Serving public companies if you aren't the Big Four

By Carol Kirwan
MACPA Director of Technical Services and Regulatory Affairs

PHOENIX — Edward Nusbaum, CEO and executive partner of Grant Thornton U.S., addressed the 2002 "State of the Profession" conference by discussing some of the concerns the profession faces.

According to Nusbaum, former SEC Chair Harvey L. Pitt believed it was not enough to have a handful of firms serving public companies. With the Sarbanes-Oxley Act now in effect, it is uncertain whether many CPA firms will be willing to serve public companies.

More uncertainties loom. With Pitt, former SEC Chief Accountant Robert Herdman and former Public Company Accounting Oversight Board Chair William Webster gone, the question arises: Who will replace them? The authority of the PCAOB is huge, Nusbaum said. It could turn auditing upside down by requiring auditors to detect fraud. Companies already are reeling from the weak economy and worried about accounting debacles. According to Nusbaum, many are considering going private and many are seeking advice.

Nusbaum said the depth and breadth of services — advice and assistance on a wide variety of services (including specialty services for public offering or reporting) — make public companies much more complicated than private companies. Those companies want technical expertise and confidence that their CPAs can handle all the governance and audit committee issues. But they also want independence. Nusbaum said CPA firms serving public companies must have a process in place to ensure independence. Even some private companies want scope-of-service limits, he said.

These challenges for the profession also present opportunities, Nusbaum said. For example, companies will need help in getting their audit committees in compliance. Another opportunity Nusbaum suggested is the joint service concept to deal with the scope-of-service limitation, with two firms jointly serving the public company — one firm doing the audit and another firm providing the non-audit service.

Many firms will get out of the business of serving SEC firms, Nusbaum said, because of:

additional risk;
additional regulation;
additional expense;
additional standards;
unknown future requirements;
the inspection process will be punitive; and
skyrocketing insurance.

Nusbaum suggested the solution is for firms to join together to collect resources and specialties, spread risk and improve client service; the large firm would handle the SEC audit and the smaller firm would handle non-audit work.

Some firms will want to expand their service to SEC clients. That requires professional standards experts and a high level of integrity. The benefits are that the work is challenging and attracts the brightest and best in the market. It also puts the firm in a good position in the business community with investment bankers, attorneys and consultants. Also, the level of referral sources is greater. Nusbaum said it is tough to serve the Fortune 500, but you can serve a mid-cap company, especially when joining forces with another CPA firm.

In conclusion, Nusbaum said smaller and mid-size firms should push to do more public company audits, and that formal joint service models can be formed. It would be a win-win situation for the firms involved.

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