Booting the Big 4 Tired of sky-high fees and skimpy service? Smaller audit firms can give you the personalized and professional attention you're seeking.

Conventional wisdom dictates that if your company is public oryou have designs on the public markets, the Big Four seal ofapproval is a must-have. Heeding that logic, for decades,entrepreneurs have been twisting themselves into pretzels trying toget onto the client list of one of the top accounting firms,eagerly trading personalized attention and service for alleged WallStreet cred.

These days, it hardly seems worth the trade-off. For one thing,fee hikes at the Big Four have made the sacrifice difficult tojustify. "They've doubled their workloads and are making aton of money off of Section 404, [the Sarbanes-Oxley requirementthat companies set up internal controls for financial reporting andthen assess their effectiveness]," says Colleen SaytherCunningham, president and CEO of Financial Executives International, a FlorhamPark, New Jersey, professional association for senior-levelcorporate financial executives. FEI left a Big Four firm in 2004after being presented with a 55 percent audit fee increase. For anonprofit, she says, the hike was prohibitive, so they went with aregional firm instead. "It was a good thing for us," shesays. "We're saving money, and we're getting ashigh-quality an audit, if not higher, as we had before."

The scandals of the past few years have indeed cast doubt on theBig Four stamp as a guarantee of quality. "[The] ArthurAndersen [scandal] was a huge wake-up call," says Debra Jeter,an associate professor of financial accounting at VanderbiltUniversity's MBA program in Nashville, Tennessee.

As a result, small and midsize companies are eyeing national andeven local and regional firms. According to AuditAnalytics.com, a Manchaug, Massachusettsindependent research provider, companies with revenues of less than$100 million--the smallest group measured--accounted for 69 percentof all Big Four clients who took their business elsewhere in 2004.And on the flip side, the Big Four have also been shedding smallercompanies: They booted 80 percent more clients in 2004 than in2001, and three-quarters of those were the smallest companies.

BDO Seidman LLPand Grant Thornton, two leading next-tier accounting firms, havegained many ex-Big Four clients. Both firms are increasingly"being considered in the same breath with the Big Four byinvestment houses," says Mark Cheffers, CEO ofAuditAnalytics.com. But he adds that the uptick in business iscausing even these second-tier firms to scour their client lists toweed out the least profitable companies--and all too often, thoseare the smallest companies.

BDO Seidman and Grant Thornton, however, both say they remaincommitted to their small-business customer bases. "Our focusis on entrepreneurial organizations," says Ed Nusbaum, CEO ofGrant Thornton inChicago. "If we ever lose sight of that, we're going to goout of business."

At the same time, however, the influx of new clients and theincreased work at these firms, thanks to the onerous Section 404,has put the squeeze on capacity. "We are allresource-bound," admits Lee Graul, national SEC director forBDO Seidman in Chicago. "When we take in two more [clients] atthe top, we have to look at the rest and say, How do we continue toprovide service to the other companies we have?" They thenanalyze the profitability of each of those clients, assessing theirability to pay for services, level of preparedness and efficiency.Smaller companies that want to keep their spots need to maintainorganized books and be ready for scheduled audits, advisesGraul.

The other option is a solid regional or local firm. Cunninghamcautions that a business planning to go public in the next three tofive years should probably aim for a firm like Grant Thornton orBDO Seidman rather than a regional firm. But if you're contentin the private sphere for now, a proven regional outfit--where youwon't have to compete hard for personalized attention--could bethe best place to open your books.

C.J. Prince is executive editor of CEO Magazine.