Since the Big 8 shrunk into the newly structured Big 4 over the past dozen years, U.S. businesses -- particularly big companies -- have had a much narrower choice in deciding which accounting firm will peruse their books.

And now with the frequency some of the Big 4 get themselves into trouble over faulty audits, the investing public seems far less protected from fraud with so few major accounting firms acting as watchdogs.

This writer isn't alone with those observations about the Big 4: PricewaterhouseCoopers LLP, KPMG LLP, Ernst & Young LLP and Deloitte & Touche LLP. The government's top watchdog agency, the General Accounting Office, said much the same thing in a report issued July 30, which didn't get the attention it deserved.

In the 140-page report to Congress (entitled "Public Accounting Firms: Mandated Study on Consolidation and Competition GAO-03-864"), the GAO calls the audit market for large public companies "an oligopoly."

The report warns that shrinkage into the Big 4 offers a "limited number of auditor alternatives" to large national and multinational companies that require CPA firms with extensive staff resources, industry-specific and technical expertise, geographic coverage and an international reputation.

It notes that the largest firms audit the vast majority of public companies while the smaller firms face "significant barriers to entry into the market." Indeed, the GAO warns that the Big Four may "become more selective about retaining their smaller, potentially less profitable or higher risk audit clients."

As a result, the GAO frets that "these smaller companies might face increasing costs of capital if investors ... react adversely to their not using a Big 4 auditor."

In many cases, the choices are further limited by potential conflicts of interest between a firm's auditors and other services under tougher independence rules of the Sarbanes-Oxley corporate-governance law, the GAO says.

The GAO also says that many of the eight largest firms below the Big 4, such as McGladrey & Pullen LLP, BDO Seidman LLP and Grant Thornton LLP, feel "that litigation risks and insurance costs associated with auditing a large public company made growth into (this) market less attractive than other growth opportunities."

Still, Jay Nisberg, a Ridgefield, Conn., consultant to more than 50 accounting firms, says that the Sarbanes-Oxley law "has created a window of opportunity" for some firms smaller than the Big 4.

"The biggest accounting firms are now barred from doing certain types of consulting businesses that might impair their independence," he notes. "But the smaller firms are reaping new revenues from increased revenues in information technology, executive recruiting and financial services for companies," which may be prohibited for Big 4 audit clients under independence rules, he says.

Both Nisberg and Arthur Bowman, president of Bowman Communications, Atlanta, a consulting and analysis company for accounting firms, believe that it was a mistake for the Justice Department to help force Arthur Andersen to dissolve. They say the shrinkage of the Big 5 into the Big 4 has only concentrated most of the big audits in a smaller number of large CPA firms.

According to the GAO report, of the more than 1,000 former Andersen clients, only 147 switched to non-Big 4 firms; almost half of these going to BDO Seidman and Grant Thornton. The rest went to Big 4 firms with Ernst & Young getting the biggest number at 286 and PricewaterhouseCoopers getting the least at 159.

Bowman also warns that small-business audit fees may rise because bankers will require new internal-control audits mandated by the Sarbanes-Oxley Act, forcing the smaller accounting firms "to beef up their staffs with higher-paid professionals" to compete with the Big 4.

The GAO report finds that audit fees remained flat or dropped slightly between 1989 and the mid-1990s on an inflation-adjusted basis. "However, since the late 1990s, audit fees appear to have increased in part due to the changing audit environment and increased client expectations," the GAO says.