Auditors are in the business of performing work commensurate to the perceived level of risk. Before even accepting a client, they'll do their due diligence to make sure they're not dealing with scammers/criminals... for all we know, Tether didn't even pass the client acceptance procedures.

Assuming they did, you wouldn't necessarily need a big company to do the audit. However, any auditor worth their salt would see Tether as a risky business and perform more procedures accordingly. That's how they get comfort over putting their name on the audit report.

The more I think about it, it seems likely that Tether has some or most of the funds somewhere -whether it belongs to them or is fully accessible is another story.

Another potential reason for losing their auditor is a question of liabilities. Tether claims that they have no legal obligation to redeem Tether for USD.... therefore, an auditor would disagree wholeheartedly with how they have classified all outstanding tokens as liabilities on their balance sheet (https://wallet.tether.to/transparency). It's possible that Friedman LLP told them that they couldn't record this as a liability unless they planned to redeem the tokens.. which Tether wouldn't want to do, as the redeemed tokens would then have to be treated as income to them!

All in all... it's a unnecessary mess. If Tether was legit, they could easily prove it.