Calls made seeking comment from the Big Four accounting firms — KPMG, Deloitte Touche Tohmatsu, PricewaterhouseCoopers, and Ernst & Young — were not immediately returned. However, earlier this year Deloitte was the first of the Big Four to announce its annual revenues, claiming $27.4 billion, the sixth-consecutive year the firm claimed its revenues had grown by a double-digit percentage.
In 2007 Deloitte, and all the other Big Four firms, did not release results until the fall. Ernst & Young reported 2007 revenues of $21.1 billion, KPMG announced revenues of $19.8 billion, and PwC reported revenues of $25.2 billion, with all three firms also boasting double-digit growth. Deloitte reported 2007 revenues of $23.1 billion.
At the press conference, Levitt said he expects that in “a very short time” at least one audit firm would be filing public financial results, and once that happens, “the others will follow.” Asked whether the recommendation to make audit firm results public was a controversial subject during the year-long process, Nicolaisen simply replied: “there was a lot of discussion.”
The recommendations were separated into three areas: audit firm structure and finances, concentration and competition, and human capital. The financing and structure subcommittee, headed by Robert Glauber, a director at Moody’s, XL Capital, and Quadra Realty Trust, also recommended the creation of a national center for the exchange of fraud prevention and detection ideas, procedures, and data. The center would coordinate efforts among audit firms and other market participants and be housed at the PCAOB. Further, the subcommittee called for granting what would amount to a national certified public accounting license, giving accountants licensed in one state mobility to practice in other states.
In addition, the subcommittee called for enhancements to disclosure requirements related to public company auditing changes, as well as improvements in the auditor’s standard reporting model that would include key accounting estimates and judgments. It also suggested that audit engagement partners should be mandated to sign the auditor’s report to improve accountability among firms.
The subcommittee on concentration and competition, led by Damon Silvers, associate general counsel at trade union AFL-CIO, urged more auditor liability protections. For example, the subcommittee recommended that the PCAOB monitor potential sources of catastrophic risk at audit firms — such as being named a defendant in a lawsuit related to a major corporate scandal — to prevent the collapse of a large firm. What’s more, it recommended that a plan be put in place for rehabilitating large “troubled” firms and keep them afloat while they reorganized. Such a plan, the report said, would require congressional action.
The centerpiece of the recommendations put forth by the subcommittee on human capital, which was headed by Gary John Previts, president of the American Accounting Association and an accounting professor at Case Western Reserve University, was an effort to bring more minorities into the auditing profession. The group proposed mentoring programs and recruitment at colleges that traditionally have a large African-American student enrollment.
In light of the SEC’s proposal to switch U.S. companies to international accounting standards, the subcommittee also recommended new accounting curricula, ensuring an adequate supply of qualified accounting faculty, and a “scholars and sabbatical” program to foster an exchange of ideas related to accounting education.