PracticeAuditTop 50 – Cap or no cap, firms want their bread and butter

Top 50 - Cap or no cap, firms want their bread and butter

The largest firms have constantly warned that, unless a liability cap is introduced, it may no longer be in their interests to perform audits - traditionally their bread and butter work. The question at the centre of this heated debate is whether the risk involved in undertaking an audit is still worth the returns.

This argument seems to hold little sway when the figures from this year’s Top 50 are studied. Many of the firms would struggle to cope without the fundamental fees from audit, despite concerns that the Big Four could become a Big Three in the event of catastrophic litigation.

Take PricewaterhouseCoopers, for example. Once again the firm is top of the pile and this year, for the first time we have the opportunity to see a breakdown of its fee income, because of its recent change to LLP status.

PwC has been one of the loudest voices in the liability cap debate. When you look at the figures, it’s easy to see why. At £757m, more than half of its income is generated by its audit arm, and despite a fall of 5% over the year, it outperforms the firm as a whole with total fee income down 7%.

It would be hard to envisage the firm cutting off its most important income stream, no matter what decision the government makes over further protection for auditors.

The same applies to the rest of the Big Four. While audit accounts for a smaller proportion of the income compared with PwC, it is by no means insignificant. Audit brings in just below 30% of total fees for Deloitte and KPMG, while Ernst & Young’s audit work brings in roughly 40% of the bacon. All three saw solid, growth in their audit business.

KPMG will be especially grateful for the work of its audit partners.

The firm reported a 9% rise in audit fees during a period where total fee income dropped 1%.

Only Deloitte, which experienced larger growth in tax, consultancy and corporate finance, would possibly be in a position to consider dropping audit work, if a liability cap didn’t get the go-ahead.

Outside the Big Four, there were generally solid performances in audit from the rest of the Top 50. Only a small handful of firms registered a decrease in the amount of money taken for audit work. By contrast, several firms saw significant jumps in their audit takings.

Publicly listed consolidator Vantis saw its audit incomes jump by a fifth over the year, to stand at £6m, which helped it climb three places in the poll to number 21. Other strong performers were Essex-based firm Haslers, which enters the Top 50 after missing out last year, and saw audit fees rise by 22%, and AGN Shipleys, whose audit income grew by 22.2%.

Despite audit gaining a reputation as a loss leader over the years, it remains the staple of the business operations for the vast majority of firms. When a decision is finally made over the liability cap, it is unlikely to sound the death knell for audit work.

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