PCAOB Member Cites Accounting Firm Turnover

Public companies are switching auditors in high numbers, notedCharles Niemeier, a board member of the Public Company Accounting Oversight Board. In the four years since the Sarbanes-Oxley Act was passed, there has been considerable change in how audit firms and audit clients pair up, Niemeier said in a speech prepared for three appearances in Brazil Aug. 15-16. Citing statistics from Glass-Lewis, a public company research firm, Niemeier said that from 2003 to 2005, about one-third of all public companies in the U.S. changed accounting firms. In 2005 alone, about 11% of all U.S. companies--or 1,430--switched their auditors.

Neimeier said it is difficult to conclude what is prompting the changes. He cited possible reasons as overall enhancement of auditor independence or audit quality. Some accounting firms have left their corporate clients due to resource constraints, he added. Unless there is an accounting disagreement between a company and its auditor or some other condition exists, however, the company is not required to disclose the reason for the change, Neimeier noted.

Neimeier added that an audit committee can weigh the risk of fostering complacency by the company's auditor against the risk of losing the auditor's in-depth knowledge of the company's business and its financial reporting system. His appearances included one before Brazil's securities regulator, the Comissao de Valores Mobiliarios.