How to Ax Your Auditor

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After an IPO, it was employing a member of what was then the Big 8. "I went in on my first day as CFO to find that the Big-8 firm had failed to disclose that the company hadn't filed its tax returns," he tells CFO.com. "Not only had they failed to do it, but tax and audit was being done by the same firm," so there seemed little excuse for the oversight.

He was able to learn later that a regional firm had been doing the company's taxes, and missed communications were to blame. "But a modicum of due diligence would have disclosed that fact," Henrie recalls. "So that was my first experience in moving from one Big 8 firm to another Big 8 firm."

Switch No. 2: Geographical Undesirability
Joining Xitec Inc. as controller in 1995, helping the high-tech manufacturer with a turnaround situation, Henrie noticed the need for an auditor switch even before he took the job.

Its Big 8 auditor, Ernst & Young, had started focusing on Fortune 500 clients at the time, and had moved the Xitec engagement partner from nearby Hartford to White Plains, N.Y., two hours away. "At the time of my interview with the (Xitec) CEO I said that I knew they were being serviced by E&Y, and they'd made some changes." Noting the partner's move, "I said, That's not local, and you get better service when there's somebody who's local." I got the job, and we did make the move."

Switch No. 3: The Municipal Specialty
While taking the post of audit committee chair for the Connecticut town of Suffield, Henrie in 1996 uncovered the next case of an auditor that needed changing. He saw a chance to replace the small regional firm that was already in place, bringing in instead a larger firm that had an engagement partner with special experience in working with towns, especially "how to get town grants." Several other firms, all with more municipal expertise, were interviewed in a competition, but the firm with the grant expertise got the job.

Switch No. 4: Trying to Hold Back Arthur Andersen
Joining Omniglow Corp. in 1997 as finance chief, controller and treasurer, Henrie found himself trying to stop an auditor change — a switch to Arthur Andersen from E&Y that the board wanted "for reasons of familiarity" that they had with the Andersen people. "I was trying to put the brakes on the move," he says, because Arthur Andersen had been embroiled with a real-estate industry client that had entered a nasty bankruptcy.

While failing to halt the shift, he made sure "the board knew (about Andersen's involvement) and was comfortable with it. I wasn't comfortable, but I raised my discomfort with the board."

Switch No. 5: A Controller Conflict
Consulting in a Deloitte & Touche-related job for a biotech company, Henrie was involved with changing out one Big 6 firm for another. A conflict of interest existed between the new controller at the biotech and its Big 6 accouting firm that represented it, so the move was made.

Switch No. 6: The Need to Grow
Starting as CFO of Tymetrix Inc. in 2001, Henrie was part of one of Connecticut's fastest growing tech companies. But there was no audit at the time, and its numbers were merely being compiled by a one-person CPA firm. "When I interviewed with the CEO, I said that clearly at some point you're going to want an exit strategy, whether you're thinking about it now or not."

The strategy, he knew, would involve moving to a real audit firm, where the company could record three years of audited financials. "I moved it from the one-person CPA firm to Ernst & Young," after getting proposals from all five other members of what had become the Big 6.