News Analysis - Dumping the auditor.

When a survey reveals that SMEs can obtain an average 35% price reduction when they retender their audits, it shows that companies are quick to look elsewhere when they feel the service they are receiving is not good enough.

Of the businesses in the Kato Consultancy survey which put their audit out to tender, four were being served by Big Five firms. Of those four two finally gave their work to mid-tier firms while the others chose other Big Five firms. In total, 42 companies with turnovers between #5m and #25m were questioned which revealed great unhappiness with the cost and quality of services on offer.

From the total of 37 companies which gave their audit to new firms, an average cost saving of more than a third was achieved. Cutting 35% off audit fees is nothing to be sneered at and the action of the companies reveal their readiness to search for a better deal, showing little loyalty and how competitive the marketplace has become.

Even the Big Five are not immune and reputation is obviously key to hang on to audit and consultancy work when SMEs are not happy.

And, according to Phil Shohet, Kato director, these are businesses that need to be nurtured as clients. While their turnover may range only from #5m to £25m, they are, he said, the kind of companies that turn into multinationals in time.

Then again of those trading up to buy audit services from the Big Five one of the main considerations seemed to be not the price or quality of service, but the prestige of being linked with such a big professional services outfit.

One company felt forced to change on flotation because they had been advised they needed to be linked to an ‘international name’. A director said: ‘Boy did we pay for the privilege’.

Of the companies questioned using mid-tier firms only two traded up to use the Big Five. Half moved to other mid-tier outfits and the rest actually moved to small firms.

Of the 17 companies with small firms questioned three moved, skipping the mid-tier completely and moving straight to the Big Five for services.

Eight businesses traded up to the mid-tier and six went to other small firms.

Closely tied to the audit is the provision of other value added services.

While audits may have been overpriced SMEs felt extra services were not adequate and quality remained an issue.

Indeed 82% of businesses said the range of services was second to cost when deciding to seek another provider. Quality was cited by 74% of the companies as a major reason for putting work out to tender.

Respondents were asked to list the additional services they expected auditors to provide. Business planning, profit improvement, wealth protection, tax mitigation and raising finance came out as the top five.

A telling remark came from one businessman who said: ‘Audit is a necessary evil and so long as it is done well I don’t care who does it. I need an accountant who understands my business and can run with me, not instruct or observe.’

Shohet says: ‘Cost is important to most companies with substantial reductions in audit fees being obtained by going to tender.

‘But of equal importance is the ability of the professional firm to be a true business partner with a range of added value services to meet their need for a highly personal service.’

ADDITIONAL SERVICES EXPECTED FROM AUDITORS IN ORDER OF IMPORTANCE

1. Business planning

2. Profit improvement

3. Wealth protection

4. Tax migration

5. Raising finance

6. Proprietor issues

7. Family business dynamics

8. Acquisitions, mergers & disposals

9. Retirement

10. Compliance

MOST COMMONLY STATED REASON FOR GOING TO TENDER IN ORDER OF IMPORTANCE

Reason: Number (%)

Cost: 38 (90)

Range of services: 34 (82)

Quality: 31 (74)

Industry sector experience: 27 (65)

International connections: 24 (58)

Geographic convenience: (20) (48)

Number of UK offices: 6 (15).