Most Respondents Were Satisfied with Their Auditor, Had Long-term Relationships, and Used Their Auditor for a Variety of Services

Most of the survey respondents said they were satisfied with their current  auditor. Moreover, half of the respondents reported that they have had the  same auditor of record for 10 or more years. Almost all respondents said that they  used their auditor of record for more than audit and attest functions,  including tax-related services and assistance with company debt and equity  offerings. Respondents Cited Varied Reasons for Changing Auditors and Factors for Selecting a New Auditor

Respondents gave a variety of reasons for switching, including concerns  about the reputation of their auditor, the need to retain an auditor that  could meet companies’ new demands, concerns about the level of fees  charged for audit and attest services, and increased demands resulting  from a corporate merger or change in company ownership. Respondents Had Differing Views about Past Consolidation’s Influence on Audit Fees but Most Agreed That It Had Little or No Influence on Audit Quality or Auditor Independence

Respondents had differing views about the impact of past consolidation  among the largest accounting firms on audit fees, but most agreed that it  had little or no influence on audit quality or auditor independence. According to one respondent, “The change in the  depth and quality of the audit process is due to a more rigorous regulatory  and litigation environment and not to audit firm consolidation.”  Another  respondent noted, “Following the Sarbanes-Oxley Act and Andersen’s  downfall, other firms are increasing the level of work they do and the depth  of the audit.”  Finally, we received comments about the skills and  experience of the audit team. While most respondents said that they would be able to use another Big 4  firm as their auditor of record if they had to change, they also said that they  would prefer more large firms from which to choose. As shown  in figure 7, nearly all the respondents cited three factors as being of great or  very great importance in determining why their companies would not use a  non-Big 4 firm:  (1) auditor’s technical skills and knowledge of the  company’s industry (91 percent or 126 of 138); (2) the reputation of the  accounting firm (91 percent or 126 of 138); and (3) the capacity of the firm  (90 percent or 125 of 138). sample of public companies. If your company was founded in the past decade, in what year was it founded? 1%  11. 2. 3. 30. A number of respondents mentioned concerns about further  consolidation in the accounting profession, cost and quality, and other  issues such as the impact of the Sarbanes-Oxley act and proposals for  mandatory audit firm rotation. GAO posts this list, known as “Today’s Reports,” on its Web site  daily.
Why GAO Did This Study

The largest accounting firms, known as the "Big 4," currently audit over 78 percent of U.S. public companies and 99 percent of public company annual sales. To address concerns raised by this concentration and as mandated by the Sarbanes-Oxley Act of 2002, on July 30, 2003, GAO issued a report entitled Public Accounting Firms: Mandated Study on Consolidation and Competition, GAO-03-864 . As part of that study, GAO surveyed a random sample of 250 public companies from the Fortune 1000 list; preliminary findings were included in the July report. This supplemental report details more comprehensively the 159 responses we received through August 11, 2003, focusing on (1) the relationship of their company with their auditor of record in terms of satisfaction, tenure relationship, and services provided; (2) the effects of consolidation on audit fees, quality, and independence; and (3) the potential implications of consolidation for competition and auditor choice.

What GAO Found

Most of the 159 respondents said that they were satisfied with the current auditor, and half had used their current auditor for 10 years or more. Generally, the longer a respondent had been with an auditor, the higher the overall level of satisfaction. Consistent with high levels of satisfaction, GAO found that, aside from former clients of Arthur Andersen, few respondents had switched auditors in the past decade. When they did, they switched because of reputation, concerns about audit fees, and corporate mergers or management changes. In looking for a new auditor, the most commonly cited factors the respondents gave were quality of service, industry specialization, and "chemistry" with the audit team. Finally, almost all respondents used their auditor of record for a variety of nonaudit services, including tax-related services and assistance with company debt and equity offerings. Respondents had differing views about whether past consolidation had some influence on audit fees, but most believed that consolidation had little or no influence on audit quality or independence. Respondents commented that other factors--such as new regulations deriving from the Sarbanes-Oxley Act and changing auditing standards--have had a greater impact on audit price, quality, and independence. While half of the respondents said that past consolidation had little or no influence on competition and just over half said they had a sufficient number of auditor choices, 84 percent also indicated a preference for more firms from which to choose as most would not consider using a non-Big 4 firm. Reasons most frequently cited included (1) the need for auditors with technical skills or industry-specific knowledge, (2) the reputation of the firm, and (3) the capacity of the firm. Finally, some expressed concerns about further consolidation in the industry and the limited number of alternatives were they to change auditors under existing independence rules.