Insight: Big 4 auditors spend more than ever on U.S. lobbying

Tue Mar 13, 2012 11:09am EDT

The logo of Ernst & Young is seen at their headquarters in New York December 20, 2010. REUTERS/Lucas Jackson

The logo of Ernst & Young is seen at their headquarters in New York December 20, 2010.

Credit: Reuters/Lucas Jackson

(Reuters) - The world's largest accounting and auditing firms, known as the Big Four, have been pumping more money than ever before into U.S. lobbying and political campaigns as they confront new challenges from their regulator and Congress.

Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers last year spent a combined $9.4 million on in-house and outside lobbyists, according to a Reuters analysis of congressional disclosure reports.

That is more than in any other year since 2002, the year of the downfall of former Enron Corp auditor Arthur Andersen, when the industry's dominant players fell to four from five. Even going back to 1999, the earliest year for which online reports are available, annual spending by the industry, including Arthur Andersen, was lower than last year's.

The Big Four's lobbying ranks have swelled, too. For instance, Deloitte since 1999 has more than doubled its stable of registered lobbyists to 25, including eight in-house staffers, according to the disclosure reports.

A significant portion of the Big Four's lobbying efforts goes to trying to influence the Public Company Accounting Oversight Board, or PCAOB. The nearly decade-old oversight panel is debating regulatory changes that could have major implications for the auditing business.

Other Big Four lobbying efforts involve topics other than auditing, such as policies that would affect the consulting work that the firms do on contract for U.S. agencies. The proportion of lobbying money spent on varying subjects could not be determined from congressional disclosure reports.

In an interview with Reuters, PricewaterhouseCoopers Chairman Bob Moritz said his firm's lobbying of the PCAOB is intended "to make sure we have a common understanding of the challenges that each of us faces," adding that "we are absolutely aligned in taking the profession to the next level."

Kathryn Metcalfe, a Deloitte spokeswoman, said in an emailed statement that some of the firm's lobbying "relates to policy issues that are germane to the type of work we do for the federal government." She said that kind of lobbying boosted Deloitte's spending beginning in 2010, after years of trailing the other big firms. She declined to comment on specific lobbying activities.

The other two major audit firms declined to comment.

LOBBYING COSTS

To analyze the Big Four's spending on lobbying, Reuters examined reports that lobbying organizations must file quarterly. Usually just a few pages long, they list issues and bills that a firm is interested in, the names of lobbyists, the agencies the firm tried to influence, and other information. The amounts reported cover salaries for lobbyists and expenses such as targeted marketing, dinners and entertainment.

In 2011, Deloitte led the firms in spending $3 million. PricewaterhouseCoopers was next at $2.7 million, followed by Ernst & Young at $2.2 million and KPMG at $1.5 million.

Some other industries sink far more money into lobbying than do the Big Four. The biggest spender on lobbying in 2011, as in most years, was the pharmaceutical and medical-products industry at $237 million, said the Center for Responsive Politics, a research group.

Targeting what some critics see as too-cozy ties between auditors and clients, the PCAOB is considering a change known as audit-firm rotation. This would mandate that corporations regularly switch auditors, bringing in fresh eyes to review the books. Currently, many of the biggest U.S. companies rarely change auditors. Research firm Audit Analytics said in 2010 that 175 of the S&P 500 companies had employed the same audit firm for 25 years or more.

PCAOB Chairman James Doty, named to his post last year, said some change was needed to ensure auditors keep a skeptical eye. "Without independence, you don't have skepticism; without skepticism you can't form an objective judgment," he said.

The auditing firms have pushed back against this. "Comment letters" meant to influence the debate have poured into the PCAOB, with at least 620 received, most negative. A more typical tally is 20 to 40 letters.

The PCAOB, jokingly referred to as "Peek-a-boo" in acronym-obsessed Washington, will hold a public meeting on the rotation issue in the U.S. capital on March 21-22.

DANGER SEEN

PricewaterhouseCoopers' Moritz said his firm was "absolutely aligned" with the PCAOB on broad goals such as improving audit quality. On specifics, such as audit firm rotation, he said the industry sees the danger of taking steps backward or assigning auditors to industries they know little about.

Another change being debated by the PCAOB could make firms describe how an audit was done or what auditors thought of a company's accounting policies, exposing a new level of detail and commentary. Auditors now simply supply a letter that says whether a corporation can continue as a "going concern."

A third change could require lead auditors to put their own names on audit reports. Auditors fear this could result in more lawsuits against individual auditors instead of their firms.

In addition to trying to sway the PCAOB, Big Four lobbyists are following legislation in Congress. High on their agenda are identical bills, sponsored by Democratic Senator Jack Reed and Republican Representative Lynn Westmoreland, that would make disciplinary actions against the firms public sooner.

Another set of bills, sponsored by Democratic Senator Charles Schumer and Republican Representative Stephen Fincher, would reduce audit requirements for small public companies, possibly slicing into auditors' revenues.

The Big Four, with combined 2011 global revenue topping $100 billion from all business lines, dominate auditing worldwide. S&P Capital IQ said 497 of the companies listed on the S&P 500 index used a Big Four firm for their 2010 audits.

CAMPAIGN DONATIONS UP

Aside from lobbying, Big Four political campaign donations have risen. Political-action committees (PACs) funded mainly by the firms' employees contributed more to congressional campaigns in the 2010 election cycle than they had in at least a decade, according to data from the Center for Responsive Politics.

The PACs gave $8.7 million in the 2010 congressional election cycle when there was no presidential election, up from $6.8 million in the prior midterm cycle in 2006, and $5.5 million in the 2002 cycle, according to data from the center.

In addition, the four firms' employees are targeting campaign money directly to members of Senate and House of Representatives committees that oversee the industry, a separate Reuters analysis showed.

A leading beneficiary of donations from Big Four executives has been Republican Representative Spencer Bachus, chairman of the House Financial Services Committee, which oversees the PCAOB. He has accepted $370,000 in contributions from people in the accounting and audit industry in his career, more than any other current House member, according to the center.

Bachus has been a key opponent of audit-firm rotation, threatening at one point to strip the PCAOB of its authority to implement such a proposal. His proposal did not move forward.

His move had nothing to do with ties to the industry, said a Bachus aide. Rather, Bachus was concerned about rotation's impact and the PCAOB's not giving adequate consideration to costs, the aide said. Bachus declined two interview requests.

Two other senior lawmakers whose campaigns have benefited from industry donations are Schumer and Republican Senator Richard Shelby, according to a Reuters analysis of Federal Election Commission data.

Both are members of the Senate Banking Committee, which has jurisdiction over auditors.

In 2010, as Schumer was headed for reelection from New York, employees of Big Four firms concentrated their giving to him. At Ernst & Young, 43 people gave $43,500, all in May or June; at KPMG, 46 gave $43,650, almost all in May or June; at Deloitte, 42 gave $46,600, mostly in September and October; and at PricewaterhouseCoopers, 25 gave $36,000 in October.

A Schumer spokesman declined to comment.

Shelby received help from Big Four employees in 2011, though he was not up for reelection. At Deloitte, 39 people gave $39,200 last year, mostly in March and April. At Ernst & Young, 28 people gave $43,250, mostly in August and September. Shelby, of Alabama, will not be up for reelection until 2016.

Shelby spokesman Jonathan Graffeo said: "Contributions have absolutely no impact on Senator Shelby's decision-making on policy issues, and any assertion or implication to the contrary is completely baseless."

(Reporting By David Ingram in Washington and Dena Aubin in New York. Additional reporting by Kevin Drawbaugh in Washington. Editing by Kevin Drawbaugh, Howard Goller, Amy Stevens and Steve Orlofsky.)

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Comments (4)
CMEBARK wrote:
Well here we go again: money talks. To say that “contributions”
don’t influence the idiots in Congress’ vote is like saying water
runs up hill. Of course a good part of the problem is a stupid
electorate that don’t educate themselves.

Mar 13, 2012 8:39am EDT  --  Report as abuse
SayHey wrote:
All things considered, $9.4M does not seem like a whole lot here given the extensive regulation of this activity. On lobbying generally, it is specifically and explicitly protected by the First Amendment which provides that all have the unqualified right “to petition the Government for a redress of grievances”.

Mar 13, 2012 11:27am EDT  --  Report as abuse
Mott wrote:
It’s a shameful open (legal) form of corruption in this developed system where each million dollars spent on lobbying results in 3 billion dollar cost to the public.

It’s high-time this is transformed to an electronic-accountable form alone instead of the current traditional form that breeds corrupting the political will toward the benefit of the self-centered few.

Mar 13, 2012 12:36pm EDT  --  Report as abuse
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