| FINANCE Accountancy Survey 2002 |
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| Over the last year the accountancy industry has shown strong growth in fee income, while the level of recruitment and the rate of salary increases have been more subdued. |
Top accountants in Ireland have had a very healthy year in business. Despite indications of slowdown across market sectors top Irish accountants have experienced fee income growth of 11 per cent. Although down from the industry average of 16 per cent seen in the 2001 Finance Accountancy Survey, 11 per cent marks a strong level of growth in a year that has seen much criticism of the accountancy profession. Total fees earned by the accountancy, tax and consulting practices of chartered accountancy firms included in the 2002 survey was over •570 million.
However the 11 per cent growth average masks some even stronger individual growth figures. In terms of size both Ernst & Young and Deloitte & Touche have both seen increases of 22 per cent and 16 per cent respectively.
BDO Simpson Xavier has also had a 20 per cent increase in fee income thanks in part to the purchase in late 2001 of the Hargaden Moor firm of accountants.
Other outstanding levels of fee income growth have been seen in HLB Nathans and Caplin Meehan where both firms have seen their fee income levels grow at 22 per cent. Meanwhile Grant Thornton and Russell Brennan Keane’s growth at 18 and 15 per cent respectively is also of note.
PricewaterhouseCoopers has again topped the league and with estimated fee income of •157 million for the year ended 30th June 2002, a year on year increase of eight per cent.
KPMG saw its fee income rise nine per cent to •106 million, and is currently negotiating to buy Andersen, with the deal believed to be very close to completion. Given the sensitivities of circumstances, Andersen has declined from participating in this year’s survey but have been include in the fee income table at last year’s level. The fight for top place in next year’s survey will be a tough one, as on the basis of available fee income information PricewaterhouseCoopers and KPMG, incorporating Andersen, could be nearly level next year.
Future growth
For the year ahead the areas of strongest growth identified by the respondents were reasonably evenly spread across the main disciplines. However corporate finance inched ahead of the other areas with close to a quarter of all mentions.
It is very interesting, if a little worrying, to note the resurgence of corporate recovery and insolvency as areas of growth for accountants. Just two years ago in the 2000 survey not one firm foresaw this area as having growth prospects. This is an indication of the changing economic environment.
Profitability
KPMG leads the league in fee income per partner, at •2.3 million up over 9 per cent from last year’s survey. But rival PWC recorded a fee income per partner of •2 million up 15.5 per cent from last year demonstrating a strong level of per partner growth. While KPMG has carried this profitability lead for some time the improvements seen at competitor companies suggests that rivals may be catching up. KPMG also hold the highest ‘partner to-staff’ ratio at 1:24.
The profitability figures of this survey (seen in table two on the opposite page) shows that the top levels of the Irish accountancy industry is streamlining itself and making itself more efficient. Further down the league table there have been substantial increases in per partner profitability too. Of particular note are the large increases demonstrated by Chapman Flood Mazars and Ormsby & Rhodes who respectively saw increases of 22 and 14 per cent in their per partner fee income. The industry average of fee income per partner was •1.6 million.
Partners and staff
Trends in relation to the 5,915 partners and staff covered by the survey are no less interesting. There are not 370 partners, 4,767 chargeable staff and 778 support staff in reporting firms. Overall there has been an 8.5 per cent increase in the number of people working in the responding firms with fee income up 11 per cent overall this illustrates a strong growth in productivity in the sector. This is all the more positive against the backdrop of a more shaky global economy. Continued disclosures about reporting scandals in the US, which began with the Enron debacle, have helped to sculpt a difficult year and yet the figures demonstrate that not only is the Irish accountancy industry maintaining its position it is actually growing strongly.
The figures for partners and staff also show that the situation from company to company is quite different. Both KPMG and PWC recorded a rise in staff of just 2.7 per cent, while Ernst & Young and Deloitte & Touche showed substantial increases of 13 and 29 per cent respectively given that these increases are based on figures that the companies submitted this year and Finance estimates of their employment levels in 2001 (see accountancy survey 2001) these growth rates may be slightly overstated however still demonstrate strong levels of growth in both these companies. OSK, Grant Thornton and BDO Simpson Xavier also had rises in their employee levels, although in BDO’s case the purchase of Hargaden Moor would have accounted for some of the 13.5 per cent increase in staff numbers.
This contrasts with staff contraction at several of the mid sized firms. Ryan Glennon, HLB Nathans and Farrell Grant Sparks all recorded lower employee levels in 2002 and could indicate that the mid sized companies are more wary of taking on staff in the current economic climate.
Recruitment and salaries
While the growth in recruitment at Irish accountants over the last year has been a healthy 8.5 per cent, the respondents have been a little more cautious in their recruitment targets for the coming year. Many of the firms are adopting a wait and see approach to recruitment a change from the heady levels of a couple of years ago. This is reflective of the current environment and also of the trend for consolidation that the industry has experienced over the last year or so. Predictions are now that there will not be further consolidation amongst the top tier.
In total some 224 professional staff were recruited in the last financial year, while 588 trainees were taken on by the respondent companies and 89 non-professional graduates. Comparing these figures to last year, recruitment of professionals is down 12 per cent, while recruitment of trainees is down 25 per cent.
While overall employemnt levels have risen it seems that professional and trainee recruitment levels have dropped. These figures would seem to directly contradict one another, however recruitment of support staff may have been significantly higher during the last year. Another reason for the contradiction is that several firms chose not to respond to the question on their current level of employees – namely IFAC Accountants, and Andersen. Andersen’s employment levels for 2001 have been included in this table in order to ascertain an industry employment average. It is possible that employment at Andersen is at or below last year’s level. Also figures for 2001 were not available for Brenson Lawlor and for Baker Tilly O’Hare, all of which may lead to a higher than expected level of increase in employee levels overall.
Some of the largest increases in employee levels were seen at Deloitte & Touche and Ernst & Young, recording a 13 and 30 per cent increase respectively. Finance wished to emphasise that these increases are based on figures provided by the companies themselves this year and on estimates of their employee levels in the 2001 survey. As such these increases in employee levels may be slightly higher than the actual levels.
A good indication of the current trend is seen in the recruitment estimates of PricewaterhouseCoopers. The company plans to recruit significantly less people next year and says this is because of increased staff retention levels. ‘The number and level of staff recruited this year and an estimate of how many we expect to recruit in the coming year are as follows and reflects...our significantly increased staff retention levels’. They recruited 242 in 2001/02 and plan to recruit 130 in 2002/03.
The reasons for those high staff retention levels is likely to be due in part to the measures of the company itself, but may also reflect the changing mood of employees in general.
Recruitment from other firms is still the most popular route for accountancy recruitment with 29 per cent of respondents favouring that over other methods. (See recruitment methods table). However firms have also demonstrated a very proactive nature in their attitudes towards recruitment and have mentioned using several other methods in order to try an attract candidates. These alternative methods were using: website advertising; national press advertising; recruitment agencies; graduate recruitment programmes along with internal recruitment incentive schemes and using specialised publications. Some firms also use employee referral award schemes and carry out presentations in many third level institutions.
Practice management
With increasing attention on the management of accountancy practices and regulatory changes, it is noteworthy that that virtually all firms are in agreement that they would consider separately incorporating parts of their practice. Amongst the reasons given for this were: protection against litigation and using the incorporation as a means to motivate and retain key staff. KPMG pointed out that it would consider this proposition ‘to provide a more proportionate level of protection’. Meanwhile Deloitte & Touche were alone is saying that they would not consider separately incorporating parts of the practice. No reason for this was given.
On the other side of the practice management spectrum the only firms who actually would consider taking equities for fees were PWC and BDO Simpson Xavier. All other respondents said that they would not take equity for fees – now seen as too risky a prospect given recent stock market conditions and the bursting of the dot.com bubble. However PWC said that under its incubator scheme in certain circumstance the company might take equity instead of fees. ‘In November 2000 PwC launched its strategic partnership with Growcorp Group Incubator. The Incubator nurtures selected high growth companies from their start up to Initial Public Offering (IPO) or trade sale. Under this arrangement PwC may take equity instead of fees for services provided to ventures in the Incubator.’
Business size
Two thirds of responding companies said they do have a policy which limits the size of business that they can take on relative to the overall fees of the firm. However a third of Ireland’s top accountancy firms do not have this policy. Of those that do the average limiting percentage ranges between 5 per cent and 10 per cent. However both PWC and KPMG gave responses which indicate that they adhere to the guidelines set out by industry bodies. ‘KPMG comply with the ethical standards of the Institute, which have a limit of between 10 per cent and 15 per cent depending on the type of client.’ Echoing this PWC said ‘We comply with the restrictions on fees from a single client as set out in the Ethical Guide of the Institute of Chartered Accountants in Ireland.’ However given these guidelines perhaps the rest of the industry should be incorporating them into their practice management?
In terms of the actual size of business carried out we asked what was the value of the largest piece of new business that each firm won in the last 12 months? The answers ranged from Caplin Meehan’s ?50,000 to KPMG’s ?2,000,000, although PWC, Ernst & Young, Farrell Grant Sparks and IFAC Accountants chose not to reveal this information. Most of the others recorded business chunks of ?65,000 - ?150,000 – although Ryan Glennon’s ?208,000 was of note because of its size.
In our final question on practice management two thirds of respondents said they would not consider publicly quoting their practices – with KPMG remarking that this was not a realistic proposition in the current legislative/regulatory environment. However, with a third of respondees considering this it may be an option for some firms. Reasons included rewarding stakeholders and staff as well as raising finance, while others thought such a move could attract larger clients to their practices.
Salaries and bonuses
Salary increases over the last year have tallied with those expected from last year’s survey. Over 35 per cent of the respondents said general salary increases had been in the 6-10 per cent range at the last review. This was the level predicted in the 2001 survey, and a substantial slowdown from the high rates of salary increase seen in previous years.
Predictions for the salary increase over the next 12 month saw 42 per cent of respondents expecting the increases to be even lower in fact in the 0-5 per cent range. Bonuses too seem to be decreasing in size 77 per cent of respondents expecting to pay bonuses in the region of 0-10 per cent. This is a marked downturn from last year when more than 50 per cent of respondents to the 2001 survey expected to pay bonuses of between 11-25 per cent. |
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| Article appeared in the July 2002 issue.
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