Professional Services Monitor: Today

Financial Director/Accountancy Age has a report and analysis on the top 50 firms by revenue in the UK. Not surprising, PwC, Deloitte, KPMG and E&Y take one through four, respectively, by a large margin. The article also notes that UK revenues have finally climbed back over pre-Enron levels. KPMG had the largest growth in fees at 20%, and each of the Big Four had at least double-digit growth.

Link: Exclusive: profession slays Enron dragon as Top 50 post record revenues

Grant Thornton ranked an impressive fifth on ComputerWorld’s most recent survey of Best Places to Work in IT. ComputerWorld notes that GT allows its IT staff to choose the project teams and special assignments to which they are assigned. The magazine also has an interesting look at a day in the life of the GT IT organization.
Ernst & Young (#45) and KPMG LLP (#57) were the only Big Four firms on the top 100.

Links: ComputerWorld 2006 Best Places to Work in IT, E&Y Press Release

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.

Ernst & Young and Mitchell & Titus LLP announced today that M&T will be joining Ernst & Young Global Ltd. as a member firm.

Ernst & Young Global Limited announced today that Mitchell & Titus, LLP, the nation’s largest minority-owned accounting firm, is expected to join as a member firm. The announcement was made at the National Association of Black Accountants annual convention, taking place this week in Hollywood, Fla.
The global Ernst & Young organization consists of separate member firms in 140 countries, including Ernst & Young LLP in the United States. Mitchell & Titus will maintain its brand name and continue to operate under its current ownership through its offices in New York, Philadelphia, Baltimore, Rutherford, New Jersey and Washington, DC. Mitchell & Titus’s membership in the global Ernst & Young organization is expected to commence by October 2006, pending the resolution of professional independence related and other outstanding matters.

A quick refresher: The Big Four operate as global alliance of member firms. There are many other US and global associations, such as PKF International
, Horwath International, and Polaris International Network. The key difference between the non-Big Four and the Big Four networks is the exclusive regional divisions. In other words, Polaris may divide its membership by state–PwC divides by country. Until now, the Big Four member firms in the US have solely been Deloitte LLP, E&Y LLP, KPMG LLP, and PwC LLP. With the Mitchell & Titus association, E&Y Global has changed that by adding Mitchell as a US member firm to the existing E&Y LLP US member.
The really interesting part of the press release comes a few paragraphs down.

As the two client-serving members of the global Ernst & Young organization operating in the United States, Mitchell & Titus and Ernst & Young LLP expect to work on some client engagements jointly, in addition to providing business referrals, where appropriate. The arrangement enables Mitchell & Titus and Ernst & Young LLP to focus on their respective preferred client segments, with the result that together the firms will provide broad-based, consistent, seamless quality service throughout the market. As a member firm of the global Ernst & Young organization, Mitchell & Titus will follow the organization’s quality and risk management and independence procedures, as well as have access to leading technological resources and the collective knowledge base of the other member firms around the world. However, as a separate firm within the global Ernst & Young organization, Mitchell & Titus will maintain its own billing and fee structure.

What appears to be happening is a marketing and brand move by both firms. Clearly, E&Y and M&T are not direct competitors. Furthermore, while Mitchell is registered with the PCAOB, the firm does not current audit any SEC registrants, according ARGI research. Thus, the firm is more focused on smaller or private companies. This alliance seems to open numerous new brand opportunities for both firms. “Mitchell & Titus, an Ernst & Young Global Member Firm” ought to be a very powerful proposition. On E&Y’s side, E&Y gains access to a segment of the market to which its specific brand is not best suited. This arrangement will be interesting to watch in the next two years.

Forbes is reporting this morning that PricewaterhouseCoopers has created a new firm in Japan, PricewaterhouseCoopers Arata. PwC Aarata will begin operations on July 1, which is also the date when existing PwC affiliate firm ChuoAoyama begins serving a two-month ban on auditing public Japanese companies. The penalty is a result of ChuoAoyama certifying the financial statements of Japanese cosmetic company Kanebo, which the company later admitted were falsified for several years.
At the same time, PwC has said it will keep its relationship with ChuoAoyama.

The Ernst & Young Entrepreneur of The Year Awards Program casts a wide net in choosing local, national, and global winner. Began in 1986, E&Y now names individual winners in 26 cities, and 35 country awards outside of the US. Past winners include Jeff Bezos of Amazon and Howard Schultz of Starbucks.
Today, E&Y announced that Bill Lynch of South African transportation and logistics company, Imperial Holdings. The US award season has just started, however. Winners in Austin, Minnesota/Dakotas, and the Central Great Lakes. Winners from these regions and the remaining 23 areas advance to consideration for the national award on Nov. 18, 2006 in Palm Spring, CA.