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December 4, 2022

Some Companies Willing to Drop a Big 4 Auditor Like a Bad Habit…For Another Big 4 Auditor

Auditor musical chairs isn’t something that happens too often but Reuters reports that more and more U.S. companies are looking to save a little extra scratch on their audit fees:

Bucking a long-standing preference by most companies to stick with the same auditor for years, some companies are putting their audit work out for competitive bids to win better deals on fees, or to get fresh teams looking at their books. “It’s a change in the competitive landscape among the audit firms where they have the ability and desire to take on more clients,” said Mark Grothe, an analyst at consulting firm Glass Lewis. Public companies also seem to be more willing to switch auditors, as long as one of the “Big Four” firms will be doing the work, he said.

The article cites Apple (dropped KPMG for E&Y) and Tysons (kicked E&Y to the curb in favor of PwC) as two prominent examples. We’re also aware that Credit Suisse is slowly transitioning a good portion of the audits performed by KPMG to PwC, according to sources familiar with the situation. Companies of this size willing to change their auditors demonstrates that some companies aren’t too concerned with the learning curve that may face their new auditors. In fact, some CFOs are more than okay with it, including Linster Fox of Shuffle Master who claims, “There’s no degradation in service — the service is actually higher.”

PwC’s Tim Ryan, however, doesn’t buy the idea that fees are the driving force behind the auditor switcheroo, “When a company does go through a change, it is almost always driven by something other than fees,” he told Reuters. Instead, a change is more likely to happen when, for example, a major fraud gets missed or there’s a difference of opinion on a crucial issue OR the CEO is a finicky character OR some other mysterious reason unbeknownst to all of us.

Regardless, the real concern is that all this auditor swapping puts a lot of pressure on fees:

Fee pressure has been intense worldwide, but especially in the United States, according to the International Accounting Bulletin, which tracks global audit fees. “The U.S. is a very competitive market, easily the largest audit market in the world, and the Big Four have competition from a much larger pool of firms,” said IAB editor Arvind Hickman. “Last year we received reports of fees being cut between 5 and 15 percent on average on audit work, and there were extreme cases where fees were being cut up to 40 percent,” he said. Fee pressure appears to be easing somewhat, “but there will still be fee pressure this year and we don’t predict it will go away any time soon,” he said.

This has Big 4 firms undercutting regional competitors and is no doubt, partly responsible for the parking lot at the Senior Manager level in some markets. With this level of competition and, as a result, a slowly decreasing portion of the Big 4 revenue stream, it doesn’t necessarily mean a career as an auditor is a dead end but it sure doesn’t help.

Auditor shopping helps U.S. companies cut fees [Reuters]

Auditor musical chairs isn’t something that happens too often but Reuters reports that more and more U.S. companies are looking to save a little extra scratch on their audit fees:

Bucking a long-standing preference by most companies to stick with the same auditor for years, some companies are putting their audit work out for competitive bids to win better deals on fees, or to get fresh teams looking at their books. “It’s a change in the competitive landscape among the audit firms where they have the ability and desire to take on more clients,” said Mark Grothe, an analyst at consulting firm Glass Lewis. Public companies also seem to be more willing to switch auditors, as long as one of the “Big Four” firms will be doing the work, he said.

The article cites Apple (dropped KPMG for E&Y) and Tysons (kicked E&Y to the curb in favor of PwC) as two prominent examples. We’re also aware that Credit Suisse is slowly transitioning a good portion of the audits performed by KPMG to PwC, according to sources familiar with the situation. Companies of this size willing to change their auditors demonstrates that some companies aren’t too concerned with the learning curve that may face their new auditors. In fact, some CFOs are more than okay with it, including Linster Fox of Shuffle Master who claims, “There’s no degradation in service — the service is actually higher.”

PwC’s Tim Ryan, however, doesn’t buy the idea that fees are the driving force behind the auditor switcheroo, “When a company does go through a change, it is almost always driven by something other than fees,” he told Reuters. Instead, a change is more likely to happen when, for example, a major fraud gets missed or there’s a difference of opinion on a crucial issue OR the CEO is a finicky character OR some other mysterious reason unbeknownst to all of us.

Regardless, the real concern is that all this auditor swapping puts a lot of pressure on fees:

Fee pressure has been intense worldwide, but especially in the United States, according to the International Accounting Bulletin, which tracks global audit fees. “The U.S. is a very competitive market, easily the largest audit market in the world, and the Big Four have competition from a much larger pool of firms,” said IAB editor Arvind Hickman. “Last year we received reports of fees being cut between 5 and 15 percent on average on audit work, and there were extreme cases where fees were being cut up to 40 percent,” he said. Fee pressure appears to be easing somewhat, “but there will still be fee pressure this year and we don’t predict it will go away any time soon,” he said.

This has Big 4 firms undercutting regional competitors and is no doubt, partly responsible for the parking lot at the Senior Manager level in some markets. With this level of competition and, as a result, a slowly decreasing portion of the Big 4 revenue stream, it doesn’t necessarily mean a career as an auditor is a dead end but it sure doesn’t help.

Auditor shopping helps U.S. companies cut fees [Reuters]

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