League of their own

Chelsea dominates football, and competition is limited to a handful of
football teams with big budgets.

Apart from the occasional upset, only Manchester United, Arsenal and
Liverpool are now able to challenge the mega-rich West Londoners. With only four
teams at the top of the Premiership, it is difficult to see how any other club
is going to break the grip of the ‘Big Four’.

Sounds familiar does it? The Big Four of accountancy also appear to have it
sewn up. They have 99% of the FTSE 100 business and, with Ernst & Young set
to break the £1bn revenues barrier and join the other three, they appear to be
disappearing out of sight.

E&Y’s development takes place even as the DTI prepares to release
findings on whether there is a lack of competition in the audit marketplace. But
mid-tier firms are also concerned that the government is contributing to the
lack of auditor competition.

Audit fees surged a staggering 15% last year, with the Big Four firms taking
£636.2m of the £636.5m paid by the FTSE100 companies to their auditors.
PricewaterhouseCoopers topped the table with £259m, followed by KPMG with
£163.3m, E&Y with £109.3m and Deloitte with £104.6m, according to figures
from the annual audit fee survey compiled by Accountancy Age’s sister
publication, Financial Director.

The only mid-tier firm with a FTSE 100 client is BDO Stoy Hayward, which
audits the books of Party Gaming Plc, and that was for a specific reason ‘We got
them as a client because we have more expertise than anyone else in the gaming
sector,’ says Jeremy Newman, managing partner at BDO Stoy Hayward.

He believes that the mid-tier will never have a significant presence in the
FTSE100 on the audit side. ‘It is not because of a lack of ability, it is
because there are prejudices that exist within the City. The major companies
have pre-conceived notions that only the Big Four can handle them,’ Newman

The DTI commissioned consultancy firm Oxera to assess the barriers to entry
at the high end of the audit market, as well as the appetite among the mid-tier
firms to compete against the Big Four for audit work.

But Jeremy Boadle, head of audit and business services at Smith &
Williamson, believes that the government needs to change its own attitude
towards the mid-tier.

‘I think the government could start buying from a broader base of accounting
firms. The government bodies and departments tend to take accounting advice from
the Big Four,’ he said

This follows allegations from Labour backbencher Jim Cousins that the Big
Four are exerting influence over the government’s decision-making arrangements
limiting the liabilities of the top accountancy firms.

Cousins has obtained figures revealing how much the Treasury pays to the Big
Four in consultancy fees, and he pledged to table questions to other government

The dominance of the Big Four is obviously a hot topic at the moment. Their
stranglehold on the major audits has seen the gulf between them and the mid-tier
widen further.

Despite that, the mid-tier firms still believe they can gain greater control
over the FTSE350 and below.

‘There is much greater likelihood of companies switching allegiance on audit
and tax matters at the FTSE350 level and downwards. Many of these companies
would be better served and supported by an accountancy firm that can provide
more partner time at a cheaper cost,’ Boadle said.

With some Chelsea fans complaining that they preferred the old days when
their team was struggling to make a mark, perhaps likewise in accountancy, small
can be beautiful.

To see how the firms stand, see

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