Ernst & Young has become the second Big Six firm to withdraw from low fees risk compromising quality, prompting fears other Big Sixers will follow their lead. doing work for the Audit Commission on the grounds that the watchdog’s fees are too low.
The decision, reached last month but not announced, is likely to be followed by other Big Six firms, according to observers. Arthur Andersen pulled out in the mid-1980s and its offshoot Binder Hamlyn withdrew last autumn.
A spokesman for E&Y said this week: ‘It’s just not cost-effective to continue, there’s no added value and it’s not economically viable.’
His views were echoed by Binder Hamlyn where four senior members of its public sector team transferred to rivals Kidsons Impey due to the firm’s decision to withdraw.
A Binders’ spokesman said: ‘The fees were too low. It had ceased to be economically effective, therefore there was a risk that quality would be compromised.’
Andy Proudfoot, public sector consulting services director at BDO Stoy Hayward, which does no work for the commission, said: ‘The profession thinks the commission’s fees are too low and a number of larger firms are seriously considering giving it up.
‘A lot of firms were prepared to swallow the commission’s low fees during the recession but now they can afford to be more choosy. If the rest of the Big Six firms decide to follow E&Y and Binder Hamlyn’s example, the commission would have to choose from a much smaller market,’ he said. Proudfoot warned that recent mergers will further restrict the number of firms committed to the local government market.
Adrian Roxan, commission spokesman, denied its commitment to low fees would drastically reduce the number of firms willing to seek its audit work. ‘We have a duty to apply the most stringent rules to try to get the lowest fee possible. It would be extraordinary if we didn’t,’ he said.
‘E&Y and Binder Hamlyn have withdrawn for their own reasons. If our fees mean quality will be compromised by the removal of the bigger firms then we would have to review that but we still have a large number of external audit suppliers; competition for contracts continues to be healthy.’
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