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October 2, 2023

CONFIRMED: Mid-Tier Firms Are Getting Out of the Public Company Audit Game (UPDATE)

"peace out" on a white background

Ed. note: an earlier version of this post had the word “rumor” in the headline. As it has now been confirmed that several firms are exiting the public company audit space, we’re calling this one confirmed. Kinda.

We’ve received this tip a few times now from a few different people, time to throw it to dogs and see if anyone knows more. Here’s the original, slightly edited to protect anonymity:

Plante Moran, CBIZ, Marcum, Armanino, and a couple of other large public firms will no longer be serving public clients. It does look like CBIZ has left or is leaving the space. If the others are true, that’s a lot of free agent clients and probably a fair amount of pain for whoever picks them up.

Another tipster said CBIZ was trimming staff in audit “in connection with that” though we didn’t get any numbers because no one ever talks about CBIZ, you probably forgot they existed until just now. A couple others have confirmed they’ve heard about CBIZ pulling out but nothing solid. FWIW CBIZ was posting audit senior associate job openings on its website as recently as yesterday and an audit intern job posted today says interns will “assist in planning multiple audit assignments in Real Estate, Construction, Nonprofit, Manufacturing and many more industries.”

Per Ideagen Audit Analytics’ “Who Audits Public Companies” published in June, as of May 14, 2023 there were 258 firms conducting audits for 6,950 Securities and Exchange Commission registrants. As we already know, Big 4 dominates the large accelerated filers category.

who audits public companies 2023 infographic

The top ten firms collectively audit 68% of the total population. In comparison to our 2020, 2021, and 2022 analyses, this is the first year where the top ten audit firms remained static in terms of market concentration for SEC registrants. While the majority of the top ten firms managed to increase their clientele from 2022, Withum decreased in rank. They fell from sixth to ninth, auditing 177 clients in 2023 compared to 296 clients in 2022.

Of the firms mentioned in the tip above, only Marcum made the list of top ten audit firms (excluding SPACs, that’s a sore subject for Marcum anyway):

Given the PCAOB’s sudden enthusiasm for enforcement, and given that audit isn’t exactly a license to print money, maybe there’s something to this. Who needs the headache?

If you’ve heard about this or just want to speculate wildly, have at it in the comments or shoot me an email. I’ll do some digging in the meantime. It’s the Friday after Labor Day, there’s nothing else going on.

Small update: I spoke to someone this afternoon who digs through 8-Ks for fun (or work, whatever), they said what they’ve noticed lately would confirm this to be true. Definitely warrants further digging.

Update: On Friday night we received an email from Jeff Weiner himself: “Marcum is not getting out of the SEC audit business.”

Update #2: We’ve received what appears to be an internal email from Matt Armanino to all Armaninians announcing the firm’s decision to exit the SEC audit practice. Armanino will continue to provide services to these companies, just not audits.

internal communication from Armanino on the firm's decision to pull out of public company audits

Update: We were pointed to a recently filed annual report from a soon-to-be-former audit client of CliftonLarsonAllen (CLA) that confirms CLA is getting out of SEC audits. The annual report is pretty clear:

[Client’s] independent registered public accountant informed the Company that CLA would decline to stand for re-appointment after completion of the audit for the year ended December 31, 2022 as a result of CLA’s determination to cease providing certain audit services to SEC registrants upon completion of the 2022 audit cycle.

We confirmed this with a second source, CLA is 100% out.

Our first tipster also said RSM hired an outside consultant to help them figure out if they too should dip out, the consultants ultimately determined the reputational damage from doing so would be too great to justify exiting the SEC audit space. So RSM is still in unless we hear otherwise.

Apparently no one cares about CBIZ as we’ve gotten no further tips on whether they’re in or out.

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  1. Probably for the best since Marcum’s audit quality is terrible anyway. Marcum auditors may want to start polishing off the ol’ resume because this sounds like a good way for Glizzy Jeff to start cleaning house

  2. I’ve seen and heard multiple instances now (including one of the mentioned firms) that firms went on lockdown mode after their PCAOB inspection, where nationals/management would not allow additional audits to go out. I doubt that means any of these firms are getting out totally. I think they will hike prices for clients they keep, and throw the rest out. Smaller firms will not be able to cover the cost of compliance and they will also get out or be punished by this PCAOB regime and be forced out. In 5 years, I wouldn’t be surprised that the number of firms servicing public clients is well below 200. Fees will increase significantly and everyone will decide to get back in 🙂

  3. The entire audit industry is in trouble with ever-increasing PCAOB and SEC requirements on top of accountant shortages. This means audit professionals’ salaries will have to increase even more, and higher fees for the clients. Smaller public companies have the most to lose, and it will discourage companies from going public.

  4. Audit is a commodity business and given the legal risk, hardly lucrative, yet very expensive especially given all the “behind the scenes” costs (practice directors, specialists, audit technical experts, etc.). Consulting, Advisory and Tax/Legal are where the money is made. Keep downsizing the audit practice and the partners will make more money.

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