accountancy review of the year briefing overview 2011 n 3 The year of living dangerously accounTing...

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With economic pressures continuing to squeeze and UK businesses

experiencing substantial liquidity and financial pressures, we take this opportunity to talk to some of the leading tax and accounting experts in the UK to gauge their views on the highs and lows of 2011, and predictions for 2012. Whether it is the fallout from landmark tax cases or government plans for tax simplification, investigations into the audit market or changes to the accounting framework, the last 12 months were challenging.

For many, 2012 is likely to be little different. For the inside track on upcoming changes to entrepreneurs’ relief, advance notice on pending VAT appeals, or the latest HMRC initiatives to tackle tax avoidance, our experts provide the in-depth analysis and insight to navigate an increasingly complex tax and regulatory market.

In this review, you will also find a selection of highlights of recent surveys and reports. These include the annual Accountancy Top 60 Firms Survey, published in January 2012. Find out which firms performed best in 2011 and the trends for 2012. Meanwhile, the FTSE 100 auditors’ survey provides a snapshot of the market, particularly pertinent today.

To keep up-to-date with the latest developments in tax, accounting and audit, visit www.accountancylive.com

[email protected]@accountancylivewww.accountancylive.com

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accountancy review of the year

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© 2012 Wolters Kluwer (UK) Ltd.

the year of living dangerously It’s been a turbulent year for the financial sector and accountancy profession. We ask leading commentators for their views on the highs and lows

horizon scanning: preview 2012 We ask a selection of leading accountants to cast an eye over the next 12 months and predict their hopes and fears for 2012

top 60 firMs surveyWho topped the league tables in 2011 by income and profit, plus trainees by firm

top 25 networks & associations survey A modest rise in fee income marked a year of consolidation

ftse 100 auditor surveyThe Big Four continue to dominate the FTSE 100 audit market, but will 2012 mark a year of change?

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accountancy review of the year briefing


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The year of living dangerously

accounTing sTandardsThings were all quiet on the accounting standards front during 2011 after what seemed to be a frenzy of activity over the past few years. Richard Bint, senior partner at PKF says: ‘There has not been so much of great significance on the accounting side during 2011, but both the international and UK standard setters have taken on board the comments and criticisms that have been made.

‘In the past year they have been more in a listening mode, certainly more so than previous years where they were more active in implementing changes. Now we have a sensible proposal for one accounting standard on companies that are not adopting

International Financial Reporting Standards in full, based on IFRS for small and medium-sized entities – this will be implemented in 2014. For very small companies there will still be the FRSSE to prepare accounts under.’

Martyn Jones, national audit technical partner at Deloitte and vice president of the ICAEW, notes that the Financial Reporting Council (FRC) issued the Sharman review into going concern in November, and is early awaiting the report from the consultation which is due out this year. Further from home, the ongoing negotiations with the US authorities means that the adoption of IFRS in the US is stalling. He adds: ‘The IASB is currently waiting for the US authorities to confirm whether

It’s been a turbulent 12 months for the financial sector and the accountancy profession. Santhie Goundar reviews the highs and lows

cont

ents

2011

Tax

Business record checks review

The spring 2011 pilot scheme was hugely unpopular with businesses and professionals alike, who criticised the heavy-handed approach of HMRC. The process is currently under review, which should lead to a more focused approach.

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accounTing

sharMan review

In November the Sharman review, set up by the Financial Reporting Council, released its preliminary findings on improving the reporting of on going concern and liquidity risk. Consultations were carried out following its release and a final report is due early this year.

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Tax

reducTion of corporaTion Tax raTe UK business was given a major boost in the 2011 Budget. The chancellor announced plans to cut corporation tax annually until 2014, starting with 2% in 2011, followed by subsequent years of 1% cuts.

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they will be adopting IFRS. In the meantime, the IASB has been making amendments to accounting standards but they are also looking at difficult areas where the standards are not so easy to apply, for example, in the case of the insurance industry, where there are inconsistencies in reporting around the world.’

audiTing issuesFor Bint, the main audit highlights of the year, and certainly the issues to watch going forward, are around the Competition Commission inquiry, and the EU paper on draft regulation on public interest entities.

‘In the UK, we welcome the Office of Fair Trading decision to refer the Big Four accounting firms to the Competition Commission, and we hope this will make the playing field in the audit market more level,’ Bint says.

‘There is actually a strong case for taking more measures to ensure that this is so. The best way to achieving change is to look at market-based measures, for audit committees to include a non-Big Four firm in their tender list every time a company’s audit is put out to tender unless a Big Four firm can do it. If a company cannot get any other audit firm apart from one of the Big Four firms to carry out their audit, they should explain why not.

‘However, I do not think any proposal for a Big Four firm to be limited to only providing audit services is a good one – I think that would be dangerous for the profession as a whole,’ Bint adds. ‘There is an opportunity to argue for sensible measures to change the audit market.’

For Jones, the main point of interest regarding the audit profession has been an establishment of a set of protocols between banking, lead regulators, lead partners and

committees. ‘This has enabled good dialogue to take place on reporting accounting standards in the banking industry, especially around issues such as the provisioning of sovereign debt. It has been a success and has been followed up by an ICAEW paper called “Lessons from the crisis,” which has been taken up by the Financial Services Authority,’ he says.

‘There have also been the Clarity ISAs, which first became visible, or rather used fully for December 2010 year-end audits,’ Jones adds.

‘While we have known about them for about two years, most firms with large clients would have been working with them from mid-2010 onwards. However, the Clarity ISAs would really have impacted during 2011 for those firms with smaller clients, performing those audits during 2011.’

But as with many in the profession, Jones saw audit as an important area of focus for regulators. He adds: ‘2011 also saw an ongoing interest in the profession with the House of Lords Select Committee hearings on audit. However, this is a process that will take at least another one or two years to be determined. Likewise, proposals from the European Commission leading to proposed EU legislation on audit will take several years to manifest.

‘There are also the proposals by the government regarding deregulation of audit and extending the scope of deregulation for smaller entities. Currently there is a consultation on audit exemptions for subsidiaries, and any proposals would need to follow EU law; these would need to include a binding guarantee that debts will be paid by the parent company. The profession is currently waiting for how that guarantee should be worded.’

There is an opportunity to argue for sensible measures to change the audit market

Richard Bint, senior partner at PKF

Tax

LiechTensTein discLosure faciLiTyHMRC made a number of changes to the Liechtenstein Disclosure Facility towards the end of 2011, the aim being to make LDF more transparent and user-friendly.

read More

Tax

Baa caseThe case concerning the recovery of VAT during the takeover of BAA, was decided in favour of HMRC. The tribunal ruling, in June, had implications for subsequent mergers and acquisitions.

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audiT

coMpeTiTion coMMission inquiryThe Office of Fair Trading’s decision to refer the audit market to the Competition Commission caused a stir in the profession. We weighed up the pros and cons.

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TaxaTionFor Marc Welby, VAT services partner at BDO, four VAT cases during 2011 really drew his attention. ‘I would say the significant cases during 2011 were Med Hotels (formerly Secret Hotels2) on the question of whether Med Hotels was acting as agent or principal in the provision of hotels and in which the Upper Tribunal found for the taxpayer, agreeing it was acting as agent. Agent v principal is a vexed question and it also featured in the Reed Employment case.

‘Secondly, the case of BAA Limited, where the Upper Tribunal finding for HMRC that there was no direct and immediate link between the VAT on professional fees of a bid company seeking to acquire shares in a target (BAA plc). This is a decision that has been appealed and 2012 will probably see the continuing saga of HMRC targeting the recovery of VAT on deal fees

‘Thirdly, the Rank Group plc case, and the decision of the Court of Justice of the European Union (CJEU) on VAT treatment of gaming machines and fiscal neutrality; and Loyalty Management UK, which is the decision of the CJEU,’ says Welby.

‘Both Rank and Loyalty Management UK are both due to be re-heard by the UK Courts, which will need to reflect on the CJEU decisions and then come to a finding. Rank will, I believe, result in a number of cases coming to the fore over the issue of fiscal neutrality, set to be the recurring theme in 2012.’

Outside of the VAT arena, the tax world – and HMRC in particular – has been very busy. John Cassidy, PKF tax investigation and dispute resolution partner, points out that HMRC has found a renewed vigour with regard to tax investigations this year. ‘There have been new taskforces, amnesties and disclosure arrangements – the UK-Swiss agreement really

set the cat among the pigeons and is a huge prize for HMRC,’ says Cassidy.‘There has also been the set-up of the Offshore Coordination Unit – HMRC has had a lot of data through this, and over the next year will likely be using it to unearth as many Swiss bank accounts as possible.

‘In the area of tax investigations, HMRC has really been getting its act together. Two examples are the revamped Code of Practice 9 (COP9), which is coming in this January and involves the Contractual Disclosure Facility (CDF), and another is the Business Records Checks regime, which is currently in pilot. Both are a sign of HMRC’s renewed vigour. They are also indicative of the way HMRC has consulted on issues this year – the CDF was a really good example of HMRC consultation, where HMRC listened to the feedback before deciding what to do; it was a model consultation. In contrast, the Business Records Checks was decided on despite negative feedback during the consultation on the proposals.’

CIOT tax policy director John Whiting, and director of the Office of Tax Simplification (OTS), was particularly active in 2011, and was pleased that the OTS reports on various areas of taxation were well-received, on the whole, following a number of consultations.

‘Regarding corporate tax reform, the whole tax policy-making process has been showing signs that it is going the proper way with the consultations,’ says Whiting. ‘The government has got the idea that our tax system needs to be competitive – it’s not just about lowering the main corporation tax rates, the entire corporation tax system has got to be sensible. The highlight is that we’ve been getting better consultations, even if some people have felt the number of consultations to respond to has put strain on them.’

Tax

uk-swiss Tax agreeMenT

A major tax deal between the UK and Switzerland was signed in October. The aim was to prevent money being ‘hidden’ in Swiss accounts. However, it has been argued that the agreement could breach EU law on secrecy and tax evasion.

read More

audiT

cLariTy isas

The Auditing Practices Board issued a consultation paper on 33 proposed ‘clarified’ International Standards of Auditing. The intention was to encourage efficiency in the auditing process.

read More

Tax

reed eMpLoyMenT case

Hirers of temporary staff celebrated a precedent set in a case against HMRC. The ruling went in favour of Reed, the recruitment agency, deciding it was only required to pay VAT on the commission of its charge rate, and not the rate itself.

read More

rank will result in a number of cases coming to the fore over the issue of fiscal neutrality, set to be the recurring theme over 2012

Mark Welby, VAT services partner,

BDO

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For Whiting, the 2011 Budget in March was not particularly noteworthy. ‘Probably one of the highlights of the Budget was the further reduction in the corporation tax rate,’ says Whiting. ‘The lowlight was the precipitate change to North Sea Oil taxation – we have been getting a good consultancy process going regarding changes to corporate tax, but the North Sea announcement in the Budget came totally out of the blue, which gives out the wrong message about having the safe, predictable, solid tax system that both the government and the business world want.’

Technology was a driver of change for Bill Dodwell, head of tax policy at Deloitte, who points to one of the biggest highlights of the year as the mandatory introduction of electronic iXBRL filing of corporation tax returns on 1 April 2011.

‘The adoption of iXBRL has also been an international one in recent years – France and Germany are also adopting it,’ Dodwell observes. ‘In the short term there will be some problems and extra costs for businesses and the tax profession, but the question is whether we can make it work for us long-term. Any benefits of iXBRL adoption are going to be easier for big groups to realise than for small groups, though to be honest, these benefits are probably at least another two years away.

‘There have also been a whole range of initiatives to raise tax in 2011 – the three main ones are, first, HMRC tackling the issue of evasion, second, the Liechtenstein Disclosure Facility and Swiss agreements, and third, the industry-targeted amnesties by HMRC,’ Dodwell continues. ‘Tax evasion makes up about two-thirds of the tax gap, and the rest is due to tax avoidance and debt – from taxpayers not paying their liabilities, or liabilities being written off in bankruptcies. Along with that, we

had the release of Graham Aaronson’s report on a UK general anti-avoidance rule (GAAR), which I do not think is likely to yield great benefits to HMRC and is undesirable because of the burden it puts on business.

‘Another interesting highlight of the year was the Gaines-Cooper appeal decision, with the general point that you can rely on HMRC guidance unless that guidance is not clear.’

eu direcTivesDodwell also highlights a number of draft directives that came out in November but still need to be debated in the European Parliament. ‘There was the draft transparency directive and the new accounting directive, particularly for the extractive and logging industries and reporting by country,’ he says. ‘While I can see the merit of reporting by country for those industries – governments need to ensure developing countries are adequately compensated for having resources taken out of the country – I think it’s costly and damaging to apply it more widely. We’re at least a year away from it becoming law, but if a company is in any of these sectors, it should prepare now.

‘On a more general note, with the protests that have happened, it is clear that tax is in the press, especially in relation to large companies. It could be an idea for large companies to do more to explain their total tax contribution – accounting standards on the matter are a legal requirement that have to be followed, but they don’t always make a company’s taxation issues clear.’

it could be an idea for large companies to do more to explain their total tax contribution... to make taxation issues clear

Bill Dodwell, head of tax policy, Deloitte

Tax

offshore coordinaTion uniTTackling offshore tax evasion, HMRC set up a crack team of 100 investigators and technical tax experts in November. The unit will focus on people using offshore accounts for tax evasion.

read More

Tax

gaines-cooper appeaL decisionThe precedent set in the Gaines-Cooper case defined residency by the number of connections an individual has with the UK. It will mean spending much less time in the country for some.

read More

Tax

Med hoTeLs caseThe hotel company successfully appealed a first-tier tribunal decision favouring HMRC. This decision is also being appealed with significant implications for hoteliers’ VAT bills.

read More





Horizon scanning

Francesca Lagerberg Head of tax, Grant Thornton

‘In 2012 we are likely to see a lot of new initiatives. The Real Time Information (RTI) system will come in, which will enable employers to provide HMRC with information about employees on an ongoing basis rather than yearly, and it will be interesting to see both whether HMRC’s IT systems are up to the task, and whether employers can make sure they provide the information with the required speed.

‘The ongoing PAYE and NIC (National Insurance Contributions) merger will also be an

issue to look out for, and specifically what it will mean: will it mean aligning the rules between the two, or something more radical? I believe it is likely to be the former.

‘As the next election will not be so far away now – only a few more years – we are likely to see some governmental plans for the future, such as incentives for growth: there may be some small measures that are very targeted but overall there is likely to be a continuing push by HMRC to collect revenue. It’s unlikely we’ll see the scrapping of the 50% income tax rate till nearer the election, and while we will see whether the government will make any grandstanding gestures I don’t think there will be any big tax giveaways with the economy in its current state.’

Eight leading accountancy professionals identify the big issues likely to dominate the next 12 months. Santhie Goundar

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accountancy review of the year briefing overview 2011 n


Bill DodwellHead of tax policy, Deloitte

‘Two of the most important things that came out of the draft Finance Bill 2012, on the corporate side, are the new patent box regime and the new CFC regime – both very good things, although the CFC legislation is pretty complex.

‘The pilot for Real Time Information kicks off in April 2012, running for a whole year, and 300 employers will be signed up to that. Once an employer is in the scheme, they cannot come out, as the RTI will be implemented in full between April and October 2013. Big companies will have to join the RTI scheme first, then smaller employers; so RTI will impact a lot of businesses. The key focus of RTI is to make sure your employee records are fully up to date and complete. Employers will have to supply this information to HMRC every month. In terms of the system itself, the big payroll providers will produce the software – an employer who is not currently using third-party software will have to update its own software for RTI, which could be costly.

‘On the personal tax side, George Osborne has said to the Treasury Select Committee that the 50% income tax rate will be with us for a little while longer, so this will not be abolished in 2012. The statutory residence rules have been deferred – they are now coming into force in 2013, with a further consultation document to be released. Clearly the consultation will be important, but the government will do what needs to be done when they see the result of the consultation.

‘There is also the National Employment Savings Trust (NEST), the government initiative aiming to provide all employees with access to a low-cost, trust-based, defined contribution occupational pension scheme by enrolling workers automatically into the employer’s default pension fund. It will start to be rolled out from 2012 and will apply to the biggest employers, but is being deferred if you employ fewer than 3,000 people.

‘These are the biggest single issues to anticipate in 2012, but we mustn’t forget the wider economy, both in the UK and abroad – and in particular, what will be happening regarding the euro.’

Richard BintSenior partner (assurance & advisory), PKF

‘I very much hope we don’t see any significant changes in financial reporting requirements in 2012. In recent years, there has been a pace of change that has been too fast for preparers and readers of accounts to keep up with.

‘In terms of other issues, it has been good to see that the EU draft Accounts Directive that they produced in 2011 does not go down the road of taking away the mandatory audit requirement for medium-sized companies. We believe medium-sized companies benefit from an audit, as does the public and so, of course, does the economy.

‘There will also be the outcome of the Competition Commission inquiry into audit, where the Office of Fair Trading has made the decision to refer the Big Four accounting firms to the Commission, and also what is known as the Barnier proposals – the EU paper on draft regulations regarding public interest entities. Certainly for the UK audit market, the progress and outcome of the Competition Commission inquiry will be significant in the next year.

‘We must also bear in mind that the economy is still weak, bringing with it a possibility for further company failures in 2012, and this means it will continue to be a testing time for auditors, who will have to pay attention to write-downs, impairments and going concern when performing company audits.’ 9

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Marc WelbyVAT services partner, BDO

‘In the VAT arena, fiscal neutrality is set to be the recurring theme in 2012. In terms of the other big VAT issues for the coming year, the question of whether HMRC should be obliged to pay compound interest – as in the cases of Littlewoods, Wilkinson, etc – whether VAT has been incorrectly levied should be resolved: who knows how the Court of Justice of the European Union (CJEU) will decide, but in view of the parlous state of public finances across the EU, a decision against compound interest would not be a surprise, irrespective of the technical merits of the case itself.

‘Finally, the case of the Isle of Wight & Others, due to be heard by the First-tier Tribunal in March 2012, could prove to be pivotal in determining when the activities of public bodies, especially local authorities, are likely to be seen as significantly distorting competition by virtue of their special status. Although the particular issue before the Tribunal is off-street car parking, the ramifications are significantly wider and we may see private or voluntary sector organisations seek to challenge the VAT treatment of other activities undertaken by councils, for example in connection with the provision of welfare and even education.’

Martyn JonesDeloitte national audit technical partner and ICAEW vice president

‘I think 2012 will see a continued increasing focus on the quality of audit in emerging markets. There will be a continued focus on auditor scepticism; in particular issues around going concern and impairment will continue to be important. There are increasing concerns about the eurozone crisis, so auditor judgment around these topics will be especially important, especially as the contagion has spread to other countries.

‘The role of auditors in providing risk advice will never be more

important – giving powerful insights into audited entities is a key part of being an auditor. It is important, particularly for smaller and medium-sized entities, that auditors continue to play a key role in enabling sectors to generate growth for the economy.

‘It is also important that the audit profession takes a key role in rebuilding the economy.

‘What’s also essential is that a key need for business is to avoid having distractions in the form of regulatory changes – businesses need to be focused on getting on with the task of innovating and creating jobs and delivering economic growth. More regulation is not needed; we all need to see the big picture.’

John CassidyTax investigation and dispute resolution partner, PKF

‘We are going to see more of HMRC’s renewed vigour for investigations in 2012. We have already seen in 2011 a heady concentration of offshore investigations, especially Swiss ones, but also for other industries – HMRC has been, and will be, covering the whole spectrum.

‘We have the disguised remuneration legislation coming in – the general principle of the

legislation is that if something looks like remuneration then it is remuneration; but in practice the legislation actually catches all sorts of scenarios that it should not. It is quite probable that the issue will take on a life of its own in 2012.

‘There are likely to be lots of different initiatives for businesses coming into play in the year, but businesses should still bear in mind that HMRC will be stronger in filling the tax gap. Whilst HMRC tends to come down hard on non-compliant businesses, HMRC says it is trying to help those who want to be compliant. What that will involve, however, remains to be seen.’

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John WhitingTax policy director, CIOT and director of the Office of Tax Simplification (OTS)

‘Hopefully in 2012 the profession will keep up the pressure with regards to the issue of a PAYE/NIC merger. We will not solve the issue within a year, but it will be good if we can keep up the pressure on the subject of income tax and NIC reform.

‘There’s also the move towards a statutory residence test. Some people are disappointed that it is no longer coming into force in April 2012, but it is important that it comes in at all, and that it can be implemented properly. Cases like Gaines-Cooper and Davies and James show that we have a proper one that we can rely on, and that we know where we are.

‘One thing I am hoping to see in 2012 that I have experienced in the past year is getting

the Finance Bill in April and that, thanks to the release of the draft Finance Bill in the months prior to the final document, my thoughts have been that I’ve seen all of it before already – if that’s my reaction to the 2012 Finance Bill I will consider that a highlight.

‘Lastly, another thing to look out for this year is progress on the Scotland Bill, and maybe one for Wales and Northern Ireland. There is a possibility of the UK tax system breaking down, having some regional variations introduced. That, of course, will carry all sorts of implications for the UK tax system as a whole.

‘We all know it is going to be another difficult year, with continued pressure on tax revenues. There will be no “giveaway” Budget, and HMRC will be under real pressure to collect. We are hoping the OTS reports, particularly those on pension and share schemes, and of course small businesses, have an impact and continue to be of interest.’

Kevin NicholsonHead of tax, PwC

‘The draft Finance Bill for 2012 contains much of the detail to implement some very significant tax reforms which the government has been working towards for some time now. Overall the tone was pragmatic, which bodes well for the economy.

‘We have been waiting eagerly for the final details of the government’s reform of international corporate taxation and we weren’t disappointed. It is clear that HMRC have been listening to representations and the new proposals look set to put the UK on the map

as a place for international business. The key will now be to get the inevitable settling-in period for the new rules over quickly and for HMRC to keep listening so it can deal with any practicalities as we gear up to implementation.

‘There were some other reforms and proposals such as the patent box which has now been made broader and several reliefs for investment in UK unquoted businesses. This has got to be good for those who set up or expand a business or get a job as a result of the changes.

‘But there is still room for improvement. The UK tax system continues to get more complex and the draft Finance Bill and explanatory notes is over 1,100 pages long. The Finance Bill has simplified some areas of international taxation. We hope that HMRC builds on this to simplify other areas of the tax system.’

Former tax inspector Mike Fleming on HMRC’s 2011 performance and challenges for 2012

Fiscal chess game decoded

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Last year, Accountancy reported that the UK’s 60 largest accountancy firms had seen a 1% fall in their total fee income, the first time this had happened since the recession of the 1990s.

This year, the Top 60 has bounced back strongly, with a 6.5% increase in total fee income compared to last year’s survey and the same firms report a 4.1% rise in fee income in their most recent results.

A look behind the headline growth figure, though, reveals a more complicated picture. A few firms have seen improved results due to mergers and acquisition activity – such as Reeves & Co, which merged with FW Stephens in June 2010 and RSM Tenon in the wake of its merger last year with Bentley Jennison. Organic growth remains difficult to find, though, and more firms than last year (26 compared with 19 in the 2011 survey) reported negative or stagnant growth during the year, an indication that the market remains challenging to say the least.

The fortunes of the Top 60 vary according to the size of firm. The Big Four have generally had a good year and reported healthy increases in revenue in their most recent results, in spite of what Ian Powell, chairman of PwC, described in the firm’s annual report as ‘a difficult market’ (KPMG recently changed its financial year end and is due to report latest revenue figures to 31 October 2011 on 9 January 2012).

CLient fees squeezedThere is no doubt, though, that the market remains depressed and unpredictable. The latest shock to hit the profession was the news that Target Consulting Group and Target Consulting, ranked at 40 in the survey, had called in PwC administrators to help with the sale of parts of the company. The London practice of Target Accountants remains unaffected and it’s hoped that other offices will be sold to their management.

Anecdotal evidence, particularly among the mid-tier and smaller firms, suggests they have found themselves unable (or unwilling) to increase client fees over the past two years and

so find themselves working harder to produce the same level of fee income.

‘We have been steadily winning business, perhaps not at the same rate as before the recession, but still at a significant level,’ said Michael Snyder, senior partner of Kingston Smith. ‘The difference is that one-off and additional work has reduced and I’d be very surprised if that isn’t replicated in other firms.’

He said the pressure on fees has been intense and will remain so: ‘There’s a lot of lowballing going on, so much that it makes you wonder how some firms can do the work for the price. Clients are more difficult to win and they don’t necessarily concentrate on the range of value added rather than price. The sensible businesses realise that you get what you pay for. I’d expect to see smaller firms struggling a lot because they are more vulnerable to fee pressure and to losing clients – and a lot of people are after their clients.’

Many firms have concentrated on specialist services and clients in an effort to protect their revenue. Crowe Clark Whitehill falls into this category and moved up one place in the

size diCtates growth Income rose at the top

60 firms but margins and partner fee ratios were under pressure as clients reduced their spend, reports Liz Fisher

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staffing levels

there’s a lot of lowballing going on, so much that it makes you wonder how some firms can do the work for the price

Michael Snyder, senior partner, Kingston Smith

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Partners

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Male partners

2010

Female partners Staff

87% 86.7% 85.6%


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12

12 The largest mid-tier firms Grant Thornton and BDO both saw corporate finance fees fall over the past year as transactions stalled.

Insolvency, usually a welcome source of revenue during a recession, has also proved a disappointment. Begbies Traynor highlighted ‘the unprecedented level of monetary support provided to the UK economy’, and particularly

table to 15th, leapfrogging Saffery Champness, after reporting an 11% increase in fee income during the year.

Andrew Pianca, chief executive of Crowe Clark Whitehill, said that 3% of the growth could be attributed to acquisitions, but the remainder was the result of organic growth.

‘We were quite low key on the corporate services side, so we’ve taken a number of steps to sell ourselves, including setting up specialist teams, covering the media, financial services, manufacturing and other sectors, who have been very effective in championing our services,’ he said.

‘We also set up an outsourcing sales office in California and we manage the back office operations for a number of Californian companies – they feel very comfortable with UK outsourcing operators. And we have been very successful in southeast Asia, picking up clients who are looking to invest inwardly to the UK.’

Domestic business squeezeIn the UK, though, business remains hard to find, particularly away from the southeast of England. ‘The further away you are from London, the worse it gets,’ says Pianca.

In terms of service lines, some areas have been hit harder than others. A number of firms say that changes in tax rules have affected their income stream from clients, and insolvency and corporate finance work are at lower levels than in the past.

The climate has led some firms to divest the less profitable parts of their business – Begbies Traynor, for instance, recently completed the sale of its tax practice to Smith & Williamson Holdings, and will now concentrate solely on its corporate recovery and restructuring work.

The two biggest disappointments in terms of service lines over the past year have been corporate finance work and insolvency.

There were hopes last year that many firms would see an improvement in fees earned through corporate finance work, but this has not materialised and most firms are blaming the lack of available bank funding for the drought.

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18

17

1615

14

1312

1110

8=

8=

7

6

5

4

3

1 Pwc 909 893 +1.8

2 Deloitte 652 628 +3.8

3 KPmG1 456 458 -2.6

4 ernst & young 444 403 +10.2

5 Grant Thornton UK 134.4 135.5 -0.8

6 bDo 91.1 91.7 -0.7

7 baker Tilly 84 94 -10.7

8= mazars2 70 68.9 +1.6

8= rsm Tenon Group 70 52.7 32.8

10 moore stephens UK 60.6 61.1 -0.8

11 PKF 57.8 59 -2

12 crowe clark Whitehill 30.6 28.3 +8.1

13 Haines Watts Group 29.2 26.6 +9.8

14 Kingston smith 22.7 23.4 -3

15 UHy Hacker young Group 22.4 22.2 +1

16 smith & Williamson 21.9 21.9 n 0

17 saffery champness 17.2 17.5 -1.7

18 Wilkins Kennedy 15.9 15.8 +0.6

19 chantrey vellacott DFK 11.7 12 -2.5

20 mHA macIntyre Hudson 10.1 n/a n/a

Total 3,210.6 3,122.6 2.82

rAnK FIrm £m 2011

£m 2010

% of change

Footnotes:1KPMG2010/11figurespublished9/1/2012 2Mazarsfiguresincludescorporatefinance/consulting

IanPowell,chairman,PwC

We also see strong growth potential in serving the needs of entrepreneurs, mid cap and private companies, and in the middle east

ToP 60

totAl income of top 60 firms

6

7

8

9

10

11

12

2007 2011201020092008

£10.33bn

£8.8bn£9.36bn

£9.92bn £9.82bn

12

cont

ents


13


13

13 the low base interest rate, which has resulted in a declining level of corporate insolvencies. Many distressed businesses that would have otherwise gone to the wall have survived as a result, but this is of little comfort to insolvency practitioners at a time when analysts estimate that revenues in the sector are 15% lower than they would expect during a recession.

The decline in insolvency business has had an impact on many of the firms in the Top 60. RSM Tenon, for example, despite a strong overall performance, reported a smaller increase in profitability down to 12% compared with 13.8% last year. The company’s final results statement said that margins had been ‘adversely affected by the external trading environment, especially the decline in the level of corporate and personal

insolvencies at a time when we invested in growth in this division’.

The firm’s merger with Bentley Jennison in December 2009 is reflected for the first time in this year’s survey, as well as the contribution of some of the London-based business of Vantis, which it acquired in the same year. This resulted in a 31% increase in turnover at the company.

The answer for many firms has been to concentrate on niche services or specialist consultancy offerings. When Powell announced PwC’s results he said that long-term growth would come from specialist services such as consulting, human resource services and risk assurance, and from its work with specific sectors, particularly financial services. ‘We also see strong growth potential in serving the needs of entrepreneurs, mid cap and private companies, and in the Middle East,’ he added.

taLent managementIn spite of the difficulties, the Top 60 as a whole has continued to invest in human capital. After seeing a sharp fall in total staff numbers in last year’s survey as many firms cut back heavily on employee numbers as the recession took hold, the Top 60 has bounced back in 2011 with a 19% increase in staff numbers.

Last year’s survey showed clearly that salaried staff were the biggest casualty during the recession as firms cut back on costs. The 2011 survey showed a 4% fall in total staff numbers, excluding partners, to 63,537 from 71,677 the previous year. Over the same period, though, the number of partners (or partner equivalent) in the Top 60 increased slightly from 5,642 to 5,669.

Firms have frequently said over the past two years that they have been careful to continue to invest for the future during the recession. Many were caught out during the sharp recession of the 1990s when they cut back on staff numbers, and particularly on student trainees, but then found themselves struggling to recruit to fill the gaps during the recovery.

Pianca said that his firm had continued to recruit new partners because ‘when you find someone you need, you take them on 14

Income by servIce lIne

tax

-40

-20

0

20

40

12

20

18

19

16

15

14

13

12

11

10

9

8

7

6

5

4

3

1 pwc 645 634 +1.7

2 Deloitte 534 511 +4.5

3 KpmG1 392 350 +12

4 ernst & young 372 360 +3.3

5 Grant thornton UK 91.7 93 -1.4

6 bDo 80.5 83.2 -3.2

7 rsm tenon Group 57 48.6 17.3

8 baker tilly 51 53 -3.8

9 pKF 35.4 33.7 +5

10 smith & Williamson 31.8 32.4 -1.9

11 mazars 25.1 21.3 +17.8

12 moore stephens 24.2 24.3 -0.4

13 Haines Watts Group 18.9 20.6 -8.3

14 crowe clark Whitehill 13.2 12.9 +2.3

15 saffery champness 12.4 13.5 -8.1

16 buzzacott 11.3 11.1 +1.8

17 mHA macIntyre Hudson 10.1 n/a n/a

18 UHy Hacker young Group 9.4 10 -6

19 chantrey vellacott DFK 7.8 7.8 n 0

20 menzies 7.6 6.6 +15.2

total 2,430.4 2,327 +4.4

rAnK FIrm £m 2011

£m 2010

% of change

bIG FoUr

pre-tax profit and partners

1000

1500

2000

2500

3000

Pre-tax pro�t £m Partners

2,717

£2,010m £1,948m

2,598

-3.0% +4.6%

20102011

Footnote: 1KPMG 2010/11 results published 9/1/2012

For the latest trends in training and related investment, see trainee league table, p17

Investing in the future

17

13

cont

ents



14

14

irrespective of the economic climate’, and added that the firm had taken on more students this year than it had since 2001, simply because it needed the additional headcount to cope with its increased turnover.

Overall, this year’s survey shows a 5.7% increase in the number of partners in the Top 60 firms over last year.

The Big Four firms bucked the trend during 2010 by reducing partner numbers by between 4% and 10%, largely through natural turnover as partners reached retirement age, but this year PwC, Deloitte and KPMG have all increased their partner headcount (by 7.1%, 3.7% and 12.3% respectively), while E&Y’s remained level.

Powell said the firm’s approach had been to ‘hold our nerve’ and invest for growth. PwC

pArtner vAlUe

income and profit 2011 (2010)

1 (1) pwc 2,461 (2,331) 667 (665) 905 (845) 2,719 (2,758)

2 (2) Deloitte 2,098 (1,953) 535 (590) 706 (681) 2,972 (2,868)

3 (3) KpmG1 1,707 (1,602) 396 (416) 579 (545) 2,950 (2,618)

4 (4) ernst & young 1,465 (1,356) 350 (327) 527 (533) 2,780 (2,544)

5 (5) Grant thornton 377 (379.7) 75.2 (77.6) 211 (228) 1,787 (1,665)

6 (6) bDo 284.7 (312.2) 62.2 (62.6) 196 (203) 1,437 (1,538)

7 (8) rsm tenon Group 249 (190.4) 27 (24.1) 279 (306) 892 (622)

9 (9) smith & Williamson 171.4 (169.4) 21.6 (23.8) 227 (214) 755 (792)

13 (13) begbies traynor Group 61.5 (69.1) 8.5 (8.7) 87 (103) 707 (671)

15 (16) crowe clark Whitehill 52.1 (47) 14 (13.5) 80 (74) 651 (635)

19 (19) mHA macIntyre Hudson 32.4 (31.2) 10 (8.6) 42 (39) 771 (683)

20 (20) menzies 28.7 (27.74) 7.7 (8.1) 35 (34) 820 (815)

25 (36) reeves & co 20.1 (14.8) 6.2 (4.1) 41 (43) 595 (344)

27 (34) Frank Hirth 17.1 (15) 1.3 (1.2) 16 (13) 1,069 (1,154)

29 (29) Francis clark 16.9 (16.87) 5.3 (n/a) 33 (33) 512 (511)

30 (32) price bailey 16.6 (15.7) 3.8 (3.8) 22 (23) 754 (683)

36 (35) cooper parry 14.3 (14.9) 4.1 (4.3) 24 (23) 596 (648)

37 (45) sJD Accountancy 14 (12) 6.5 (5) 1 (1) n/a (n/a)

39 (37) shipleys 13.6 (14.3) 5.3 (5) 23 (19) 591 (753)

46 (47) barnes roffe 11.4 (11.3) 5 (4.4) 18 (17) 633 (665)

49 (49) simmons Gainsford 10.7 (10.9) 2.3 (3.1) 14 (17) 764 (647)

55 (51) Hillier Hopkins 10.2 (10.5) 3.4 (2.9) 22 (21) 463 (500)

55 (54) James cowper 10.2 (10.1) 2.1 (1.7) 14 (14) 728 (721)

58 (57) rothman pantall 9.4 (9.6) 2.6 (2.7) 20 (19) 470 (506)

total 9,292 8,625 2,222 2,263 4,219 4,048

Average 372 360 89 95 169 169

rAnK FIrm Fee income £m

partners Fee/partner ratio £000s

pre-tax profit £m

hired more than 3,200 staff over the past year, and added 72 new partners. ‘Our strategy was designed to make sure that we come out of any downturn stronger than we went into it,’ he said.

KPMG announced the appointment of 29 new partners and 88 new directors from within the firm at the beginning of its latest financial year.

While some firms have seen a slight improvement in business over the past three months, the general expectation is that things are likely to remain tough for some time to come.

Paul Tutin, chairman of Streets, said that revenues were still flat despite the firm picking up new clients in the first half of 2011. The apparent willingness of many businesses to avoid asking their advisers for help in an effort to reduce costs, he added, was an ongoing concern. ‘I’m expecting 2012 to be a harder year for accountants than 2011, but overall it’s not as bad as the media portray,’ he said. ‘Primarily it’s about confidence and the availability of credit for business. Business confidence is the key, as many accountancy firms are leaner and more profitable than they were – those that aren’t will struggle to survive. I always say that if the media stopped the news output about doom and gloom, confidence will rise,’ he said.Paul Tutin, chairman of Streets

business confidence is the key as many firms are leaner and more profitable than they were – those that aren’t will struggle to survive

15

bIG FoUr

fees by service line 2011 (2010)

(893)909

PwC

Deloitte

KPMG

Ernst & Young

907

645

(634)

(804

)

652517

534

(511)

(459

) (628)

392

(350)

481(397

)

(458)456

372

(360)

(309)

370

(403)444

Inner circle 2011Outer circle 2010

Audit and assurance (£m)Tax (£m)Consulting and advisory (£m)

Footnotes: Published figures relates only to firms reporting pre-tax profit. 1KPMG 2010/11 figures published 9/1/2012

14

cont

ents



15

15

16

1 (1) pwc 2,461 2,331 5.5 2,719 40 905 14,973 LLP Yes Crowe Clark Whitehill 30.06.112 (2) Deloitte 2,098 1,953 7.4 2,972 38 706 13,075 LLP Yes Grant Thornton 31.05.113 (3) KpmG1 1,707 1,602 7 2,950 22 579 10,150 LLP Yes Grant Thornton 4 (4) ernst & young llp 1,465 1,356 8 2,780 23 527 9,239 LLP Yes BDO 30.06.115 (5) Grant thornton UK llp 377 379.7 -0.7 1,787 30 211 3,685 LLP Yes PKF (UK) LLP 30.06.116 (6) bDo llp2 284.7 294.6 -3.4 1,437 14 198 2,419 LLP Yes PwC 01.07.117 (8) rsm tenon Group 249 190 31 892 40 279 2,858 plc Yes PwC 30.06.118 (7) baker tilly 182 191 -4.7 1,555 28 117 1,678 LLP/Ltd Yes Kingston Smith 31.03.119 (9) smith & Williamson3 171.4 169 1.4 755 10 227 1,250 Ltd Yes Grant Thornton 30.04.1110 (10) pKF (UK) llp 140 140.4 -0.3 1,443 23 97 1,537 LLP Yes Kingston Smith 31.03.1111 (11) moore stephens UK4 138.3 138.2 0 886 34 156 1,324 N/Ltd No 31.12.1112 (12) mazars 109 102.5 6.3 932 15 117 1,100 LLP Yes Crowe Clark Whitehill 31.08.1113 (13) begbies traynor Group 61.5 62.8 -2.1 707 38 87 524 plc Yes Deloitte 30.04.1114 (14) Haines Watts Group 57.8 55.7 3.8 521 51 111 764 Group No 31.03.1115 (16) crowe clark Whitehill llp 52.1 47 10.8 651 9 80 549 LLP Yes Grant Thornton 31.03.1116 (15) saffery champness 51.3 52.1 -1.5 841 10 61 468 P No 31.03.1117 (17) UHy Hacker young Group 45 45.3 -0.7 479 19 94 566 N No 30.04.1118 (18) Kingston smith llp 41.1 42.7 -3.7 642 6 64 413 LLP Yes Price Bailey 30.04.1119 (19) mHA macIntyre Hudson 32.4 31.2 3.8 771 10 42 400 LLP Yes Hillier Hopkins 31.03.1120 (20) menzies llp 28.7 27.9 2.9 820 6 35 308 LLP Yes Princecroft Willis 30.06.1121 (21) chantrey vellacott DFK llp 28.55 27.9 2.3 595 10 48 299 LLP Yes Grant Thornton 30.06.1122 (22) Wilkins Kennedy5 28.1 27.4 2.5 502 11 56 388 P No 30.04.1123 (23) Johnston carmichael6 27.9 26.9 3.7 606 10 46 412 LLP No 31.05.1124 (25) buzzacott llp 23.7 22.1 7.2 1,030 1 23 214 LLP Yes Hillier Hopkins 30.09.1125 (36) reeves & co llp 20.1 14.8 35.8 490 4 41 243 LLP Yes Clive Owen & Co 31.05.1126 (28) taxAssist Accountants7 18.9 16.9 11.8 n/a 205 175 555 No No 31.12.1027 (34) Frank Hirth plc 17.1 15 14 1,069 2 16 164 P Yes Manningtons 30.06.1128 (27) Armstrong Watson 17 17.3 -1.7 654 8 26 328 P No 31.03.1129 (29) Francis clark llp 16.9 16.9 0 512 6 33 342 LLP Yes Price Bailey 31.03.1130 (31) Duncan & toplis 16.6 16.3 1.8 593 10 28 301 P No 31.03.1130 (32) price bailey llp 16.6 15.7 5.7 754 7 22 250 LLP Yes Crowe Clark Whitehill 31.03.1132 (32) Haysmacintyre 16.4 15.7 4.4 713 1 23 153 P No 31.03.1132 (-) littlejohn llp 16.4 17.7 -7.3 586 1 28 136 LLP Yes Price Bailey 31.05.1134 (30) streets8 15.9 16.4 -3 636 10 25 125 Various No 30.06.1135 (38) Hazlewoods 15.2 14.2 7 844 3 18 195 LLP Yes Princecroft Willis 30.04.1136 (35) cooper parry llp 14.3 14.9 -4 596 4 24 173 LLP Yes Buzzacott 30.04.1137 (45) sJD Accountancy 14 12 16.7 n/a 8 1 153 Ltd Yes Kingston Smith 31.10.1038 (40) lovewell blake llp 13.9 13.4 3.7 662 5 21 213 LLP Yes Crowe Clark Whitehill 30.09.1139 (37) shipleys llp 13.6 13.7 -0.7 591 4 23 104 LLP Yes SRG 30.04.1140 (46) Anderson Anderson & brown llp 13.5 11.8 14.4 1,125 1 12 166 LLP Yes Gregor Clark & Co 31.03.1140 (42) target chartered Accountants 13.5 12.8 5.5 1,350 5 10 185 Ltd Yes Berkeley Hall Marshall 30.06.1142 (43) scott-moncrieff9 13.4 12.6 6.3 788 2 17 175 P No 30.04.1143 (39) larking Gowen 13.3 13.3 0 700 9 19 247 P No 31.03.1144 (-) AIms Accountants for business10 12.5 12.1 3.3 n/a 239 243 n/a plc No 30.04.1145 (44) mercer & Hole 11.7 12.1 -3.3 616 3 19 130 P No 30.09.1146 (47) barnes roffe llp 11.4 11.3 0.9 446 3 18 105 LLP Yes Haines Watts 30.06.1147 (52) Henderson loggie 11.2 10.4 7.7 633 4 23 184 P No 30.11.1148 (56) montpelier professional 11.6 9.7 19.6 487 12 26 180 Ltd Yes Wilson Henry 31.12.1049 (53) moore and smalley llp 10.7 10.2 4.9 594 6 18 190 P Yes Hayes & Co 31.03.1149 (58) silver levene llp 10.7 10.3 3.9 629 1 17 100 LLP No 31.05.1149 (49) simmons Gainsford llp 10.7 11 -2.7 764 2 14 92 LLP Yes Sopher & Co 31.03.1152 (47) beever and struthers 10.6 11.3 -6.2 442 3 24 155 P No 30.09.1153 (50) bishop Fleming 10.5 10.5 0 552 5 19 180 P No 31.05.1154 (-) Haslers11 10.4 11.7 -11.1 800 1 13 86 Ltd No 31.12.1055 (51) Hillier Hopkins llp 10.2 10.5 -2.8 463 4 22 107 LLP Yes Price Bailey 31.03.1155 (54) James cowper llp 10.2 9.7 5.1 728 6 14 125 LLP Yes Monahans 30.04.1157 (-) barber Harrison & platt 9.9 9.2 7.6 761 4 13 171 P No 31.12.1058 (57) rothman pantall llp 9.4 9.6 -2.1 470 12 20 146 LLP Yes Mazars 31.03.1159 (58) cowgill Holloway llp 9.2 9.6 -4.2 575 4 16 139 LLP Yes Champion & Co 31.05.1160 (-) Forrester boyd 9.1 9.1 0 700 4 13 162 P No 31.03.11 total 10,337 9,763 1,106 5,960 75,053

rAnK FIrm

Fee income £m

partners

Annual accounts *

UK offices

year end

Auditor

statusstaff

Fee/partner ratio

£000s

% change

previous year fee

income £m

top 60 FIrms

survey: uk accountancy firms league table

Footnotes: 1KPMG 2010/11 figures published 9/1/2012. *Annual accounts published. N: network, P: partnership (see additional notes on p20)

15

cont

ents



16

16

1 (1) pwc 905 (845) 125 (118) 14,973 (16,533) 2,461 (2,331) 2,719 (2,758)2 (2) Deloitte 706 (681) 99 (95) 13,075 (11.413) 2,098 (1,953) 2,972 (2,868)3 (3) KpmG1 579 (545) 86 (76) 10,150 (9,464) 1,707 (1,602) 2,950 (2,618)4 (4) ernst & young llp 527 (533) 95 (91) 9,239 (8414) 1,465 (1,356) 2,780 (2,544)5 (5) Grant thornton UK llp 211 (228) 35 (36) 3,685 (3686) 377 (379.7) 1,787 (1,665)6 (6) bDo llp2 198 (203) 21 (22) 2,419 (2538) 284.7 (312.2) 1,437 (1,538)7 (8) rsm tenon Group 279 (306) 36 (34) 2,858 (2878) 249 (190.4) 892 (622)8 (7) baker tilly 117 (117) 36 (16) 1,678 (1609) 182 (191) 1,555 (1,632)9 (9) smith & Williamson3 227 (214) 43 (35) 1,250 (1234) 171.4 (169.4) 755 (792)10 (10) pKF 97 (94) 7 (7) 1,537 (1533) 140 (140.4) 1,443 (1,494)11 (11) moore stephens UK4 156 (156) 22 (17) 1,324 (1404) 138.3 (138.2) 886 (886)12 (12) mazars 117 (108) 13 (0) 1,100 (1060) 109 (103.8) 932 (961)13 (13) begbies traynor Group 87 (103) 10 (8) 524 (712) 61.5 (69.1) 707 (671)14 (14) Haines Watts Group 111 (103) 12 (11) 764 (766) 57.8 (55.7) 521 (541)15 (16) crowe clark Whitehill llp 80 (74) 15 (14) 549 (531) 52.1 (47) 651 (635)16 (15) saffery champness 61 (61) 14 (13) 468 (452) 51.3 (52.1) 841 (854)17 (17) UHy Hacker young Group 94 (92) 11 (9) 566 (586) 45 (45.4) 479 (493)18 (18) Kingston smith llp 64 (59) 12 (10) 413 (460) 41.1 (42.7) 642 (724)19 (19) mHA macIntyre Hudson 42 (39) 5 (2) 400 (387) 32.4 (31.2) 771 (800)20 (20) menzies llp 35 (34) 5 (2) 308 (335) 28.7 (27.7) 820 (815)21 (21) chantrey vellacott DFK llp 48 (49) 6 (5) 299 (299) 28.55 (27.6) 595 (563)22 (22) Wilkins Kennedy5 56 (48) 7 (6) 388 (373) 28.1 (27.5) 502 (573)23 (23) Johnston carmichael6 46 (46) 3 (2) 412 (413) 27.9 (26.9) 606 (585)24 (25) buzzacott llp 23 (23) 3 (3) 214 (210) 23.7 (22.1) 1,030 (961)25 (36) reeves & co llp 41 (43) 5 (4) 243 (271) 20.1 (14.8) 490 (344)26 (28) taxAssist Accountants7 175 (189) 24 (27) 555 (550) 18.9 (16.9) n/a (89)27 (34) Frank Hirth 16 (13) 6 (4) 164 (154) 17.1 (15) 1,069 (1,154)28 (27) Armstrong Watson 26 (27) 4 (4) 328 (340) 17 (17.3) 654 (641)29 (29) Francis clark llp 33 (33) 4 (4) 342 (248) 16.9 (16.9) 512 (511)30 (31) Duncan & toplis 28 (28) 1 (1) 301 (318) 16.6 (16.3) 593 (582)30 (32) price bailey llp 22 (23) 0 (0) 250 (216) 16.6 (15.7) 754 (683)32 (32) haysmacintyre 23 (23) 5 (0) 153 (146) 16.4 (15.7) 713 (683)32 (-) littlejohn llp 28 (29) 5 (5) 136 (147) 16.4 (17.8) 586 (614)34 (30) streets8 25 (20) 3 (3) 125 (118) 15.9 (16.4) 636 (820)35 (38) Hazlewoods 18 (17) 2 (2) 195 (194) 15.2 (14.2) 844 (835)36 (35) cooper parry llp 24 (23) 1 (1) 173 (180) 14.3 (14.9) 596 (648)37 (45) sJD Accountancy 1 (0) 0 (0) 153 (150) 14 (12) n/a (n/a)38 (40) lovewell blake llp 21 (21) 1 (1) 213 (208) 13.9 (13.4) 662 (638)39 (37) shipleys llp 23 (19) 3 (n/d) 104 (132) 13.6 (14.3) 591 (753)40 (46) Anderson Anderson & brown llp 12 (12) 3 (3) 166 (148) 13.5 (11.8) 1,125 (983)40 (42) target chartered Accountants 10 (11) 2 (n/d) 185 (185) 13.5 (13) 1,350 (1,182)42 (43) scott-moncrieff9 17 (17) 2 (2) 175 (163) 13.4 (12.6) 788 (741)43 (39) larking Gowen 19 (21) 2 (2) 247 (204) 13.3 (13.6) 700 (648)44 (-) AIms Accountants for business10 243 – 20 – 12.5 – 45 (44) mercer & Hole 19 (19) 6 (6) 130 (134) 11.7 (12.1) 616 (637)46 (56) montpelier professional 26 (19) 6 (5) 180 (195) 11.4 (9.7) 446 (511)47 (47) barnes roffe llp 18 (17) 1 (1) 105 (102) 11.2 (11.3) 633 (665)48 (52) Henderson loggie 23 (20) 5 (4) 184 (194) 11.6 (10.4) 487 (520)49 (53) moore and smalley llp 18 (17) 5 (5) 190 (203) 10.7 (10.2) 594 (600)49 (58) silver levene llp 17 (17) 1 (1) 100 (94) 10.7 (9.6) 629 (565)49 (49) simmons Gainsford llp 14 (17) 1 (1) 92 (71) 10.7 (11) 764 (647)52 (47) beever and struthers 24 (26) 5 (5) 155 (180) 10.6 (11.3) 442 (435)53 (50) bishop Fleming 19 (18) 3 (3) 180 (170) 10.5 (10.6) 552 (589)54 (-) Haslers11 13 (n/a) 4 86 10.4 800 55 (51) Hillier Hopkins llp 22 (21) 2 (2) 107 (104) 10.2 (10.5) 463 (500)55 (54) James cowper llp 14 (14) 3 (3) 125 (135) 10.2 (10.1) 728 (721)57 (-) barber Harrison & platt 13 (n/a) 2 171 9.9 761 58 (57) rothman pantall llp 20 (19) 2 (2) 146 (141) 9.4 (9.61) 470 (506)59 (58) cowgill Holloway llp 16 (16) 2 (3) 139 (144) 9.2 (9.6) 575 (600)60 (-) Forrester boyd 13 (n/a) 0 162 9.1 700 total 5,960 809 862 109 75,053 5,939 10,337 419

rAnK FIrmpartners

Fee income £m

Female partners

total staff

Fee/partner ratio

£000s

Smith & Williamson, partners fee-earning directors, staff numbers approx. SJD Accountancy: single MD; Franchises: AIMS Accountants for Business, TaxAssist Accountants; Larking Gowen includes Larking Gowen Ltd/Corporate Finance Ltd.

1KPMG 2010/11 figures published 9 Jan 2012. 2BDO: Fee income excludes BDO Investment Management, sold Nov 2010. Prior year restated to exclude BDO IM. 3Smith & Williamson: partners’ fee-earning directors. 4Moore Stephens UK: Network, fee income estimated. 5Wilkins Kennedy: converting to LLP Apr 2012. 6Johnston Carmichael: Converted to LLP June 2011. 7TaxAssist Accountants: Franchise. 8Streets: Part partnership/LLP, and part limited/unlimited company. 9Scott-Moncrieff: Fee income inc Scott-Moncrieff Wealth Management turnover of £2.1m. 10AIMS Accountants for Business: association of practices operating under licence by AIMS Partnership plc. 11Haslers: Converted to LLP January 2012

Information is collected via an Accountancy questionnaire completed by firms individually. Wherever possible, we adhere to the firms’ description of service lines and structure, and rely on the integrity of information provided to produce consistent information. We have not excluded firms or groups with an unusual structure, although question of whether some are ‘firms’ in the traditional sense remains open to debate.

notes: top 60 talent table, p20

notes: top 60 firms table, p18

top 60 FIrms

talent: partners and staff levels 2011 (2010)

compiling the top 60 survey

16

cont

ents




top 60 firms – trainees n

trainees

Top 60 firms Trainee survey

1 PwC 2,461 2,887 2,769 2,397 206 166 0 02 Deloitte LLP 2,098 2,161 2,161 1,716 128 0 317 n/a3 KPMG1 1,602 2,241 2,241 1,440 522 121 122 364 ernst & Young LLP 1,465 1,728 1,728 278 925 228 297 05 Grant thornton UK LLP 377.0 428 428 351 28 40 n/a 96 BDO LLP 284.7 320 320 271 12 30 5 27 rsM tenon Group 249 358 358 210 28 115 4 18 Baker tilly 182 n/a n/a n/a n/a n/a n/a n/a9 smith & Williamson 171.4 98 98 82 0 15 1 010 PKF (UK) LLP 140 199 169 69 82 16 1 111 Moore stephens UK 138.3 146 146 88 17 35 0 612 Mazars 109 216 216 176 14 25 1 013 Begbies traynor Group 61.5 25 n/a n/a n/a n/a n/a n/a14 Haines Watts Group 57.8 78 78 32 10 36 0 015 Crowe Clark Whitehill LLP 52.1 101 101 84 7 10 0 016 saffery Champness 51.3 49 49 33 8 8 0 017 UHY Hacker Young Group 45 118 97 56 8 33 0 018 Kingston smith LLP 41.1 95 74 73 0 1 0 019 MHa Macintyre Hudson 32.4 115 88 82 0 6 0 020 Menzies LLP 28.7 63 40 37 0 3 0 021 Chantrey Vellacott DFK LLP 28.55 47 44 35 0 9 0 022 Wilkins Kennedy 28.1 47 47 36 0 11 0 023 Johnston Carmichael 27.9 42 42 0 30 12 0 024 Buzzacott LLP 23.7 42 42 37 0 5 0 025 reeves & Co LLP 20.1 67 67 23 0 44 0 026 taxassist accountants2 18.9 – – – – – – –27 Frank Hirth plc 17.2 50 2 0 0 2 0 028 armstrong Watson 17 14 14 13 0 1 0 028 Francis Clark LLP 17 49 39 32 0 7 0 030 Duncan & toplis 16.6 25 25 20 0 5 0 030 Price Bailey LLP 16.6 41 34 26 0 8 0 032 Haysmacintyre 16.4 43 43 43 0 0 0 032 Littlejohn LLP 16.4 39 34 21 0 13 0 034 streets 15.9 11 11 10 0 1 0 035 Hazlewoods 15.2 34 34 29 0 5 0 036 Cooper Parry LLP 14.3 24 24 22 0 2 0 037 sJD accountancy 14 20 12 0 0 12 0 038 Lovewell Blake LLP 13.9 19 19 7 0 12 0 039 shipleys LLP 13.6 20 20 18 0 2 0 040 anderson anderson & Brown LLP 13.5 29 29 0 25 4 0 040 target Chartered accountants 13.5 28 17 17 0 0 0 042 scott-Moncrieff 13.4 30 30 0 17 8 0 543 Larking Gowen 13.3 70 47 20 0 27 0 044 aiMs accountants for Business 12.5 0 0 0 0 0 0 045 Mercer & Hole 11.7 19 14 12 0 2 0 046 Montpelier Professional 11.6 17 17 11 0 6 0 047 Barnes roffe LLP 11.4 34 31 25 0 6 0 048 Henderson Loggie 11.2 20 20 0 18 1 0 149 Moore and smalley LLP 10.7 45 22 14 0 8 0 049 silver Levene LLP 10.7 5 5 0 0 5 0 049 simmons Gainsford LLP 10.7 19 12 9 0 3 0 052 Beever and struthers 10.6 29 29 22 0 7 0 053 Bishop Fleming 10.5 19 19 19 0 0 0 054 Haslers 10.4 6 6 6 0 0 0 055 Hillier Hopkins LLP 10.2 15 15 13 0 2 0 055 James Cowper LLP 10.2 30 23 12 0 11 0 057 Barber Harrison & Platt 9.9 48 34 17 0 17 0 058 rothman Pantall LLP 9.4 17 17 6 0 11 0 059 Cowgill Holloway LLP 9.2 13 13 7 0 6 0 060 Forrester Boyd 9.1 29 23 13 0 10 0 0

totals 12,582 12,137 8,070 2,085 1,173 748 61

ranK FirM Fee income £m

total trainees

institutes trainees

CiMatrainees

CiPFa trainees

aCCatrainees

iCastrainees

iCaeWtrainees

Footnotes: 1KPMG trainee numbers for 2011. 2TaxAssist Accountants: franchisees not required to report on staff qualifications.For the complete Top 60 firms league tables and analysis, see p12

17

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ents

accountancy review of the year briefing network & associations survey n


global ambitionsA modest rise in fee income marks a year of consolidation for international networks and associations, reports Liz Loxton

the biggest networks and associations have recorded a return to growth for 2010, in a year that also puts a new leader at the top of the table.

Accountancy’s top 25 networks and associations survey 2011 shows a combined fee income of $144.2bn (£90.1bn) in 2010 compared to $140.2bn in 2009.

The increase of just under $4bn can best be described as modest and only goes part of the way towards clawing back the $7.6bn fall of the previous year, but it represents investment on the part of networks and associations – in quality assurance regimes and in many cases new member firms. Networks and associations are jockeying for position in Africa, Latin America and Asia, aiming to recruit quality firms and acquire new clients.

At the top of the table, PwC and Deloitte have switched positions. The difference between their headline figures is also modest – only $9m separates them. Nevertheless, the downturn has cost PwC what was once a seemingly unassailable place at the top.

fee inCome risesWhile lawsuits and threatened lawsuits have thrown a shadow over the Big Four and must continue to be a given in their risk environment, there is no

doubt that financial performance is improving.Of the Big Four, only Ernst & Young reported a fall

in fee income, from $21.4bn to $21.25bn, compared to all four last year. Fee income rose at Deloitte by $478m, PwC by $398m and KPMG by $520m.

Despite the income drop, E&Y global chief operating officer, John Ferraro, says the firm is starting to reap the benefits of investment and is seeing upturns in certain territories and industry sectors. ‘All the firms were in a pretty tight corridor. We did not have any major acquisitions. We did see an improvement in revenue in the second half of the year of more than 5% and this improvement has continued into FY 2011. The fastest growth is focused in the emerging markets with double digit growth. We’re also seeing recovery in financial services sectors across the globe.’

Helen Spice, CFO of KPMG International, says KPMG is also seeing signs of healthier business performance across the network and certain service lines. Activity in emerging markets as well as a greater complexity in business operations are factors driving fee growth.

‘Geographically, we are seeing strong growth in India and the Asia Pacific region, along with Brazil and a number of other markets in Latin America. Growth is also being driven by clients in many regions having to deal with

all the firms were in a pretty tight corridor. We did not have any major acquisitions. the fastest growth is focused in the emerging markets

John Ferraro, global chief operating officer,

Ernst & Young


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greater complexity in running their businesses – everything from a rapidly changing regulatory environment to the need to better manage risk,’ she says.

international eXPansionElsewhere in the table, other players have been positioning themselves to take advantage of opportunities in growth economies. Praxity, which was ranked ninth in this year’s table and posted a $112m rise in fee income, has recruited ShineWing, one of China’s largest independent firms. Praxity chairman Jos van Hoot considers this as a major step, given the firm’s foothold across mainland China and Asia Pacific. ‘It’s a pure Chinese firm with offices spread across the country but also with offices in Japan, Singapore and Melbourne.

‘Recently, we recruited a firm in central Europe, with offices in Vienna, Croatia, Bosnia, Romania and Hungary. Since our inception in 2007 we’ve gone to a lot of effort to make ourselves known in these parts of the world. We can now support companies that want to diversify their activity in Europe or list in China. There’s huge potential not just in inbound China work, but also outbound. And it helps that we are embedded there.’

Stephen Darley, PKF International regional director for Asia Pacific, says China is the growth story for Asia. PKF International, which rose from 15th to 12th place on the back of stand-out growth of 29%, has admitted six major firms in the region, adding $900m in topline turnover and around 1,500 staff in 14 city locations.

The opening up of China presents strong prospects for firms with a presence there, he says. Since December 2010, the Hong Kong stock exchange has allowed firms based in mainland China to sign off audits of Hong Kong-listed companies. The Chinese Ministry of Finance has granted coveted H-share licences (equivalent to PCAOB registration) to 12 firms, including the Big Four, two BDO member firms, as well as member firms for RSM International, PKF International (PKF Daxin CPA), Crowe Horwath, Grant Thornton and Praxity.

‘The expectation is that this will create a lot more work for PKF. To a client it demonstrates a level of quality and an indication that the firm has gone through a rigorous review. It provides the international community with an assurance that these firms have an elevated status,’ says Darley.

risK anD QUalitY ControlWhile networks and associations forge ahead with cross-border expansion, operating in new territories must present significant downside risk if new recruits are not vetted properly or do not offer the consistency of delivery required by their

umbrella organisations. Quality – at recruitment stage – is a focus that is echoed by networks and associations up and down the table. Ferraro says: ‘We’ve been able to make the emerging markets investments as a global organisation, developing capabilities alongside our clients and not playing catch-up. These are distinctions for us,’ he says.

Likewise Jean Stephens, CEO of RSM International, argues a long-term focus on quality and on the relationship between member firms is paying off. ‘I don’t think we’d be successful unless we continued to focus on quality at an international level. We start very early in terms of recruitment of our members. We require a common methodology that all members are mandated to use. You can’t develop a brand without a focus on quality,’ she says.

alternatiVes to tHe big foUrSo is there opportunity for newly enlarged international organisations? ‘The window is open,’ says Stephens. ‘It’s our time to leverage that, but it’s a culmination of many years of work.’

There appears to be a growing willingness on the part of clients to look at mid-tier and other organisations as viable providers of cross-border services. John Lisby, executive director of Kreston International, says his member firms pick up work previously carried out by the Big Four. ‘It’s a very slow process but when you talk to clients, there is a sense they are moving away from the perception that everything has to be done by the Big Four.’

Ferraro says there are alternatives to the Big Four. ‘There are some very good organisations and niche practices in some service lines. The question is are we all delivering on our promise to our stakeholders? That’s the focus we have. Our ability to work across countries without negotiating with 143 partnerships is something that sets us apart for clients. Most companies have international considerations from day one and appreciate that capability,’ he says.

The networks and associations scene is ripe for consolidation, according to Kevin Mead, president of IGAF Polaris, the newly-merged association formed from IGAF Worldwide, Polaris International and Fidunion.

Ranked 18th in the league table with a combined fee income of $1.8bn, the new organisation enabled the three players to plug gaps in their geographic coverage, says Mead. ‘The former IGAF had no firm in Thailand, for example, and yet member firms had a need of a referral there several times a year.’

While mergers solve this kind of shortfall, it’s important to get beyond that rationale and into a focus on standards of service delivery. ‘What the merger does for us is that it gets us out of the pins in the map stage and we can now concentrate on quality,’ he says.

igaf Polaris: neWlY mergeD miD-tier PlaYer

How we compile tHe top 25 tableFigures are collected from annual reviews and reports, network websites and direct from firms. As in previous years, a number of multidisciplinary practices with member firms that exclusively practise law have been included. Other networks that are not strictly multidisciplinary also offer services such as stockbroking and financial advice, arguably outside the ‘traditional’ view of accountancy services

*

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1 (2) Deloitte N 26,578 (26,100) 53 670+ 150 9,538 129,219 (130,208) May-10 UK: Deloitte LLP 2 (1) pwc N 26,569 (26,171) n/a 766 154 8,625 122,967 (123,548) Jun-10 UK: PwC 3 (3) ernst & Young N 21,255 (21,400) n/a 695 140 8,615 140,964 (144,441) Jun-10 UK: Ernst & Young 4 (4) KpmG international N 20,630 (20,110) 150 c. 700 150 7,921 105,147 (106,973) Oct-10 UK: KPMG LLP 5 (5) bDo N 5,284 (5,026) n/a 1,082 119 4,111 34,811 (34,156) Sep-10 UK: BDO 6 (6) Geneva Group international AIF 4,215 (4,052) 318 520 89 2,044 17,620 (14,612) Dec-10 UK: Citroen Wells, Haines Watts, Lawrence Grant7 (7) RSm international N 3,878 (3,875) 92 714 83 3,113 23,490 (23,262) Dec-10 UK: RSM Tenon 8 (8) Grant thornton international N 3,673 (3,592) 107 482 105 2,505 22,257 (30,000) Sep-10 UK : Grant Thornton UK LLP 9 (9) praxity2 AIF 3,384 (3,272) 72 474 82 2,428 23,433 (24,738) Dec-10 UK: Mazars, Lovewell Blake, Menzies, Hawsons and others10 (10) baker tilly international2 N 3,070 (3,130) 150 610 120 2,589 18,400 (17,728) Dec-10 UK: Baker Tilly (UK), Baker Tilly Mooney Moore, Baker Tilly11 (11) crowe Horwath international N 2,779 (2,778) 150 640 108 3,519 19,537 (16,995) Dec-10 UK: Crowe Clark Whitehill LLP, Horwath HTL 12 (15) pKF international N 2,449 (1,905) 188 440 125 2,198 15,292 (12,493) Jun-10 UK: PKF (UK) LLP 13 (12) leading edge alliance AIF 2,400 (2,400) 165 456 100 1,604 14,551 (15,185) Dec-10 UK: HW Fisher & Co, Johnston Carmichael, Francis Clark, Streets, CLB Coopers 14 (18) aGN international A 2,389 (2,510) 197 467 89 1,268 7,469 (7,992) Oct-10 UK: AGN Shipleys, Dixon Wilson, Hazlems Fenton, Wright Vigar 15 (14) moore Stephens international N 2,151 (2,078) 314 638 97 2,191 14,504 (14,557) Dec-10 UK : Moore Stephens 16 (13) Nexia international N 2,100 (2,100) 245 580 102 2,114 13,045 (14,353) Jun-10 UK affiliate: Smith & Williamson, Saffery Champness, Scrutton Bland, Meston Reid, Jones Peters 17 (16) Kreston international N 1,882 (1,872) 217 666 98 1,288 14,749 (15,662) Oct-10 UK: Barber Harrison Platt, Bishop Fleming, Clive Owen & Co LLP, eQ Chartered Accountants, Horsfield & Smith, JamesCowper, Peters Elworthy & Moore, Rabjohns LLP, Reeves+Neylan LLP18 iGaF polaris A 1,820 (n/a) 384 843 89 2,400 16,300 (8,538) May-10 UK: CK Chartered Accountants; Clement Keys, Cooper Parry, Woolford & Co, Thomas Westcott, Atkinson Donnelly, French Duncan LLP, Littlejohn LLP, Simmons Gainsford LLP, Buzzacott, Hurst, FPM Accountants LLP, CLB Gatwick LLP, Creasey’s 19 (17) Hlb international N 1,692 (1,771) 186 493 100+ 1,879 11,223 (10,819) Dec-10 UK: Hawsons, Hazlewoods LLP, Lovewell Blake, Menzies LLP 20 (20) bKR international A 1,400 (1,300) 143 265 73 1,327 8,926 (7,589) Jun-10 UK : Cassons, Blick Rothenberg 21 (21) mSi Global alliance A 1,300 (1,290) 251 290 105 1,722 6,997 (6,689) Dec-10 UK: Armstrong Watson, Haysmacintyre, ReSolve22 (22) DFK international3 AMN 1,093 (1,047) 202 369 75 1,210 6,262 (6,620) Sep-10 UK : Chantrey Vellacott DFK, Langdowns DFK, Spain Brothers & Co, KTS Owens Thomas, Hansard, Minerva Trust Co, Alexander Sloan, Thompson Jenner LLP, DFK Chancery Trust, Brown Butler, Royce Peeling Green, RMT, Rostron & Partners, Landin Wilcock & Co23 (23) iapa A 1,057 (949) 216 273 58 1,153 6,883 (5,098) Mar-11 UK: UK200Group, 10 independent member firms 24 (24) cpa associates international A 628 (910) 143 300 59 764 4,930 (5,850) Dec-10 UK: Ensors 25 (25) UHY international N 583 (630) 128 235 78 680 4,546 (7,000) Dec-10 UK: UHY Hacker Young, Campbell Dallas, UHY Peacheys, UHY Torgersens, UHY Wingfield Slater, UHY Calvert Smith

KeY: a Association N Network aiF Alliance of Independent Firms amN Association with some members classified as network firms. 2009 figures year end adjusted. 1Member firm year ends occurred throughout 2010, 2Year end 2010 participating firms, 3inc income UK200 Group firms with affiliate status

RaNK FiRm

mem

ber firms

partners

Fee income

$m 1

2010 (2009)

Year end

countries

offices

Status

professional

staff

top 25

InTeRnATIonAl neTWoRKs And AssocIATIons 2010 (2009)

20

cont

ents



FTSE 100 auditors survey n

As might be expected, last year was subdued in terms of fees generated by FTSE 100 auditors. The total fees paid by FTSE 100 companies for their 2010/11 audits rose only

very slightly by £2.6m, from £519.4m to £522m – a mere 0.5% increase on the previous year.

Fees for the main audit combined with audit-related work and non-audit work actually fell by 2.2% from £827.8m to £809.5m.

Audit-related fees suffered the biggest percentage drop, down by 18%. The fall almost certainly reflects the fact that as International Financial Reporting Standards (IFRS) beds down, the biggest companies have less of a requirement for advice on international standards. It is clear too that transactions requiring auditor scrutiny are fewer in number in persistently difficult trading conditions.

Fees earned for non-audit work fell by only 1.3%. This too is probably due to tough economic circumstances and a prevailing caution on the part of clients.

Stella Fearnley, professor of accounting at Bournemouth University Business School, says there is undoubtedly increasing fee pressure from clients: ‘When businesses are finding it more difficult to secure profits, they look at everything. The Audit Inspection Unit (AIU) is very interested to make sure that if a firm does put in a low fee, they will still audit to the proper standard. Low balling has become a matter of some interest.’

ChAnging fortunesSo how did individual firms fare in this year’s Accountancy FTSE 100 Auditors Survey? Deloitte gained a client in the 2010/11 reporting period,

under pressure

The Big Four continue to

dominate the FTSE 100 company

audit market, but fees

are being squeezed,

reports Liz Loxton

how ThE FirmS pErForm

AnnuAl Audit fee income (£m)

£m

PwC

2009

2010

2011

2009 20102011

2009 20102011

20092010 2011

224.

125

0

243.9

115.8 106.7

113KPMG

89.392.9 96

Deloitte

70

66.2 75.3

E&Y

250

100

0

50

15020

0

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.8

0.9

1.0

2009 20112010

BDO

21

cont

ents22




0

10

20

30

40

50

2007 2009 2011

38

2022

17

1

cliEnT numbErS

Audit clients per firm

0

20

40

60

80

100

British Sky Broadcasting Group

Imperial Tobacco Group

Vedanta Resources

WPP

Eurasian Natural Resources Corp

Kazakhmys

33

28

35

108

108

87

FTSE 100 average

60days

Signing oFF

fAstest And slowest sign-offs (dAys)

and Prudential, two of our biggest clients are examples. The nature and mix of their business is increasingly benefiting from growth economies,’ he says. ‘I think that is one of the drivers in terms of audit fees and of the developments in our FTSE 100 client base.’

He says KPMG’s 28% up-tick in non-audit fees demonstrates a greater demand for risk assurance services: ‘We are seeing an increased focus on assurance work as companies become more interested in being able to sleep easily in these difficult conditions.’

That said, firms are mindful of the way regulatory pressures are playing their part. Hywel Ball, assurance leader for the UK & Ireland at Ernst & Young, says he would not be surprised to see increased tender activity, given the level of regulatory interest. ‘If that happens, I expect we will also see more companies changing their auditor. In my experience, few companies make the investment to tender without appointing a new auditor at the end of the process.’

Competition And ChoiCeWhile the firms square up to the possibility of trading audits, in one important respect the results are remarkably static compared to last year. The only mid-tier firm represented is BDO.

Paul Lee, a director in Hermes Equity Ownership Services, says the market’s unwillingness to appoint outside the Big Four is a mystery to investors. ‘Clearly there are some businesses that are so large and so international that only the bigger firms can handle their audit requirements. But for every one of those, there is a smaller and more geographically focused company and from an investor perspective there is no need for those businesses to restrict themselves to the Big Four,’ he says.

The argument that bank covenants prevent companies from appointing outside the Big Four firms does not hold the weight it once does. ‘Increasingly companies are disclosing that

Auditors:n PwCn KPMGn Deloitten E&Yn BDO

Essar Energy, taking its client roster to 22. However, the firm lost income overall. Its audit fees were down 7% to £89.3m from £96m. Aggregate income from FTSE 100 clients was down 5%.

Ernst & Young enjoyed stable client numbers for the period and saw audit fees increase by a very healthy 14%, going from £66.2m to £75.3m. Its aggregate income fell very slightly by 0.4%, but its future financial year looks unsettled, given the loss of its second biggest audit client, Aviva, to rival PwC. Aviva brought the firm £25.6m in total fees.

KPMG’s clients remained the same at 20. The firm lost AMEC to Ernst & Young, but gained Capita from the same firm. KPMG saw a 6% increase in audit fees from £106.7m to £113m, but saw its biggest percentage gains in non-audit income, which rose from £33.4m to £42.7m or 28%.

PwC still has by far the biggest share of the market with 38 clients for 2010-11. Its fee income from audit fell 2.5% from £250m to £243.9m and its overall income from these clients was down 6% to £369m from £392.3m.

KPMG made the greatest overall gains at 7.6%, while PwC lost ground at 6%. If we compare the firms on audit fees only, Ernst & Young enhanced its position by the biggest percentage with its robust 14% increase. KPMG came next with a 6% gain in audit fee income. Then PwC with a 2.5% fall and Deloitte with a 7% fall.

‘We have seen an increase in tender activity. Our clients are very sophisticated and challenging on quality, scope and the price of our audits, and we do not see that changing in the foreseeable future. We are pleased to have maintained our market share,’ says Richard Sexton, head of reputation and policy at PwC.

Oliver Tant, KPMG UK head of audit, says FTSE 100 companies are part of a global business community rather than a national one, and that’s reflected in the firm’s results. ‘HSBC

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23




there are no restrictions. That is becoming a stock phrase in the audit committee report. That brings some comfort that this is not a substantive issue. Where there are bank covenants, we’d argue very strongly that they should be negotiated away,’ he says.

Arguments for ChAngeWith both the Competition Commission and European Commission gearing up to re-examine competition issues, arguments for change are becoming more pressing.

Steve Maslin, head of external professional affairs at Grant Thornton, says that firms like his can undoubtedly make their mark on big company audit but for an audit committee to make an appointment outside the Big Four at present would appear to be a step too far.

He believes audit committees could be encouraged to appoint mid-tier firms on a comply or explain basis. ‘It would be pretty simple from a regulatory point of view – without mandating anything – to encourage wider competition. It would only take around five to 10 audits a year changing to auditors outside the Big Four to give a very different landscape by 2015.’

Until such an intervention takes place, changes in audit appointments are likely to remain a shuffling of the pack.

AvivA ChAnges Auditors

In a year that has seen increased tender activity, Aviva made a shock move from Ernst & Young to PwC. The switch followed a competitive tender process, which firms and commentators agree almost always results in change. ‘It’s a huge consideration in terms of management time, not just during the tender, but afterwards as the new firm gets bedded down,’ says Stella Fearnley, professor of accounting at Bournemouth University Business School.

The company is known to be active from a corporate governance standpoint, an ethos that might have prompted the tender. Whatever the reason, Ernst & Young will lose one of its biggest audits, worth £15.5m in fees.

bdo retAins rAndgold

BDO became auditor of Randgold four years ago, when it won the business from PwC, making it the sole non-Big Four auditor of a FTSE 100 company. At the time, the $1bn (£613m) gold mining company was high in the FTSE 250, joining the FTSE 100 two years later.

‘[Randgold] have said that they value the contact with senior people, the short decision lines and focus on delivery,’ says Scott Knight, BDO lead partner on the company’s audit.

He believes there is absolutely no reason why BDO could not audit more of the FTSE 100 but that they repeatedly appoint Big Four auditors because of institutional bias. ‘Not wanting to be different is the biggest barrier we face,’ he says.

FTSE 100

in

African barrick gold

home retail group

cobham

cable & wireless

bunzl

Alliance Trust

Segro

ouT

hargreaves lansdown

Tomkins

Tate & lyle

resolution

iTV

imi

weir group

in And ouT

constituent members

Stella Fearnley, professor of accounting, Bournemouth University Business School

When businesses are finding it more difficult to secure profits, they look at everything. low balling has become a matter of some interest

0

200

400

600

800

1000

2007 2009 2011

FEE TrEndS

ftse 100 AnnuAl Audit vAlue (£m) Auditors:n PwCn KPMGn Deloitten E&Yn BDO

data for this survey supplied by manifest information Services. constituent members correct 1/09/2011. www.manifest.co.uk

n Statutory audit fees n Other fees

23

cont

ents

24




who audiTS who?

ftse 100 auditors survey

3i Group E&Y 1.7 0.2 0.5 2.4 1.7 3.2 31-03-11 11-05-11admiral Group KPMG 0.2 0.0 0.2 0.4 0.2 0.3 31-12-10 01-03-11aggreko PwC 0.54 0.0 0.33 0.9 0.6 0.8 31-12-10 10-03-11aMEC E&Y 1.2 0.0 0.6 1.8 1.6 2.3 31-12-10 03-03-11anglo american* deloitte 6.4 0.79 1.0 8.2 6.5 12.5 31-12-10 18-02-11antofagasta* deloitte 0.3 0.15 0.37 0.82 0.4 0.5 31-12-10 07-03-11aRM holdings PwC 0.24 0.5 0.22 1 0.5 1.3 31-12-10 28-02-11associated British Foods KPMG 5.1 0.4 3.7 9.2 4.7 7.9 18-09-10 09-11-10astraZeneca* KPMG 5.4 2 0.73 8.1 5.6 8.7 31-12-10 autonomy Corp* deloitte 0.93 0.4 0.35 1.68 1.1 1.6 31-12-10 22-02-11aViVa E&Y 15.5 3.1 7 25.6 13.4 34.0 31-12-10 BaE Systems KPMG 8.5 0.81 5.1 14.4 8.8 11.6 31-12-10 18-02-11Barclays PwC 38 3 15 56 35 52.0 31-12-10 BG Group1 PwC 2.5 0.18 1.9 4.6 2.9 4.1 31-12-10 11-03-11BhP Billiton* KPMG 8.2 3.3 2.1 13.6 9.1 15.5 30-06-10 07-09-10BP* E&Y 21.4 7.3 4.9 33.6 21.6 33.4 31-12-10 02-03-11British american Tobacco PwC 9.7 0.2 9.2 19.1 10.8 18.6 31-12-10 23-02-11British Land Company deloitte 0.5 0.1 0.5 1.1 0.6 1.5 31-03-11 22-05-11BSkyB deloitte 2 0.8 0.2 3 2.0 3. 30-06-10 28-07-10BT Group PwC 7.4 1.4 2.0 10.8 7.3 9.9 31-03-11 11-05-11Burberry Group PwC 0.2 0.1 0.6 0.9 1.7 2.8 31-03-11 25-05-11Cairn Energy* E&Y 0.77 0.34 0.45 1.56 0.8 1.0 31-12-10 21-03-10Capita Group KPMG 0.7 0.0 0.2 0.9 0.9 2.0 31-12-10 23-02-11Capital Shopping Centres Group PwC 0.28 0.0 2.2 2.5 0.8 2.1 31-12-10 23-02-11Carnival* PwC 3.1 0.0 0.18 3.3 3.2 3.2 30-11-10 31-01-11Centrica PwC 5.1 0.6 3.0 8.7 6.1 8.9 31-12-10 24-02-11Compass Group deloitte 3.6 0.1 1.7 5.4 3.4 4.9 30-09-10 24-11-10diageo KPMG 6.6 1.3 2.1 10 6.5 11.2 30-06-10 25-08-10Essar Energy deloitte 0.98 2 0.12 3.1 18-03-11Eurasian* PwC 2.7 0.24 0.98 3.9 2.8 3.8 31-12-10 18-04-11Experian* PwC 2.5 0.0 1.8 4.3 2.48 5.6 31-03-11 17-05-11Fresnillo* E&Y 0.96 0.0 0.0 9.6 1.1 1.1 31-12-10 G4S KPMG 6 1 0.4 7.4 5.3 6.3 31-12-10 14-03-11GKN PwC 3.7 0.1 0.7 4.5 3.9 5.8 31-12-10 28-02-11GlaxoSmithKline2 PwC 13.2 3.3 5.7 22 12.2 24.1 31-12-10 01-03-11Glencore international New IPO hammerson deloitte 0.5 0.2 0.1 0.8 0.5 1.0 31-12-10 21-02-11hargreaves Lansdown deloitte 0.1 0.0 0.0 0.1 0.1 0.1 30-06-10 08-09-10hSBC holdings* KPMG 30.1 12.7 5.1 48 29.8 49.1 31-12-10 28-02-11iCaP PwC 3.6 1.4 1.1 6.1 3.1 4.2 31-03-11 18-05-11iMi E&Y 2.6 0.1 0.3 3 2.5 3.3 31-12-10 imperial Tobacco Group PwC 4.9 0.0 1.0 5.9 5.0 6.9 30-09-10 02-11-10inmarsat* deloitte 0.67 0.0 1.6 2.3 0.1 2.2 31-12-10 07-03-11interContinental hotels Grp* E&Y 2.3 0.18 2.3 4.8 2.4 4.8 31-12-10 14-02-11intl Consolidated airlines Grp New IPO international Power KPMG 0.6 2.7 2.6 5.9 3.1 3.2 31-12-10 01-03-11intertek Group KPMG 1.7 0.0 2.2 3.9 1.5 2.3 31-12-10 04-03-11investec E&Y 6.2 1.6 0.88 8.7 5.3 6.8 31-03-11 15-06-11iTV KPMG 0.7 0.2 1 1.9 0.9 2.2 31-12-10 02-03-11J Sainsbury PwC 0.7 0.1 0.2 1 0.7 1.3 19-03-11 10-05-11John wood Group* PwC 1.5 0.0 0.98 2.5 1.49 1.6 31-12-10 18-02-11Johnson Matthey KPMG 1.5 0.1 0.5 2.1 1.4 1.9 31-03-11 01-06-11Kazakhmys* E&Y 1.65 0.12 0.36 2.1 1.5 1.9 31-12-10 28-03-11

CoMPaNY audiToRaudit fee 2011 £m

audit-related fee 2011 £m

Non-audit fee 2011 £m

Total fees 2011 £m

audit fee 2010 £m

Total fees 2010 £m

Year end 2011

Sign-off date

24

cont

ents

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Kingfisher deloitte 1.4 0.1 0.2 1.7 1.3 1.3 29-01-11 23-03-11land Securities group pwc 0.5 0.2 0.0 0.7 0.5 0.7 31-03-11 17-05-11legal & general group3 pwc 3.1 0.6 1.5 5.2 3.5 5.6 31-12-10 16-03-11lloyds banking group pwc 27.8 0 12.6 40.4 25.2 40.7 31-12-10 24-02-11lonmin* Kpmg 0.98 0.18 0.0 1.2 0.8 1.4 30-09-10 12-11-10man group* pwc 2.7 0.2 1.75 4.7 2.2 3.7 31-03-11 26-05-11marks & Spencer group pwc 1.6 0.1 0.7 2.4 1.4 2.2 02-04-11 23-05-11national grid pwc 5.8 2.1 2.7 10.6 6.5 11.0 31-03-11 18-05-11next E&Y 0.48 0.0 0.0 0.5 0.5 0.6 29-01-11 24-03-11old mutual4 Kpmg 14.1 0.1 5.9 20.1 12.1 14.9 31-12-10 08-03-11pearson pwc 6 0.0 4.0 10 6.0 9.0 31-12-10 07-03-11petrofac ltd* E&Y 1.2 0.0 0.37 1.6 1.2 1.3 31-12-10 04-03-11prudential Kpmg 8 2.4 7.1 17.5 1.0 6.9 31-12-10 08-03-11randgold resources ltd* bdo 0.44 0.0 0.0 4.4 0.5 0.7 31-12-10 14-03-11reckitt benckiser group pwc 4.5 0.0 1.5 6 4.1 5.4 31-12-10 11-03-11reed Elsevier deloitte 4.5 0.0 1.2 5.7 4.5 5.7 31-12-10 16-02-11resolution ltd E&Y 6.7 0.8 4.9 12.4 2.2 7.2 31-12-10 23-03-11rexam pwc 3.3 0.2 1.1 4.6 3.4 5.5 31-12-10 23-02-11rio Tinto* pwc 10.2 5.5 4.6 20.3 14.3 38.4 31-12-10 04-03-11rolls-royce holdings Kpmg 4.4 0.5 0.8 5.7 4.2 5.5 31-12-10 09-02-11royal bank of Scotland group deloitte 30 3.2 10.0 43.2 41.3 53.5 31-12-10 23-03-11royal dutch Shell* pwc 33.1 0.61 0.61 34.3 35.3 37.1 31-12-10 09-03-11 rSA insurance group deloitte 5.4 0.3 5 10.7 4.3 8.6 31-12-10 23-02-11SAbmiller*5 pwc 6.1 0.61 5.5 12.2 6.3 16.1 31-03-11 03-06-11Sage group pwc 2.1 0.0 1.5 3.6 1.7 3.6 30-09-10 20-12-10Schroders pwc 2.6 0.4 1.4 4.4 2.5 4.1 31-12-10 09-03-11Scottish & Southern Energy Kpmg 1 0.0 0.3 1.3 0.9 1.2 31-03-11 19-05-11Serco group deloitte 1.6 0.1 0.5 2.2 0.9 2.4 31-12-10 01-03-11Severn Trent deloitte 0.6 0.2 0.2 1 0.6 0.9 31-03-11 26-05-11Shire* deloitte 3.4 0.0 0.1 3.5 2.1 2.4 31-12-10 23-02-11Smith & nephew* E&Y 1.8 0.0 1.22 3 3.0 5.0 31-12-10 Smiths group pwc 3.9 0.1 0.6 4.6 4.0 4.5 31-07-10 28-09-10Standard chartered* Kpmg 8.4 1.4 1.8 1.7 8.2 12.2 31-12-10 02-03-11Standard life pwc 5.2 0.6 1.2 7 5.2 7.0 31-12-10 10-03-11Tate & lyle6 pwc 1.7 0.1 0.9 2.7 2.1 2.5 31-03-11 26-05-11Tesco7 pwc 4.3 0.1 1.6 6 4.1 5.3 26-02-11 06-05-11Tullow oil deloitte 0.73 0.12 0.92 1.77 0.3 1.4 31-12-10 08-03-11unilever** pwc 15.4 0.85 3.4 19.7 16.8 19.5 31-12-10 01-03-11united utilities group deloitte 0.5 0.1 0.7 1.3 0.8 1.4 31-03-11 25-05-11Vedanta resources* deloitte 0.92 0.42 0.69 2 1.2 1.8 31-03-11 05-05-11Vodafone group deloitte 8 1 1 10 8.0 10.0 31-03-11 17-05-11weir group E&Y 1.5 0.0 0.1 1.6 1.1 1.2 31-12-10 08-03-11whitbread E&Y 0.5 0.0 0.2 0.7 0.6 0.7 03-03-11 27-04-11wm morrison Kpmg 0.7 0.0 0.6 1.3 0.6 1.7 30-01-11 09-03-11wolseley pwc 3.7 1.2 5.5 10.4 4.9 13.4 31-07-10 27-09-10wpp deloitte 16.2 3.1 9.2 28.5 16.5 28.8 31-12-10 18-04-11Xstrata* E&Y 8.5 0.0 3.68 12.2 7.4 11.8 31-12-10 16-03-11

ToTAl 521.8 81.3 206.2 809.4 519.4 827.7

* Dollars converted at $1.63 ** Euros at e1.12 Constituent members correct at 1 September 2011. 1 Additional fee of £33,000 relates to audits of group’s pension schemes 2 Additional fee of

£400,000 for audit of pension schemes 3 PwC also received £53,000 for auditing pension schemes 4 Audit fees include £300,000 for auditing pension schemes 5 Also paid fees of $19m (£11.6m) to other auditors 6 Additional fees totalling £1m paid

for audit of group pension schemes 7 PwC also received fee of £100,000 for audit of main group pension schemeFTSE 100 survey data supplied by manifest information Services. www.manifest.co.uk

25

cont

ents

who AudiTS who?

ftse 100 Auditors survey

compAnY AudiTorAudit fee 2011 £m

Audit-related fee 2011 £m

non-audit fee 2011 £m

Total fees 2011 £m

Audit fee 2010 £m

Total fees 2010 £m

Year end 2011

Sign-off date

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