There is no need to interfere in the increasingly concentrated
upper echelons of the US audit market, according to a Government
Accountability Office (GAO) report.

However, conclusions raised by the survey received a mixed response
from mid-tier firm Crowe Chizek, who accepted some of the findings
but challenged the conclusion that no mid-tier firms are equipped
to audit big companies of up to $2 billion in revenue.

The GAO surveyed a random sample of nearly 600 large, medium and
small public companies about their experiences with auditors. The
watchdog also interviewed the Big Four and surveyed all other firms
that audit at least one public company.

Although 60 percent of companies said competition was insufficient,
the watchdog concluded there is a lack of consensus on how to
reduce concentration and there doesn’t appear to be any significant
adverse effects from the current situation. Sharply rising audit
fees, the report stated, are due to additional work associated with
increasingly complex accounting and auditing standards, as well as
more demanding oversight requirements and staffing

The report revealed that nearly all companies (98 percent) with
revenues in excess of $1 billion were audited by the Big Four in
2006, which was also the case in 2002. In the next bracket of
companies, with revenues between $500 million to $1 billion, 92
percent chose the Big Four in 2006, although this is a 3 percent
decline compared to 2002. At the other end of the scale, only 22
percent of companies with revenues of under $100 million said they
were audited by the Big Four, a large drop from 44 percent in

These findings clearly illustrate there is a very high level of
concentration at the upper end of the US audit market. Despite
this, the GAO report found no compelling reason to take action to
improve choice. It explained that concentration had not affected
audit quality, was not a significant factor of rising audit fees
and there were capacity problems or a lack of interest among the
next four largest firms in auditing large listed clients.

Crowe Chizek audit partner Rick Ueltschy told IAB the report sums
up the market fairly well, although he believes it further
highlights perception problems within the marketplace.

“First of all, I would state that the larger non-Big Four firms are
capable of doing work above the $1 billion in revenue mark. So it’s
not intuitively obvious that it was the right break point to call
companies [above this revenue mark as] ‘the largest’,” he said. “We
feel very comfortable about our ability to audit companies in the
manufacturing and retail space well into a couple of billion
dollars worth of revenue that would have a few worldwide locations
and there are a lot of companies that are profiled like that.


“I think that the concentration of the Big Four continues in spite
of the fact that the mid-sized firms could handle the work of a
large, large portion of those companies very capably. So the
report’s overall conclusions about competitiveness are generally
accurate except for that particular point, which I don’t think the
report drew out.”

Ueltschy said he believes the report accurately describe drivers of
cost in the marketplace, however claimed that fees could be reduced
significantly if more companies in the $500 million to $1 billion
category looked beyond the Big Four. “They would likely find that
they would have the opportunity for significant cost savings,” he
remarked. “It differs meaningfully depending on the nature of the
client, but it would not be unusual for us to be 25 percent or more
lower than a Big Four firm in industries with which we have

Arvind Hickman