United States General Accounting Office 

GAO	 Report to the Senate Committee on 

Banking, Housing, and Urban Affairs and 

the House Committee on Financial 

Services 

September 2003 ACCOUNTING FIRM 

CONSOLIDATION 

Selected Large Public 

Company Views on 

Audit Fees, Quality, 

Independence, and 

Choice 

GAO-03-1158


a
September 2003 

ACCOUNTING FIRM CONSOLIDATION 

Views of Surveyed Large Public 

Companies on Audit Fees, Quality, 

Independence, and Choice 

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 (see 

figure below). 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 taxrelated 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. 

Highlights of GAO-03-1158, a report to 

Senate Committee on Banking, Housing, 

and Urban Affairs and the House 

Committee on Financial Services 

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. 

Length of Relationship with Current Auditor 

Number of companies 

40 40 

37 

3 

10 

18 

8 

13 

7 6 

13 

8 

12 

30 

20 

10 

www.gao. 0 gov/cgi-bin/getrpt?GAO-03-1158. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Davi M. 

D'Agostino at (202) 512-8678 or 

d'agostinod@gao.gov. 

<2 2-5 6-10 11-15 16-20 21-25 26-30 31-40 41-50 51-94 

Years 

Former Andersen clients that switched within the last 2 years 

Source: GAO. 

All other respondents 
Contents


Letter


Results in Brief 


Background 


Most Respondents Were Satisfied with Their Auditor, Had Long-term 


Relationships, and Used Their Auditor for a Variety of Services 

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 Were Concerned That Limited Audit Choices May 

Create Problems 

1 

2 

4 

5 

10 

13 

Appendixes 

Appendix I: 

Appendix II: 

Appendix III: 

Appendix IV: 

Scope and Methodology 

Annotated Public Company Survey 

Summary of Written Comments to the Public Company 

Survey 

Change in Audit Quality 


Number of Auditor Options Available 


Sufficiency of the Number of Options 


Willingness to Use Auditor of Competitor 


Minimum Number of Firms Necessary 


Optimal Number of Firms 


Suggestions for Increasing Competition 


Additional Comments 


GAO Contacts and Staff Acknowledgments 

GAO Contacts 


Staff Acknowledgments 


19 

21 

36 

36 

38 

40 

41 

42 

43 

45 

46 

51 

51 

51 

Tables	 Table 1: 

Table 2: 

Table 3: 

Table 4: 

Table 5: 

Table 6: 

Table 7: 

Table 8: 

Respondents That Had Switched Auditors Since 1987 8


Explanations for Changes in Audit Quality 37


Explanations for the Number of Auditor Options 


Available 39


Number of Auditor Options Available 40


Explanations of Why a Company Would or Would Not 


Choose the Auditor of a Competitor 41


Explanations of Minimum Number of Firms Necessary 42


Explanations of Optimal Number of Firms 44


Suggestions for Taking Action to Increase Competition 45


Page i GAO-03-1158 Accounting Firm Consolidation 
Contents 

Table 9: Additional Comments 47 

Figures	 Figure 1: 

Figure 2: 

Figure 3: 

Figure 4: 

Figure 5: 

Figure 6: 

Figure 7: 

Length of Relationship with Current Auditor 6


Satisfaction with Current Auditor, by Tenure 7


Factors Cited in Choosing a New Auditor 9


Views on Change and Impact of Past Consolidation on


Audit Fees 11


Views on Changes in and Impact of Past Consolidation on 


Audit Quality 12


Views on Changes in and Impact of Past Consolidation on 


Auditor Independence 13


Reasons Cited for Not Using a Non-Big 4 Firm 15


Abbreviations 

GAAP generally accepted accounting principles


GAAS generally accepted auditing standards


SIC Standard Industry Classification


SEC Securities and Exchange Commission


This is a work of the U.S. government and is not subject to copyright protection in the 

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Page ii GAO-03-1158 Accounting Firm Consolidation 
Page 1 GAO-03-1158 Accounting Firm Consolidation 

A

United States General Accounting Office 

Washington, D.C. 20548 

September 30, 2003


The Honorable Richard C. Shelby


Chairman


The Honorable Paul S. Sarbanes


Ranking Minority Member


Committee on Banking, Housing, and Urban Affairs


United States Senate


The Honorable Michael G. Oxley


Chairman


The Honorable Barney Frank


Ranking Minority Member


Committee on Financial Services


House of Representatives


The number of public accounting firms widely considered capable of 


providing audit services to large national and multinational public 


companies decreased from eight (the “Big 8”) in the 1980s to four (the “Big 


4”) today.

1 These four firms currently audit over 78 percent of all U.S. 


public companies and 99 percent of public company annual sales. The Big 


4 also dominate the market for audit services internationally. On July 30,


2003, we issued a report on the impact of this consolidation on competition 


and audit services provided to large national and multinational companies 


(as mandated by the Sarbanes-Oxley Act of 2002).2 This supplemental 


report details more comprehensively the responses we received through 


August 11, 2003, to a survey of a random sample of Fortune 1000 companies 


on their experiences with their auditors of record.3 Specifically, our 


objective was to obtain the views of the chief financial officers of large 


1

The Big 8 were Arthur Andersen LLP, Arthur Young LLP, Coopers & Lybrand LLP, Deloitte 

Haskins & Sells LLP, Ernst & Whinney LLP, Peat Marwick Mitchell LLP, Price Waterhouse 

LLP, and Touche Ross LLP. The Big 4 accounting firms are Deloitte and Touche LLP, Ernst & 

Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP. These firms differ from other 

firms by their total revenues, size, and global reach. 

2

See U.S. General Accounting Office, Public Accounting Firms: Mandated Study on 

Consolidation and Competition, GAO-03-864 (Washington, D.C.: July 30, 2003) and Pub. L. 

No. 107-204 § 701 (2002). 

3

We also surveyed the 97 largest public accounting firms for their views on accounting firm 

consolidation and its potential implications; their responses are included in our July 30, 

2003, report. This report focuses on the views of large public companies as clients of 

accounting firms. 

Page 1 GAO-03-1158 Accounting Firm Consolidation 
national and multinational public companies on (1) the relationship of their 

company with their auditor of record in terms of satisfaction, tenure of the 

relationship, and services provided; (2) the effects of consolidation on 

audit fees, quality, and auditor independence; and (3) the potential 

implications of consolidation for competition and auditor choice. 

We drew a random sample of 250 of the largest publicly held companies 

from the 2003 list of the Fortune 1000 companies produced by Fortune, a 

division of Time, Inc., after removing 40 private companies from this list. 

Of the 250 companies surveyed, we received responses from 159 

companies, or 64 percent; all of whom used a Big 4 firm as their auditor of 

record. The response rates for individual questions varied, depending on 

how many respondents answered each question. Because of the limited 

level of participation in the survey, the responses discussed in this report 

reflect only the views of the public companies that responded to the survey 

and are not projected to the entire population of public Fortune 1000 

companies. Appendix I discusses our survey methodology in detail. A 

copy of the questionnaire, annotated to show the respondents’ answers to 

each question, is included as appendix II. In addition, nearly 94 percent 

(149 of 159) of the respondents provided narrative comments on at least 

one of the key questions about their experiences with their auditors of 

record. Included as appendix III, these narrative comments provide 

valuable insight into how the respondents interpreted key questions and 

amplify the respondents’ views and experiences. 

Results in Brief	 Most of the public companies responding to the survey (respondents) said 

they were satisfied with their current auditor, half had used their current 

auditor for 10 years or more, and almost all used their auditor of record for 

other nonaudit services. More than three-quarters of the respondents said 

that they were satisfied with their relationship with their current auditor of 

record. We also found an association between audit tenure and 

satisfaction. That is, the longer respondents had been with their current 

auditors, the more satisfied they were. Company-auditor relationships 

averaged 19 years, ranging from less than 1 year to 94 years. Although 61 of 

the 159 respondents had switched auditors since 1987, 37 of the 61 were 

former clients of Arthur Andersen (Andersen) that had switched since 

2001. Aside from the dissolution of Andersen, other reasons cited for 

changing auditors included concerns about auditor reputation, concern 

about the fees charged for audit and attest services, mergers and other 

ownership or management changes, and the desire to obtain a “fresh 

perspective.” When looking for a new auditor, most respondents said 

Page 2 GAO-03-1158 Accounting Firm Consolidation 
quality of services, the auditor’s reputation, industry specialization or 

expertise, and the engagement team’s chemistry or perceived ability to 

work with the company were of “great” or “very great” importance. Almost 

all the respondents used their auditor of record for a variety of services 

besides audit and attest, such as tax-related services and assistance with 

company debt and equity offerings. 

Respondents had differing views about whether the past consolidation of 

public accounting firms had some influence on audit fees, but most 

believed that it had little or no influence on audit quality or auditor 

independence. Although most (93 percent) respondents indicated that 

audit fees had increased over the past decade, they were split evenly 

between those who thought that the consolidation among the largest public 

accounting firms had an “upward influence” on audit fees and those who 

thought that it had “little or no influence” (47 percent versus 46 percent). 

More than twice as many respondents believed that audit quality increased 

over the past decade than decreased (44 percent compared to 18 percent) 

and a majority (63 percent) believed that accounting firm consolidation had 

little or no influence on changes in audit quality. Rather than consolidation, 

some respondents cited other reasons for changes in audit quality, such as 

new regulations resulting from the Sarbanes-Oxley Act and a change in the 

audit partner in charge of their audit.4 Similarly, while many respondents 

(59 percent) agreed that independence had increased over the past decade, 

72 percent of respondents believed that the past consolidation had little or 

no influence on auditor independence. 

While a majority of respondents believed that past consolidation had little 

or no impact on competition, many were concerned that the limited 

number of choices they have for audit services might create problems, 

given that 88 percent of the respondents said that they would not consider 

using a non-Big 4 firm for audit and attest services. The reasons they cited 

for choosing a Big 4 over a non-Big 4 firm included industry and technical 

expertise, reputation, and geographic presence. While over half of the 158 

respondents said that the options their company currently had were 

adequate, some companies expressed concerns about having too few 

alternatives if they were to change auditors. Respondents cited multiple 

4

Sarbanes-Oxley requires that the Securities and Exchange Commission (SEC) enact 

independence rules, which address areas such as prohibited nonaudit services, audit 

partner rotation, and conflicts of interest. See Pub. L. No. 107-204, Title II § 201- § 206 and 17 

C.F.R. Parts 210 and 240, Final Rule: Revision of the Commission’s Auditor Independence 

Requirements. 

Page 3 GAO-03-1158 Accounting Firm Consolidation 
reasons to explain their concerns about limited choices among the Big 4, 

including auditor independence rules and their companies’ need for certain 

industry expertise. Moreover, a large majority (86 percent) of respondents 

said that they would prefer a market with more than four big firms. Many 

of these respondents also commented that they did not want to see further 

consolidation within the Big 4. However, almost two-thirds of all 

respondents said that they would not suggest any actions, such as 

government intervention, to increase competition in the provision of audit 

and attest services for large national and multinational companies. 

Background	 Since the Securities Act of 1933 and the Securities Exchange Act of 1934 

established the principle of full disclosure—requiring public companies to 

provide full and accurate information to the investing public—public 

accounting firms have played a critical role in companies’ financial 

reporting and disclosure. While officers and directors of a public company 

are responsible for the preparation and content of financial statements that 

fully and accurately reflect the company’s financial condition and the 

results of its operations, public accounting firms, which function as 

independent external auditors are expected to provide an additional 

safeguard. The external auditor is responsible for auditing companies’ 

financial statements in accordance with generally accepted auditing 

standards (GAAS) to provide reasonable assurance that a company’s 

financial statements are fairly presented in all material respects in 

accordance with generally accepted accounting principles (GAAP). 

Public accounting firms offer a broad range of services to their clients. In 

addition to traditional audit and attest and tax services, firms also offer 

consulting services in areas such as information technology. Although all 

of the Big 4 firms continue to offer certain consulting services, three of the 

Big 4 have sold or divested portions of their consulting businesses.5 

Following the implementation of Sarbanes-Oxley, SEC issued new 

independence rules in March 2003, which place additional limitations on 

management consulting and other nonaudit services that firms could 

provide to their audit clients. Sarbanes-Oxley also requires auditors to 

report to and be overseen by a public company’s audit committee, which 

consists of members of the company’s board of directors who are required 

5

PricewaterhouseCoopers’ consulting practice was sold to International Business Machines 

Corp.; KPMG’s consulting practice became BearingPoint; and Ernst & Young sold its 

practice to Cap Gemini Group USA. 

Page 4 GAO-03-1158 Accounting Firm Consolidation 
to be independent. The external auditor also interacts closely with the 

company’s senior management, including the chief financial officer. 

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.6 Respondents gave various 

reasons for changing auditors, including concerns about their auditor’s 

reputation and fees. They also told us what factors would drive their 

decision in choosing a new auditor. 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. 

High Degree of Client 

Satisfaction and Auditor 

Tenure 

Overall, 80 percent (127 out of 158 respondents answering this question) of 

the respondents said they were “very” or “somewhat” satisfied with their 

current auditor of record, while 12 percent (19 of 158) said that they were 

very or somewhat dissatisfied, and 8 percent (12 of 158) said they were 

neither satisfied nor dissatisfied. Similarly, of the 135 respondents that 

provided the year they first employed their auditor of record, half of them 

said they had retained their auditor of record for 10 years or more. The 

average tenure was 19 years, ranging from less than 1 year to 94 years. 

When the 37 public companies that switched from Andersen because of 

Andersen’s dissolution were excluded, the average tenure increased to 25 

years, and the percentage of public companies that had retained their 

auditor for 10 years or more increased to 68 percent. Figure 1 shows the 

length of the relationship these respondents had with their current auditor. 

6

 The 159 respondents include 37 public companies that had to switch from Andersen since 

2002; Andersen dissolved in 2002. 

Page 5 GAO-03-1158 Accounting Firm Consolidation 
Figure 1: Length of Relationship with Current Auditor 

Number of companies 

40 

40 

35 

30 

25 

20 

15 

10 

5 

0 

<2 2-5 6-10 11-15 16-20 21-25 26-30 31-40 41-50 51-94 

Years 

37 

3 

10 

18 

8 

13 

7 6 

13 

8 

12 

Former Andersen clients that switched within the last 2 years 

All other respondents 

Source: GAO. 

We found that there was an association between the length of the companyauditor relationship and satisfaction. That is, the longer the relationship 

between a company and its auditor, the more likely that the company was 

satisfied with its auditor of record. As figure 2 shows, 94 percent (30 of 32) 

of companies with auditor tenure of more than 30 years were very or 

somewhat satisfied with their auditor, whereas 70 percent (28 of 40) of 

companies using their current auditor for 1 year or less said they were very 

or somewhat satisfied with their auditor. 

Page 6 GAO-03-1158 Accounting Firm Consolidation 
Figure 2: Satisfaction with Current Auditor, by Tenure 

Percentage 

100 94 

80 

60 

40 

20 

0 

70 

18 

75 

7 

79 

15 

6 

Less than More than 1 More than 10 30 or 

1 year to 10 years to 30 years more years 

Tenure with current auditor 

Satisfied 

Dissatisfied 

Source: GAO. 

Sixty-one of the respondents reported that they switched auditors since 

1987. Of those 61, 37 were former Andersen clients that switched within 

the last 2 years as a result of Andersen’s dissolution, five were former 

Andersen clients that switched over 2 years ago for reasons other than 

Andersen’s dissolution, and 19 were other respondents that switched from 

another Big 4 or non-Big firm since 1987, as shown in table 1. The 

respondents who were clients of Andersen and had to change auditors 

within the last 2 years as a result of Andersen’s dissolution were somewhat 

less satisfied with their current auditor than a separate group of 19 

respondents that had switched from another Big 4 or non-Big 4 firm since 

1987. Of the 37 former Andersen clients, 25 respondents indicated that they 

were satisfied with their current auditor of record, seven said that they 

were dissatisfied with their current auditor, and five said they were neither 

satisfied nor dissatisfied. Of the 19 other respondents that switched from 

other firms since 1987, proportionally more (16 respondents) said they 

were satisfied with their current auditor of record, while only one was 

Page 7 GAO-03-1158 Accounting Firm Consolidation 
somewhat dissatisfied and two were neither satisfied nor dissatisfied. 

While this suggests that clients leaving Andersen because of its dissolution 

are less satisfied with their current audit arrangements than other firms 

that had changed auditors in the past, it is important to note that the 37 

respondents who were former Andersen clients also had the shortest 

tenures with their current auditors, which may in part explain their lower 

satisfaction. 

Table 1: Respondents That Had Switched Auditors Since 1987 

Categories of companies that Satisfied with Dissatisfied with Neither satisfied nor Number of switching 

switched auditors current auditor current auditor dissatisfied companies 

Former Andersen clients that switched 

within the past 2 years because of 

Andersen’s dissolution in 2002 25 7 5 

Former Andersen clients that switched 

from Andersen from 1987 through 2000, 

for other reasons 3 0 2 

Respondents that switched from other 

Big 4 or non-Big 4 firms (not Andersen) 

from 1987 through 2003 16 1 2 

Total 44 8 9 

Source: GAO. 

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. Four 

respondents said their relationship with their former auditor was no longer 

working, and another respondent cited a disagreement over an accounting 

policy that resulted in the switch. While none of the respondents said their 

company had a mandatory rotation policy, two respondents said their 

companies switched auditors to obtain a “fresh perspective” and “as a form 

of good governance.” 

When we asked the respondents what factors would drive their decision if 

they had to choose a new auditor, they most often cited “quality of services 

offered” as a factor of “very great” or “great” importance (99 percent or 157 

Page 8 GAO-03-1158 Accounting Firm Consolidation 

37 

5 

19 

61 
of 159).7 The second most highly rated factor was “reputation or name 

recognition of the auditor” (83 percent or 132 of 159), followed by “industry 

specialization or expertise” (81 percent or 128 of 159). 

Figure 3: Factors Cited in Choosing a New Auditor 

Factors 

76 23 Quality of 

services offered 

42 41 Reputation or 

name recognition 

50 31 Industry specialization 

or expertise 

Chemistry/perceived ability 

to effectively work with 

engagement team 

31 43 

Price 15 39

Ability of auditor to 

handle company's 

international operations 

32 17 

Number of services offered 5 31

8 26 Auditor's proximity to 

company's headquarters 

0 20 40 60 80 

Percentage 

Very great importance 

Ninety-four percent (149 of 159) of respondents obtained other services 

from their auditors in addition to audit and attest services. We asked 

respondents if their auditor provided any of the three following categories 

of services: tax-related, assistance with company debt and equity offerings, 

7

The survey stated that “Audit quality is thought to include the knowledge and experience of 

audit firm partners and staff, the capability to efficiently respond to a client’s needs, and the 

ability and willingness to appropriately identify and surface material reporting issues in 

financial reports.” 

Great importance 

Source: GAO. 

Almost All Respondents 

Used Auditors for Nonaudit 

Services 

Page 9 GAO-03-1158 Accounting Firm Consolidation 

100 
and “other services.” Only 10 companies, or 6 percent, reported that their 

auditor of record provided them with only audit and attest services. 

Respondents for the remaining 149 companies said they used their auditor 

of record for one or a combination of other services. Specifically, 87 

percent (130 of 149) said their auditor provided tax-related services, such 

as tax preparation and 71 percent (106 of 149) said they received assistance 

with company debt and equity offerings. Thirty-seven percent (55 of 149) 

said they received other services, such as merger and acquisition due 

diligence, internal control reviews, or tax planning assistance. 

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. While 

93 percent (147 of 158) of respondents said that their audit fees increased 

over the past decade, they were almost evenly divided about whether past 

consolidation of the largest accounting firms had a “moderate upward” or 

“great upward” influence (47 percent or 75 of 158) or little or no influence 

(46 percent or 72 of 158). See figure 4. 

Page 10 GAO-03-1158 Accounting Firm Consolidation 
Figure 4: Views on Change and Impact of Past Consolidation on Audit Fees 

Change in fees Impact of past consolidation on fees 

Great
 Greatly 32 upward
 increased influence


Moderate Somewhat 61 upward increased influence 

Little or 2 Little or 

no change no influence 

Moderate Somewhat 4 downward decreased influence 

Great
 Greatly 1 downward
 decreased influence


Don't know 0 Don't know 

6 

41 

46 

1 

0 

6 

0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 

Percentage Percentage 

Source: GAO. 

More respondents said that audit quality had increased over the past 

decade rather than decreased, but the majority of them did not believe that 

past consolidation of the largest accounting firms influenced these 

changes. Specifically, 44 percent (69 of 158) of the respondents said that 

audit quality had increased, while 18 percent (29 of 158) said quality had 

decreased and 37 percent (58 of 158) said there had been little or no 

change. However, 63 percent (100 of 158) of the respondents believed that 

consolidation of the largest firms had little or no influence on the quality of 

audit and attest services their companies received (see fig. 5). 

The respondents provided other reasons for changes in audit quality, 

including changes in audit partner, new regulations and audit standards, 

and technical expertise of the audit team. Several respondents cited the 

importance of the assigned audit partner to overall audit quality. One 

respondent noted, “The partner in charge is critical [to audit quality].” 

Another respondent said audit quality improved because of “more personal 

involvement of the audit partner.” Other respondents believed that 

changes in audit quality were due to changes in audit methodologies and 

the Sarbanes-Oxley Act. According to one respondent, “The change in the 

depth and quality of the audit process is due to a more rigorous regulatory 

Page 11 GAO-03-1158 Accounting Firm Consolidation 

80 
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. One respondent wrote, “Answers to 

accounting questions take too long and quality of staff is poor. 

Fundamental audit practices are gone.” Another respondent similarly 

commented that the “level of experience seems to have declined, 

contributing to lower quality, [and] partners supervise more jobs.” 

However, that same respondent also noted that since his company had 

changed auditors, the “level of experience has improved.” 

Figure 5: Views on Changes in and Impact of Past Consolidation on Audit Quality 

Change in quality Impact of past consolidation on quality 

Much Very 

better 9 positive 2 

influence 

Somewhat Somewhat 35 positive 15 better influence 

Little or 37 Little or 63 no change no influence 

Somewhat Somewhat 

16 negative 16 worse influence 

Much Very 

2 negative 0 worse influence 

Don't know 1 Don't know 4 

0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 

Percentage Percentage 

Source: GAO. 

Finally, 59 percent (94 of 158) of the respondents indicated that their 

auditor had become more independent over the past decade, while 1 

percent (2 of 158) said that their auditor had become less independent and 

38 percent (60 of 158) said that there had been no change in their auditor’s 

independence. However, 72 percent (114 of 158) of the respondents also 

said that past consolidations of the largest accounting firms had little or no 

influence on auditor independence (see fig. 6). The remaining views 

varied, with 16 percent (26 of 158) of respondents believing that the 

Page 12 GAO-03-1158 Accounting Firm Consolidation 

80 
consolidations had a negative influence on auditor independence and 8 

percent (12 of 158) saying that it had a positive influence. Some of the 

respondents commented that audits had been positively affected by SEC’s 

new independence requirements, while one respondent said that the new 

rules had not significantly enhanced auditor independence. 

Figure 6: Views on Changes in and Impact of Past Consolidation on Auditor Independence 

Change in independence 

Much 

more 11 

independent 

Somewhat 

more 48 

independent 

Little or 38 no change 

Somewhat 

less 1 

independent 

Much 

less 1 

independent 

Don't know 1 

0 10 20 30 40 50 60 70 80 

Percentage 

Source: GAO. 

Impact of past consolidation on independence 

Very 

positive 

influence 

Somewhat 

positive 

influence 

Little or 

no influence 

Somewhat 

negative 

influence 

Very 

negative 

influence 

Don't know 

3 

5 

72 

15 

1 

4 

0 10 20 30 40 50 60 70 

Percentage 

Respondents Were 

Concerned That 

Limited Audit Choices 

May Create Problems 

Respondents raised concerns about the future implications of 

consolidation, especially about possible limitations on audit firm choice. A 

significant majority of respondents said that their companies would not use 

a non-Big 4 accounting firm for audit services, which limited their choices. 

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. Moreover, they 

raised concerns that further consolidation among the largest accounting 

firms would result in too few choices. Yet, despite those concerns, most 

respondents favored allowing market forces to dictate the level of 

competition in the market for audit and attest services. 

Page 13 GAO-03-1158 Accounting Firm Consolidation 

80 
Respondents Preferred Big 

4 Firms over Non-Big 4 

Firms for Audit Services 

Eighty-eight percent (139 of 158) of respondents indicated that they would 

not consider using a non-Big 4 firm for audit and attest services. 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). These three factors also corresponded closely 

to the most frequently cited factors in choosing a new auditor as previously 

noted in figure 3. One respondent noted, “We have operations in 40 

countries and want all our auditors to operate with the same systems and 

procedures. Only a global firm can deal with this complexity in a costeffective manner and give us the continuity of support for U.S. generally 

accepted accounting principles and local statutory requirements.” Another 

respondent noted, “We would want a Big 4 firm because of its global 

presence and capabilities, reputation, and depth of resources available.” 

Sixty-five percent (89 of 137) of respondents also cited geographic 

presence and 60 percent (81 of 134) cited the lack of consent from the 

company’s board of directors as reasons of great or very great importance. 

Respondents also provided the following reasons as to why they would not 

use a non-Big 4 firm: their shareholders would not want a non-Big 4 firm; 

to gain investor confidence or stock market acceptance; Big 4 firms have 

financial resources to stand behind their work; public companies are 

expected to use them; and the quality of services from a Big 4. 

Page 14 GAO-03-1158 Accounting Firm Consolidation 
Figure 7: Reasons Cited for Not Using a Non-Big 4 Firm 

Factors 

Technical skill/ 

knowledge of 

industry 

64 27 

57 34 Reputation of 

audit firm 

48 42 Capacity of 

audit firm 

Geographic 

presence required 

of audit firm 

37 28 

25 35 Board of directors 

would not allow it 

19 26 Inferred obligation 

to use Big 4 firm 

Contractual 

obligation to use 

a Big 4 firm 

7 14 

0 20 40 60 80 

Percentage 

Very great importance 

While 57 (90 of 158) percent of respondents said that the number of firms 

their companies could use for audit and attest services was adequate as 

compared with the 43 percent (68 of 158) who said it was not, 86 percent 

(117 of 136) told us that ideally there should be more than four large 

accounting firms as viable choices for large national and multinational 

public companies. In responding to our question on what they thought the 

optimal number of firms for large companies should be, 74 percent (100 of 

136) said they would prefer from five to eight large accounting firms to 

provide audit and attest services to large national and multinational public 

companies and 12 percent (17 of 136) of the respondents preferred more 

than eight firms. Fourteen percent (19 of 136) of the respondents said four 

or fewer firms would be optimal. Most comments we received in favor of 

more firms addressed the need to increase competition, decrease fees, and 

Great importance 

Source: GAO. 

Majority of Survey 

Respondents Preferred 

More Audit Choices 

Page 15 GAO-03-1158 Accounting Firm Consolidation 

100 
comply with the new independence rules as required by Sarbanes-Oxley. 

Respondents noted, “More firms will improve the competition in the 

[accounting] industry,” “more choices, more competition, lower cost,” and 

“one firm provides [our] tax planning services which may impair [its] 

independence.” Another respondent wrote, “Slightly more options would 

enhance technical resourcing opportunities external to current auditors.” 

However, we also received many comments cautioning that too great a 

number of firms might have negative implications. One respondent said, 

“Any greater number of firms would have difficulty in maintaining scale to 

properly serve large international companies.” According to another 

respondent, “If the number gets too big, then [it would be] hard to have 

level of expertise in certain industries.” Some respondents felt that four or 

five big firms would be sufficient. One respondent wrote, “As a firm 

believer in the efficiency of the marketplace, I believe that the current 

number of large firms (4) is probably close to the optimum number, but 

wouldn’t mind seeing another major firm gradually emerge.” Another 

respondent wrote, “Balance must be struck between competition and 

fragmentation of a fixed talent pool.” 

Respondents Said Further 

Consolidation Would Result 

in Too Few Choices 

When asked the minimum number of accounting firms necessary to 

provide audit and attest services to large national and multinational public 

companies, 82 percent (120 of 147) of respondents indicated that the 

market was either at its minimum or already below the minimum number 

required. Fifty-nine percent (86 of 147) said that four or five large 

accounting firms would be the necessary minimum. According to one 

respondent, “Four is the absolute minimum, because if you currently use 

one firm for external audit purposes and another firm for internal audit 

purposes, that only leaves two other firms from which to choose if you 

want to change auditors or use a Big 4 firm for consulting services.” 

Some respondents pointed out that not even all the Big 4 firms have the 

necessary industry expertise required to conduct their companies’ audits. 

According to one respondent, “From a realistic standpoint, only one other 

Big 4 firm has a utility practice that would help [it] understand our 

industry.” Another respondent wrote, “We use one of the Big 4. Two of 

them do not have industry expertise. Only one of the remaining three has 

industry expertise in the geographic region.” 

Although Sarbanes-Oxley prohibits a company’s external auditor from 

providing internal audit services and certain other consulting services to 

Page 16 GAO-03-1158 Accounting Firm Consolidation 
the same company, many companies currently use one of the Big 4 as their 

external auditor and one of the remaining three Big 4 firms for nonaudit 

services such as tax consulting and internal audits. Therefore, a company 

with this arrangement that needed to change auditors would have one 

fewer alternative or would need to terminate its internal audit or consulting 

relationship. For example, one respondent noted, “Aside from our current 

auditor, we use another of the Big 4 as a co-source provider of internal 

audit services, so [we] would not consider them. We are using a third for 

tax work so it would be hard under Sarbanes-Oxley to switch to them.” 

Most Respondents Prefer to 

Allow Market Forces to 

Dictate the Level of 

Competition in the Audit 

Market 

Despite the fact that 94 percent of respondents said they had three or fewer 

options from which to choose if they had to change auditors, 62 percent (98 

of 159) of respondents said they would not suggest that any actions be 

taken to increase competition in the provision of audit and attest services 

for large national and multinational companies. When asked whether steps 

should be taken to increase the number of available choices, 79 percent (65 

of 83) opposed government action to break up the Big 4, while 66 (55 of 83) 

percent opposed any government action to assist non-Big 4 firms. Seventyeight percent (64 of 82) of respondents said they would favor letting market 

forces operate without government intervention. 

While some respondents expressed their belief that the market would 

adjust to create a more competitive environment, others expressed 

uncertainty about whether government actions could increase competition. 

According to one respondent, “Government action to assist the non-Big 4 

firms will not work. The level of expertise and depth of resources required 

to deal with ever increasing levels of complexity and regulation cannot be 

[solved through] government intervention.” However, another respondent 

commented, “Having only four large firms is a concern. The benefits of 

consolidation should be higher quality, less variation in advice, stronger 

financial resources of the accounting firm, and more accountability. If 

these benefits are not achieved, then the government may need to 

intervene.” In addition, several respondents expressed concern about 

further consolidation. Referring to the dissolution of Andersen, one 

respondent said, “Our biggest concern is the ease with which a firm can 

disappear.” Another stated, “The failure of Andersen had a devastating 

impact and ultimately resulted in fewer qualified professionals providing 

attest services during a time of rapidly increasing complexity in applying 

GAAP.” 

Page 17 GAO-03-1158 Accounting Firm Consolidation 
We are sending copies of this report to the Chairman and Ranking Minority 


Member of the House Committee on Energy and Commerce. We are also 


sending copies of this report to the Chairman of SEC, the Chairman of the 


Public Company Accounting Oversight Board, and other interested parties.


We also will make copies available to others upon request. In addition, the 


report will be available at no charge on the GAO web site at 


http://www.gao.gov.


This report was prepared under the direction of Orice M. Williams, 


Assistant Director. Please contact her or me at (202) 512-8678 if you or 


your staffs have any questions concerning this work. Key contributors are 


acknowledged in appendix IV.


Davi M. D’Agostino


Director, Financial Markets and


Community Investment


Page 18 GAO-03-1158 Accounting Firm Consolidation 
Appendix I 

Scope and Methodology


We surveyed a random sample of 250 of the 960 largest publicly-held 

companies. We defined this population using the 2003 list of the Fortune 

1000 companies produced by Fortune, a division of Time, Inc., after 

removing 40 private companies from this list. We mailed a paper 

questionnaire to the chief financial officers, or other executives performing 

a similar role, requesting their views on the services they received from 

their auditor of record, the effects of past consolidation on competition 

among accounting firms, and its potential implications. To develop this 

questionnaire, we consulted with a number of experts at GAO, the 

American Institute of Certified Public Accountants, and the Securities and 

Exchange Commission, and pretested a draft questionnaire with six large 

public companies from a variety of industries. The survey began on May 6, 

2003. We removed one company that had gone out of business and 

received 159 usable responses as of August 11, 2003, from the final sample 

of 249 companies, for an overall response rate of 64 percent. The number 

of responses to an individual question may be fewer than 159, depending on 

how many respondents answered that question. 

While the survey results are based on a random sample drawn to be 

representative of the population of publicly held Fortune 1000 companies 

and thus could be adjusted statistically to represent the whole population, 

including those not sampled, we are instead reporting totals and 

percentages only for those companies actually returning questionnaires. 

We did this because a significant number of sampled companies did not 

respond, and the answers respondents gave could differ from those 

nonrespondents might have given had they participated. This kind of 

potential error from nonresponse, when coupled with the sampling error 

that results from studying only a fraction of the population, made it 

particularly risky to project the results of our survey to not only the 

nonrespondents, but also to the part of the public company population we 

did not sample. There are other practical difficulties in conducting any 

survey that may also contribute to errors in survey results. For example, 

differences in how a question is interpreted or the sources of information 

available to respondents can introduce unwanted variability into the survey 

results. We took steps during data collection and analysis to minimize such 

errors. In addition to the questionnaire testing and development measures 

mentioned above, we followed up with nonresponding companies with 

telephone calls to help them overcome problems they encountered in 

completing the survey and to encourage them to respond. We also checked 

and edited the survey data and programs used to produce our survey 

results. 

Page 19 GAO-03-1158 Accounting Firm Consolidation 
Appendix I


Scope and Methodology


All 159 companies responding to our survey employed a Big 4 firm as their 

auditor of record. These companies derived an average of 83 percent of 

their total revenues from operations within the United States and paid, on 

average, $3.19 million in fees to their auditor of record in the fiscal year 

prior to the survey. Using Standard Industry Classification (SIC) codes, we 

found that 149 respondents represented 39 different industry sectors; we 

could not identify an SIC code for the other 10 respondents. The top 7 

industry sectors represented were 

• electric, gas, and sanitary services (17 companies), 

• depository institutions (10 companies), 

• business services (9 companies), 

•	 industrial and commercial machinery and computer equipment (9 

companies), 

• wholesale trade-non-durable goods (9 companies), 

• chemicals and allied products (8 companies), and 

•	 electronic and other electrical equipment and components, except 

computer equipment (6 companies). 

Page 20 GAO-03-1158 Accounting Firm Consolidation 
Appendix II 

Annotated Public Company Survey


United States General Accounting Office 

Survey of Public Companies 

Introduction 

The Sarbanes-Oxley Act of 2002 mandated that 

the U.S. General Accounting Office (GAO), the 

independent research and investigative arm of 

Congress, study the impact of the recent 

consolidation of firms in the accounting 

profession. 

To provide a thorough, fair, and balanced report 

to Congress, it is essential that we obtain the 

experiences and viewpoints of a representative 

sample of public companies. 

Your company was selected randomly from the 

2002 list of Fortune 1000 companies. It is 

important for every selected firm to respond to 

ensure the validity of our research. 

The results of the survey will be compiled and 

presented in summary form only as part of our 

report, and GAO will not release individually 

identifiable data from this survey, unless 

compelled by law or required to do so by the 

Congress. 

Instructions 

Please complete this questionnaire specifically 

for the company named in the cover letter, and 

not for any subsidiaries or related companies. 

This questionnaire should be completed by the 

Chief Financial Officer (CFO) or other 

executive of this organization who can provide 

historical information on mergers, operations 

and finance, as well as report the corporate 

policy of this firm. 

Please return the completed questionnaire in the 

enclosed envelope within 10 business days of 

receipt. If the envelope is misplaced, our 

address is: 

U. S. General Accounting Office 

Attn: Cecile Trop 

200 W. Adams Street, #700 

Chicago, IL 60606 

If you have any questions or concerns about this 

survey, please contact: 

Michelle Pannor 

Telephone: (202) 512-3608 

Email: pannorm@gao.gov 

Thank you for participating in this survey. 

1 

Page 21 GAO-03-1158 Accounting Firm Consolidation 
Appendix II


Annotated Public Company Survey


2 

Background 

1. Approximately what percentage of your company’s total revenues are derived from operations 

within and outside of the United States? 

Please enter percentages totaling 100%. 

_____% operations within the United States 

N=158 Mean=83 

_____% operations outside of the United States 

N=110 Mean=25 

100 

2. If your company was founded in the past decade, in what year was it founded? 

Please enter 4-digit year. 

_______________ 

3. What is the name of your company’s current auditor of record and when did this firm become 

your auditor of record? Please enter name of auditor and 4-digit year hired. 

______________________________ me of auditor 

_______________________________ ployed as auditor 

4. What type of services does your auditor of record currently provide to your company? Please 

check all that apply. 

1. Only audit and attest services N=10 

2. Tax-related services (e.g., tax preparation) N=130 

3. Assistance with company debt and equity offerings (e.g. comfort letters) N=106 

4. Other services - please describe: N=54 

_______________________________________________________________________ 

of our revenues are derived from

Median=95 Range=12-100 

of our revenues are derived from

Median=20 Range=0-88 

% Total revenues 

Year founded 

Na

First year em

Page 22 GAO-03-1158 Accounting Firm Consolidation 
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Annotated Public Company Survey


3 

5. Approximately how much were the total annual fees that your company paid to your auditor of 

record for audit and attest services during your last fiscal year? 

Please enter approximate dollar figure. 

N=156 

$_________________ Mean=$3,189,578 

Median=$1,334,500 

Range=$13,807-$62,000,000 

6. Starting in 1987, when consolidation of the largest accounting firms began, or since your 

company was founded (if that occurred after 1987), has your company employed more than one 

auditor of record? Please check one box. 

N=158 

1. Yes - how many: ________ 38% 

2. No 62% 

7. What were the names and tenures of the most recent previous auditor(s) of record your company 

has employed since 1987? Please name up to two of the most recent previous auditors and 

years employed. 

________________________ Name of auditor from (year)_____ to (year)_______ 

________________________ Name of auditor (year)_____ to (year)_______ 

8. Which of the following reasons explain why your company changed auditor of record one or 

more times since 1987? Please check all that apply. 

1. Our company had a mandatory rotation policy N=0 

2. Expansion of our company required an auditor of record that could meet new demands 

N=7 

3. New regulations forbidding use of auditor for management consulting and other services 

N=2 

4. Fees for audit and attest services N=7 

5. Concern about reputation of our auditor of record N=10 

6. Our auditor of record was going out of business N=31 

7. Our auditor of record resigned N=0 

8. Relationship with our auditor of record was no longer working N=4 

9. Other – please describe: N=19 

__________________________________________________________________ 

Annual fees 

SKIP TO NEXT PAGE 

from

Page 23 GAO-03-1158 Accounting Firm Consolidation 
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Annotated Public Company Survey


4 

9. If your company previously employed Arthur Andersen as your auditor of record and switched 

to another firm in the past two years, did you switch to the firm to which your previous Arthur 

Andersen partner moved? Please check one box. 

N=56 

1. Not applicable – did not employ Arthur Andersen 34% 

2. Yes, switched to partner’s new firm 30% 

3. No, switched to other firm – 36% 

please explain: _______________________________________________________________ 

Consolidation in the Accounting Profession 

We are focusing on the trend toward consolidation that has occurred in the public accounting 

profession starting in 1987, when consolidation activity among the largest firms began, primarily the 

consolidation of the “Big 8” into the “Big 4.” your company’s 

relationship with its auditor of record, and the audit services it provides, has changed over this time 

frame. ay have influenced these changes, we would like you to 

assess the influence of consolidation in the accounting profession in particular. lease base your 

answers on your experience in the past decade or, if this is not possible, on the time frame that 

reflects your experience. 

10. How have the fees that your company pays for audit and attest services changed over the past 

decade? If it is not possible for you to answer for the past decade, please base your answer on 

the time frame that best reflects your experiences. Please check one box. 

N=158 

1. Greatly increased 32% 

2. Somewhat increased 61% 

3. Little or no change 2% 

4. Somewhat decreased 4% 

5. Greatly decreased 1% 

This section asks you to consider how

Although a number of factors m

P

Page 24 GAO-03-1158 Accounting Firm Consolidation 
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5 

11. If your company changed auditors within the last two years, how have the fees your company 

pays your current auditor of record changed compared to the fees paid to your previous auditor? 

Please check one box. 

N=156 

1. Not applicable – have not changed auditors 71% 

2. Greatly increased 5% 

3. Somewhat increased 15% 

4. Little or no change 7% 

5. Somewhat decreased 2% 

6. Greatly decreased 0% 

12. In your opinion, how has the consolidation of the largest accounting firms over the past decade 

influenced the fees that your company pays for auditing and attest services? 

N=158 

1. Great upward influence 6% 

2. Moderate upward influence 41% 

3. Little or no influence 46% 

4. Moderate downward influence 1% 

5. Great downward influence 0% 

6. Don’t know 6% 

13. Audit quality is often thought to include the knowledge and experience of audit firm partners 

and staff, the capability to efficiently respond to a client’s needs, and the ability and willingness 

to appropriately identify and surface material reporting issues in financial reports. 

Do you believe that the overall quality of audit services your company receives has gotten better 

or worse over the past decade? Please check one box. 

N=158 

1. Much better 9% 

2. Somewhat better 35% 

3. Little or no change 37% 

4. Somewhat worse 16% 

5. Much worse 3% 

6. Don’t know 1% 

Page 25 GAO-03-1158 Accounting Firm Consolidation 
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6 

14. If your company changed auditors within the last two years, do you believe that the overall 

quality of audit services your company receives from your current auditor is better or worse 

than the overall quality of audit services your company received from its previous auditor? 

Please check one box. 

N=154 

1. Not applicable – have not changed auditors 71% 

2. Much better 5% 

3. Somewhat better 10% 

4. Little or no change 8% 

5. Somewhat worse 5% 

6. Much worse 1% 

7. Don’t know 0% 

15. In your opinion, how has the consolidation of the largest accounting firms over the past decade 

influenced the quality of audit and attest services that your company receives? 

N=158 

1. Very positive influence 2% 

2. Somewhat positive influence 15% 

3. Little or no influence 63% 

4. Somewhat negative influence 16% 

5. Very negative influence 0% 

6. Don’t know 4% 

16. If you have experienced a change in audit quality, please explain: 

If you have not experienced a change, please enter “none.” 

_________________________________________________________________________ 

_________________________________________________________________________ 

_________________________________________________________________________ 

Page 26 GAO-03-1158 Accounting Firm Consolidation 
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7 

17. Auditor independence is often thought to relate to the accounting firm’s ability and willingness 

to appropriately deal with (a) financial reporting issues that may indicate materially misstated 

financial statements; (b) the appearance of independence in terms of the other services a firm is 

allowed to and chooses to provide to their clients; and (c) how much influence clients appear to 

have in the audit decisions. 

Do you believe that your company’s auditor(s) has become more or less independent over the 

past decade? Please check one box. 

N=158 

1. Much more independent 11% 

2. Somewhat more independent 48% 

3. Little or no change 38% 

4. Somewhat less independent 1% 

5. Much less independent 1% 

6. Don’t know 1% 

18. If your company changed auditors within the last two years, do you believe that your current 

auditor is more or less independent than your previous auditor? 

Please check one box. 

N=155 

1. Not applicable – have not changed auditors 72% 

2. Much more independent 5% 

3. Somewhat more independent 11% 

4. Little or no change 12% 

5. Somewhat less independent 0% 

6. Much less independent 0% 

7. Don’t know 0% 

Page 27 GAO-03-1158 Accounting Firm Consolidation 
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Annotated Public Company Survey


8 

19. In your opinion, how has the consolidation of the largest accounting firms over the past decade 

influenced the ability of your auditor of record to maintain independence in the audit and attest 

services it provides to your company? Please check one box. 

N=158 

1. Very positive influence 3% 

2. Somewhat positive influence 5% 

3. Little or no influence 72% 

4. Somewhat negative influence 15% 

5. Very negative influence 1% 

6. Don’t know 4% 

20. How satisfied are you with your current auditor of record? 

Please check one box 

N=158 

1. Very satisfied 45% 

2. Somewhat satisfied 35% 

3. Neither satisfied nor dissatisfied 8% 

4. Somewhat dissatisfied 11% 

5. Very dissatisfied 1% 

6. Don’t know 0% 

Page 28 GAO-03-1158 Accounting Firm Consolidation 
Appendix II


Annotated Public Company Survey


9 

Competition in the Public Accounting Profession 

21. Would you consider using a non-Big 4 firm for audit and attest services? 

Please check one box 

N=158 

1. Not applicable – already use a non-Big 4 firm SKIP TO QUESTION 23 

4% 

2. Yes 8% 

3. No 88% 

22. IF NO: mportant are the following reasons in explaining why you would not consider 

using a non-Big 4 firm? Please check one box in each row. 

Very Great 

Importance 

(1) 

Great 

Importance 

(2) 

Moderate 

Importance 

(3) 

Some 

Importance 

(4) 

Little or No 

Importance 

(5) 

Don’t 

Know 

(6) 

Geographic presence that our 

company requires of an auditor 

N=137 

37% 28% 18% 9% 8% 0% 

Technical skill/knowledge of 

industry 

N=138 

64% 27% 6% 3% 0% 0% 

Capacity of audit firm 

N=138 

48% 42% 8% 1% 1% 0% 

Reputation of audit firm 

N=138 

57% 34% 9% 0% 0% 0% 

Contractual obligation to use a 

Big 4 firm (e.g., with banks, 

lenders, or landlords) 

N=137 

7% 14% 15% 11% 46% 7% 

Inferred obligation to use a Big 4 

firm (e.g., with banks, lenders, or 

landlords) 

N=136 

19% 26% 19% 12% 20% 4% 

Our Board of Directors would 

not allow it 

N=134 

25% 35% 14% 4% 4% 18% 

Other - please describe: 

N=20 N=10 N=3 N=7 

SKIP TO QUESTION 23 

How i

N=0 N=0 N=0 

Page 29 GAO-03-1158 Accounting Firm Consolidation 
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Annotated Public Company Survey


10 

23. If you had to switch your auditor of record, how easy or difficult would each of the following 

stages be? Please check one box in each row. 

Very 

Difficult 

(1) 

Somewhat 

Difficult 

(2) 

Neither Easy 

nor Difficult 

(3) 

Somewhat 

Easy 

(4) 

Very 

Easy 

(5) 

Don’t 

Know 

(6) 

Identifying eligible candidates 

N=158 1% 11% 8% 15% 65% 0% 

Reviewing proposals and 

selecting the new auditor 

N=157 

3% 38% 29% 21% 9% 0% 

Transitioning to the new 

auditor (e.g., training) 

N=158 

39% 53% 5% 1% 1% 1% 

Other - please describe: 

N=19 N=11 N=0 N=0 N=0 N=6 

24. Aside from your current auditor of record, how many firms do you think your company would 

have as options if you needed to change auditors? 

Please enter the number of firms to which your company could switch. 

N=157 

__________________ firm(s) 

Range of responses=0–3 N=148 94% 

Range of responses=4–8 N=9 6% 

Please explain: 

_________________________________________________________________________ 

25. Do you think the number of firms your company has as options for auditing and attest services 

is enough? Please check one box. 

N=158 

1. Yes 57% 

2. No 43% 

Please explain: 

_________________________________________________________________________ 

_________________________________________________________________________ 

N=2 

___________________________________________________________ 

___________________________________________________________ 

Page 30 GAO-03-1158 Accounting Firm Consolidation 
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11 

26. Would your company choose as your auditor of record an accounting firm that currently audits 

one of your competitors? Please check one box. 

N=157 

1. Yes 92% 

2. No 8% 

Please explain: ___________________________________________________________ 

_________________________________________________________________________ 

_________________________________________________________________________ 

27. If you had to choose a new auditor of record, how important would each of the following factors 

be to your decision? Please check one box in each row. 

Very Great 

Importance 

(1) 

Great 

Importance 

(2) 

Moderate 

Importance 

(3) 

Some 

Importance 

(4) 

Little or No 

Importance 

(5) 

Don’t 

Know 

(6) 

Price 

N=157 15% 39% 37% 7% 2% 0% 

Number of services offered 

N=158 5% 31% 33% 20% 10% 1% 

Quality of services offered 

N=159 76% 23% 1% 0% 0% 0% 

Industry specialization or 

Expertise 

N=159 

50% 31% 15% 4% 0% 0% 

Reputation or name recognition 

of the auditor 

N=159 

42% 41% 11% 5% 1% 0% 

Auditor’s proximity to your 

company’s headquarters 

N=159 

8% 26% 42% 9% 15% 0% 

Ability of auditor to handle your 

company’s international 

operations 

N=155 

32% 17% 8% 7% 35% 1% 

Chemistry/perceived ability to 

effectively work with engagement 

team 

N=159 

31% 43% 18% 6% 2% 0% 

Other - please describe: 

N=12 

N=5 N=2 N=0 N=0 N=0 N=5 

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12 

28. Has the consolidation of the largest accounting firms over the past decade made it harder or 

easier for your company to satisfactorily select an auditor and maintain a relationship with that 

auditor? Please check one box. 

N=158 

1. Much harder 6% 

2. Somewhat harder 17% 

3. Little or no effect 68% 

4. Somewhat easier 3% 

5. Much easier 0% 

6. Don’t know 6% 

29. How, if at all, has the consolidation of the largest accounting firms over the past decade affected 

competition in the provision of audit and attest services? If it is not possible for you to answer 

for the past decade, please base your answer on the time frame that best reflects your 

experiences. Please check one box. 

N=159 

1. Greatly increased competition 1% 

2. Somewhat increased competition 9% 

3. Little or no effect 50% 

4. Somewhat decreased competition 24% 

5. Greatly decreased competition 11% 

6. Don’t know 5% 

30. How, if at all, has this change in competition affected each of the following areas? 

Greatly 

Increased 

(1) 

Somewhat 

Increased 

(2) 

Little or No 

Effect 

(3) 

Somewhat 

Decreased 

(4) 

Greatly 

Decreased 

(5) 

Don’t 

Know 

(6) 

Costs 

N=77 12% 61% 14% 5% 0% 8% 

Quality of service 

N=77 1% 16% 43% 31% 1% 8% 

Auditor independence at the 

overall firm level 

N=77 

1% 10% 68% 14% 0% 6% 

Auditor independence at the 

individual partner level 

N=77 

4% 9% 70% 8% 0% 9% 

Other - please describe: 

N=7 

N=3 N=0 N=2 

SKIP TO QUESTION 31 

N=1 N=1 N=0 

Page 32 GAO-03-1158 Accounting Firm Consolidation 
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Annotated Public Company Survey


31. What do you believe is the minimum number of accounting firms necessary to provide audit 

and attest services to large national and multinational public companies? Please enter a 

number. 

______________ number of firms 

N=147 

Range of responses=0–3 N=27 18% 

Range of responses=4–5 N=86 59% 

Range of responses=6–8 N=31 21% 

Range of responses=10+ N=3 2% 

Please explain: ____________________________________________________________ 

_________________________________________________________________________ 

_________________________________________________________________________ 

_________________________________________________________________________ 

32. What do you believe is the optimal number of accounting firms for providing audit and attest 

services to large national and multinational public companies? Please enter a number. 

______________ number of firms 

N=136 

Range of responses=0–2 N=5 4% 

Range of responses=3–4 N=14 10% 

Range of responses=5–8 N=100 74% 

Range of responses=9+ N=17 12% 

Please explain: ___________________________________________________________ 

_________________________________________________________________________ 

_________________________________________________________________________ 

_________________________________________________________________________ 

13 

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Annotated Public Company Survey


33. Do you suggest that any actions be taken to increase competition in the provision of audit and 

attest services for large national and multinational public companies? Please check one box. 

N=159 

1. Yes 22% 

2. No 62% 

3. Don’t know 16% 

Please explain: ___________________________________________________________ 

_________________________________________________________________________ 

_________________________________________________________________________ 

_________________________________________________________________________ 

34. Would you favor or oppose the following actions to increase competition to provide audit and 

attest services for large national and multinational clients? Please check one box in each row. 

Strongly 

Favor 

(1) 

Somewhat 

Favor 

(2) 

Neither Favor 

nor Oppose 

(3) 

Somewhat 

Oppose 

(4) 

Strongly 

Oppose 

(5) 

Don’t 

Know 

(6) 

Government action to 

break up the Big 4 

N=83 

2% 7% 12% 22% 57% 0% 

Government action to 

assist the non-Big 4 firms 

N=83 

2% 18% 13% 17% 49% 0% 

Let market forces operate 

without intervention 

N=82 

48% 31% 13% 4% 2% 2% 

Other - please describe: 

N=10 N=9 N=1 N=0 N=0 N=0 N=0 

Other - please describe: 

N=2 N=1 N=0 N=0 N=0 N=1 N=0 

Other - please describe: 

N=0 N=0 N=0 N=0 N=0 N=0 N=0 

14 

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35. Do you have any additional comments on any of the issues covered by this survey? 

Please use the space below to make additional comments or clarifications of any answers you 

gave in this survey. 

Thank you for your assistance with this survey! 

Please return it in the envelope provided. 

15 

Page 35 GAO-03-1158 Accounting Firm Consolidation 
Appendix III 

Summary of Written Comments to the Public 

Company Survey 

Companies surveyed were invited to add written comments to a number of 

questions to further explain their answers. Of the 159 respondents that 

responded to the survey, 149 volunteered written answers to at least one of 

the eight key open-ended comment questions in our survey: 

• change in audit quality, 

• the number of auditor options, 

• the sufficiency of such options, 

• willingness to use the auditor of a competitor, 

• minimum number of audit firms necessary, 

• optimal number of firms, 

• suggested actions for increasing competition, and 

• any additional comments on the survey. 

The following tables display selected comments from some respondents to 

these eight questions. Some of the quotes illustrate typical comments 

made by several other companies, while others represent a unique 

viewpoint of only that company. While these specific comments provide 

valuable insights, the number of comments of a particular type reproduced 

here is not necessarily proportional to the number of other similar 

responses, and, therefore, the comments do not represent the variety of 

opinion that might be found in the population of large public companies as 

a whole. 

Change in Audit 	 More respondents said that overall audit quality had gotten better over the 

past decade than worse (44 percent compared to 18 percent). The reasons Quality	 behind these ratings are presented in table 2, grouped into summary 

categories. 

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Table 2: Explanations for Changes in Audit Quality 

Drawn from 56 responses to question 16—“If you have experienced a change in audit quality, please explain.” 

Direction of quality General category of 

change explanation Comment 

Better Audit methods “Improved methodologies and documentation. Improved support tools and 

depth of expertise.” 

“Improvements largely reflect steady, incremental improvements in 

effectiveness—applying new technology, lessons learned from customer 

feedback, etc.” 

“More focus on risk analysis and internal controls.” 

Staffing/expertise “Better experienced audit staff; better national level resources available.” 

“Greater familiarity and experience of auditors with our company has had some 

positive impact on quality. They understand our business more and are much 

more efficient.” 

“Broader client base gives greater practice experience.” 

Environmental forces	 “I believe there has been a change, but driven more by the environment and 

Sarbanes-Oxley.” 

“Change in the depth and quality of the audit process is due to a more rigorous 

regulatory and litigation environment and not audit consolidation.” 

Changing requirements	 “Audit quality is somewhat higher, due to added GAAS requirements rather 

than consolidation of audit firms.” 

“Audit quality has been positively impacted by new independence requirements 

and scrutiny of the accounting industry.” 

Client actions	 “Our audit quality has increased as we have changed audit partners and have 

requested an increase in scope and scrutiny.” 

“We are challenged thoroughly to document fully matters of judgment and 

estimates.” 

“Recent events have caused [our auditor] to scrutinize more closely and we 

have asked for more coverage in certain areas.” 

Worse Audit methods Less specific transaction testing now than before.” 

“Less insightful; rarely identifies known matters of concern; overly simplistic in 

approach; poor identification of financial and business risks.” 

“Focus on ‘form’ of compliance not substance... Audits in ‘90s did not focus on 

controls...Sarbanes-Oxley 404 brings controls back to forefront but of little value 

as audit firms are focused on fee, opportunity & form (not substance) which 

should have been there (in audits) these past 10 years for auditors to attest as 

to validity of financial results.” 

“Auditors are increasingly worried about 'checklist' compliance with unduly 

complicated GAAP rules rather than assessing 'fair presentation' in the context 

of the company's line of business.” 

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(Continued From Previous Page) 

Direction of quality General category of 

change explanation Comment 

Staffing/expertise	 “Less involvement by partners/senior management, lower quality planning and 

execution.” 

“Too much reliance on technology to cut hours; less on the ground time; staff 

turnover higher.” 

“Firms have become cookie-cutter checklist type of auditors. Very little 

business sense of experience exists. The auditor should know more than the 

client but that doesn't exist today.“ 

Environmental forces “Slight decline mainly due to fee pressure.” 

“Less competition; more regulation; more complexity; more ‘legalistic,’ 

nonproductive effort and protectionism on everyone's part.” 

Timeliness	 “The timeliness of resolving issues is much slower and the answers to key 

accounting issues can change shortly before filings and/or press releases.” 

“Too much info to keep ‘current’ on results in longer internal review process and 

longer decision-making process on part of the auditors.“ 

Source: GAO. 

Number of Auditor 

Options Available 

Almost all respondents—94 percent—indicated that they had three or 

fewer options from which to choose if they had to change auditors, and 61 

percent said exactly three. The explanatory comments we received to that 

question, shown in table 3, confirm that respondents are almost always 

referring to the Big 4 firms other than the one they currently employ. As 

only 8 percent of respondents said they currently use or would consider 

using a non-Big 4 firm, there were few written explanations for why they 

thought they had more than three or four options. Those who did explain 

mentioned the national prominence of the larger second-tier firms and 

smaller firms with special industry expertise as reasons. 

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Table 3: Explanations for the Number of Auditor Options Available 

Of the 157 responses to question 24—“Aside from your current auditor of record, how 

many firms do you think your company would have as options if you needed to change 

auditors?”—130 respondents also provided comments. Below are selected comments. 

Range of options Comment 

Three remaining Big 4 “As a Fortune 100 company, I believe that our realistic options 

firms are currently limited to the Big 4.” 

“I believe the board and management would require that the 

switch be made to a Big 4 firm.” 

“Because of our size and technical complexity, we would choose 

from the remaining Big 3.” 

“We have operations in 40 countries—all operating on the same 

systems, procedures. Only a global firm can deal with this 

complexity in a cost effective manner and continuity of support 

for US GAAP and local statutory requirements.” 

Only one or two of the “Remainder of Big 4 firms who have an expertise/knowledge of 

Big 4 firms	 our industry and a willingness to take on new clients in our 

industry.” 

“...Aside from our current auditor, we use another of the Big 4 as 

a co-source provider of internal audit services, so would not 

consider them. We are using a third for tax work so it would be 

hard under Sarbanes-Oxley to switch to them.” 

“One of the remaining Big 4 would probably be excluded due to 

potential independence issues.” 

“Only two firms other than [our current auditor] in the northwest 

that have energy experience and expertise.” 

“Current and predecessor audit firm exclusion leaves only two 

other Big 4 firms. However, both of these firms have existing 

relationship with major direct competitors.” 

Others in addition to “It would be fairly easy to transition to one of the other ‘Big 4.’ 

the Big 4 firms	 However, there are probably only a couple regional firms that 

have industry expertise and a base of operations in Nevada, 

such that we could utilize them.” 

“Other three of the Big 4; two other firms of sufficient capability 

(technical expertise, SEC experience, industry experience, 

sufficient staff resources-quantity & quality) could probably be 

identified.” 

“We would consider the remaining Big 4 firms and could also 

consider the top 2 non-Big 4 firms. But because of our 

international operations, our bias would be strongly in favor of a 

Big 4 firm.” 

“National firms of prominence.” [This company said it had five 

options.] 

Source: GAO. 

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Sufficiency of the 

Number of Options 

Almost half of the respondents (43 percent) said they did not have enough 

options and desired more. Respondents who said they had enough options 

said the Big 4 firms were able to meet their needs. However, several of 

these respondents cautioned that further reductions could be problematic. 

Those saying the number of firms was not sufficient often took the position 

that “more competition is always better.” Other comments included that 

differentiation between the firms’ services was declining, special expertise 

was not longer readily available, and monopolistic tendencies in setting 

fees. See table 4. 

Table 4: Number of Auditor Options Available 

Of the 158 responses to question 25—“Do you think the number of firms your company has as options for auditing and attest services is 

enough?”—63 respondents also provided comments. Below are selected comments. 

General category of 

Sufficiency of options explanation Comment 

Sufficient General “Current firms as sufficient to meet business needs and independence 

rules. Sarbanes-Oxley Act and subsequent rules are more constraining 

than [number] of firms.” 

“[Sufficient] but just barely. I felt much more comfortable with 5 or 6.” 

Competition/fees “Three firms still provide a variety of choices and competition; however, if it 

declines further problems could arise.” 

“There is adequate competition and rivalry among 4 firms.” 

“...While more firms would possibly increase competition, I think the fee 

effect would be modest.” 

Specialties/expertise	 “The other 3 Big 4 CPA firms should possess appropriate professional 

qualifications and be able to provide services on a global basis.” 

“All 4 firms have good technical competence and sufficient resources.” 

Insufficient General	 “I do not believe that the 4 major firms offer sufficient alternatives. Too 

many potential conflicts with customers, vendors, partners, etc., to ensure 

independence in all cases.” 

“Considering a need to spread work among non-competitor firms, 4 is too 

small. Also, in-house auditing can't be done by the named firm, auditrelated work is being spread to others, as is non-audit work; 4 large firms 

limits choices.” 

“It is always better to have more competition.” 

Competition/fees	 “It is clear that [auditor] believes they can become more aggressive with 

billings due to the lower number of competitors.” 

“We believe that there are not enough choices. More competition might 

drive audit fees down.” 

Specialties/expertise	 “We would feel more comfortable about locating a firm that fit our 

geographic and technical needs if there were more options.” 

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(Continued From Previous Page) 

General category of 

Sufficiency of options explanation Comment 

“It would be great to have large national alternatives to call on like the old 

Kenneth Leventhal & Co. which had an expertise in real estate and was 

national.” 

Differentiation “Not sufficient differentiation in audit approach, personality.” 

“Talent pool is restricted.” 

Source: GAO. 

Willingness to Use 	 More than 90 percent of our respondents said that their company would 

choose the auditor of a competitor. A few of those respondents provided Auditor of Competitor explanations as to why they would or would not, as shown in table 5. 

Table 5: Explanations of Why a Company Would or Would Not Choose the Auditor of 

a Competitor 

Of the 157 responses to question 26—“Would your company choose as your auditor of 

record an accounting firm that currently audits one of your competitors?”—87 

respondents also provided comments. Below are selected comments. 

Would choose 

a competitor’s 

auditor? Comment 

No	 "Not in same city. Would not want same personnel auditing a 

competitor." 

"Probably not if a primary competitor in our key markets - concerns 

about auditor personnel discussions, etc." 

"Too much competitive intelligence." 

“Not one of our major, direct competitors. Partly for confidentiality and 

partly because we don't want to be the ‘#2’ client and fail to attract the 

best talent at our auditor.” 

“I would rather say ‘maybe.’ The fact that our major competitor was one 

of the 3 other Big 4 firms available would be a ‘strike’ against that firm 

due to sensitive information.” 

“Industry too small and potential conflicts too risky.” 

Yes	 "Comfort that there would be no risk of competitive information being 

communicated within audit firm or to competitor client." 

"The confidentiality and integrity of the audit firm should allow for this." 

"We have too many competitors to use this as a valid screening 

criterion. Also, we have confidence in the ‘Chinese walls’ inside of [our 

auditor]." 

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(Continued From Previous Page) 

Would choose 

a competitor’s 

auditor? Comment 

"With only 4 firms to choose from, we've had to change our views on 

this." 

"Because of the limited choices we must be willing to choose a firm that 

audits competitors." 

"Our current auditor audits a significant portion of our peer group. We 

consider that a good thing for addressing new accounting issues." 

"This decision will be based on the professional qualifications of the 

CPA firm and we would expect that firm to maintain the highest level of 

confidentiality. Some of our competitors are audited by other Big 4 

firms so it is possible that we may select one of these firms" 

As long as the competitor's audit was not performed out of the same 

local office. 

Source: GAO. 

Minimum Number of 	 A large majority (82 percent) of respondents said that the minimum 

number of firms necessary to provide audit services to large companies Firms Necessary 	 such as theirs was four or more. The largest number of responses was 

received for four or five firms. See table 6. 

Table 6: Explanations of Minimum Number of Firms Necessary 

Of the 147 responses to question 31—“What do you believe is the minimum number of 

accounting firms necessary to provide audit and attest services to large national and 

multinational public companies?”—84 respondents also provided comments. Below are 

selected comments. 

Number of 

firms Comment 

2-3	 "One firm would be a monopoly—two firms would allow for some 

competition." 

"If for some reason we had to switch auditors (poor service, conflicts of 

interest, etc.) we would have at least two firms to look at." 

"Having at least two choices from your current firm is important to 

maintain competition. Otherwise, there would be no competition when 

you made a decision to change and fees/quality would be adversely 

impacted." 

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Summary of Written Comments to the Public 


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(Continued From Previous Page) 

Number of 

firms Comment 

4	 "Seems ok now but shouldn't be any less. Better now for primarily 

domestic companies like ours." 

"We're doing it now. I'd hate to see that number go lower. A higher 

number would be preferred." 

"If there are more firms than this you have to question whether they 

would have the size and scale to support multinational audit." 

"There should not be further consolidation within the Big 4 firms. This 

group represents our service provider choices given the size and 

complexity of [our] worldwide operations." 

"Current set up is minimum to provide coverage due to risk of big 4 

regressing to an oligopolistic common cost/performance level that 

provides insufficient audit quality at too high a cost." 

5-6	 "No good reason other than 4 is too few. If one more firm fails/choices 

for separate firm consulting and it projects - conflicts between 

businesses become impossible." 

"The minimum of 6 firms is based upon expanding competition is many 

geographical areas. Currently with only 4, there are areas where only 

2 or 3 are active." 

"With four firms, a 25% success rate on bid is high. Fair competition is 

better served when the success rate to bid is below 20%." 

"Biggest issue is that the potential for overlaps of coverage of closely 

associated competitors, vendors and customers makes it harder to 

ensure independence absentee conflicts. With six, this should be able 

to be avoided." 

7-12	 "In order to get competition and assure that all your competitors don't 

use same people (firms). You need more firms than currently 

available. We've lost creativity and competition as a result of 

consolidation." 

"Right balance of competition in price & service." 

"With a restriction that no firm has more than 20% of the market— 

defined as member of SEC registrants." 

Source: GAO. 

Optimal Number of 	 Most (86 percent) respondents said the optimal number of firms was 

greater than four, although the majority of those responses remained in the Firms five to eight range. See table 7 for selected comments. 

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Table 7: Explanations of Optimal Number of Firms 

Of the 136 responses to question 32—“What do you believe is the optimal number of 

accounting firms for providing audit and attest services to large national and multinational 

public companies?”—66 respondents also provided comments. Below are selected 

comments. 

Number of 

firms Comment 

"As a firm believer in the efficiency of the market place, I believe that 

the current number of large firms (4) is probably close to the optimum 

number, but wouldn't mind seeing another major firm gradually 

emerge." 

“Any more would result in consolidation as we have seen over past 15 

years.” 

"Four firms provide enough choices from which to select. Also, by 

limiting the number of firms to four ensures that there will be capable & 

talented individuals available at the firms." 

"We believe that a couple more choices than currently available would 

be optimal, but any additional beyond that would not be incrementally 

beneficial to companies." 

"Need a balance between the healthy level of diverse views of 

accounting application, and having too much inconsistency." 

"Two more large firms would help avoid problems - particularly if 

certain firms are conflicted through board membership, and other 

issues." 

"The highest quality of service came at a time in history when there 

were 8 firms." 

"Big 8 provided more choice, competition." 

"Beyond 8 I don't believe there will be enough qualified personnel." 

"More choice would be preferable, although industry experience is very 

important to us." 

"Having a few large firms has caused the firms to take on more of a 

‘market share’ mentality with too much focus on increasing client base 

and fees and not enough focus on providing a quality audit." 

10 or more	 "The more firms of similar size, caliber, quality, knowledge the more 

choices for public companies." 

"Enough for both scale and price competition." 

"This number [20] would allow for better stratification of clients by size, 

geographic needs, etc. However current legal environment and 

complexity of rules and regulations probably makes this difficult. We 

choose the large firms because of their depth of resources and 

expertise. Increasing the level of complexity just eliminates more 

firms." 

Source: GAO. 

Page 44 GAO-03-1158 Accounting Firm Consolidation 

4-6 

7-8 
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Summary of Written Comments to the Public 


Company Survey


Suggestions for 	 While 62 percent said no actions should be taken and 16 percent did not 

know, 22 percent of respondents said that they thought actions should be Increasing Competition 	 taken to increase competition in the audit industry. When asked to explain, 

those that favored action mentioned assisting non-Big 4 firms to by 

reducing barriers to entry, preventing further consolidation, breaking up 

the Big 4, and other actions. Many suggested that market forces should be 

allowed to operate without intervention. See table 8. 

Table 8: Suggestions for Taking Action to Increase Competition 

Of the 159 responses to question 33—“Do you suggest that any actions be taken to 

increase competition in the provision of audit and attest services for large national and 

multinational public companies?”—37 respondents also provided comments. Below are 

selected comments. 

Action 


suggested? Comment


Yes	 "Perhaps assist the non-Big 4 to become ‘big’ by reducing some 

barriers to entry." 

"Government assistance to non-Big 4 accounting firms." 

"Encourage regional firms to develop national organization." 

"Expand the number of companies and reduce the educational 

Inequities placed upon new public accountants versus accountants in 

the private sector." 

"...Help smaller firms grow larger. Incentives [to] companies to use 

smaller firms...." 

"Financial solvency of existing Big 4 firms must be secured primarily 

through tort reform." 

"Action should be taken to maintain current level of competition or 

choice." 

"Liability for audit failures should be limited. The failure of Andersen 

had a devastating impact and ultimately resulted in fewer qualified 

professionals providing attest services during a time of rapidly 

increasing complexity in applying GAAP." 

"Allow no more mergers. Fire the idiots in the Justice Dept. that killed 

Andersen; absolutely asinine." 

"I would like to see some of the firms broken up. How to do so is 

another question." 

"They will need some effort to break them up. The idea that one firm is 

needed to handle worldwide engagements is absurd." 

"Require rotation of audit firms." 

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(Continued From Previous Page) 

Action 


suggested? Comment


"Separate audit & attestation services." 

"Enable a competing firm to provide a company's Sarbanes-Oxley 

attest function." 

No or don’t know "Market forces should be allowed to work freely without constraints." 

"The market will adjust/add more competitors if needed/supported, 

over time." 

"Allow market based forces to continue to operate without 

intervention." 

"I believe in free enterprise market conditions & competition will 

provide adequate alternatives." 

"Do not favor government intervention in the marketplace." 

"Current level of competition combined with strong corporate reporting 

regulations, appears sufficient to allow market forces to operate." 

"I cannot foresee how this would be accomplished. ‘Competition’ for 

the audit piece comes into play very infrequently and switching 

costs/disruption are very high. I oppose any government action to 

encourage a breakup." 

"There should be opportunities for smaller firms (e.g., BDO Seidman) 

to get bigger and be able to handle large, international accounts." 

"Big 4 firms are competitive today. No need to take action." 

"Enough pressure on price, quality pressure remains high." 

Source: GAO. 

Additional Comments 	 We asked respondents to volunteer any additional comments on the issues 

in the survey. 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. 

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Table 9: Additional Comments 

Drawn from the 33 answers given to question 35—“Do you have any additional comments 

on any of the issues covered by this survey?” 

Type of


Comment Comment


Consolidation 

concerns 

"The number of firms cannot be permitted to go below 4. To destroy a 

firm like Andersen because of the action of a few partners was 

nonsense and must not happen again. The remaining firms have now 

a license to increase fees disproportionately to existing levels, 

especially with Sarbanes-Oxley. Has anyone calculated the cost to us 

industry of this and measured the impact on future earnings and jobs -

I doubt it!" 

"Having only 4 large firms is a concern! However, the benefit should 

be: —higher quality—less variation in advice— stronger financial 

resources—more accountability. If these benefits an not achieved, 

then government may need to intervene." 

"...Our biggest concern is the ease at which a firm can disappear (e.g., 

A. Andersen)....Competition does not affect us now, but actions 

beyond our control (e.g., firm disappears) could put us in a position to 

search...." 

"4 major audit firms is too few! 6+ is a minimum." 

"It would be in the best interest of the public to have more choices. 

However, the reason there is less is due to the fixed infrastructure cost 

of large firms and the need for a global reach. Therefore size does 

count." 

"Consolidation of auditors and increased regulation has greatly 

increased the cost of governance. I'm not sure society is benefiting 

from this." 

"Government action to assist the non-Big 4 firms will not work. The 

level of expertise and depth of resources required to deal with ever 

increasing levels of complexity and regulation cannot be provided by 

government intervention." 

"...I am concerned about the stability of the existing Big 4 firms with 

the implications from audit-failure lawsuits. Can these firms survive 

financially an Enron-like lawsuit? What choices do global fortune 500 

companies have if another one of these firms fail? The next tier of 

firms has not developed a strong enough global network to be viewed 

as viable." 

The government forced Arthur Andersen out of business! I certainly 

don't condone the activities of a few who did ‘bad,’ but 99.9% of the AA 

people were honest, hard-working people, with the highest integrity.” 

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(Continued From Previous Page) 

Type of


Comment Comment


Cost and quality "The accounting and auditing profession is clearly broken. The source 

and concerns 1 root cause appears to be the enormous compensation levels of the 

partners in the Big 4—often exceeding those of the CFOs they are 

suppose to audit. There is an eternal quest for higher fees, higher 

profits and growth. The result of which is to perform less work for more 

money. Auditing standards need to be very specific - as an example, 

review the documentation/testing now performed on fraud. Even 

though numerous standards on fraud detection have been released, 

the firms have not substantially changed their audits." 

"I think the public accounting profession is in disarray predominantly 

because, for several years, audit expertise has been de-emphasized 

for selling. While this may appear to be an economic model for 

success, it has led to major problems, some of which we have seen 

coming to fruition recently. (i.e., lack of ethical standards, lack of basic 

accounting & auditing knowledge, etc.)" 

"The evolution of the current system of auditing U.S. companies is 

bordering on being worthless. We have kids from colleges with no 

business experience auditing companies using checklists & cookie 

cutter approaches rather than using sound business experience to 

ferret out problems." 

"Very timely subject. I am greatly concerned about this topic. It is very 

difficult to manage audit costs. We are paying $150/hour for a college 

graduate with very little experience; yet that is what the lack of 

competition brings. We are classed for 4 different partner/(3 hrs each) 

at $450/hr reviews on a simple SEC consent letter and we are told ‘that 

is our firm policy.’" 

"The biggest issue today with audit quality is 'check list' GAAP audits. 

We need to be standards based, not rules based. Audits should 

employ thoughtful and insightful analysis of the company, industry and 

economic environment. This issue however will only be corrected with 

well thought out tax reform that allows thoughtful analysis of facts and 

national resolutions of disputes." 

"Our 2002 audit fees are about 4x those of a decade ago. I do not 

believe our stake holders would conclude that they are receiving 4x the 

value. I do not believe there is a single solution that would be effective, 

but enthusiastically endorse the efforts by GAO to explore the matter." 

"As indicated early on in the survey, my perception of the 

real problem with auditing today is as follows: —complex standard 

setting with minimal consideration of the impact or value to the 

investing public—audit firms treat audit like a ‘loss leader’ for other 

selling opportunities. — audit firms financially reward partners for 

selling—not performing quality audits. Audit staff are inadequately 

trained to keep up with changing accounting standards and the 

complexity of operations." 

Engagement partners need very high level of technical competence 

not sales skills—engagement partners should be subject to ongoing 

periodic proficiency evaluation of some type. 

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(Continued From Previous Page) 

Type of


Comment Comment


"My responses do not reflect my expectations about fees in the future. 

Although our fees did not increase in 2002, I anticipate that we will see 

significant increases in the future (50%-100%) to cover increased 

hours required as a result of the new provisions under Sarbanes-Oxley 

and the audit firms bearing the cost of securities litigation. We need 

smart professionals performing our audits, and increased exposure to 

audit failures drives these people to jobs in industry." 

Other concerns	 "I have a developing concern. The Big 4 provide excellent audit & 

attest services in the financial area. Legislation is 

preventing/restricting ‘other’ services. Yet corporations are reporting in 

more than financial areas, and the shareholders, employees and public 

want these other areas (environmental, social, etc.) to be attested and 

verified. It would seem beneficial to have the named audit firm provide 

such verification. Yet current legislative developments will prevent that. 

It seem that the named auditor could provide the best overall 

verification. As corporations report in global reporting initiative (GRI) 

reports, on sustainability report on triple bottom line (economic, 

environmental & social) reports, will there have to be multiple verifying 

firms?" 

"Litigation/securities reform. Lawsuits are sapping capital & causing 

audit fees to rise. CEO & CFOs need to do hard time for the misery 

they have inflicted on the rest of us. SEC needs to be a bit restrained 

in interpreting S.O. act—we're getting a little too much enthusiasm 

right now." 

"Summary points: (1) need more competition in the auditing industry. 

(2) don't know how best to accomplish this!! (3) in any event - need the 

SEC to be more active in the resolution of accounting issues - not just 

policy setting!" 

"Sarbanes-Oxley legislation has been primarily responsible for 

increasing fees and reducing auditor selection choices." 

"Strongly opposed to mandatory rotation of independent firms. The 

start up costs to corporations would be significant. Also mandatory 

rotations may limit the individual firms from innovating to differentiate 

their service offering in the marketplace...." 

"I am leery of government intervention as it tends to create other 

problems. I believe the current focus on audit quality and corporate 

governance which is arising out of government policies will (1) raise 

costs of being public significantly, (2) fuel going private, (3) change the 

capital profile of investors, [and] (4) lead to less efficient markets and 

less creativity." 

Page 49 GAO-03-1158 Accounting Firm Consolidation 
Appendix III


Summary of Written Comments to the Public 


Company Survey


(Continued From Previous Page) 

Type of


Comment Comment


"The biggest ‘independence’ and ‘quality’ issues faced by corporate 

America today are from credit rating agencies, e.g., S&P and Moody’s, 

not auditors. Rating agencies are a de facto duopoly, are opaque (how 

they derive their ratings is largely not determinable based on 

quantitative measures), and full of conflicts (selling consulting services 

regarding how to improve a company's rating). The government 

should (1) forbid rating agencies to sell rating consulting services, (2) 

require greater disclosure regarding ratings methodology, and as a last 

resort (3) consider breaking up S&P and Moody’s or other action to 

lessen their duopoly power." 

"Companies should be encouraged, not discouraged, to use their audit 

firm for tax return and planning support because of the efficiencies 

gained." 

"Consider having investors directly fund audits by an assessment 

against assets invested in public entities. Investors could provide 

audits through a nongovernment entity like NASD, or they could 

contract with existing audit firms." 

Source: GAO. 

Page 50 GAO-03-1158 Accounting Firm Consolidation 
Appendix IV 

GAO Contacts and Staff Acknowledgments


GAO Contacts	 Davi M. D’Agostino (202) 512-8678 

Orice M. Williams (202) 512-8678 

Staff 

Acknowledgments 

(250159) 

In addition to those individuals named above, Martha Chow, Marc Molino, 

Michelle Pannor, David Pittman, Carl Ramirez, Barbara Roesmann, and 

Derald Seid made key contributions to this report. 

Page 51 GAO-03-1158 Accounting Firm Consolidation 
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