Small accountancy firms fear reforms may hurt them

Aronson weighs dropping publicly traded clients

August 03, 2002|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

Executives at the Rockville accounting firm Aronson & Company may soon consider dropping their publicly traded business clients.

They say sweeping new accounting reforms designed to curb corporate fraud, and signed into law by President Bush this week, could make it too expensive to audit public companies.

"We definitely have it on the radar scope to consider," said Lisa Cines, Aronson's managing partner. "We're waiting to see what the cost will be. There's no question it will cost more; it's just the magnitude of it that's still in question."

Aronson is among a range of small companies that business advocates worry will be hurt by the new reforms.

They say new fees and requirements may be too costly and time-consuming for small auditing firms and publicly traded companies, and could drive some out of business. Others may have to pass on costs to their customers or drop clients, which may be the case with Aronson.

"The bill was drafted as a one-size-fits-all type of legislation," said Karen Kerrigan, chairwoman of the Small Business Survival Committee in Washington. "There's no doubt the corporate executives and auditors that cooked the books should pay the price. But our concern is the ... small businesses will have to pick up the price as well."

The National Federation of Independent Business, which represents small private businesses, supported failed efforts to exempt some small businesses from the new reforms.

"The legislation is aimed at big businesses and large accounting firms as we understand, but we wanted to make sure the bill didn't overreach and hurt small businesses inadvertently," said Susan Eckerly, the federation's chief Senate lobbyist.

The new law creates an independent oversight board to monitor the accounting industry. It also restricts accounting firms from providing consulting services to public companies they audit.

Kerrigan and others said this means small public firms will have to pay separate companies to provide different services, something many might not be able to afford.

Accounting firms say the intensified scrutiny will cost them in staff time, paperwork and fees as they are required to report business practices to the government.

There were attempts to protect small businesses, but those efforts failed.

Last month, Republican Sen. Christopher S. Bond of Missouri, the ranking member of the Small Business Committee, wrote to Sen. Paul S. Sarbanes, the Maryland Democrat who chairs the Senate banking committee, to suggest exempting certain small companies from the reform.

"We didn't get any direct response from the committee," Bond said. "In the tidal wave to get the legislation passed they apparently didn't want to change anything. They didn't want to look like they weakened the law."

Sarbanes said small auditing firms shouldn't be treated differently.

"Investors rely on the accuracy of audits in making their investment decisions," he said. "This bill prohibits accounting firms from providing certain consulting services to their public company audit clients to avoid an inherent conflict of interest for the accounting firm.

"So whether the public company is large or small, the bill does not provide differential treatment on the size of the company, and in doing so helps to protect the investor in making informed investment decisions based on what we hope will be accurately and fairly reported audits of a company."

The oversight board can make exemptions on a case by case basis, Bond said, but the review process could end up being too time-consuming.

Bond and others said they would continue to monitor the impact of the reforms. "We're hoping it's not the case, but we're thinking this is a train wreck ready to happen," he said.

Aronson's Cines said her company would see how the new costs affect business before deciding whether to stop business with some clients.

Less than 1 percent of the 170-employee company's clients are publicly traded companies, so the cost might not be worth it, she said.

"I think there are some aspects [of the reform] that were needed, but there are aspects that were a little far-reaching. They didn't take small companies into consideration at all."

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