Professional Services Monitor: Today

March to May of each year is a busy time for those of us who track professional fees paid to auditors, as disclosed on public companies’s annual proxy statements. Beginning in February 2001, each US public company has been required to directly disclose to its shareholders how much is paid to the company’s independent auditors. The SEC requires companies to disclose total fees broken down into four categories: audit, audit-related, tax, and “all other fees.”
Thus far in 2006, the ARGI staff has processed more than 4,300 proxy filings, plus another nearly 400 20F filings made by foreign companies. After analyzing data from our database of 2006 filings, we find that total fees paid to auditors dropped overall when comparing Fiscal 2005 total fees to Fiscal 2004 total fees.

Among the Big Four, PricewaterhouseCoopers had the largest drop of 5.9%. Deloitte’s and KPMG’s total fees both dropped 3.1%. Ernst & Young gained just .2% in Fiscal 2005, but still stands out as the only Big Four firm without a loss. Remarkably, non-Big Four firms dropped as well, taken on the whole, by 3.3%.
Looking at the data from another direction, companies with $1 billion or more in revenue spent 4.7% less in 2005 versus 2004, while spending at companies with less than $250 million in revenue increaseing spending by 6.1%.

For this analysis, ARGI included US public companies with a fiscal year end of after 11/1/2005. Data comes from DEF-14A proxy statements. Excluded from this group are companies with a different auditor between FY 2005 and 2004 and those where fiscal-year transition periods are included or where some other substantial ambiguity exists in the fees disclosure. The final population included more than 3500 companies. FY2004 fees total were as restated for FY2005, not as originally filed. For more information on ARGI’s audit fees database, please contact your firms national competitive intelligence unit.

Deloitte Insights Podcasts has released five new episodes since May 4, 2006. Subjects include tax reform in Texas, transfer pricing in the EU, and electronic records management.
The Blizzard Ahead: Preparing Your Business For the Coming Pandemic was particularly interesting. The podcast features Don Ainslie of Deloitte’s ERS practice and former Health & Human Services Secretary Tommy Thompson, who is now the independent chairman of Deloitte’s Center for Health Solutions. From the show notes:

Plan as if a blizzard were coming a blizzard that could last up to 18 months instead of a few days and that could disrupt travel, employee productivity, the product supply chain and business operations on a global scale. Listen and learn what businesses can do to prepare for a pandemic flu outbreak.

Deloitte continues to produce interesting and well-produced podcasts that share a conversation format that make them easy listening.

The Times Online has a different take on yesterday’s report issued by the UK Financial Reporting Council.

A LONG-AWAITED report into the dominance of the Big Four accounting firms was welcomed by auditors yesterday after it declined to make any policy recommendations.
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However the report… did not find any evidence of anti-competitive behaviour by the Big Four firms and did not make any recommendations on how mid-tier accountancies could win their share of the lucrative audits.

An article in yesterday’s The Scotsman implied a different conclusion to the report.

The UK’s Financial Reporting Council has released a report studying the dominance of the Big Four in the UK market, according to The Scotsman. One of its conclusions, according to the article, is that the dominance of the Big Four hurts competition. In the UK, the Big Four audit 97% of the FTSE 350; for comparison, the Big Four audited 986 of Fortune 1000 in 2005. Furthermore, this study shows that 88% of the FTSE companies would not consider a non-Big Four firm.

Many large listed companies in the UK said they had an effective choice of just two or three audit firms and some, notably banks and insurance firms, said they had no choice at all, the report showed.
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“The near 100 percent combined market share of the Big Four in auditing large companies is not regarded as healthy for competition or choice,” the report said.

The article also quotes Steve Maslin, head of Assurance Services for Grant Thornton, as saying, “The skills that are needed to audit an AIM (Alternative Investment Market for smaller firms in the UK) company are no different than those required for a large FTSE 350 company.” The skills are similar but the scale can be much different. Towards this, Peter Ryan, head of professional affairs for PWC in London, said, “PWC has invested a huge amount of money over a long period of time to get the breadth and depth of expertise both in the UK and around the world.” Second-tier firms have very solid capabilities, but only the capacity to serve a given number of clients with worldwide needs.
The report does touch on a more pressing problem with Big Four concentration, the risk of a firm failing. The loss of a firm would create “serious problems for some companies and a loss of investor confidence,” which we saw very painfully in the Andersen collapse.
This report bears an issue date of April 12, 2006, so there’s certain to be more reaction later in the week.

The Full Report “Competition and choice in the UK audit market” can be downloaded from the FRC website.

According to two different surveys, both confidence among professionals and professional hiring is on the increase. The most recent Hudson Employment Index found that confidence among accounting and finance professionals rose 0.4% in February. As for hiring, a survey of CFO’s conducted by Robert Half found that 5% plan to increase their staffing in Q2 2006 while 4% of CFOs anticipate staffing reductions.

Links: Robert Half: CFOs PROJECT SLIGHT HIRING INCREASE IN SECOND QUARTER, Hudson Index: Index Surges on Managers’ Hiring Forecast, via AccountingWeb

Ernst & Young has released the text and video of a speak firm chairman and CEO Jim Turley gave to the Detroit Economic Club on March 6, 2006. The speech is a “state of the profession” address and is well worth reading or viewing. In it, Turley recounts assuming his CEO role at E&Y in the summer of 2001, just as the world became much more interesting.
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WSJ reports that IBM's Consulting division is going after smaller companies in an effort to increase revenue.

IBM has provided the bulk of its consulting services to major companies on high-priced projects. But revenue from IBM's Business Consulting Services group fell 6% in the fourth quarter, prompting the company to pursue consulting arrangements with smaller businesses.

These services will not be sold directly, but instead through resellers. Among the services that IBM will be offering is a $65,000 "IT strategy assessment," which examines customer's information-technology equipment and figure out how the systems and infrastructure could better work.