2003 Painful For Accounting Giants

January 27, 2004 (PLANSPONSOR.com) - 2003 wasn't kind to the accounting profession's biggest players.

According to a report by Atlanta-based Auditor-Trak, each of the biggest US accounting firms gave up more public company audit clients during 2003 than it acquired – the first time that was true in a decade.

PricewaterhouseCoopers (PWC) suffered the biggest client exodus with a net loss of 91 audit customers – a move that slashed its client revenue under audit by $46.4 billion and its client assets under audit by $543 billion.

Among the Big Four firms, KPMG escaped with the least damage, recording the smallest decline in its audit client base with a net loss of 51 companies (and enjoyed a net gain of $59.7 billion in combined client revenue audited but a net loss of $17.3 billion in assets).

Meanwhile, Ernst & Young finished the year with 76 fewer audit clients (a decline of $24.5 billion in client revenue audited but an increase of $150.9 billion in assets) and Deloitte & Touche had a net loss of 65 clients (audited client revenue down $45.6 billion, assets up $394.9 billion).

“After the rapid growth of the Big Four’s audit client lists in the wake of the 2002 collapse of Andersen, we expected 2003 would be a year of rationalization of their client bases — and that has clearly taken place. Also, we expected to see increased client selectivity on the part of the firms in light of the new Sarbanes-Oxley environment. However, these circumstances alone do not seem to fully explain the extent of these client losses,” said Richard Ossoff, publisher of Auditor-Trak in a news release.

Smaller national firms — Grant Thornton, BDO Seidman and McGladrey & Pullen – collectively snapped up 21% of the clients lost by their Big Four competitors, according to Auditor-Trak’s analysis. Significantly, more than a third (34%) of the public companies that used a Big Four auditor opted for a regional or local firm as a replacement.

Prominent new audit clients acquired by KPMG last year include Sprint Corp. and AutoNation Inc. Deloitte & Touche added Royal Bank of Canada and its US unit, RBC Centura Banks. Ernst & Young brought in U.S. Bancorp and Clorox Co. into its client portfolio, while PricewaterhouseCoopers was hired by Calpine Corp. and Carnival PLC.

On the negative side of the ledger, KPMG lost Neuberger Berman Inc. and Spiegel Inc. Deloitte & Touche lost Denny’s Corp. and CITGO Petroleum Corp., Ernst & Young departed from the American Skandia Life Assurance Corp. and Steak n Shake Co. engagements, and PricewaterhouseCoopers lost Kmart and Pharmacia Corp.

Auditor-Trak’s ratings and records of more than 12,000 auditor changes are published by Atlanta-based Strafford Publications, Inc. For more information, go to www.straffordpub.com/products/atr/ .