The Debate – Will Jefferson Wells threaten Big Four?

More opportunity than threat

By Robert Brittlestone

The news that Jefferson Wells is to open in the UK and recruit 50-100 professional staff makes interesting reading.

Well known in the US for its Sarbanes-Oxley advisory business, Jefferson Wells plans to ‘turn on its head’ the UK model that is dominated by the Big Four advisers.

Jefferson Wells may find the business advisory environment over here somewhat different from the US model. Sarbanes-Oxley legislation has created a veritable industry of compliance models and procedures, matched by a dedication to the audit trail that is truly remarkable.

However severely a US company’s financial performance may have been haemorrhaging, we can now know every detail of how it was governed during that period of relentless decline. Indeed, we can discover not only the names of the companies that supplied the deckchairs on the Titanic but even the sexual orientation of the carpenters who assembled them.

The debate about form versus substance in the US/UK comparative experience has been running for many years and will doubtless continue for many more.

The US often claims that UK firms are unimaginative in their use of technology, and this keeps fee levels artificially high. But there are signs that this gap is closing.

The Big Four firms are increasingly providing advisory services on a global basis that deliver the best of both these worlds of experience.

When PricewaterhouseCoopers, for example, decided to incorporate our own firm’s financial diagnostic technology into its performance risk management service, it committed to do so on an international basis.

As a result, PwC can now deliver board-level financial diagnostics in both territories on a costeffective basis that lends scant support to any accusation of ‘extortionate rates’.

The notion of a New World pioneer flying into Heathrow to rescue the Old World from its inefficient ways has become as nostalgic as that eponymous rock band.

  • Robert Bittlestone is managing director of Metapraxis

No room for complacency
By Rachel Fielding

There are few economic commentators who would argue that competition is a bad thing, and the market for accountancy services is by no means an exception to the rule. And so the news that US-based professional services firm Jefferson Wells is looking to muscle in on the UK market should be warmly welcomed.

One thing the Andersen debacle has taught us is that the possible demise of another big firm simply cannot be ruled out. And yet the implications of the Big Four becoming the Big Three are untenable. That said, moving into the chasm left post-Enron is, in many respects, an unenviable task.

True, the opportunities are huge. With corporate governance issues dominating the agenda, Jefferson Wells’s focus on internal control is a shrewd one. With clients increasingly reluctant to back one horse for the whole gamut of accounting-related services, and with the bulk of FTSE-250 companies using the Big Four for audit services, Jefferson Wells could well be on to something.

The firm has publicly stated that it has no plans to enter the external audit market. In many respects, that’s the announcement that would have really set the cat amongst the pigeons. Audit fees still represent the bulk of income for the Big Four. Take PricewaterhouseCoopers – at £757m, more than half of income for the UK’s biggest accountancy firm in the year to 30 June 2003 was generated by its audit arm, despite a 5% fall over the year.

Jefferson Wells’s pledge to ‘turn on its head’ the UK model of firms ‘charging extortionate rates for work done by two-year qualified’ accountants will be applauded by many clients. Its recruitment strategy – targeting seasoned professionals from the Big Four and large company finance departments – is almost sure to exert an unsettling influence.

For all their differences, there is a danger of complacency among the closed club that is the Big Four. The entrance of a new player, particularly one that – on paper at least – looks like a serious contender will encourage clients to question the status quo, if not shake up the market.

  • Rachel Fielding is features editor of Accountancy Age.

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