Audit services: top to bottom

Last autumn, Accountancy Age and Financial Director conducted a study of
audit firms’ service to their clients. From 635 financial directors, CFOs and
financial controllers – a representative cross-section of UK plc – we gathered
confidential input on the firm that had handled their last audit.

Each respondent graded their auditor on five distinct aspects of service (see
methodology, p14). Respondents could also add their own frank background
comments. This – probably the largest such independent study carried out in the
UK to date – generated solid performance scores for the leading 12 audit firms.

The results are no mere curiosity. They hold cold, hard implications for
clients and auditors alike. Service performance reveals much about a firm’s
capabilities, human capital and future viability. With embattled clients turning
the screw on overheads, the standard of audit firms’ services needs to move into
line with their bills.

Top of the Class

It was one of the smaller firms on our list that proved the most popular with
its clients. Mazars scored best overall, with a satisfaction score of 73%. On
all five aspects of service, Mazars ranked among the top three firms, coming in
first for Accessibility & Communication and for Initiative & Added
Value. In general, clients found Mazars readily-contactable, well-organised and
responsive. “We knew in advance when the partner would be available and they
stuck to it,” said a financial controller at a small retail business. “At the
manager level and below, they were very accessible.”

Most found Mazars technically strong and commercial-minded too. “Junior audit
staff changed during the year, but quickly picked up the quirks of the
organisation,” reported a CFO at a business services firm. “They understand our
business perfectly and really put effort into understanding the way we work,”
said an FD at a manufacturing firm. “They highlighted areas for improvement and
helped create procedures for that improvement.”
Second overall was Horwath Clark Whitehill, with 70%. Better-than-average in all
areas, Horwath’s most striking performance came in Transparent & Fair
Billing, where it ranked top, beating the market average by 9%. Clients found
Horwarth bills reasonably clear, relatively good value for money – and notably
lacking in nasty surprises.

Third – on 69% – was Grant Thornton, recording good results in all areas.
“There was always a number to call, messages were responded to and communication
of technical aspects was clear and easily followed,” said the financial
controller at a telecoms business.

Others described “impeccable” technical skills – often among even relatively
junior staff – plus impressive industry knowledge and a “pragmatic approach”
that quickly locked onto the key risks in a business. Though not all were happy
with Grant Thornton’s billing, most clients found its fees reasonable. Some even
thought the firm had under-charged them.

Grant Thornton got some good reports on value-added, too. “The partner and
audit manager are both in contact during the year and are very approachable,”
said the FD at a manufacturer. “They provide a sounding board for finance and
business issues.” The FD at a construction firm said Grant Thornton’s management
letter had brought up useful non-accounting points. “They had used lateral
thinking, which really added to the ‘boring’ audit meeting.”

Fourth overall came BDO, on 68%, but it ranked only seventh on value-added.
“Slow to get going on initiatives or added value,” said the FD of a sizeable
consultancy business. “This is an area they could improve in.” On technical
skill, however, BDO ranked second: clients found staff “well-trained”,
“well-educated” and with a strong grasp of technical topics. “Technically very
sound,” said the FD of an engineering firm, “especially for a group structure
and for corporate tax.”

Where BDO really excelled, though, was on Understanding the Business, topping
the ranks. To judge by comments, BDO really seems to do its homework on a
client, allocate staff that fit – and keep practical records, so that hard-won
knowledge isn’t lost when personnel change.

“After their pre-acceptance ‘know your client’ procedure, BDO selected only
key audit team members with the right business expertise,” reported an FD at a
large-ish business services company. “Understanding was very good,” said
another, at a mid-sized media firm. “There was obviously quite a good set of
background information in the files.”

The Middle Ranks

PricewaterhouseCoopers – the most-used firm among our respondents – ranked
fifth but came out as the leading Big Four member. In most areas its results
were mid-table and client comment varied widely. But with “huge back-office
resources” on tap, PwC claimed the top spot for Technical Skills. Clients found
PwC people “quick”, “proficient”, “consistent”, “knowledgeable”,
“fully-competent’, “up-to-date with all new developments” and able to cope with
anything. “All members of the team had excellent technical skills and their work
was of a very high standard,” said the FD of a logistics firm.

Several also praised their ability to impart knowledge, give “clear guidance”
and offer practical solutions. “They were able to apply relevant standards,”
said a property sector FD, “and communicated their interpretations well.”

Tenon, sixth overall, impressed on Accessibility & Communication (2nd)
and on Understanding the Business (3rd). “Excellent understanding from the
manager and partner,” said an education sector FD. “The team come well-briefed.”

But Tenon fell down on Initiative & Added Value (9th) and on Technical
Skills (10th). “After at least ten years doing the audit, the audit manager
seemed to have some difficulty understanding the difference between general
capital and accumulated income,” reported the CFO at a charity. “We ended up
teaching them about accounts and payroll. Shocking,” said an FD in education.

Haines Watts – seventh overall – performed even worse on Technical Skills,
ranking 11th there. “I had to make numerous corrections to the statutory
accounts they prepared,” said the financial controller at a heath-care business.
“We called in their VAT expert to help with an HMRC investigation and quickly
discovered that they had even less understanding of the technical issues than I

Still, Haines Watts scored well for Initiative & Added Value (2nd). “They
usually suggest ways that we can do things to reduce the audit bill the next
year,” reported the CFO of a small manufacturing business.

“Comments on controls, fraud risk and tax ideas have all been on their
initiative,” said the FD at a property developer.

Eighth-placed Baker Tilly was fairly strong on Understanding the Business
(4th). Clients reported that they had “come up to speed really quickly” and
“understood the key issues facing our industry”. Staff “really do understand our
objectives and this helps in ensuring their approach is commercial,” said the FD
at a services firm. An FD in telecoms noted “a definite improvement” over the
past two years in Baker Tilly’s ability to “understand the real world as well as
the technical audit”.

But on Accessibility & Communication and Fairness & Transparency of
Billing (both 10th), Baker Tilly did less well. “Extras seem to be billed very
aggressively and the quality of work is low so it does not feel like good
value,” said the FD at a construction company. One client reported being billed
£700 for a phone call – another, getting blindsided by an extra 50% in
“supplementary” fees, on top of the agreed audit charge. Many more had similar
stories. Said one financial controller: “We felt the billing was just what they
thought they could get away with.”

KPMG ranked ninth, with 65%. Its best performances were in Technical Skills
and on Billing (both 7th). “Technical skills were good,” said the FD in the
pharmaceuticals sector, “but sometimes were too focused on rigid interpretation
of a standard, before understanding the commercial reality.” Client comments on
billing reflected frustrations with high “disbursements” and surprise bills for
extra work and over-runs – though others rated KPMG quite competitive by Big
Four standards.

On Added Value, however, KPMG really bombed, coming in 11th of 12. Of 54
remarks from KPMG clients here, 34 were negative – and only seven wholly

“They had good technical skills but showed low added-value when using them,”
said the financial controller at a foods producer. The FD at a financial
services firm agreed: “Given the £100k cost, there was very little constructive
feedback on potential improvements or suggestions on how to run and control the
business better.”


Bottom Quartile

Deloitte ran in tenth overall, on 64%, landing in the bottom half of the
table on every aspect of service save Transparent & Fair Billing (6th).
Initiative & Added Value (10th) was a notably weak area. Despite some
positive reports, many clients said Deloitte showed a “mechanical”, “tick-box”
mentality and focused mainly on “form filling and risk-avoidance”. Rather than
“delving deeper to understand the underlying drivers and associated risks of the
business,” said the FD at a large investment business, Deloitte “gave the
impression they were more concerned with gathering enough evidence to stand up
in court with a defence if there were ever a negligence case.”

The CFO at a mid-sized manufacturer rated Added Value “probably the most
disappointing area with Deloitte.” He would have an easier time justifying a Big
Four audit fee, he said, if Deloitte would show more initiative to “pass on
their wealth of knowledge to support their clients in these difficult times”.

In 11th place was PKF, with 63%. With PKF’s scores falling two or three
points below average in most areas, client comment was less about big failures
than of slight mediocrity, in the form of indifferent communications, resourcing
issues, delays, unimpressive junior personnel and uninspired service. “Staff
seemed to treat audit as a routine to get through,” said the FD at a sizeable
charity. “We are going through a period of considerable change and this was not
reflected during the audit.”

Last came Ernst & Young, which scored 56% overall, seven points below any
other firm; ranked last on all five aspects of service; and recorded the worst
ratio of positive to negative comment in every area.

Among 193 client comments on E&Y’s service, negative reports outnumbered
positive two to one. Many complained of poor communication and project
management, inadequate resourcing and scant access to seniors. Below partner
level, E&Y personnel could be “pretty dire”, short on technical knowledge
and confidence. “We got sidetracked on basic issues and wasted time,” said the
CFO at a financial services firm. “Interpretation and application is lacking.”

Some clients reported a “friendly but professional” service from “some great
people”, particularly at partner level. But others complained of “constant”
referrals to Ernst & Young’s technical department, causing delays. “Senior
team members have very good technical skills,” said the financial controller of
a large leisure business. “The problem is when junior team members are left on
site without guidance and end up asking the client questions they should be
resolving within the team.”

Several clients pointed out misfires on their audits: “gave incorrect
information”; “they missed a material error”; “clear gaps in technical areas of
banking”; “audit of tax figures demonstrated carelessness or that basic
knowledge was lacking”; “poor knowledge of SSAP 21 was particularly concernin

Feedback on billing was no better, with 20 negative comments to nine
positive. “Received a ridiculously over-budget invoice during the wrap-up
meeting, with no previous communication,” said the FD of a logistics firm. “They
put every audit inefficiency cost on the invoice as if it was the client’s
fault.” Some E&Y teams served clients well, but the general impression was
of a firm more focused on internal concerns than on its clients.

Key Lessons

What have we learned in this brief overview? Service, it seems, can vary just
as much within audit firms as among them.

Quality of individual staff assigned, length of the relationship and the
specific demands and perceptions of the client are all huge factors. Be that as
it may, we got a clear overall service ranking: Mazars top, Horwath second,
Grant Thornton third; PwC best of the Big Four; and E&Y floundering – for
2009 at least – in last place


Between August and October 2009, 635 FDs, CFOs and financial controllers –
each a reader of Accountancy Age or Financial Director – completed an online
questionnaire addressing the service they got from their audit firm. Respondents
were instructed to grade the firm that had conducted their last completed audit,
on each five distinct aspects of service:

* Accessibility & Communication
* Technical Skills
* Understanding of our Business
* Transparent & Fair Billing
* Initiative & Added Value

All input was confidential but each response was carefully checked and
verified. For each ‘Excellent’ grade, an audit firm received four points. A
‘Very Good’ was worth three points, a ‘Fair’ grade two points and a
‘Disappointing’, one. When the results were in, we totalled up each audit firm’s
points score for each aspect of service – then divided it by the number of
client respondents contributing to it, to produce an average performance score
(from the maximum four points) per client. We then multiplied that by 25 to p
roduce a score out of 100.

Using these percentage scores, we calculated rankings for the 12 most-used
audit firms, for each of the five distinct aspects of service listed above – and
for service overall. This overall service ranking is the one published here. The
firms in it vary in size, capability and clientele – but CFOs and FDs are
well-qualified to decide for themselves the peers against which any given firm
should rightly be compared.

Numbers, of course, only go so far. So to add muscle to the basic data, we
also asked clients to remark freely on their audit firm’s performance. In
addition, we gathered basic background information – including each respondent’s
business sector and the size of their company/organisation – plus further frank
commentary on a range of topical accounting and general service issues.

This was a hefty study. Our 635 respondents – every one a FD, CFO or FC, and
all audit clients – contributed some 2,810 service grades and well over 2,000
audit service comments. The 88 clients who used PricewaterhouseCoopers, for
instance, provided 440 gradings and 379 comments on different aspects of PwC’s
service. Even Horwath Clark Whitehill – the least-used audit firm in our
rankings – attracted 75 ratings from 15 different client CFOs and FDs. The
average audit firm in our 12-strong table had 43 client-respondents providing
around 215 distinct service grades.

Are these results reliable? Yes, they are. The 2010 ranking, of course,
remains to be seen. Results for a fresh, enhanced and expanded edition of this
study will be coming out around the end of the year.

Peter Joy has written, researched and consulted on business and
professional services for 16 years and now heads Finance 360, an Incisive Media
insight unit.

Further reading:

Big Four audits are off the

Related reading