Audit market concentration across the world's G8 economies creates systemic risk to international capital markets - Grant Thornton calls for public dialogue in Canada



    TORONTO, June 15 /CNW/ - The levels of audit market concentration across
the world's eight largest economies are dangerously high, with the Big 4 firms
responsible for up to 99% of large public company audits(*), according to
research by leading accounting and business advisory firm Grant Thornton LLP
in the UK. Big 4 firms include: KPMG, Deloitte, Ernst & Young, and
PricewaterhouseCoopers.
    According to Alex MacBeath, Toronto-based CEO of Grant Thornton LLP, "The
health of our public capital markets depends on companies being able to access
audit expertise from a selection of capable firms. The view that only the Big
4 firms have this expertise restricts choice and ultimately compromises the
ability of the profession to service the needs of our markets and to share the
risk."
    Analysis of auditor concentration among the G8 economies revealed a high
of 99% in Italy, followed by the UK (98%), the US (97%), Canada (96%) and
Russia (90%). Japan revealed a lower auditor concentration of 84% - while the
reasons are unknown, increased activity is occurring in the Japanese audit
market owing to PwC winding down their affiliates earlier this year.
Relatively lower concentration levels in Germany (83%) cannot be attributed to
any particular cause, whereas the G8's lowest concentration levels in France
(61%) are largely due to the implementation of French joint-auditing
regulations which were imposed in 1966. Across the G8 countries, the Big 4
firms accounted for an average of 91% of the market.
    Further analysis of the Canadian data indicates a high degree of
concentration of Big 4 audit firms in the smaller public company realm as
well. For example, among Canadian mid-cap public companies ($500M to $1B
market capitalization), almost 90% use Big 4 audit firms, and close to 75% of
small-cap companies ($50M to $500M market capitalization) are audited by Big 4
firms.
    Bill Brushett, National Audit Practice Leader for Grant Thornton,
comments that, "We believe that the level of auditor concentration is too
high. Certainly if any of the Big 4 firms failed, the risk to the availability
of quality audits would increase dramatically. But even restricting audits to
four firms, when there are numerous qualified internationalnational, and
regional firms capable of auditing public companies, limits choice overall.
Shareholders and Boards should be questioning this - whether the apparent
unwillingness to look beyond the Big 4 is in the best interests of their
company."
    Brushett further adds, "This analysis of auditor concentration in the G8
countries shows just why many regulators around the globe are seeking to
increase auditor choice. Ideally, change should happen without regulatory
intervention as this would be a market-driven solution. As an increasing
number of competent non-Big 4 audit firms become more accepted by public
companies, and as deeply-ingrained habits of never looking beyond the Big 4
start to diminish, the market will be better served by a wider choice of
firms."
    The key issues relate not only to the availability of audit services from
non-Big 4 firms, but also to buyer behaviour which is often based on
misperceptions, rather than on a real understanding of the actual quality and
choice that is available in Canada and in other markets around the world.
MacBeath comments that, "At Grant Thornton, like several other non-Big 4
firms, we do have the expertise and the knowledge to provide top-notch audit
services to many public companies. In addition, Grant Thornton is part of a
large international organization which puts us in a very strong position to
offer the market greater choice and unsurpassed standards of service to our
clients."
    Additional analysis indicates that, while 44 public companies ($50M+
market capitalization) changed auditors within the Big 4 (ie. Big 4 firm to
another Big 4 firm), only 7 public companies changed from a Big 4 audit firm
to a mid-tier firm, and all of these were small-cap companies ($50M to $500M
market capitalization)(xx). This highlights the apparent reluctance of public
companies to consider firms outside of the Big 4 to provide audit services,
despite the fact that recent research indicates that changing auditors does
not generate any negative impact on a company's share price. "We have research
based on US data that demonstrates that there is no negative stock price
reaction when companies switch from a Big 4 audit firm," says Mr. MacBeath.
"And people should know that companies can change their auditors for a host of
valid reasons - service, expertise, and value. Yet, there are two myths that
persist which need to be challenged and debunked. The first is that only one
small subset of firms is capable of providing quality audit services; and the
second is that changing audit firms is a signal of trouble within a public
company."
    Additional research commissioned by Grant Thornton on public company
perceptions reveals a strong resistance among Canadian public companies to
change from a Big 4 auditor to a mid-tier firm, largely as a result of the
fear that this will raise a red flag in the marketplace, combined with an
apparent risk-averse attitude on the part of CFO's and CEO's with respect to
using the audit services of a non-Big 4 firm. A quote from a CEO of a public
company who uses a Big 4 firm illustrates the problem:

    "They've done a terrible job for us. But on the other hand, what choices
    do I have? If I go change auditors, well that's the kiss of death too. As
    a public firm these days, if you change an auditor then you have to start
    all over again." CEO, Toronto

    Grant Thornton will shortly issue a white paper based on market research
into the perceptions and barriers to auditor change among public companies in
Canada.
    Brushett adds that, ""We believe that public companies need to embrace
the concept of 'right-sizing', where companies base their auditor choice more
on fit with their needs. Obviously the size and complexity of the world's
largest companies may require a Big 4 firm. But of the approximately 1,900
publicly-listed companies in Canada that currently use a Big 4 firm, many may
be better served by looking to audit firms that have the right size and
expertise to better suit their current needs, and that can provide them the
attention and service they require."
    Brushett continues: "Additionally, right-sizing will help public
companies to address issues related to auditor independence rules, which
require public companies to obtain certain non-audit services from firms other
than their auditing firm. Through right-sizing, public companies open up their
range of choices for all of their special advisory services needs."
    Both Mr. MacBeath and Mr. Brushett are available for interviews regarding
this press release. Please contact the media contact listed below to arrange
an interview.

    Alex MacBeath
    CEO, Grant Thornton LLP
    Toronto, Canada

    Bill Brushett
    National Audit Practice Leader
    Grant Thornton LLP
    Toronto, Canada

    
    (*)  The UK's FTSE 350 was used as a guide for the G8 research. Only
         those companies with a higher market capitalization than
         (pnds stlg)347.1m, that of the lowest constituent in the FTSE 350,
         were compared across the G8 economies. Consequently the research
         illustrates that of the 3305 public companies worldwide with a
         market cap above (pnds stlg)347.1m, an overwhelming 3015 (91%) were
         audited by a Big 4 firm.

    (xx) At March 31st, 2007, as reported in FPInfomart
    

    Grant Thornton LLP is a leading Canadian accounting and consulting firm
focused on serving publicly-listed and privately-owned organizations. We
deliver Results-Driven Advice(TM) through proactive teams using unique
diagnostic tools, fact-based insights and commitment to exceptional client
service. Together with the Quebec firm Raymond Chabot Grant Thornton, Grant
Thornton in Canada has more than 2,700 people in offices across the country
and annual revenues of more than $387 million. Grant Thornton is a Canadian
member of Grant Thornton International, which has over 585 offices worldwide
and is represented in 113 countries around the world.





For further information:

For further information: Media Contact: Donna Carmichael, (416)
360-5001, donnacarmichael@GrantThornton.ca


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