BackChannelReport: G2 Research

Karl Nagel | Sarbanes-Oxley

Almost four years after the passage of Sarbanes-Oxley, a number of factors have become evident that hold significance for investors, researchers, academics and corporate governance professionals:

1. Audit firms are operating in riskier environments - clients must fulfill a wide range of accounting, financial and systems requirements in order to satisfy various audit rules and regulations. CPA firms desire clean audits; they have better insight than external analysts and have been busily resigning from engagements and discarding clients that do not fulfill their internal risk/reward evaluations.

2. Audit service fees have grown significantly over the last four years - the result has been a movement away from traditional Big 4 firms towards both mid-size regional and local audit firms. Who are these firms and what types of resources and capabilities do they possess? What internal calculus have companies performed that leads them to conclude that their potential growth will not be sufficient to offset increased audit fees?

3. Audit committees are charged with important oversight and due diligence responsibilities. What  considerations, if any, have been made in reference to SEC enforcement/compliance actions directed at either their audit firms and/or firm clients? Are they aware of their audit firm's recent client gains and losses? Have any of these factors been incorporated into a comprehensive risk analysis to protect shareholders from future shocks?