Smaller firms clean up as recession sees audit clients shun the Big Four

The Big Four are losing work to their smaller competitors in what could be an
emerging shakeup of the audit industry.

Medium and small accounting firms say they are going head-to-head with
industry heavyweights PricewaterhouseCoopers, Ernst & Young, Deloitte and
KPMG, and winning jobs that were once beyond their reach.

The firms claim cost pressure combined with a growing ambivalence from the
Big Four towards its smaller audit clients has created the opportunity for
smaller firms to win new work.

Melissa Bowers, partner with Macclesfield-based firm Harts LLP, points to the
Big Four’s practice of using senior partners to ‘seal the deal’ while leaving
junior employees to do the grunt work, which has alienated smaller clients.

This practice, combined with cost pressure, has driven audit clients into the
arms of local firms. She has won work from clients who employed the same auditor
for more than a generation.

‘We did have a case where the client had been with one of the Big Four for
35-years,’ she said.

‘It is possibly smaller work for them and they are possibly not giving them
the same priority and attention.’

Michael Good, partner at Oxford-based firm Critchleys, said that he believed
smaller clients are no longer willing to fork out money for a big brand name
firm.

‘They are asking themselves “do we need to pay the premium?” and “what are we
getting for the premium?” and they are saying “actually not a lot”,’ he said.

‘Up to £20,000 for a big firm is not a big audit.’

Colin Howe, the vice president of the UK200 group and managing principle with
Hillier Hopkins, said he had bid for contracts which, three years ago, did not
exist.

‘For every three tenders we do the firm may only ever end up changing
advisers once… but a few years ago we may not have had the oppourtunity to
tender,’ he said.

‘The recession has opened people’s eyes to the fact that there is a viable
alternative to the Big Four.’

He believes a fall in companies wanting to go public was one reason why the
Big Four were suffering.

‘Historically, firms have gone for a Big Four where they are looking for a
flotation and fundraising, and they have been told by finance advisers or nomads
[nominated advisers] that they can add pence to their share price by having a
better name on the audit report, but I think now the cost element is becoming
more prevalent,’ he said.

Last week John Flaherty, Ernst & Young’s audit chief, said he had seen
the biggest jump in audit tendering in a decade.

‘The current economic situation is creating a significant amount of audit
tendering,’ he said.

‘We are seeing more driven on the grounds of price and [potential clients]
asking if we can reduce the audit cost.’