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A88525 1 (2007-12-03)

handle is hein.gao/gaobadvvg0001 and id is 1 raw text is: Statement of Jeffrey C. Steinhoff, Managing Director Financial Management and Assurance U.S. Government Accountability Office Before the Advisory Committee on the Auditing Profession U.S. Department of the Treasury December 3, 2007 Chairmen Levitt and Nicolaisen, and Members of the Advisory Committee on the Auditing Profession: I am pleased to be here today to discuss concentration in the U.S. public company audit market. The effectiveness and efficiency of the audit market for public companies are critical to the functioning of our capital markets. Therefore, I commend the Secretary of the Treasury for establishing this Advisory Committee on the Auditing Profession to proactively evaluate the current and future auditing profession in the United States. GAO's Current Study GAO is currently completing an update of a 2003 GAO study of concentration in the U.S. public company audit market. The 2003 study examined concentration in the largest public company market sector-the Fortune 1000 public companies. At that time, we found that although audits for large public companies were highly concentrated among the largest audit firms, the audit market of large public companies appeared competitive as measured by various indicators. We also concluded that the audit market was in the midst of unprecedented change as audit firms were adapting to new audit responsibilities, new independence standards, and a new oversight structure. In many cases it was unclear what the ultimate outcome of the changes would be, and we noted that the findings of the past might not reflect the future. The objectives of our current study are to review (1) concentration in the audit market for public companies and the impact of this concentration, (2) the potential for increased capacity among smaller audit firms to ease market concentration, and (3) proposals that have been offered by others for reducing the risk of concentration in the audit market and the challenges faced by smaller firms interested in expanding their market share. Our current study includes surveys of public companies and auditing firms and interviews with market participants, including representatives of auditing firms, public companies, regulators, academics, and investors. To address these objectives, we collected data and analyzed changes in companies' choice of auditors and in audit fees, and computed concentration ratios, and other measures of concentration. We developed an econometric model to evaluate how various factors, including the level of market concentration, could explain the level of fees that public companies paid to their auditors. My statement today includes some key observations from our current study that are relevant to the Advisory Committee's agenda. We expect to issue our final report early in 2008. When our final report is issued, it will provide additional insights relevant to audit firm concentration and the capacity of smaller firms to reduce concentration. In addition, my statement is based on 1 U. S. Government Accountability Office, Public Accounting Firms. Mandated Study on Consolidation and Competition, GAO-03-864 (Washington, D.C.: July 30, 2003).

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