Survey: Auditor Changes Should Be Red Flags for Investors

San Francisco (Feb. 4, 2004) -- In an era replete with calls for greater disclosure, investors should pay particularly close attention when a company announces a change in auditors, according to a survey on auditor turnover by global financial research firm Glass, Lewis & Co.

In the survey, Glass, Lewis reviewed some 900 auditor changes filed in 2003 8-K forms and found:

• Internal control problems were reported at 58 companies including retailing giant Kmart, Audiovox and Josten’s.

• Accounting disagreements between the filers and their respective auditors occurred at 27 companies including SkyWest, Calpine and Staar Surgical.

• Six companies reported auditor resignations due to their inability to rely on management representations.

Meanwhile, 24 auditor resignations were prompted by clients wanting a reduction in auditing fees.

Most troubling, according to Glass Lewis, was that in 630 instances of auditor resignation, no reason was given for the change.

Glass, Lewis advised investors to examine, among other things, whether the company or the auditor terminated the relationship, if anything other than a clean opinion was issued in the past two years, and whether any internal control weaknesses were communicated to management.

-- WebCPA staff

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