Top 50: road to where?

Apparent dwindling confidence in the UK and global economy has done nothing
to zap the power of the juggernaut that is the accountancy industry.

With double digit growth across the Top 50 firms of an average 15.5%, the
negative outlook for British industry is doing little to flatten accountancy.
Nor are there any signs of future unwanted effects.

Growth in the sector now and for the future is a clear dead cert, according
to Accountancy Age’s 2006 Top 50 survey, the definitive study of the UK
accountancy industry.

Combined fee income in 2006 for the Top 50 firms has steamed ahead to reach
£7.62bn, an emphatic 13.1% increase on last year’s total revenues of £6.72bn;
which in comparison rose a mere 6% on 2004 figures.

Again, the lion’s share of revenues comes from the Big Four firms. Total UK
fee income for the Big Four increased to £5.5bn, a jump by the not insignificant
figure of £700m compared to last year’s fee income (£4.8bn).

Just as significant is the dynamic growth rate among firms outside the Big
Four, driving ahead at 15.7%. The fluidity at the lower end of the league table
is represented by this year’s new entrants and their phenomenal growth rates,
notably MGI Wenham Major, which has stormed into the Top 50 with a growth rate
of 248%, and Target Consulting Group, which grew at 130%.

Despite the firms’ powerful performance, certain findings persist to
potentially pose long-term problems. Again, our research shows that women are
still not attaining partner level, whether this is by their design or otherwise
remains unclear.

The lack of female partners – the average figure remains abysmally low at 9%
– however is even more surprising when you consider that the average figure for
female qualified accountants among the Top 50 is 37%. Where are these bright,
young women disappearing to? Among the Big Four firms this figure is the same,
but the average for female partners was slightly higher, but still questio
nable, at 12%.

If you consider that recruitment and retention costs are one of accountancy’s
largest expenses, not to mention headaches, it does beg the question – are firms
doing enough to keep women within the profession once they have trained them,
and if not why not, as the main losers are ultimately the firms?

The percentage of ethnic minorities as partners is also worryingly low. Few
firms provided figures for the number of qualified accountants who consider
themselves ethnic minorities. Those that did submit figures exposed a mixed bag
of results, with PwC putting its qualified accountants from ethnic minorities at
44.7%. The rest of the few firms that divulged this figure showed figures
ranging from 25% (Haslers at number 41) to 2% (Kingston Smith at number 20).

Last year’s concerns that endemic recruitment problems could stymie growth
across the Top 50 firms haven’t materialised. But attrition rates seem unusually
high for the profession – some firms suffered with rates as high as 27%. However
recruitment consultants say it is a difficult figure to gauge given the high
turnover of part qualified accountants.

It means the recruitment market remains healthy across the industry despite a
slight slowdown on ‘unrealistic’ recruitment levels of the previous 18 months
due to the influx of work introduced through the Sarbanes Oxley Act,
International Financial Reporting Standards and a range of other national and
global regulatory and legislative developments.

Mark Freebairn, executive recruitment consultant at Odgers, Ray &
Berndtson, says: ‘The market is still pretty aggressive. There’s still the
effect of more commercially involved finance function. Practices know they will
be losing people to industry so the firms will recruit more. The role of finance
is evolving hugely. It’s a more powerful member of the business now.’

Expectations are confirmed as our research shows almost all of the Top 50
firms expect to recruit more this year.

Interestingly, PwC was the only Big Four firm to reduce partner numbers
compared to last year’s figures. The others increased their partner numbers,
albeit modestly. In contrast, firms have expanded their ranks of professional
staff quite significantly with PwC increasing its headcount by 1,140 compared
with last year’s staff of 10,549. Deloitte and Ernst & Young increased staff
headcount by more than 700.

Among the mid-tier firms the picture was mixed with the larger firms having
boosted their headcount significantly, while most only upped their numbers
slightly. Some reduced theirs. Grant Thornton increased its professional staff
numbers by 96 and BDO raised its by 200, while RSM Robson Rhodes decreased its
staff by 86.

Other findings show the partnership structure remains the most popular with
44% of the Top 50 remaining as partners. But the limited liability partnership
option is catching up with 42% of firms opting for the new restricted liability,
4% are public companies and 4% are limited.

To highlight the full extent of just how much IFRS work has bumped up profits
in the past year, PwC, the only firm to reveal statistics, raked in a whopping
£100m from advising on international standards. This could indicate that the
largest firm either stole a march on the others to monopolise IFRS or the others
are slower or less willing in compiling their breakdown on fee income.

Revealingly, the majority of firms are now part of a global network rather
than an international firm – the more traditional way of marketing firms, until
the collapse of Andersen, the former member of the exclusive club of Big Five
firms.

Grant Thornton also rapidly re-marketed itself into a network rather than a
partnership to ring fence liability claims following the discovery of widespread
management fraud at Italian dairy giant Parmalat, which was audited by the
Italian arm of Grant Thornton.

The only firm that now considers itself an international firm among the
mid-tier is Mazars. The legal change is primarily to limit liability.

Growth has never been more dynamic for the profession with double digit rises
and fluid capital markets resulting in strong future prospects. Yet again the
profession fails in ridding itself of the reputation of being the domain of
white, male middle class professionals – a woeful picture given that nowadays
most have a diversity policy and many have dedicated diversity directors.
Diversity should by now be much more apparent.

Additional research by Chen Zhu