility in the public trust."

In recent testimony before the Senate Banking Committee, E&Y chief James Turley said that the law is taxing resources. "The Sarbanes-Oxley Act's requirements and pressures put a great strain on our ability to retain sufficient personnel," Turley said, adding that SOX has "strained resources across the profession."

Among those clients who've been dropped by the Big Four is Eden Prairie, Minn.-based music-software developer MakeMusic! Inc., which paid Ernst & Young about $109,000 in accounting fees in 2003. The company hired McGladrey & Pullen LLP.

"What we've experienced is one of the unintended consequences of Sarbanes-Oxley," William Wolf, finance chief of MakeMusic, told Bloomberg. "We were told it was a question of resources."

KPMG told drugmaker Alteon, based in Ramsey, N.J., to look for a new accountant last month, according to the report. Alteon, which has a $35 million market value and paid the firm $89,000 for its 2003 audit, hired Roseland, N.J.-based J.H. Cohn LLP.

Natural gas and oil producer Gasco Energy Inc., in Denver, was dropped by Deloitte. The company's chief financial officer, King Grant, told Bloomberg, "Finding a new auditor is a pain, but we were told they just don't have enough manpower to meet the needs of big clients."

"It used to be that there was something wrong if you didn't have a Big Four auditor," Grant reportedly said. "Now companies are looking elsewhere." Gasco hired Denver-based Hein & Associates LLP, which specializes in auditing energy companies.

-- WebCPA staff

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