Bring on competition in the accounting profession: the CEO of accounting firm Grant Thornton LLP argues for more competition, saying that depending on only the 'Big Four' is risky for financial markets, and that clients should have more choices.

• Author: Nusbaum, Edward E.
• Position: From where I sit

After decades of consolidation, corporate scandals, the dissolution of Arthur Andersen and the enactment of the Sarbanes-Oxley Act of 2002, the once predictable world of accounting has been turned upside down.

What was once the "Big Eight" has been reduced to only four firms (the "Big Four") that, according to a 2003 study by the Government Accountability Office (GAO), audit 99 percent of all public company sales. So great is the level of concentration that some in the financial markets and media--including The New York Times, The Economist, The Financial Times and The Wall Street Journal--are beginning to ponder if the audit profession could absorb another large firm failure.

Still, no one has fully articulated the risks or agreed on the optimal solution for financial markets stability.

Meanwhile, the effects of audit firm concentration, combined with the impact of the Sarbanes-Oxley Act, are becoming increasingly apparent. Audit Analytics, a company that tracks accounting industry information, recently reported Big Four firms resigned 210 accounts in 2004, up 169 percent from 2002.

While some resignations by the Big Four followed "unclean" opinions of companies' financial statements, others resulted from decisions by the Big Four to sharpen their market focus. The realities of today's marketplace stretch these firms to capacity, forcing them to concentrate on their largest and most profitable clients. In the future, other Big Four clients will inevitably be turned away.

At the same time, companies faced with the mounting costs of Sarbanes-Oxley compliance are also discovering they can better match their needs and realize improved service by moving away from the Big Four to other global, national and regional accounting firms. As Section 404 requirements take effect for smaller, non-accelerated filers in 2005, still more clients may make the decision to switch to non-Big Four auditors better suited to meet their needs and budget.

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Independent audits are a linchpin between a company's financial statements and its credibility to the investing public. Of the 300 business leaders surveyed by Wirthlin Worldwide in 2004, 61 percent said inaccurate financial statements were a critical or very serious threat to their companies--a percentage larger than that associated with terrorism, natural disasters, a stagnant economy, product recall or litigation. Wirthlin is an independent market research firm that conducts Grant...