Small firms fill holes in market created by SOX.

• Author: Rozycki, Lisa A.
• Position: Sarbanes-Oxley Act in 2002

For smaller CPA firms across the country that have taken the initiative, a business boon has resulted from the passage of the Sarbanes-Oxley Act in 2002 (Sarbanes-Oxley or the Act) that is nothing short of remarkable. Small firms have found innovative ways to be competitive from offering staff to Big Four firms in exchange for training on Section 404 work, to combining resources with other member firms of accounting firm networks to compete for projects.

Smaller firms have an opportunity to broaden the services they offer to clients through the work brought on by Section 404 of Sarbanes-Oxley, which requires management to report on its internal controls over financial reporting and independent auditors to attest to management's evaluation.

"Public companies, who may have never done business with small firms, are now seeing the value, professionalism, and quality of the people and services that smaller firms can offer," says Michael McCarthy, Senior Manager at Hancock Askew, Co., a CPA firm of 60 people based in Savannah, Georgia.

Before McCarthy joined Hancock Askew in early 2004, the firm did not have the expertise or the training to provide Section 404 work. Having come from Ernst & Young with 12 years of experience, McCarthy was tapped to provide training and guidance on Sarbanes-Oxley for Hancock Askew, and 11 other southeastern U.S. firms who are all members of the BDO Seidman alliance.

McCarthy is coordinating the efforts of those firms in jointly proposing on Sarbanes-Oxley work. In some cases, he is the lead on proposals and is using information technology specialists from other alliance firms to help him staff the engagement. On other projects, other firms have the contacts, and he is providing the expertise and some of Hancock Askew's staff.

In marketing materials for its services, this group of BDO Seidman alliance firms refers to itself as a "12-member group of firms across the Southeast aligned cooperatively to provide Section 404 consulting services."

In late 2004, McCarthy's firm was turning down work with accelerated filers--companies that have a public float of at least $75 million and meet other criteria--because they had too much work and not enough people to staff it all. Accelerated filers must include a "Management's Annual Report" on internal control over financial reporting, beginning with their annual report for the first fiscal year ended on or after November 15, 2004. For nonaccelerated filers, the requirement...