Research Supports Big Cos Looking Wider for Audits

Media Release
1 February 2007

New Research Supports Big Companies Looking Wider for Audit Services

International accounting and business advisory firm Grant Thornton expects a continuing shift of business from the Big Four audit firms following the release of new academic and investor opinion research.

“The findings of a new survey and an academic study show that investors are relaxed about big public companies having their audits done by globally represented chartered accountancy firms rather than one of the Big Four, and that there have been no negative share price reactions when there has been a shift,” says Grant Thornton New Zealand chairman Warwick Jones.

“While the research has been carried out in the United States, we have anecdotal indications that the same sentiments now apply in New Zealand.”

Mr Jones says listed and big private companies are now more open to the idea of a change to a global or national firm outside of the Big Four.

“One of the reasons is that there has been quite a lot of focus and growing concern in recent years on the wisdom of having audit services concentrated among such a small group of big players,” he says. “There have been more than 100 major articles written about auditor concentration and systemic risk in the past couple of years, among news services and leading financial publications.

“Even the chairman of the Securities and Exchange Commission in the United States has said that wider competition for large company auditing services is essential for the proper functioning of the market.”

A survey conducted by Harris Interactive on behalf of Grant Thornton in the United States showed the majority (80%) of investors who expressed a clear opinion* would not react negatively to a company’s decision to change to another global or national firm outside of the Big Four. Most (67%) said it would not make a difference, while 13% said they would react positively.

A companion academic study carried out among US listed companies by Dr Scott Whisenant, affiliated with both the University of Houston and the Massachusetts Institute of Technology, found no negative stock price reaction when companies changed from a Big Four firm to Grant Thornton.

“We don’t have this depth of research available on the local market in New Zealand,” says Warwick Jones,” but, because it is a more intimate business environment, we are aware of similar sentiments here. Some bigger companies may still need more confidence to move away from the Big Four, and the sort of results established by the research in the United States may be very useful in providing them with a higher comfort level about such a decision.

“The academic study, in particular, indicates investors perceive Grant Thornton’s audit quality at least equal to that of the Big Four.”

* This group excludes the 38% of total investors who said they were not sure how they would view this decision.

ENDS

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