Reading alot of news about auditors bailing on smaller companies. Just curious if anyone is experiencing this or if it's just alot of hype?

yep - **** has been suggesting that we might be too small to continue. i think they are resource constrained in trying to keep their bigger clients out of trouble.

i don't see how they (all big four) will ever thoroughly cover off on all public clients, there hasn't been enough time to spin up the necessary resources. we've been working with a few private consultants that are swamped with independent control testing work right now. expect the big four to want to know more about any hired testing guns, since they will likely want to rely on this testing of low risk processes performed for management.

This is definitely an interesting dynamic we see occurring. And we're hearing more news about it everyday. For example, see http://www.insidesarbanesoxley.com/...ee-big-four.asp

Do you see this as an opportunity for smaller accounting firms to become part of the Big (x) or rather an opportunity for the already Big 4 to continue getting bigger?

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quite a stretch for the next level of tiers to get to this level, but the pcaob might be the tool that makes all firms even in the eyes of the public.

watch for more abandonment of small firms on the roadside, and see the likes of Grant Thorton et al to begin moving into more logo accounts. This is the opportunity that the second tier has been dreaming about.

The interpretative application of standards is at the heart of compliance woes.

The recently released PCAOB review of applied AS2 standards will likely provide the refined guidance that many have been hoping for, specifically, greater latitude in interpretation and application of "risk adjusted" control assessment and environment management.

Key findings include:

- Auditors failed to integrate their control and financial audits, losing the reliance for financial auditing that could have been placed on effective controls to modfiy their financial audit plan;
- Auditors did not employ a "top down" assessment, failing to acknowledge the value that entity level controls provide in an environment;
- Weak risk assesment, without consideration for or alteration to the timing, nature and extent of financial testing;
- Walkthroughs were poorly performed;
- Auditors placed less than allowable reliance on the work of others permitted under AS2.

These findings reflect what many already know to be true, which is that the first evaluations of SOX 404 has been more conservative than AS2 allowed - more expensive for the involved parties, but not necessarily a bad thing.

Recognizing that this is largely a new level of rigor for most practitioners inside public companies and audit firms alike, a conservative approach requires that all dig through a greater level of minutiate than is ultimately necessary. It is this pain of "too much" that helps us refine our interpretations and application. This is the learning process.

Many of the shortcoming noted by the PCAOB would also be fair statements for public companies working to overlay a control culture on organizations that are largely earnings focused and manage by the costant comparison of actual-to-budget. Only as our control IQ matures, and incorporation of sound risk management practices progresses will we realize the value of this considerable effort that is process management.

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Toby Lucich
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