Auditor Concentration: Changing Realities; Grant Thornton Partner Presents New Data on Auditor...

CHICAGO -- Market forces are working to reduce concentration of public company audits, but market participants must adjust their thinking for these changes to be successful, said Cono Fusco, Grant Thornton managing partner of strategic relationships, at a University of Illinois Lyceum event.

"An increasing number of public policy influencers, companies and company advisors recognize that reducing concentration of audits completed by the four largest firms better serves capital markets by creating a stronger public accounting profession," he told an audience of more than 300 students and faculty.

"The good news is that market forces are working. We are seeing increases in the number of audit firm changes as firms reallocate capacity and companies reevaluate their expectations of auditors' quality, service, value and reach. As a result, companies' size and requirements are better matched with auditors' size and skills set."

Citing statistics compiled from Audit Analytics, Mr. Fusco noted that 5,318 companies changed audit firms from January 1, 2003, through the end of August 2006. As many as 557 companies changed from a Big Four firm to another international/national firm (i.e. Grant Thornton, BDO Seidman, Crowe Chizek or RSM McGladrey), and the average revenue of these new client wins has increased steadily over the past three years. Conversely, only 55 companies changed to a Big Four from a mid-tier firm during this period, and the average revenue of these clients is decreasing.

"Trends in audit firm changes - and particularly in the number of companies choosing international and national firms outside of the Big Four - are very encouraging for the audit profession," Mr. Fusco stated. "But there is still a great deal of work to be done to ensure that all companies are free to choose the audit firm best-suited to meet their needs and, furthermore, that all audit firms compete for these accounts on a level playing field."

Specifically, he referenced a 2005 American Assembly report, "The Future of the Accounting Profession: Auditor Concentration," which noted that misperceptions among market influencers represented one barrier to entry for mid-tier firms. "Assembly participants in this ainfluencer' group admitted such perceptions were, at least to some extent, unwarranted. Yet we continue to hear that pressure from external advisors prevents some companies from switching to firms outside the Big Four," he said

"There is simply no evidence companies see any devaluation in stock price after announcing a change to Grant Thornton or experience any other negative investor reactions," he emphasized. "We are committed to correcting any such misperceptions and to ensuring companies are free to choose the audit firm best-suited to meet their needs, whether it's us, a member of the Big Four or another international, national or regional firm."

The University of Illinois Lyceum is a weekly lecture series sponsored by the Department of Accountancy. Past speakers include a deputy director at the Public Company Accounting Oversight Board, the auditor general of Rhode Island, the chairman and partners of other major audit firms, as well as chief executives, lawyers and insurers.

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