PracticeAccounting FirmsAV Audit’s troubles could be a sign of things to come

AV Audit's troubles could be a sign of things to come

In the current economic climate, to suggest that a service line that managed growth of 8.5% last year is in trouble might sound like scaremongering.

But despite what looks, on the face of it, like healthy growth, can any auditor be sure that his or her job is currently safe?

This week we reveal that AV Audit – the audit arm of Numerica, the number 15 player in the Accountancy Age Top 50 – has consulted staff about ‘possible’ redundancies. Numerica blamed national and local issues: weak service sector growth across the economy and the fact that ‘one or two’ large clients had gone into liquidation.

‘Given the above, it started to become apparent some time ago that our current staffing levels are not appropriate given the reduced level of work being taken on,’ it told staff.

What is most significant about this step (aside, as always, from the impact on the individual employees made redundant) is that it is not a problem confined to one company.

It would be misleading to draw direct comparisons between AV Audit and others – after all, it grew revenues by 27% last year (albeit largely through acquisition) and few rivals could match that. But AV Audit’s problems are every audit firm’s problems. As well as the loss of clients and the weak service sector, there is the ongoing issue that audit is just not a particularly profitable business. It may open doors to other services but, in itself, does not generate sizeable margins.

Some might say it’s the fault of the audit profession. The charge of low-balling is one with which the audit industry is very familiar. It’s all but impossible to prove, of course, but there’s no doubt that audit charges have been pared to the bone in recent years because of the intense competition that exists in the audit market. The consequence is that finance directors have become used to audit fees that go sideways at best, not up.

This was all supposed to change after Enron. Finance directors were supposed to have become accepting of the fact that, like the cost of any other insurance product at a time of heightened risk (real or perceived), the price would rise.

But markets don’t always work like that. And when they don’t, redundancies often follow.

Email comment@accountancyage.com.

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