The Joys of Getting Dumped
Ah, those niggling little signs that a longtime relationship is about to hit the skids. Less talking. More bickering. Squabbles over money.
Take the case of business-data specialist EDGAR Online Inc. Two years ago, Greg Adams, CFO and chief operating officer of the South Norwalk, Connecticut-based business, says he sensed a change in the company’s outside auditors, Big Four firm KPMG LLP. Later, Adams says the auditors informed him that KPMG’s proposed fee for auditing EDGAR Online’s books would be higher in the coming year. “I could see the handwriting on the wall,” recalls Adams. So he dropped KPMG, hiring BDO Seidman LLP in 2003 as EDGAR Online’s independent auditor.
Such bust-ups are not uncommon in Audit Land these days. According to research firm Glass, Lewis & Co., tier-two firms gained 193 new clients in 2004 from Big Four houses. In many cases, however, the pickups were actually smaller businesses that had been thrown over by large auditing firms.
Top firms seem to be doing a lot of that lately. Some clients are being shed because they’re not big fee generators, while others simply pose too great a legal or regulatory risk. Explains David Breen, U.S. assurance operational leader at PricewaterhouseCoopers LLP: “You can hire the best people, give them the best tools, and do inspections. But none of that will overcome the wrong client.”
Overcoming the wrong accountant comes with its own set of problems. Changing independent auditors involves filing an 8-K with the Securities and Exchange Commission, a move that “can affect your share price,” says one CFO. And as William D. Travis, managing senior partner at accounting firm McGladrey & Pullen LLP, notes, “Any time you have to hire a new auditor, there’s a loss of efficiency. And there’s some cost.”
Adams found that out the hard way. When he told KPMG that he’d found a new external auditor, he says the firm informed him that EDGAR Online would have to pay a consent fee for the use of its audits for the previous two years. Adams, who worked at KPMG for 11 years, adds that he failed to convince the partners to lower the price. “We had to absorb that cost for two years,” he says. “They got $40,000 for proofreading.” — J.G.