PracticeAccounting FirmsTop 50: Wanted – money, women and a leg up

Top 50: Wanted - money, women and a leg up

For the first time since the Top 50's launch, accountancy is in recession, but that's not the only thing that should be worrying partners.

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and click here for the abridged 2003 Top 50 table.

Last year’s Accountancy Age Top 50 League table threw up some interesting developments. Most importantly was the rise of Deloitte & Touche into second place following the acquisition, or rather asset transfer, of much of Andersen’s UK business and partners.

So in comparison to last year’s shake up, and despite a few movements here and there, nothing so seismic appears initially to have affected this year’s table. On closer inspection, however, that’s far from the case.

According to the information supplied, and for the first time since Accountancy Age began compiling the table six years ago, the total fee income of the UK’s Top 50 firms has dropped year on year. The fall is a massive £432m – a 6% drop from £7017.1m. And the Big Four has taken the biggest hit.

Also, for the first time we asked firms to give us the male/female split among partners. The results are shocking and revealing, with the average male/female ratio standing at 91.9% to 8.1% respectively.

Although there appears to be a greater number of minus signs spread throughout this year’s table, the mid-tier and smaller firms have in fact collectively grown by 7.6% and 11% respectively. In contrast, the Big Four’s fee income has dropped by 9.5%, some £557.7m.

This can only be partly attributed to PricewaterhouseCoopers having finally sold its consulting arm.

A number of factors are clearly contributing to this fall among the Big Four, such as falling partner numbers and perhaps the knock-on effects of reputational damage in the wake of the Enron debacle.

But the greatest cause of this drop is the global economic slowdown, which has greatly affected the corporate finance service line of all of the Big Four.

This is the service line in which the firms had been investing large amounts of time, money and resources over previous years, only to see it badly damaged by the collapsing stock markets.

That said, many of the firms’ chief financiers have been sneaking into the lower end of the market, picking up many of the smaller deals that would normally go to the mid-tier. This in turn has had a knock-on effect on the corporate finance arms of the mid-tier firms.

Grant Thornton, BDO Stoy Hayward and Baker Tilly all saw sharp falls in their corporate finance fee income.

However, slightly offsetting this loss of business for the Big Four was the rise in insolvency work.

Deloitte saw a 60.9% growth rate in insolvency, but its figures did include corporate finance and forensic work.

KPMG experienced a more modest rise of 12.8% bringing in £82.2m worth of insolvency work.

Indeed, excepting Deloitte’s phenomenal UK growth rate at 33.3% (the rise is due to taking on much of Andersen UK), the rest of the Big Four firms’ growth rates are all well below 5%, with PwC experiencing a rise of just 1%.

In fact most of the Top 50 firms’ growth rates, with the exception of one or two – namely Smith & Williamson with a rise of 43% – are mostly single figure rises.

Smith & Williamson’s exceptional growth rate is, however, attributable to its merger with NCL (Securities) in December 2002. The merger increased the firms’ fee income by £26m, taking it to a total of £99.6m and straight into ninth place.

Surprisingly, many firms are still not forthcoming with a breakdown of how their fee income is made up. Given the spotlight focused on the industry over the past two years – in the wake of those US accounting scandals – we would have thought that any reticence would be pushed aside in favour of transparency, openness and, above all, a willingness to prove doubters wrong.

Alas no, and it seems we will have to bide our time until most accountancy firms move over to the LLP status to get the full picture of a traditionally closed industry.

This particular shift to LLP is one of this year’s noteworthy points.

In September, PwC, the world’s largest accountancy firm, will for the first time publish UK figures.

PwC became an LLP on 1 January 2003. As part of the extra protection, LLPs must publish full country accounts. So this will be the last year in the Accountancy Age Top 50 League table that no breakdown in fee income appears for the Big Four firm. About time too.

At least seven of the Top 50 firms have converted to LLP status, with more than 10 abandoning the traditional partnership structure in favour of other setups, such as public limited or limited companies.

Also striking is the changing face of the consolidator. While two years ago insiders, as well as observers, were predicting great things of them, this year has been a tumultuous but interesting one for the UK’s three consolidators Tenon, Vantis and Numerica.

From promising beginnings, Tenon reported at the start of April a loss of £114m for 2002. The company’s share price also plummeted. Numerica and Vantis, on the other hand, have so far enjoyed relatively stable times.

Share prices have fallen, but not nearly so shockingly as Tenon’s.

In short, this past year has given the industry much time to think about where it is going and how to claw back its coveted reputation.

It is currently treading water, hopeful of better times ahead. Firms are tweaking departments here and there, shutting some down, while padding out others. The biggest firms are suffering, but they are also quietly positioning themselves to be ready for signs of an upturn.

The view of BDO managing partner Jeremy Newman, who oversaw the transformation of his firm into a national one this year, is typical. He says: ‘We want to make sure our business is ready for the future, and up and ready to run.’

Accountants have not only had to contend with the economic slow-down and all of its knock-on effects, but also the negative, and to a certain extent destructive, impact that resulted in the collapse of Andersen.

This year’s results proves just how hard it’s been and the battle’s not over yet.

  • The Top 50 was compiled by Michelle Perry, based on the results to a questionnaire circulated in May 2003.

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