'02 Law Driving Costs of Auditing

by Luke Jones  on Monday, Sep. 19, 2011 12:00 am  

"Any time you take on a new client, there is a tremendous effort and a learning process that takes place," Fiscus said. And he would know, as his firm, PwC, took on Tyson Foods Inc. as a client in 2010 after the meat producer left Ernst & Young.

"PricewaterhouseCoopers had clients in Arkansas prior to our relationship," said Craig Hart, senior vice president and controller at Tyson. "Management and the audit committee believed that a local office in northwest Arkansas would be a plus in having an efficient and effective audit."

Peters, at the University of Arkansas, said the firm-switching idea has been discussed since the Sarbanes-Oxley Act came about.

"The concern was, if you're an auditor with the same client for an extended period of time, do you lose objectivity, and become financially tied to the client?" he said. "That causes problems."

But Peters said it's normal for big companies to keep their accounting firms for decades, and research has shown that relationship to be positive. Moreover, issues get thicker the larger companies become.

"If they have to rotate auditors every five years, there's some concern whether or not auditors are available that could adequately serve their clients," Peters said. "If it's a large client, we really need the resources of the Big Four firms. If we have one that's providing consulting services, that firm isn't independent of the client, and couldn't be considered as an auditor. Then the third firm may not be appropriate because of its geographical location or lack of expertise locally. That basically leaves the fourth firm."

Peters is not even sure if the benefits of Sarbanes-Oxley have been worth the costs.

"I think, initially, it's cost more than anyone ever thought it would," he said.

But he noted the act has done some good.

"I think there's a renewed confidence in financial statements companies are providing, which are, fundamentally, one of the most important things in the whole auditing process," he said.

He also felt financial statements were of a higher quality than 10 years ago.




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