It seems everyone, from audit committee chairs to chief financial officers, is feeling the pressure of Sarbanes-Oxley. The result, according to a study of audit firm performance, is low accounting firm performance levels compared to other business-to-business studies and a decline in the confidence level of the accounting profession, according to J.D. Power and Associates.

Top management is concerned about the costs of implementing Sarbanes-Oxley requirements, while some auditors feel that they are being stretched too thin by additional audit requirements, which are impacting service levels, and audit committee chairs are feeling the pressure of increased accountability in the required financial reporting process, according to the J.D. Power and Associates 2004 Audit Firm Performance Study. The report is based on interviews with 1,007 audit committee chairs and 944 CFOs.

"In this period of tumultuous change in the accounting industry, Sarbanes-Oxley is heavily taxing the financial audit process," said Ron Conlin, partner at J.D. Power & Associates. "Many parties -- from internal management to the board of directors to the auditors themselves -- are struggling. The result has been, at least in the short term, relatively low ratings of the financial audit process and an erosion in confidence of the accounting profession."

Almost nine out of 10 CFOs say that the costs of implementing the new rules and procedural requirements of Sarbanes-Oxley are greater than the benefits of those changes, while confidence among CFOs is low, with just 44 percent expressing high levels of confidence in the accounting industry, J.D. Power said.

Among firms managing clients with more than $1 billion in revenue, Deloitte ranks highest, with a score of 734 based on a 1,000 point scale, followed by Ernst & Young (721), PricewaterhouseCoopers (675) and KPMG (673), J.D. Powers reported. The segment average was 703.

Grant Thornton got the highest marks among firms managing clients with less than $1 billion in revenue, with a score of 725, followed by BDO Seidman (718), Deloitte (686), E&Y (682), PwC (671) and KPMG (664). The segment average was 686, according to the report.

"It is clear that the Big Four puts most of its emphasis on its larger clients," said Conlin. "As a result, ratings of their performance, particularly among smaller clients, are lower. This represents a major opportunity for second-tier national firms such as Grant Thornton and BDO to gain clients looking for more personal attention, particularly among those currently utilizing a Big Four firm."

Audit firms receiving the highest ratings from clients are those that build strong relationships with audit committee members by emphasizing communication, according to the study. "Audit firms that are candid, able to explain difficult issues in a clear manner, and are willing to ask the tough questions about all aspects of business operations enjoy performance index scores that are more than 200 points higher than audit firms lacking in these areas," J.D. Powers said.

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