Responses to ACSPC Request for Public Input

Accounting/Auditing

Question 15. Has SOX affected the relationship of smaller companies with their auditing firms? If yes, how? Is the change positive or negative?

The following answers have been received:

08/02/2005 13:57:44   Small companies are feeling like they are getting raped by their auditors. In some cases, larger accounting firms are pricing their smaller clients out when bids are rendered; given their manpower concerns, they don't have time or manpower to serve the little guys.

08/02/2005 17:44:12   Small companies have seen fees double and triple and are at the mercy of the auditors. Many audit firms have abused the rules to raise fees to clients and treated the clients like criminals.

08/02/2005 23:36:32   Yes. Negative. Everyone is watching his or her own back.

08/03/2005 01:39:17   NEGATIVE. 404 audits have turned companies from being clients to being "inventory". 1. The oversight which allowed for the tremendous conflict of interest permitted when the PCAOB was allowed to design the audits their own firms would administer, is unthinkable. 2. There is no appeal process. Power corrupts and absolute power corrupts absolutely. 3. There is no accountability. Audit firms are accountable to noone. Being themselves audited by their own members is ridiculous. They all believe in this level of auditing, so there is no balance in the review whatsoever.

08/03/2005 07:01:34   who can afford it? you are wiping out some bottonm lines...

08/03/2005 08:55:04   No

08/03/2005 08:58:39   More resentment because of the increased fees. They might not deserve it but they do get negative feedback from us.

08/03/2005 10:40:26   There is less willingness for our auditing firm to go the extra mile to help us with a problem. We also trusted our firm to do other projects for the bank because we knew their abilities and trusted their results. Now many of those projects have to be outsourced to unknown entities.

08/03/2005 12:17:58   yes, please note cmkm diamonds auditor, recently being influenced by the sec, to drop them as a client. government influence is not suppose to be part of the oversight. over zealous government is killing small companies in many ways

08/03/2005 13:55:42   Auditing firms now have any company hostage, regardless of the value of the company.

08/03/2005 15:01:40   Yes, it has affected our relationship negatively since we will have to pay them twice as much, assuming the certification is required, but we cannot rely on any of their work to offset or reduce our controls. For instance, we used to rely on their quarterly reviews to make sure our consoldiation and financial reports tied back to the general ledger. Now, we have hired another CPA to do this function. Our external auditor still performs this check but we cannot rely on their work to reduce ours. I do not like having to hire additional people to improve controls and then paying our external auditors twice as much as before; it is wastefull and redundant.

08/03/2005 15:22:49   Yes, our fees have gone up substantially as a result of SOX. Also, our External Auditors have dropped many of their smaller clients to allow time for their servicing their larger clients. Fortunately we made the cut.

08/03/2005 16:58:51   Negatively. As far as we are concerned, Ather Andersen didn't do their job. What do the other CPA firms get in return. A Law that helps them become a Cash Cow. It is guranteed money for them. The worse job they do in using judgment to evaluate how much to test, the more money they get.

08/03/2005 18:01:35   Please look into item no 29

08/03/2005 18:30:29   x

08/03/2005 19:54:33   I have noted from information received through 8K reports, that it is extremely difficult to find auditors who are willing to risk taking on a micro-cap company with a poor record-keeping track record. Having run a small business, I managed to keep good records. But my accountant/CPA would tell me about clients of his (larger companies) who would show up with shoe boxes of random papers. With SOX, an auditor will not accept such a challenge. this change and difficulty in finding an auditor places the company I know about, in a hardship situation. Obviously, I believe the change is negative.

08/03/2005 19:55:50   POSITIVE - INTEGRITY!

08/04/2005 09:17:19   I think it is a negative change. Many smaller companies rely on their external auditors for day to day advice in certain areas. This is being taken away with some of the requirements of SOX. For instance using them to review 10K' or Q's before filing. Another cost has been applied because in certain instances another CPA firm is used for advice.

08/04/2005 09:39:15   In some cases. The big 4, BDO and Grant have been very difficult with their smaller clients. I can assure you that some of the stances they have taken with their smaller clients they are not taking with the ExxonMobile's of the world.

08/04/2005 10:40:16   Because they cannot help us with SOX, we have consuleted with other firms. Their increased fees are a source of complaint by our directors. Although it is not the auditing firms fault, they are perceived as taking advantage of us. As a prior auditor, I understand the additional work that will have to be done so naturally the fee will increase. We expect no significant benefit for this increase.

08/04/2005 12:09:05   Yes, greatly detrated. We can't afford to bring in-house all the expertise necessary to stay up on tax and accounting changes. The personnel costs aside...the training and education costs would be staggering. Because of that, we expect that type of advise and guidance from our external auditors. Both in day to day accounting treatment and financial reporting. With today's SOX environment, we can no longer have that type of dialogue and relationship. The bottomline is this....the financials and accounting treatment will be hurt because of the change in this relationship. The ultimate goal should be that the financials are correct. This change has compromised this process in my opinion for small companies. Again, the larger companies have inhouse legal counsel, CPA's, tax experts, tax counsel, etc. Small companies can't afford this.

08/04/2005 13:38:24   Yes, it has made the relationship strained due to the high cost, low value coorelationship.

08/04/2005 14:20:27   Yes, negative. It is impossible to find a big four company that will audit and do SOX work for under $500,000. The smaller firms are getting smart and increasing their fees.

08/04/2005 18:05:44   Yes. There is more tension and less co-operation.

08/05/2005 10:54:31   Depends on the firm, it has had a negative impact on the relationship with some.

08/05/2005 12:38:34   Integrity - The change is positive if SOX is enforced fair and balanced across the board!!

08/05/2005 12:44:28   I can't comment as we do not perform audits.

08/05/2005 15:34:53   Yes - it did with us. We were charged twice as much as the previous year when we had done three times as much auditing ourselves. It was a strain on both sides. They wanted us to do more - we wanted them to do more.

08/05/2005 15:43:46   On the negative side there have been grubblings about fees. On the positive side, where there are long term relationships, there has been a mutual sharing of the crying towel.

08/05/2005 16:45:38   If it has, the change should be positive for the accounting firms, as they can demand accuracy with SOX compliance. Previously, the intermixing of consulting and auditing often resulted in bending the accuracy of the reports to the client's demands as they had other revenue streams coming from the client that were themselves "at risk" when not performing to the client's demands.

08/05/2005 19:33:08   There is a very negative impact on the accounting relationship. Auditors used to be able to work with the company to help improve or advise the company on new accounting issues. Under the new laws, small companies really need a secound group of auditors to help them stay abreaset of regulation changes and to discuss how to state certain events. Rather an expensive system.

08/06/2005 13:52:06   Yes, very negatively. Auditors are spending too much time making sure the PCAOB inspectors will not have issues with their work without a clear idea of PCAOB approach, and that is very expensive for their clients. Lack of understanding on amount of permitted interface with auditor in solving adccounting issues, many of which are routine, has reduced openness of communications with auditors.

08/08/2005 09:29:48   The auditing firms are trying to add to their fees. Ironically, it's like a doctor giving you a clean bill of health for years, then one day he says he is not sure if what he did in the past was good enough and needs to do more steps and charge more fees.

08/08/2005 11:10:11   yes. taken away the ability of companies to be able to tap a resource that knows their company operations for decision assistance on issues that impact financially, internal control-wise, or reporting issues correctly to avoid SEC actions. The auditor is a trusted and needed source of advice and guidance for a small company.

08/08/2005 11:39:29   Yes, much more tension and distrust on both sides. The audit firm is afraid of being sued and we feel that we are answering the same questions 20 times so that they may catch us in a wrong answer. Our board is also resentful in the sizable increase in audit fees.

08/08/2005 14:06:10   Yes in many cases it has become adversarial becasue of the added cost involved and the added workload being place on management for which they see no apparent benefit. The auditors feel it too because they don't want to be adversarial to their clients either. But in many cases the situation becomes highly charged and tense and it's just not a very pleasant environment to work in. What's the result? Many people, good people, leave the rpofession because the work environment is too stessfull.

08/08/2005 15:43:24   It is not positive. Our firm is proposing Sarbox 404 fees almost as much as the regular audit fees. We have never had an issue or a proposed adjustment in 15 years as a public company. Our audit partner truly believe his quote is on the low end for a non-aggressive implementation of Sarbox 404. I simply request that the PCAOB allow all smaller firms to not have to comply until we have more reasonable rules that the auditor and companies can apply.

08/08/2005 21:39:10   Due to lack of information regarding SOX compliance, there seems to be an abundance of confusion. I believe that companies and their auditors are doing the best they can to comply, while keeping costs as low as possible. This confusion may alter the relationships of auditors and their clients where there are disagreements regarding the compliance requirements. The more guidance that can be provided to both companies and their auditors will greatly reduce the potential for conflicts.

08/09/2005 09:30:31   Yes. Smaller companies are now forced to consider dissolving long term relationships with very reputable firms.

08/09/2005 16:26:34   It has negatively affected the relationship in our case...it appears our auditor is much more "afraid" to actively participate with us in questions of statement preparation in concern of being less than independent in their review.

08/09/2005 17:25:10   Somewhat. Smaller companies rely on their CPA firms for business counsel as CPA firms see best practices and typically share with all their clients. CPA firms cannot provide templates or guidance on the practical aspects of implementation of SOX. This has strained relation with CPA firm.

08/10/2005 09:04:41   no comment

08/10/2005 13:44:39   Yes very much so. We have had to go out and hire different firms to do different things, Our external CPAs cannot provide the same help as they used to provide, yet the bills rise. Definitely more tension. We just received notice 2 weeks ago that our external auditing firms is getting out of Public Company work. Now the competition will be decreased and price will rise.

08/10/2005 16:00:18   Sure! We now have two of them--internal and external. We now can't ask our external auditors for help or advice. We can ask our internal auditors, but they then have to ask the external auditors permission, etc., etc. Does any of this really make sense? Who's really benefiting? Audit firms!!!

08/10/2005 17:18:15   Yes - a negative change. No trust at all by the auditor; "gotcha" attitude by auditors to find many problems within the control environment so as to prove everything isn't in an ideal condition

08/10/2005 22:09:27   Certainly has, I think there is more suspicion without cause which makes for some interesting discussions. In most cases it has put more burden on the audit firms and therefore more costs back to the company. Again in our case it was almost three fold with really no benefit at the end.

08/11/2005 08:35:22   There has been a drastic negative change in the relationship. The audit firm is no longer a trusted partner. The audit firm is viewed almost as a 'spy' seeking to find that one item that will be a deficiency. The SEC, specifically PCOAB needs to 'rethink' their approach to 'auditing the auditor'.

08/11/2005 20:27:22   YES - Initially the result of SOX 404 made the relationship, somewhat negative. This was based on the fact that the PCAOB was beating up auditing firms and telling them that they had to be more aggressive in their audits and documentation thereof. In addition, the fact that most smaller companies paid significantly more in fees (ours were 500% higher)they resented having to pay such outrageous fees with no benefit.

08/12/2005 13:12:10   I think it is a negative change because the auditing firms are applying "big company" oversight to small companies who don't understand the unwillingness auditors have to try and understand the difference. In defense of the auditors, they are scared to death of trying to understand that viewpoint because of the liability.

08/12/2005 14:46:45   Yes negatively. Many companies feel that the external auditors were at sea with the requirements and as a result extra time and money was spent.

08/12/2005 16:35:01   The change is negative in that fees are higher, the service level has declined and the benefits are illusory.

08/13/2005 12:39:43   Yes. Company sees the auditor as an organization that is not permitted to help the company, but recommends the company to find another organizaiton to help the company.

08/15/2005 13:08:27   Smaller companies have less expertise available internally and have relied on their auditors for accounting, tax and other advice. The inability to access expertise from the company's auditor, perhaps the accountant most aware of the company, is counter productive and does little to enhance the audit/attest function.

08/15/2005 14:27:30   In 2004, it absolutely poisoned it. Whether the relationships can be put back together as time goes on is a question that I think is central to the future of public accounting. I don't profess expertise in the area but I do have personal experience with the consequences of the failure of the relationship in 2004-5.

08/15/2005 14:33:20   Negative becasue we are limited in discussions and consulations.

08/15/2005 15:10:05   Yes, they're very nervous about giving any advice because the auditor is held to a more stringent compliance standard by the pcaob then the judgemental advice they'd like to give the company.

08/15/2005 15:13:01   Abosolutely!! The pricing of the services has gone up enormously and some companies are being dropped because they can't compete with other more profitable audit engagements. On the supply/demand curve, the ball is currently in the audit firms court. This has certainly increased the negative feelings toward auditing firms. Additionally, our auditor took a "hands-off" approach to accounting issues for fear of being deemed not independent. It's complete sillinous.

08/15/2005 15:14:45   Yes. They are unwilling to provide assistance. Negative.

08/15/2005 16:33:43   Negative- how would you feel if your audit fee went up from $160K to $1.3MM? I am furious, and sick about it- I blame the auditors for running up the bills way beyond what is reasonable. What options does a company have? We are undertaking the only one available to us, and that is to replace them in hopes of finding a cheaper alternative.

08/15/2005 16:41:14   Yes. Negative. Has created a whole new element of fear and mistrust.

08/15/2005 18:59:52   SOX has affected the relationship - auditors can no longer use their knowledge of the business to provide useful advice. While this is negative for the company, it is probably better for shareholders that the auditors are at arm's length.

08/16/2005 09:51:21   Absolutely and to the very negative. This rule has turned what was (in my experience) a collaborative relationship into one where we can not seek guidance or advice. We have to now prepare postion papers to discuss an issue. As a small company, we do not have a large staff and definitely do not have a full time accounting research professional.

08/16/2005 10:10:36   Yes. Much less collaboration.

08/16/2005 10:21:17   Yes, of course -- all company's relationships with auditors have been strained. The auditing firms are "scared to death" of the PCAOB, fearing they will be the next Arthur Anderson. There needs to be productive collaboration between the PCAOB and audit firms.

08/16/2005 10:26:28   no real change, just extra bureaucracy (eg agreeing non-audit services at Audit Cttee)

08/16/2005 10:42:02   Yes. The change has been decidedly negative. Audit firms and managements used to work together on complex accounting issues, and local partners were able to make reasonable determinations. Now, audit firms require every issue to be sent to their national office or subject matter experts (many of whom know less about the subject than a well informed CFO), who now almost always mke the most conservative interpretation of an issue to avoid all risk. VERY FRUSTRATING

08/16/2005 10:44:16   Small and large as well. I no longer have the "trusted business advisor" feeling about my external auditors. They are more "out to get you" now. Still full disclosure prevails, but I hesitate to ask an opinion, etc.

08/16/2005 10:45:16   Yes, They were at first not willing to give advise on new procedures, etc. We were going to have to get a second accounting firm to help us with new accouting rules,etc.

08/16/2005 11:18:54   Yes, Sox has affected the relationship and in a very negative manner. We used to view our auditors as partners, now we view them as a hindrance. They have become so rigid about what they can or cannot do, the type of help they can provide, and their approach to reviewing financials that it has become very difficult to work with them. As a small company, we used to rely on our auditing firm for help with technical accounting questions, because we did not necessarily have the in-house expertise. Our objective was always to get the accounting right and they would help us with this. Now, it appears if we don't know the answer to a accounting question, it is an internal control weakness, and we have to go to another party for the required help. That is inefficient and costly.

08/16/2005 11:52:16   This is the biggest problem we have with SOX. We used to be able to talk to our accountants about transactions and how to book them. We simply do not have th staff or resources to hire experts in every area of business we deal in. Not being able to talk to our accountants really is a great draw back. The single most significant cause and effect of SOX. Additionally as many have mentioned the accounting furms just say - no more auditing your firm. This is painful as we have stayed with independednt accountants for long periods of time and then to just get dumped is not right.

08/16/2005 12:14:10   Yes, the auditing firms have made the people needed available to their larger clients and since there are not sufficient people available to review SOX smaller companies have had to deal with very inexperienced people.

08/16/2005 12:15:34   Yes, it has become more costly to work with our firm due to increased review processes.

08/16/2005 12:40:54   Yes, very negative.

08/16/2005 12:42:56   Despite repeated public denials, auditors are effectively 100% in control of the SOX404 process.

08/16/2005 13:04:14   Out auditors are less willing to be an advisor. I also need to be more careful when providing the auditor with preliminary financial statements since an error could lead them to conclude that we have material control deficiencies.

08/16/2005 13:12:04   Yes; now the auditor is the adverasry to management. To look good the Auditor must cater to the Audit Committee and avoid engaging in a helpful way with management. They are now efectively on a pedestal and looking down on the world in judgement over all.

08/16/2005 13:19:29   As previously stated, SOX has forced the bank to pay our CPAs about twice as much as in years past for essentially the same amount of work. While their attestation does bring an additional level of responsibility/liability, they have taken this as authority to override management's more educated opinions of our risk environment.

08/16/2005 13:20:23   Yes. In first year of implementation the auditors were unclear of the boundaries with respect to how much assistance they provided smaller public clients. I think this was also used as an excuse by a lot of smaller public companies to cover their own deficiencies. My experience is that things are back to a more normal relationship this year and the overall relationship is unchanged.

08/16/2005 13:25:32   YES! The Final Four has so much work our money is unimportant to them, and they certainly won't compete on small companies. The dialogue between auditors and their clients is focused on SOX compliance, rather than any observations about competitiveness, markets, opportunites for efficiencies. While not totally adversarial, our auditors no longer bring value aside from regulatory compliance.

08/16/2005 13:27:00   Yes. We fired our auditors. The auditors refused to help us and left us with the feeling that we were being gouged. SOX 404 is the greatest thing ever to happen to the Big Four firms and they were partly responsible for all the past problems. Auditors should be able to provide more guidance to companies. While they need to remain independent, it is in the public interest to ensure companies do their best to comply.

08/16/2005 13:30:33   Negative in that it increases our costs and since our auditors make us do busy work for their files. They apparently want this busy work for any potential PCAOB reviews.

08/16/2005 14:08:05   It did initially, but recent changes have helped. However, it is much better if an outside third party is used for management's testing to provide independance. This was not required before SOX and is very expensive.

08/16/2005 14:23:10   SOX has affected the relationship of all companies with their auditing firms. The auditor's role has changed from an advisor/evaluator role to a traffic cop role.

08/16/2005 14:54:27   SOX has reduced the team effort to get the finanicals right and moved the process towards an adversarial relationship.

08/16/2005 15:15:12   Very much so. Auditing firms now are required to second guess management actions without the ability to tell them the correct way of doing things. This often times puts management and the auditor in adversarial positons and begs the question, "If I have to do all this additional work, without my CPA's help, what exactly am I paying him for"

08/16/2005 16:08:50   It has caused more involvement from the audit firm which is a good thing. However, it also has distanced the relationship. Rather than working together and discussing the issues, the company is left on an island.

08/16/2005 16:09:47   Yes. Audits now cost alot more than before. This would be a negative.

08/16/2005 16:16:04   Yes, in a negative way, as the discussion centers arount the need to comply with an almost impossible legislative requirement and the time and cost associated with this task.

08/16/2005 16:45:09   YES! The change has made them more remote and less willing to offer advise on implementing new accounting pronouncements etc.

08/16/2005 18:21:27   It has created an adversarial relationship which I believe is very unhealthy.

08/16/2005 18:35:41   All negative. Along with the merger of the large auditing firms and the failure of Andersen (now judged by the courts to have been an injustice) SOX404 has driven large auditing firms to focus on larger audit clients. SOX 404 has put the auditors in a position of great risk (signing an opinion on a process with no historic guidance, in the most litigious environment in the history of the world) which has driven them to focus entirely on covering themselves against any possible accusation of carelessness, which has in turn driven them to take positions that a reasonable reader of the law would never have dreamed of.

08/16/2005 21:29:07   Negative. The CPA firm now has to take an arm's length position and can no longer offer advice to smaller companies.

08/16/2005 21:40:38   Big Negative. Pressure on both sides to complete 404 work with

08/17/2005 10:59:57   Yes it has. Our fees have risen significantly. With fewer audit firms available and a huse demand for audit services our company has lost any negotiating balance with fees and quality of service.

08/17/2005 12:28:22   Yes. Auditors are not as elpful and seemed preoccupied with potential lawsuits. Therefore, they do things to cover themselves, but provide little value for our company.

08/17/2005 12:36:00   It's a negative change in that the company should be able to rely on the auditor for advice, not just for a grade as to whether something was done properly or improperly. True disagreements with an auditor are quite rare with a small company--usually questions are deferred to the greater expertise of the auditing firm.

08/17/2005 12:48:33   Negative. The accounting firms have greatly increased their fees citing their increased liability.

08/17/2005 16:18:39   Yes. The relationship has transformed the auditor from a trusted adviser to an adversary. There is no longer any "trust". The auditor doesn't trust the client, and everything must be tested, documented and verified. The client can no longer ask the auditor for advice on accounting or control matters, because the auditor will either claim lack of independence or will require the client to report that there is a material control weakness.

08/17/2005 18:49:20   Primarily in the area of fees but our experience is that most management teams grouse about it, but accept it. I think accounting firms have to learn more about operating in this SOX environment to continue to bring value to their clients.

08/17/2005 18:49:27   Absolutely, the auditors now act like the police, not your external expert in accounting for the company's results. The relationship had become too cosy and the extra independance of auditors is welcome. SOX has also dramatically increased both hourly rates for auditors and the number of hours they must spend.

08/17/2005 19:31:08   Yes. Some positive. Some negative. Our auditors are much more careful on their auditing and are much more thorough. On the negative side, they have employed scare tactics and used this as an opportunity to increase fees.

08/17/2005 21:27:12   Yes. It has been negative. Auditors now treat us as if we are potential criminals trying to commit frauds. They have lost the perspective of materiality -- everything has become material. Audits have become more confrontational, take longer, requirem more internal resource, cost more and provide no additional benefits.

08/17/2005 22:55:14   Yes, negatively. There is now much less of a consultative relationship and much more of a judgmental or adversarial relationship between the auditors and small companies.

08/18/2005 08:03:31   Yes. They threaten to kick us out.

08/19/2005 02:56:12   Its much more negative and makes it harder to keep the auditor involved in issues and the proper resolution of accouting questions. Relations have become much more acromonius with no real net change other than higher audit costs.

08/19/2005 11:44:44   Yes, audit firms are throwing out reason and dialogue in the interest of preserving independence.

08/19/2005 12:28:03   Yes with a negative impact. It has taken away an important resource that many small companies do not have internally.

08/19/2005 13:49:01   Absolutely, the relationship between all companies and their auditing firms has changed in a negative direction. Prior to the enactment of SOX smaller companies could look to their auditing firms for advice/clarification and/or guidance on numerous topics. Since SOX there has been a noticeable reduction in the willingness of auditing firms to render any advice for fear of ‘losing their independence.´ An example of this is reflected in the following example: As part of the Monthly/Quarterly Closing Process it was suggested that the Company use a Disclosure Checklist. When asked for a copy of the Disclosure Checklist used by the Company´s auditing firm there was a refusal to come forth with the Checklist. The statement was made that they could not give the list but it could be obtained from another CPA firm. Since the list is most likely a duplicate of the one used by them, it seemed ludicrous to go to another firm.

08/19/2005 14:40:28   Yes. There is still a great deal of caution regarding sharing of accounting guidance. Improvement in this area would be beneficial to management, auditor and investor.

08/19/2005 14:50:07   The relationship has certainly become more arms-length. While this may be perceived as a positive, our auditors are hesitant to offer advice or even accounting opinions, opinions on which they ultimately are going to determine GAAP compliance anyway in conjunction with the audit.

08/19/2005 17:03:28   It's a positive change when the audit firm tries to facilitate the 404 implementation.

08/21/2005 03:34:34   It made the relationship more stringent and the companies pay much more to the accountants.

08/21/2005 04:46:26   Not really , except for the hysteria of the Auditors.

08/21/2005 22:19:50   The relationship has become more difficult becuase of the lack of consultation that is provided by auditing firms in order for them to maintain their independence but no more than large companies.

08/22/2005 14:21:23   I believe this was a strong contribution to a massive increase in audit fees which resulted in us changing firms.

08/22/2005 15:20:23   The relationship has become frustrating because the auditors determine the scope of the SOX work and the company pays for it. Audit firms have tended to go overboard in covering their bases at the company's expense. It seems that there should be a decrease in the scope of audit work because of the testing of and potential reliance on controls, but our auditors tell us that we should not expect to see any cost savings on the audit work. This doesn't make sense.

08/22/2005 15:47:02   Yes. We now have to get a second firm if we want answers to questions. Otherwise, their independence as auditors is supposedly comprimised. That seems silly to me.

08/22/2005 15:47:34   Yes. Auditing firms are now demonstrating a complete lack of tolerance to risk. They seem to have lost all sense of perspective. If they note any instance of a violation of a control procedure, no matter how isolated, it quickly adds up to a significant deficiency. They also do not seem to know how to properly interpret SOX. In our case, we obtained compliance software from them that no one there seems to know how to use properly. Our auditors have gone from our business advisors to our busines advisaries.

08/22/2005 17:54:28   Yes, SOX has changed the relationship. The change has been both costly and negative. However, some improvement has occurred as a result of SEC guidance relieving auditors of some of the initial "total separation" requirement.

08/22/2005 17:56:59   Yes. It has meant that the Big 4 are dropping smaller companies from their client list, and competitiveness is diminshed.

08/22/2005 19:27:18   Audit firms don't see the benefit etiher. Everyone is dealing with this as a necassry evil at the small company size. We don't individually generate the fees for the firms to take undue risks

08/22/2005 20:10:17   Very definitely. The accounting firm that prepared our financial statements and performed our audit from 1987 until 2002 knows our business inside and out. They are now arms length and we have an other firm preparing our financial statements. There are too many accounting professionals involved and as discussed earlier, we see very little benefit.

08/23/2005 00:42:38   negative - small companies have a more difficult time marshalling the resources required to answer complex accounting issues that come up infrequently. auditor is the logical person to help with those issues and doing so proactively rather than on a hindsight basis is better for all involved.

08/23/2005 09:50:27   yes it has in a negative way due to the increased cost the audit firms are charging.

08/23/2005 15:56:30   Yes. The big four is focusing on its larger clients, committing nearly all of their resources to their BIG MONEY clients. The result is a degradation in the relationship as quality of service drops and fees rise.

08/23/2005 16:06:08   Yes, the relationship has turned more adversarial (negative).

08/23/2005 16:49:34   Yes - more costly and much more time consuming

08/23/2005 18:10:00   Yes. Negative due to high costs. Auditors aren't fully staffed or trained and create friction as they learn on the job.

08/23/2005 21:11:03   Yes.... If the noise from large companies is any indication the "sticker shock" from auditors to smaller companies will create a adversarial relationships. The lack of key standard leaves too much interpretation at the lowest levels of the auditing firms driving decisions at the highest levels of small public companies.

08/24/2005 11:28:21   Negative - in our opinion, SOX is requiring auditing firms to amend their audit approach even for private companies. This is adding significant time to the audit and the overall fees charged by the auditors has also increased significantly over the past few years.

08/24/2005 12:24:07   Yes, extremely negative. We no longer use auditor to provide value added input to our financial process or planning.

08/24/2005 14:30:13   Yes, negatively. The auditors have gone overboard with SOX404 and what they have to do. Part of the problem is the way that the rules are written and they are taking a very literal approach to 404 with no room for judgment.

08/24/2005 16:19:27   Yes, negative. They have made us do all our own research on complex issues- even though they have 100's of partners and managers that have the answers at the tips of their tongues. It has also made them fill out more forms and charge more money.

08/24/2005 16:26:56   Yes. We believe the change in the relationship of smaller companies with their auditing firms has been negative. There is much less collaboration on approaches to transactions, accounting treatments, and disclosure, even though it is smaller companies that benefit most from such collaboration with accounting firms. Accounting firms are more frequently viewed as a private enforcement arm of the SEC. We also believe that management may be less open with the auditors when discussing an issue with unclear guidance, for fear of being viewed as having a control weakness. We also believe that the leverage of the auditing firms (particularly the “Big Four”) in dictating the terms of an audit engagement has been greatly strengthened under SOX, further increasing costs on smaller companies.

08/24/2005 16:54:47   yes. Auditors are less likely to provide help the company needs on complex accounting issues

08/24/2005 20:16:09   Negative. They are more adverse to helping you with accounting and tax issues. We now need two sets of accountants, one to audit us and the other to advise us on how to implement accounting rules. This is a ridiculous and unnecessary cost. They are not DOING the accounting just advising us on how it should be done under the rule!

08/25/2005 15:23:41   Yes, consulting with the external auditors is now somewhat prohibited. The negative impact prevents the auditors to guide the Company, especially with extraordinary transactions. Therefore, smaller companies are turning to other consulting firms which in turns, increases costs also.

08/25/2005 16:04:36   Yes - many smaller companies and their auditors are too unfamiliar with the concept of internal controls and the COSO model. Many of the audit firms are "balance sheet auditors" who confirm cash, A/R etc. The smaller companies are in dire need of advice for identifying, documenting and testing internal controls - and their external auditors are unable to provide guidance either due to lack of knowledge or independence concerns.

08/25/2005 16:26:29   Yes. This change is negative. Auditors seem t approach audits now on a guilty unitl proven innocent basis.

08/25/2005 17:02:43   SOX has increased the cost of the audit and significantly decreased the ability of the auditor to provide business advice to those companies who probably need it most.

08/26/2005 12:41:42   Negative. The auditing firm is less able to support smaller companies with accounting and tax issues which directly affect financial reporting.

08/26/2005 13:07:22   Yes, negatively. The relationship is more advesarialy than ever, and SOX has made it difficult if not impossible to obtain many services from a company's primary auditing firm. All of this has made the engagements more expensive.

08/26/2005 15:10:01   Yes. Many SMBs have to hire other audit firms because the current firm can't handle the SOX requirements.

08/26/2005 15:31:29   Negative. Less likely to seek advice.

08/26/2005 16:22:08   I'm not sure. Our relationship is still positive.

08/26/2005 17:46:13   SOX altered the relationship between the company and its auditors. IN the case of smaller copanies, it is not for the better. Smaller companies cannot afford to have financial advisors be seperate from the auditors, becuase it means double fees. Auditors now "hide" behind all sorts of legal documents that make sure THEY do not incur any risk. The full burden actually now falls on management.

08/27/2005 11:21:03   Yes. Negatively. Auditing firms are vastly more reluctant to provide advice and to fix accounting problems. The perceived 'independence' issue is way overblown on smaller companies. Smaller companies will rarely have CFO's qualified to do SEC reporting, because if they were that capable, they'd be bored in smaller companies. Only the auditors can efficiently pick up that slack. After all, if 'stock issued for services' isn't valued correctly, who is better qualified than the auditors to fix it or police it? Nobody else is available unless the company hires another accounting firm to advise it. Those few who are trying this approach are finding their costs ballooning with no value added.

08/28/2005 23:37:43   Negative. Turnaround time on audits has slowed dramatically.

08/29/2005 07:07:37   Yes. Increased time cycle and cost. Negative.

08/29/2005 10:21:15   Many small companies, given their resource constraints, have historically viewed independent auditors as an important and valuable resource in obtaining the “right answer” relative to accounting and financial reporting. Such companies recognize that they cannot possibly have all the knowledge of accounting and reporting complexities in house given locations, ability to pay such employees, and the constantly changing nature of the accounting and reporting environment. As such, small companies in particular have looked to audit firms as a resource to make sure accounting and reporting requirements are appropriately met. However, with the implementation of SOX, be it intended or unintended, a “police” tone has replaced the previous “resource” tone. It has become much more of a challenge to use your audit firm´s knowledge and resources given the perception it creates that a company cannot do it themselves, when in actuality, the company recognizes their weaknesses and sees the importance in paying a premium for quality audit services to obtain such knowledge. This attitude within audit firms may change somewhat given the new PCAOB guidance, although we have yet to see it in practice.

08/29/2005 10:21:25   Many small companies, given their resource constraints, have historically viewed independent auditors as an important and valuable resource in obtaining the “right answer” relative to accounting and financial reporting. Such companies recognize that they cannot possibly have all the knowledge of accounting and reporting complexities in house given locations, ability to pay such employees, and the constantly changing nature of the accounting and reporting environment. As such, small companies in particular have looked to audit firms as a resource to make sure accounting and reporting requirements are appropriately met. However, with the implementation of SOX, be it intended or unintended, a “police” tone has replaced the previous “resource” tone. It has become much more of a challenge to use your audit firm´s knowledge and resources given the perception it creates that a company cannot do it themselves, when in actuality, the company recognizes their weaknesses and sees the importance in paying a premium for quality audit services to obtain such knowledge. This attitude within audit firms may change somewhat given the new PCAOB guidance, although we have yet to see it in practice.

08/29/2005 11:21:29   Yes negatively because the auditing firms are now more distant and costly. They may not be able to perform tax returns in the future. They may be unable to provide accounting advice. The demands of their time has increased and their customer service suffers.

08/29/2005 14:18:47   Anecdotally, and in press reports, SOX has changed the relationship of smaller companies and their auditors from a cooperative relationship to a more adversarial one. I believe that generally, the change is for the better. I am not condoning an adversarial relationship between auditors and management - but I do not support cozy, advisor-type relationships either. The management has the responsibility for the preparation of the financial statements and the underlying machinery that produces them. The auditors are supposed to represent the interests of the investors that appointed them. When you look at the roles of the management and the auditors this way, it´s hard to see why the auditor should ever be allowed an advisory capacity to the management. So if there has been a “frosting” of the relationships between smaller (or larger) companies and their auditors, I´d call that a positive development.

08/29/2005 14:53:30   Yes. If yes, how? The doubling or trebling of the cost of the auditing service is a “gut wrenching” impact to the relationship between the service provider and the customer. Purely the customer feels it is highway robbery to absorb such horrendous price increases for the same service. The parties begin to doubt each other rather than to trust each other, which is the exact opposite of what the relationship needs. Is the change positive or negative? As stated before this investor believes that it is totally negative.

08/29/2005 15:31:21   SOX has impacted the relationship negatively. Small companies rely on the expertise, advice and opinion of their auditors, and this legislation, according to the auditors, basically prohibits the auditors from providing any assistance without compromising their independence. This has resulted in small companies having to engage a second CPA firm to provide expertise and guidance at a great cost.

08/29/2005 16:10:53   Yes----in a negative way. We use to be able to discuss and review appropriate ways of measuring and accounting for revenue and income. Now the auditing firma are afraid to give advice or have open discussions.

08/29/2005 16:20:53   Absolutely yes, they have now become more like a regulator rather than someone who can provide you consulting or advice.

08/29/2005 17:09:27   Yes in a negative manner. External accounting firms used to be a source of reference and guidance. Under the SOX environment, external firms are hesitant to provide guidance for fear of impairing their independence. In addition, audit fees have increased dramatically as a result of SOX.

08/29/2005 17:12:26   I beleive in general it has been negative as the audit firms have been more reluctant to give consultation with the companies on the more complex transactions and standards and have been going over board on the 404 requirements. Even with the recent guidance from the SEC and PCAOB to clarify the rules, it still seems to have hurt the communication process between the company and the outside auditor.

08/29/2005 17:12:43   Overall negatively. It is hard to disconnect value-added service from non-value-added service.

08/29/2005 17:36:32   Our auditor quit being an auditor and we had to find another. they are becoming harder to find because the rules imposed are to onnerous and costly in addition to being very intrusive.

08/29/2005 19:02:32   Yes, auditing firms give less guidance. This has to be purchased elsewhere. Also the relationship is more confrontational and less open. I believe this is a negative direction.

08/29/2005 19:05:24   Yes. The relationship has become strained. This is ironic as smaller companies have a greater need for the expertise a national accounting firm can provide. Due to the uncertainty SOX has created in the seeking advice from our auditor (e.g. will seeking advice indicate a material weakness, indicate a lack of auditor independence, or indicate that management is not accepting responsibility for the financial statements?), we have established a relationship with another public accounting firm and now seek the advice of this firm for complicated accounting issues. We believe this process is costly and inefficient and that a better solution would be the ability to freely discuss complicated accounting issues with our current auditor without the concern that we may inadvertently create an independence or material weakness issue.

08/29/2005 21:00:01   Yes, SOX has affected the relationship between smaller companies and their audit firms in a negative way. Prior to SOX, we were able to get accounting and business advice from our audit firm. Now our audit firm prefers for us to make a conclusion regarding certain accounting standards or structures and present it to the audit firm. The audit firm then provides guidance on management's decisions. For a smaller company, this has been a hinderance. We don't have the SEC expertise in house and would like to be able to rely upon the advice of our outside auditors as we do with our outside counsel.

08/29/2005 22:40:58   Yes. Audit firms no longer wish to discuss issues and offer guidance to smaller companies based on SOX. It is small public companies that actually need the feedback and guidance of audit firms the most, since they have limited resources due to financial contraints. SOX has really hurt small companies in this area.

08/30/2005 15:04:16   Yes, the change is negative. The auditors feel compelled to do the extra SOX compliance audits and smaller companies feel the burden of time and costs. In effect, there is resentment of the auditors demanding more!

08/30/2005 15:07:00   Yes. Smaller companies are finding less expensive firms because of the additional costs. It has changed the relationship from one where the auditing firms provide research and knowledge on technical issues to one that will not provide such assistance because of fears of independence issues.

08/30/2005 16:27:18   Yes, we now seem to be in a confrontational relationship instead of a team to provide the best representation of our Company's financial condition to the investing public.

08/30/2005 17:08:46   Yes, SOX suggests a distance must exist between the company and its auditing firm, which impairs the effectiveness of collaborative financial decision making that previously existed.

08/30/2005 17:23:36   The perception that the audit firm is totally hands off in regard to developing SOX 404 documentation has left a negative impression on management and the board of managers. We feel "left to the wolves" of consultants who are charging outrageous fees for guidance that might not be as good as what the audit firm itself could give.

08/30/2005 18:26:14   SOX has adversely affected smaller companies´ relationship with their auditors. Prior to SOX, smaller companies could consult with their auditors. However SOX has placed the auditors in the role of regulatory agent with the additional burden of protecting their own exposure to compliance risk.

08/30/2005 18:48:02   If independent auditors were performing other, non-audit services they will have to quit. But that is common sense, anyway.

08/30/2005 18:51:48   Many smaller companies have been told by their auditing firms that they no longer can service them, that they don´t have the staffing for smaller companies because SOX testing for their larger clients will require so much time. We have found that our accounting firm is less likely to offer us guidance on any questions on unusual transactions we might have or any implementation advice on new accounting standards. This advice is a major benefit for smaller companies, since we don´t have the personnel to develop this expertise in house nor do we have exposure to how other companies are treating similar transactions. In addition, the quality of the services that the auditing and tax firms are providing for the required tax compliance and audit/quarterly reviews have been decreased due to the firms limited resources being allocated to primarily Sox engagements. The audit and tax work is considered lower priority work.

08/30/2005 19:47:16   Yes. Our relationship with our audit firm has become increasingly negative. They are second-guessing every management decision/estimate and are not willing to assist us with deciphering complex accounting issues.

08/30/2005 21:07:56   No.

08/30/2005 21:39:41   The entire PCAOB guidance and SOX has adversely affected the relationship of smaller companies with their auditors. The auditors do not have any willingness to work with management to ensure timely filing of financial statements.

08/30/2005 23:57:28   To some extend it will,but not significantly affected. Negative change like to additional fee charges. Continue asking various questions etc....

08/31/2005 08:31:59   Yes, negatively. Its created more of an adversarial relationship.

08/31/2005 10:19:14   Yes, higher costs represent an economic strain, unable to utilize tax services of audit firm.

08/31/2005 10:21:37   Yes, our relationship has been negatively affected to the extent that we have changed auditors. A 35 year relationship, with a big four firm, was terminated as they obviously didn´t want our business. Fees were going through the roof. Previously the auditors provided advice and counsel. The relationship changed to adversarial with a demand that reporting be completed and perfect before they will look at it.

08/31/2005 14:00:12   Negative. Communication has become more difficult. My observation is that auditors in the SOX environment ( but pre-404 auditing) have become more concerned with optics or "how" something is said in a filing rather than the accuracy/substance of the disclosure - it's as if the SEC has become the "audience" for the annual/quarterly filing rather than the investor community.

08/31/2005 14:00:16   I think the overall impact is negative. The current relationship between companies and auditors is backwards anyway. Companies are required to have an audit. Auditors are paid by the company. Sounds like a conflict of interest to me. Now auditors are perceived as having alot more power - can charge higher fees but are helping their clients less. I find it interesting that auditors are not complaining about SOX 404 - how unfair it seems. All they see are more dollar signs.

08/31/2005 14:12:37   The relationship between smaller companies and their auditors has definitely been affected by SOX. Unfortunately, this change has largely been negative. The strain on resources at most of the large public auditing firms has resulted in a poorer quality of service to smaller companies. Smaller companies routinely experience difficulty scheduling their auditors for year end audits and quarterly reviews, a lack of timely feedback from their auditors on accounting issues and high turnover of the staff accountants assigned to the engagement. With regards to fees paid to auditors, many smaller clients have suffered signficant increases in their fees driven by the fact that they are, in fact, a “small company”. Auditing firms tend to view the risk profile of these entities as higher (vs. a larger, more established company) and often charge a rate per hour that is more than that paid by a larger company. Smaller companies are left with little choice but to pay these fees as, in today´s environment, the ability for smaller companies to receive proposals from other firms is limited by the auditing industry´s current lack of resources.

08/31/2005 14:25:37   SOX has started a complete disintegration of the relationship with our audit and accounting firm. As a CEO, I can say that a good relationship with all parties is essential. When you have a breakdown in communication you are headed for disaster. That is the direction you are now going.

08/31/2005 14:32:46   At his point, I believe it has had a negative affect on the relationship. Auditors are very reluctant to offer advice on treatment of accounting issues. Smaller companies may not have expertise or resources available to evaluate non-ordinary transactions. Auditors are fearful of maintaining the perception of complete independence, but if the transactions are handled incorrectly, they may conclude that internal control is lacking. It's a "catch 22" scenario.

08/31/2005 15:19:27   Yes and it is negative. The attitude of the auditors has changed from that of a trusted business advisor to an enforcement division of the SEC.

08/31/2005 16:05:33   Yes it has impaired the relationship because accounting firms will be charging two to three times more for their additional work.

08/31/2005 16:13:45   Yes. The initial interpretation of SOX negatively affected the relationship with our audit firm since we were not able to rely on them for technical advice as we had in the past. Management of smaller companies clearly understand that the reporting and financial statements are management's responsibility. If smaller companies are not permitted to rely on their audit firms for technical advice and other permissable services the companies are required to acquire expertise internally or engage additional firms for assistance. Either option increases the cost to smaller companies.

08/31/2005 16:16:33   15. During the first year of SOX implementation, the relationship between public companies and their auditors was extremely poor. Both entities were wary of the new regulation, and no auditor was willing to go on record with a definitive SOX answer. Much of the first year was a waiting game to see what the PCAOB or other companies were reporting. This year, however, due to the PCAOB providing guidance, communication between companies and their auditors has improved tremendously. There is constant communication between the parties, and they are working together to solve SOX compliance issues

08/31/2005 16:29:59   Yes, prior to SOX the audit firm was a resource that you could use to insure that your company was following the correct financial and reporting requirements. This was not an adversarial relationship. It was one of how can we properly handle our reporting so that we spend our energy on running the company. Now auditing firm have to take great care in there consulting and advice, thus requiring small companies to hire addiltion consultants, which require more time getting up to speed and thus even more money.

08/31/2005 17:16:33   Sure. We aren't big enough anymore. They don't have time for us. The big four are concentrating their practice on the huge companies. It has been increasingly difficult for us to have the large public companies to stay with us. Our business model is simple and straight forward and that is why they have stayed with us so far.

08/31/2005 18:22:30   In responding to this question we interpret “small” as smaller accelerated filer clients. Yes, it has had an effect. The auditor has often been the primary source of subject matter knowledge for the smaller companies, playing a large educational role. Some companies have been resentful of the need to comply and have adopted a combative attitude, straining relationships. In almost all client situations there have been difficult fee discussions driven by both amount and uncertainty. Clients are used to fairly predictable audit costs, and the uncertainty surrounding the costs of conducting an internal control audit were troublesome to the management groups. These companies also often leaned heavily on auditors for accounting guidance. As a result, while we continue to support the clients in a consultative role, many have needed to strengthen their financial reporting capabilities through staff additions or outsourcing.

08/31/2005 18:23:08   Negative change – the auditing firms are less willing to provide guidance. Management is still responsible for the control environment and reporting, but management should be able to expect input from their auditing firm as part of the services, plus management pays a hefty sum for that level of expertise. Again, not setting the controls, but providing dialogue on controls and related technical accounting issues.

08/31/2005 19:16:05   15. Yes, small companies have been impacted by changes in their auditor relationships in a very negative way. There is simply a shortage of truly qualified CPA practitioners who are willing to work with smaller companies. In many smaller geographical areas this is even more true. Finally, the SEC needs to recognize that smaller companies are far more prone to encounter financial decisions that are outside of their internal expertise that require assistance and agreement from the outside auditing firm to assure proper treatment in the financial statements.

08/31/2005 20:55:07   Yes the larger audit firms are dumping their smaller clients or raising their fees to force them out. How can this be positive for the marketplace. SOX has created a major windfall for the larger audit firms. It has created a huge problem for the small companies, as their audit fees are escalating while they have to spend more and more on the SOX compliance.

09/01/2005 00:55:31   Yes if the smaller company's auditor is a Big 4 firm. The larger firms are providing much better service to larger companies.

09/01/2005 11:40:19   The relationship has become more negative as companies look at skyrocketing costs and the benefit they get from 404.

09/01/2005 14:30:54   As a small public company, we were “weeded out” of a Big 4 accounting firm because the accounting firm felt it could not “support” smaller companies. They recognized that the fees they intended to charge would be completely out of line with the revenue base of our company. In the end, the auditing firms below the Big 4 level have increased their fees because of demand for their services by small companies seeking a new relationship. There have been substantial negative results in regards to relationships between audit firms and small companies since SOX was instituted.

09/01/2005 17:12:34   Yes is has affected the relationship. Previously audit firms were a source of expertise. You could run things by the firms and discuss the alternatives. It was a positive relationship. Now the environment is much more, you figure it out and if you are wrong it will be a problem. Its turning into an adversarial relationship.

09/04/2005 07:42:16   N/A

Previous Question

All Survey Questions

Main Survey Responses

Next Question

http://www.sec.gov/info/smallbus/acspc/acspc_rpc15.htm