IN AN EFFORT to counter the brand dominance of the Big Four accounting firms, a large second-tier audit firm has commissioned a survey and research it says counters perceptions that going elsewhere will be detrimental to listed firms’ bottom line.
Grant Thornton, the fifth biggest audit firm in the US, said 67 per cent of those responding to an online survey who had “expressed a clear opinion” said it would make no difference to them if a company changed from a Big Four audit firm to another global or national firm outside of the Big Four.
However, the poll by Harris Interactive also found 38 per cent of the 1,085 respondents, said they were unsure whether they would view such a change as a positive or negative decision. Eight per cent said they would see the decision positively and 12 per cent negatively.
But as well as commissioning the survey, the auditor backed it up by asking a US academic to study stock price changes over four years to announcements of a shift from either PwC, KPMG, Deloitte, Ernst & Young and the former Arthur Anderson to Grant Thornton.
Dr Scott Whisenant, from the University of Houston, found “no statistically significant evidence of stock price decline in any of the announcement event windows I studied”.
“These findings hold regardless of company size, including companies with sales greater than $500 million,” he said.
“This indicates investors perceive Grant Thornton’s audit quality equal to that of the Big Four, as they did not value the company any differently following the announcement of Grant Thornton as the new auditor.”
He pointed out that there is a “stark difference” in size, number of professional staff and company audit clients between the big four and Grant Thornton and “available audit resources” is one of the most important reasons why very large public companies’ almost entirely use the biggest accounting firms.
“Allocating audit resources in the US or globally for extremely large and diverse public companies by any audit firm other than PricewaterhouseCoopers, Deloitte, Ernst & Young, or KPMG is unlikely for many years due to the significant costs of entry into this segment of the audit markets,” he said.
Matt Adam-Smith, partner and head of corporate assurance services at Grant Thornton, said although his firm had become a significant player in the audit market, they were still battling perceptions, particularly in the US, that shifting outside the Big Four would have a negative effect on share prices.
“It certainly is an issue of perception. Going back in time, the big institutional investors did feel comfortable with the Big Four, but I think increasingly firms such a Grant Thornton have demonstrated they’re capable of auditing fairly significant-sized public companies,” he said.
He said in Australia, his company now had about four clients in the ASX Top 200. Clearly the very largest need the scale of the Big Four firms, he said, but most big companies in Australia are not too big to use other auditors.
“In the Australian market, outside of the top 50, the rest of the ASX 200 are not massive companies. There are a few in specialist industries that may need the Big Four, but we’d say there’s at least 100 of the Top 200 that firms like Grant Thornton are more than capable of auditing,” he said.
“It’s really just getting over the perception: ‘are we covering ourselves by having a big four firm?’ Do non-executive directors feel that they are not going to get negative responses from institutional investors?
“But also the hurdle we are trying to get over is that being a director is a risky business, and … there’s just that feeling that a Big Four brand gives that extra bit of comfort.”
He said the research conducted in the US was important to “brand positioning”, but similar research was not contemplated for the Australian market.