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.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 to be independent. The external auditor also interacts closely with the company’s senior management, including the chief financial officer. 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. 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. 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. We found that there was an association between the length of the company- auditor 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. 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 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. 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 of 159). 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). 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, 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 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. 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 .” 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 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, partners supervise more jobs.” However, that same respondent also noted that since his company had changed auditors, the “level of experience has improved.” 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 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. 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. 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 cost- effective 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. 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 comply with the new independence rules as required by Sarbanes-Oxley. Respondents noted, “More firms will improve the competition in the industry,” “more choices, more competition, lower cost,” and “one firm provides tax planning services which may impair 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 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.” 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 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 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 would not consider them. We are using a third for tax work so it would be hard under Sarbanes-Oxley to switch to them.” 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. Seventy- eight 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 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.” 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. 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. 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). Please complete this questionnaire specifically the U.S. General Accounting Office (GAO), the for the company named in the cover letter, and independent research and investigative arm of not for any subsidiaries or related companies. This questionnaire should be completed by the profession. To provide a thorough, fair, and balanced report historical information on mergers, operations to Congress, it is essential that we obtain the and finance, as well as report the corporate experiences and viewpoints of a representative policy of this firm. sample of public companies. Your company was selected randomly from the enclosed envelope within 10 business days of 2002 list of Fortune 1000 companies. It is receipt. If the envelope is misplaced, our important for every selected firm to respond to ensure the validity of our research. Congress. Telephone: (202) 512-3608 Email: pannorm@gao.gov Thank you for participating in this survey. 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%. of our revenues are derived from operations within the United States of our revenues are derived from operations outside of the United States 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. 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 2. Tax-related services (e.g., tax preparation) 3. Assistance with company debt and equity offerings (e.g. comfort letters) N=106 4. Other services - please describe: _______________________________________________________________________ 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. 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. 1. Yes - how many: ________ 2. 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. from (year)_____ to (year)_______ (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 2. Expansion of our company required an auditor of record that could meet new demands 3. New regulations forbidding use of auditor for management consulting and other services 4. Fees for audit and attest services 5. Concern about reputation of our auditor of record 6. Our auditor of record was going out of business 7. Our auditor of record resigned 8. Relationship with our auditor of record was no longer working 9. Other – please describe: __________________________________________________________________ 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. 1. Not applicable – did not employ Arthur Andersen 2. Yes, switched to partner’s new firm 3. No, switched to other firm – 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.” This section asks you to consider how relationship with its auditor of record, and the audit services it provides, has changed over this time frame. Although a number of factors m ay have influenced these changes, we would like you to assess the influence of consolidation in the accounting profession in particular. 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. 1. 2. 3. 4. 5. 1% 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. 1. Not applicable – have not changed auditors ----------------------------------------------------------- 2. 3. 4. 5. 6. 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? 1. Great upward influence 2. Moderate upward influence 3. 4. Moderate downward influence 5. ---------------------------------------------------------- 6. Don’t know 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. 2. 3. 4. ---------------------------------------------------------- 6. Don’t know 1% 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. 1. Not applicable – have not changed auditors ---------------------------------------------------------- 3. 4. 5. ----------------------------------------------------------- 7. 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? 1. Very positive influence 2. 3. 4. 5. Very negative influence ---------------------------------------------------------- 6. Don’t know 16. If you have experienced a change in audit quality, please explain: If you have not experienced a change, please enter “none.” _________________________________________________________________________ 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. 1. Much more independent 2. 3. 4. 5. ---------------------------------------------------------- 6. 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. 1. Not applicable – have not changed auditors ---------------------------------------------------------- 2. 3. 4. 5. 6. ---------------------------------------------------------- 7. 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. 2. 3. 4. ---------------------------------------------------------- 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. 1. 2. 3. 4. 5. ---------------------------------------------------------- 6. 30. How, if at all, has this change in competition affected each of the following areas? (1) (2) (3) (4) (5) (6) 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. 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. _________________________________________________________________________ 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. 3. Don’t know 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. (1) (2) (3) (4) (5) (6) N=0 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. 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. More respondents said that overall audit quality had gotten better over the past decade than worse (44 percent compared to 18 percent). The reasons behind these ratings are presented in table 2, grouped into summary categories. 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. 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. More than 90 percent of our respondents said that their company would choose the auditor of a competitor. A few of those respondents provided explanations as to why they would or would not, as shown in table 5. A large majority (82 percent) of respondents said that the minimum number of firms necessary to provide audit services to large companies such as theirs was four or more. The largest number of responses was received for four or five firms. See table 6. Most (86 percent) respondents said the optimal number of firms was greater than four, although the majority of those responses remained in the five to eight range. See table 7 for selected comments. 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. 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. 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. 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Summary: 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. Most of the 159 respondents said that they were satisfied with the current auditor, and half had used their current auditor for 10 years or more. Generally, the longer a respondent had been with an auditor, the higher the overall level of satisfaction. Consistent with high levels of satisfaction, GAO found that, aside from former clients of Arthur Andersen, few respondents had switched auditors in the past decade. When they did, they switched because of reputation, concerns about audit fees, and corporate mergers or management changes. In looking for a new auditor, the most commonly cited factors the respondents gave were quality of service, industry specialization, and "chemistry" with the audit team. Finally, almost all respondents used their auditor of record for a variety of nonaudit services, including tax-related services and assistance with company debt and equity offerings. Respondents had differing views about whether past consolidation had some influence on audit fees, but most believed that consolidation had little or no influence on audit quality or independence. Respondents commented that other factors--such as new regulations deriving from the Sarbanes-Oxley Act and changing auditing standards--have had a greater impact on audit price, quality, and independence. While half of the respondents said that past consolidation had little or no influence on competition and just over half said they had a sufficient number of auditor choices, 84 percent also indicated a preference for more firms from which to choose as most would not consider using a non-Big 4 firm. Reasons most frequently cited included (1) the need for auditors with technical skills or industry-specific knowledge, (2) the reputation of the firm, and (3) the capacity of the firm. Finally, some expressed concerns about further consolidation in the industry and the limited number of alternatives were they to change auditors under existing independence rules.