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By H. Lon Addams, EdD, Brian Davis, PhD, and Ronald M. Mano, PhD, CPA, Weber State University

The August 1994 issue of The CPA Journal includes an article by two of us that reports the results of a survey on the reasons privately-held companies select and dismiss audit firms. To determine if public companies held to the same profile of concerns, we performed a similar survey on those firms. Some of the results are similar; some vary.

The results of both studies are shown in the two exhibits. Exhibit 1 shows the public firms' reasons for selecting an audit firm compared with the private firms' reasons. Likewise, Exhibit 2 gives the public firms' reasons for switching auditors alongside the private firms' reasons.

Selecting Audit Firms

Public and private companies had dramatically different top-ranked reasons. "Technical expertise--quality of the CPA firm's service team to be used in the engagement" was clearly the most important factor in the public company sector; whereas, the top factor with private company CEOs was the "personal relationship established between CPA firm's key people and the company's decision-makers during the course of the proposal process."

Apparently, the public decision-makers are more concerned about the audit team's technical ability to complete their audits expertly than the "personal relationship" factor. This is not to say, however, that the personal relationship is of minor consequence as the rating for this factor is still quite high.

A comparison of other factors in both lists regarding "selection" reveals there is similar positioning of factors, particularly after the top four factors.

Switching Audit Firms

Similar rating positions are evident regarding why the public and private firms switched present auditors. The major difference is the factor of "fees." While this factor rating settled into the middle of the list of factors in the private company study, the fee issue claimed the No. 1 position in the minds of the public company decision-makers. Apparently, public companies are much more concerned about fees for services rendered than are the private companies. Not being "proactive" with services was the No. 1 factor in the private company survey.

Lessons to Be Learned

Attention should be paid to the top four factors on both lists regarding switching auditors. "Not proactive," "lack of responsiveness of CPA firm's service," and "no new ideas" are consistently high as factors of concern. Auditors need to sharpen their ability to suggest ideas, respond quickly to a client's needs, and communicate clearly at all times with the client.

Significant training time is spent developing auditor technical acumen but apparently much more time should be spent in developing personable, communicative auditors. *



Factors Rating

Public Private

Service team's technical expertise 5.2 4.5

Service team's industry expertise 4.9 4.1

Fee proposed 4.7 4.3

Personal relationships between CPA firm

and company's key decision-makers

during proposal process 4.5 4.6

Oral presentation 4.2 3.6

Broad range of services 3.9 3.5

Size of CPA firm 3.8 3.3

Written proposal quality 3.5 3.3

Location of CPA firm's offices 3.2 3.2

Recommendation from friend/contact in

another organization 2.9 3.2

International services available with CPA firm 2.4 1.7

Acquaintance of member of CPA firm with key

employee or member of board of directors 2.3 3.2

(6=great importance; 0=no importance)



Factors Rating

Public Private

Fees too high for value of services rendered 4.1 3.3

Not sufficiently proactive in delivering 4.0 3.8

services to company

Lack of responsiveness of CPA firm's services 4.0 3.6

No new ideas to help company 3.7 3.5

Inadequate understanding of company's business 3.0 3.5

Inadequate communication between audit team

and company personnel 3.1 2.8

Change of personnel on audit team assigned 2.6 2.6

Interpersonal clashes between audit team and 1.9 2.0

company personnel

Dispute over accounting issues 1.6 2.3

Periodic rotation of CPA firms 1.2 .9

(6=great importance; 0=no importance)

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

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