Should Small Firms Give up Auditing?

According to this, many already are.

Chicago-based accounting management consultant Allan D. Koltin said he expects that over the next two years the number of accounting firms reviewing the books of public companies will fall to fewer than 100 from 850. Many of those expected to exit handle the smallest public companies, often the least lucrative clients who cannot afford or have been rejected by accounting's Big Four — PricewaterhouseCoopers, Ernst & Young, Deloitte & Touche and KPMG.

"The types of clients [drawn to small firms] are not strong, powerful, dynamic, cash-rich companies," said Scott M. Sachs, a partner in the San Fernando Valley office of Good Swartz, a 110-person accounting firm that recently decided to give up about a dozen public audit clients. "They're tiny Nasdaq firms, bulletin board companies, companies with liquidity challenges. . . . That added level of risk, the headaches, from a business standpoint, it wasn't worth it."

Auditing is a tough way to make money. Mrs. Businesspundit tells me stories all the time that make me wonder why her company even bothers with it. Many firms don't respect the auditors, and they don't really look at it the right way. They don't care if there books are correct and in compliance, they just want the auditor's seal of approval so they can look good to the government. Mrs. BP is pretty forgiving when people make honest mistakes, but she doesn't like it when she has to write someone up and they sit and argue about it and beg her not to. That shouldn't happen, but it does.

Auditing, unfortunately, has become a commodity product, and the increasing cost of complying with government standards is making it unprofitable. If companies wanted a tough thorough audit, they would pay more to get a "better" one, but they don't. Most don't really care who audits them as long as it gets done. Many audit departments bid low and lose money just to get the job. Then the CFOs complain about 20-somethings with only a few years of experience being in charge of the audit, but the problem is that the company isn't willing to pay for a partner or audit manager to come out there and do the work. It's a sad state of affairs, but I don't see it getting better anytime soon.