Choosing Your Audit Firm Series: Size and Resources

How should a public company go about selecting its audit firm? The data show public companies tend to default to one of the Big 4 or National firms. According to a 2020 article by Audit Analytics, the Top 10 firms audited nearly two-thirds of all public companies, with the Big 4 firms auditing approximately half of all public companies. So why do public companies default to using one of only a handful of firms for their audit and helping them with their public company filings? This post is the second in a series exploring the factors that come into play when choosing an audit and assurance services provider.

Big Pond, Little Pond

When a company searches for an outside supplier of service, their size and perceived resources are always a consideration. It’s true – the Top 10 firms are larger and have more resources at their disposal than a regional accounting firm. They serve an undeniable purpose in the marketplace. The Apples, Googles, and Amazons of the world do not – and should not – use a smaller firm. But what if a company’s market cap isn’t $500B, but instead $500M? Are all those additional resources really necessary? And perhaps just as important – will those giant firms serve a small or a medium-sized public company as well and as efficiently as they would serve their giant clients? We frequently meet prospective clients that say their current Top 10 firm is too big to care about their small company and that they feel like they get the Top 10 firm’s “B-team” working on their audit.

Best of Both Worlds

An untapped resource to consider for public company audits is a regional firm with a membership in an alliance of accounting firms. Alliances offer a network of resources across the globe, while the individual accounting firm is able to maintain small firm agility, personal attention, and cost structures. For example, the Leading Edge Alliance (“LEA”) is a global alliance of CPA firms that spans over 100 countries, over 450 offices, and more than 16,000 professionals. In other words, if the LEA was one firm, it would be the 5th largest firm in the world based on revenue. Haskell & White has utilized LEA’s global resources to conduct inventory observations or to conduct audits that roll up to the parent organization. Our membership not only provides this boots-on-the-ground presence but a resource for specialized knowledge. If a client has a material unique transaction, Haskell & White can perform the research and then reach out to the affiliate’s special interest groups to ensure other professionals with expertise in that area agree with our conclusions. This is a similar process that the Top 10 firms use with their respective national offices; however, the difference is a regional firm does not have to get approval from a national office to reach a conclusion, which makes for an efficient decision making process and a more cost-effective process for the client. In other words, through its global affiliate, smaller firms have many of the resources of a large firm at their disposal, but using those resources – and ultimately the conclusion reached – is up to the individual engagement team.

Please reach out to us to discuss your current audit needs and learn more about how our global resources can be put to use for you.