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Wednesday, 24th April 2024 |
| Accountancy Survey 2003 shows fee income up more than 15 p.c. |
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The Irish accountancy industry remains in rude financial health, according to the latest survey of the industry by FINANCE, with fee income for the 17 largest firms rising by more than 15 per cent to €574 million. But for those working in the industry, salary expectations for the next year should be modest with most firms believing that average salaries will rise by no more than 5 per cent.
PricewaterhouseCoopers has retained its pole position as Ireland's largest accountancy firm in terms of fee income - but only just! PwC reported a decidedly modest 4.6 per cent increase in fee income compared to last year - by far the smallest increase in income of the 'big four' accountancy firms although that fee income of €136 million was just sufficient to keep PwC ahead of KPMG for the number one position. A factor behind PwC's comparatively modest growth is the absence of the demerged PwC Consulting. KPMG's figures include an 8 month contribution from Andersen, which on an annualised basis would have made them biggest in the latest year.
So far the slowdown in the domestic and global economies does not seem to have impacted on the industry to any significant degree - but as with previous FINANCE surveys, there are wide variations in the financial performance of the major accountancy firms. |
KPMG itself increased its fee income by an impressive 26.4 per cent to €135 million, boosted by the acquisition of Andersen's Irish accountancy practice during 2002. The figures supplied by KPMG do not indicate how much of the practice's €28 million increase in fee income is down to the Andersen acquisition and how much to organic growth. But the 2002 FINANCE Magazine survey showed Andersen with fee iincome of €45 million and an eight per cent market share. The figures would indicate then that a sizeable portion of Andersen's fee income migrated elsewhere other than to KPMG.
The end result is, however, that PwC and KPMG are now neck and neck in terms of fee income and also market share. KPMG's more robust recent performance has seen the practice boost its market share from 18.7 per cent to 23.5 per cent while the more moderate growth at PwC has seen the practice's market share shrink from 27.4 per cent to 23.7 per cent.
Both practices, however, saw fee income per partner contract last year and the productivity of KPMG's partners fell by more than nine per cent with the practice's 64 partners generating average fee income of €2.1 million compared to more than €2.3 million the previous year. The fall in partners' productivity at PwC was less pronounced but average fee income per partner still fell almost 3.5 per cent to €1.94 million.
Fee per partner at the 'big two' is still well ahead of the other larger practices but the gap is closing, especially at Ernst & Young where the practices's 46 paartners generated average income of €1.91 million, a 23 per cent increase on the previous year. That increase in fee income per partner meant that total fee income at Ernst & Young rose almost 26 per cent to €88 million, following the 23 per cent increase in income the previous year.
The figures show that in the space of two years, Ernst & Young's fee income has jumped from €57 million to €88 million while its market share has risen from 11 per cent to more than 15 per cent.
There was also a steady increase in business at the smallest of the 'big four' Deloitte & Touche where fee income was 10 per cent higher at €75.3 million, although that growth in income was not quite matched by growth in productivity. Fee income per partner at Deloitte's was just 4.4 per cent higher at €1.93 million. Deloitte's 39 partners still generate more income per partner for the practice than Ernst & Young's 46 partners, although in terms of total income Ernst & Young generated €5 million more lastt year than Deloitte.
The impact of KPMG's acquisition of Andersen's Irish practice is also reflected in the overall market share figures and these show a continuing consolidation at the top end of the industry. Between 2000 and 2002, the three FINANCE magazine surveys showed little change in the overall share of the market held by the 'big four', with PwC, KPMG, Ernst & Young and Deloitte & Touche having a combined 70 per cent market shares in each of those three years.
The absorption of Andersen into KPMG has seen the combined market share of the 'big four' rise to more than 75 per cent. It is unlikely, however, that there will be any further consolidation among the ranks of the bigger firms bar an unlikely merger instigated at the international affiliate level. The demise of Andersen post-Enron is probably a special case that is unlikely to be repeated.
But there is the realistic prospect of consolidation among the smaller practices and this opens up the prospect of a middle-tier firm like BDO Simpson Xavier, and larger third-tier firms like Grant Thornton and Mazars expanding by merger with some of the smaller firms.
Beyond the 'big four', BDO Simpson Xavier remains comfortably the fifth largest practice in terms of total fee income with a near 18 per cent increase in fee income to €48.4 million while its market share grew to 8.4 per cent.
While among the very large practices there is a reasonably close correlation between total income and income per partner, some of the smaller practices are also quite adept at generating sizeable income per partner. Russell Brennan Keane is 11th in terms of total income with €8.2 million but the practice's seven partners generated an average of €1.18 million each in income.
Indeed, some of the smaller practices produced some outstanding performances last year. IFAC - an accountancy co-operative as opposed to a partnership - grew its fee income by more than 22 per cent to almost €8.5 million while Caplin Meehan's five partners and 28 staff grew fee income by almost 24 per cent to more than €3 million. But the most impressive performance of all probably came from one of the smallest practices who responded to the survey - JPA Brenson Lawlor, whose fee income grew almost 29 per cent to €4.3 million.
The performance of the smaller accountancy practices would suggest that while there may have been major consolidation within the industry at the larger practice level, there is still considerable demand for the services of the smaller practice. Every one of the smaller practices - bar Horwath Bastow Charleton whose fee income grew just 1.6 per cent - managed to increase their revenues by more than 6 per cent in the last financial year.
When it comes to revealing the size of the largest item of new business taken on in the past year, KPMG, PwC and Ernst & Young have remained coy, usually citing 'client confidentiality' as the reason for not revealing this information. Deloitte & Touche, however, revealed that it won a new €2 million contract while other major wins were notched up by BDO Simpson Xavier which won a €550,000 contract while Mazars' largest item of new business was worth €510,000.
Partners and staff
The strong growth in fee income among Ireland's major accountancy firms has been matched by the growth in employment in the sector. Overall, among the 17 practices who responded to the survey, total employment grew more than 12 per cent to over 5,900. The growth in partner numbers was more modest - from 349 to 359 when 2002 figures are adjusted to reflect the sale of PwC Consulting and KPMG's acquisition of Andersen.
By far the biggest shift in terms of employment was at KPMG, where the addition of Andersen and one must assume a reasonable level of organic growth, saw total employment numbers rise by 30 per cent to 1,416 - coincidentally the exact same employment level at PwC. But while KPMG's employment grew significantly, payroll numbers at PwC actually fell 5 per cent - reflecting the demerger of PwC's consulting business.
At KPMG, partner numbers increased from 46 to 64, due largely one must assume to the influx of some of the 21 partners who were on the Andersen payroll prior to its takeover. Similarly, the number of non-chargeable staff at KPMG increased from 933 to 1,102 while support staff numbers rose from 110 to 250 - again reflecting the influx of Andersen personnel into the merged practice. At PwC, the biggest impact from the sale of the consulting division was among non-partner chargeable staff where numbers fell by over 200 to 1,165 while there was a more modest fall in the numbers of support staff from 196 to 181.
The biggest increase in numbers where acquisition was not a factor was at Ernst & Young where total numbers increased 17 per cent to 810, due mainly to a large influx of professionally qualified staff. Ernst & Young recruited 60 professionals last year on top of the 70 professionals it took on the previous year. The intake of professionals at Ernst & Young last year was almost as much as KPMG, PwC and Deloitte & Touche combined.
Ernst & Young, however, took on the fewest trainees last year at 60, well below the 160 trainees taken on by KPMG, the 130 at PwC and 100 at Deloitte & Touche. Among the smaller firms, Horwath Bastow Charleton took on a modest number of trainees with 12, while OSK took on the fewest with five.
Outside the ' big four', the biggest growth in numbers was at Grant Thornton whose numbers increased 13 per cent to 229 while employment at BDO Simpson Xavier grew by 15 staff members. The increase in volume at the smaller practices involved single figure percentages although Cork-based HLB Nathans and OSK bucked the trend with a small reduction in employment levels.
Salaries
KPMG declined to reveal how much it increased non-partners' salaries last year and was the only firm to do so. Of the others, Russell Brennan Keane was the most generous when it came to pay increases for its staff with an average of 10 per cent and the firm expects salaries in the industry to rise another 7.5 per cent over the next year. The smallest pay rises were awarded by PwC with an average increase of 3.5 per cent-4 per cent while Deloitte & Touche was more generous with average increases of between 6 per cent and 8 per cent. Over the next year, most firms expect average salaries in the industry to rise by around 5 per cent.
Growth areas
It will come as little surprise that tax is one of the areas where accountants anticipate the greatest growth, with six of the firms in the survey indicating that tax is likely to be one of their growth areas. But it is more of a surprise given the downturn in corporate activity in the past couple of years that an equal number of firms believe that corporate finance will be one of the main growth areas for the industry.
Less of a surprise given the collapse in the sector, is that not a single firm in the survey believes that e-business will deliver growth, while audit is one of the expected growth areas for two of the 'big four' Ernst & Young and Deloitte & Touche. Four firms, including PwC expect an increase in insolvency and corporate recovery work.
| 'Big 4’ Fee income (mn) | 2003 | 2002 | % increase |
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| PricewaterhouseCoopers* | 136 | 130 | 4.6 | | KPMG | 135 | 106.8 | 26.4 | | Ernst & Young | 88 | 70 | 25.7 | | Deloitte & Touche | 75.2 | 68.4 | 10 | | *Figures reflect he sale of PwC Consulting. |
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| Article appeared in the October 2003 issue.
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