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Editor's comment: Race to the bottom

IAB Fee Overview 2004-2013

In the past nine years the Big Four have increased their average fee income by a staggering $51.5bn. In comparison, the next six largest mid-tier networks including BDO, RSM, Grant Thornton International etc. saw an average $11.5bn increase in the same time period. For the Big Four the increase has mainly come from the growth and rebuilding of advisory capabilities, with advisory revenues increasing by an average of $29.3bn across the four firms since 2004.

While the advisory revenue pie has been steadily increasing for the Big Four over the past decade, the trend for audit and accounting services is somewhat different with the average revenues earned by the Big Four decreasing by $5bn in the past five year. In the same time period the mid-tier increased revenues from audit and accounting by an average $1.9bn. In this year's IAB World Survey we report further advisory M&A deals by the Big Four, such as the well publicised tie-up between PwC and global consultancy Booz & Company at the end of last year. Such deals are dubbed key for growth as regulatory compliance demands and fee pressure are leading to a standstill of audit revenues globally.

As an addition to the IAB World Survey we have, for the first time this year, conducted an anonymous global fee pressure survey and with an impressive response rate we have seen fee pressure being a principal concern for firm leaders. As audit and accounting revenues are harder to come by, respondents speak of increasingly competitive conditions and severe price undercutting. Due to the increased advisory capabilities of the Big Four they might be in a better position to undercut prices. However the four giants are far from the only ones to blame for the so-called race to the bottom, according to respondents of the IAB fee pressure survey.

It seems that when behind a wall of anonymity firm leaders are much more candid about the realities of fee pressure, with almost 36% admitting in the past 12 months they have had to face ongoing challenges of maintaining audit quality in the face of fee pressure, and an additional 26% saying there were concerns over audit quality due to fee pressure at their firm in the past year.

With 2014 looking to be a year of continued M&A activity, improved global economic outlook and pending EU audit changes, the fight for audit clients is very much on and before it is (again) too late, openly speaking of decreasing fees and the role the profession in maintaining audit quality is of the essence.

Ana Gyorkos
ana.gyorkos@timetric.com

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