PracticeAuditOn the money with Gavin Hinks

On the money with Gavin Hinks

Ouch! Losing an audit to a rival is always going to hurt. But even more so when its a high profile client, like Rentokil for instance

gavin hinks, editor accountancy age

At the end of last week it emerged not only had PwC lost the external audit
but Deloitte lost the internal audit too.

Both jobs went to KPMG after the firm apparently pitched a streamlined
structure that would take about £1.5m off the audit costs of the business.

That’s good news for investors and pretty handy work by the new man in charge
at the FTSE250 support services group, Alan Brown, who had worked with KPMG
while he was part of the management team at ICI.

Now there’s a couple of things to bear in mind here. The reduction at
Rentokil actually represents a cut of one third in the audit cost.

How do you do that? That’s more than a material sum, it looks downright
miraculous. It could mean the previous arrangements involved vast tracts of work
that were unnecessary or repeated by both external and internal audits. A likely
possibility.

Or, perhaps the firm was willing to simply take a much, much smaller margin
than the other big auditors. Growth rates have been flat at KPMG and it must be
very enthusiastic indeed to simply win new clients in these difficult times. A
client win – even one with small margins – would act as a major boost to morale
and send a signal to the markets.

But the news does make plain something that practitioners have been worrying
about for some time – the almost irrisistable downward pressure on fees.

If Rentokil can negotiate such significant reductions it will act as
encouragement, if any were needed, for others to do the same.

Auditors will be looking very closely at what KPMG has done.

Gavin Hinks is editor of Accountancy Age

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