UK companies told to prepare for audit hikes
UK companies should brace themselves for a hike in audit costs as the impact of corporate governance gives accountancy firms little choice but to increase fees.
Link: Raising audit fees will help cash-strapped firms survive
Corporate boards are less willing to offer non-audit work to their auditors due to the impact of regulation that continues to hurt accountancy firms.
Nick Land, chairman of Ernst & Young UK, said his firm had visited its bigger audit clients to discuss the implications.
‘We have gone to our major audit clients where the price was too low,’ said Land. ‘Our partners got a good hearing and audit prices increased by 7-8%.’
Land’s comments came on the back of last Friday’s release of E&Y’s results to 30 June 2003. The firm experienced a respectable revenue growth of 8% to £811.6m, and an average profit per partner of £478,000 compared with £378,000 in 2002.
Land admitted there would be little let-up in the trend of growing audit costs. ‘It’s not a one-off, we will push for more realistic audit fees,’ he said.
He added that audit was not as profitable as other areas of the business and that fees were set so low because the accounting industry was ‘influenced by the ability to generate non-audit work’.
The price rises in audit work were reflected in the firm’s results, with an increase of 8% in business assurance.
Land described the results as only ‘reasonable’ in what he asserted was the ‘toughest market I can recall’. Land said the UK arm was one of the best performing practices in ‘mature markets’.
Kieran Poynter, UK chairman of PricewaterhouseCoopers, also indicated that audit prices were on the rise. ‘Clients have asked us to increase the scope of the audit above what they have asked for previously and the regulatory environment continues to push people in that direction.’