A CFO.com article recently reported some interesting changes in the corporate landscape: Many big companies are no longer paying big accounting firms to audit their books.
Drawing on data from Auditor-Trak, a database of more than 12,000 auditor changes, the article shows that in 2003, each of the (privately held) "big four" accounting firms -- PricewaterhouseCoopers, KPMG, Deloitte & Touche, and Ernst & Young -- lost more public clients than it gained. The clients, in general, weren't switching to another Big Four firm; instead, the majority were switching to smaller national firms or regional or local auditors.
PricewaterhouseCoopers lost 91 clients, and with that, a whopping $46 billion in revenues. Those leaving the firm include Kmart
One possible explanation for this shift is that whereas it may once have looked impressive to have one of the Big Four as your auditor, inspiring trust in shareholders and analysts, recent scandals have tarnished the Big Four. With the firms offering less prestige, many companies may be looking for other, perhaps less expensive alternatives. According to USA Today, in 2002, many large companies saw their auditing expenses jump by more than 25%, largely due to the extra hours accountants must spend making sure companies comply with the stringent Sarbanes-Oxley Act.
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Longtime Fool contributor Selena Maranjian owns shares of Pfizer.
