Audit firms feel the squeeze as competition ramps up

Companies have begun to review their audit contracts in an effort to cut
costs in response to the economic downturn, senior audit figures have reported.

Companies re-tendering for audit contracts have invited more mid-tier firms
to apply, increasing competition, some audit heads have claimed.

However, the increased competition in the audit market could have a negative
affect for accounting firms ­ a possible reduction in audit fees.

‘We are finding that the current economic environment is a change event and
people are reviewing their relationships, in particular with auditors,’ said
Giles Murphy, director, national head of assurance and business services,
Smith &

He added: ‘People are looking for more value and more for the price they are
paying. That is creating opportunities for us.’

Phil Crooks, head of audit at
Grant Thornton,
said: ‘We have seen an upturn in the number of chances to tender from a wide
range of companies. It’s difficult to tell how many are genuine or benchmarking
but the indication is that they aren’t happy with the service or price they are
getting. Clients are putting pressure on fees and looking for fee reduction.’

However, Richard Sexton, head of audit at
PricewaterhouseCoopers, said
audit was as busy as ever.

‘Most companies are more sophisticated than to look just for a low cost
proposition,’ he said.

‘They are looking for cost and value. There will be some tough commercial
discussions with clients but there are always those discussions in any
environment to get the value proposition right.’

The possibility of a reduction in audit fees, which have risen above
inflation since 2001, however has not been ruled out by some in the profession.

Oliver Tant, KPMG’s head
of audit, said: ‘Corporates are rationalising their businesses so that could put
a downward pressure on audit fees but the complexity of what they are dealing
with could also put an upward pressure on the need for auditors.’

Nonetheless, finance directors looking to reduce costs may argue that, with
less major changes to finance this year compared to the past five years and with
the introduction of IFRS and
audit fees ought to come down.

‘If finance teams have improved efficiencies, then the real discussion is
about if there are opportunities to do the work more effectively in less of a
change environment,’ says Vincent Niblett, head of audit at Deloitte.

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