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Accountants reap fee income growth of 18 per cent Back  
The trend of exceptionally strong growth in fee income for accountancy practices continues this year, with some practices delivering 25% growth and more. The full results of the annual Finance survey are analysed below, and the managing partners of the Big Five firms discuss key issues for their firms in the following pages.
F ee income at accountancy firms taking part in the Finance survey totalled ?330 million in their
latest financial years, up 18 per cent on the 1998 survey figure.

This growth rate by far exceeds Ireland’s exceptional GDP growth, supporting the case that corporate growth in the economy is very strong, and also the contention that accountancy firms are providing more added value in the growing economy.

The now well-merged firm PricewaterhouseCoopers heads the fee earners, unsurprisingly, with reported fee earnings of ?78 million. KPMG follows with a strong ?65 million, followed by Arthur Andersen at ?37.5 million. Ernst & Young and Deloitte & Touche are neck and neck, reporting figures of ?34 and ?33 million respectively.

BDO Simpson Xavier and Grant Thornton were the only other firms with fee income exceeding ?10 million, with ?18 million and just over ?10 million respectively.

Among the firms reporting fee income between ?1 million and ?10 million, there were some strong growth performances, including OSK’s 59 per cent growth, Caplin Meehan’s 37 per cent and Russell Brennan Keane’s 24 per cent.

Arguably, it is easier to post higher growth from a lower base, although the impact of growth of 25 per cent or over in any practice presents particular challenges for managemnet, especially in a tight labour market for accounting, tax and consulting specialists.

The growth of the larger firms is impressive, with KPMG, Arthur Andersen and BDO Simpson Xavier posting 25 per cent rates. Among the big five firms, only Deloitte & Touche reported fee income growth of less than 20 per cent in the period.

Caplin Meehan topped the ?1 million mark for the first time in this year’s survey.

Partners and staff

Reflecting strong growth, virtually all the firms in the survey reported having increased their chargeable staff. Not all firms increased the numbers of partners, however. The total numbers working in the top 25 firms are now 5,019, made up of 362 partners, 3,879 other chargeable staff and 778 support staff. The largest practice is, of course, PricewaterhouseCoopers, with 1,300 people led by 82 partners.

The total number of partners in the survey has increased by 1.4 per cent since last year, while overall staff numbers have grown by 1 per cent.

What might be called the ‘steepness of the pyramid’ at each firm, its partner to chargeable staff ratio, presents some contrasts.

PwC’s partner to other chargeable staff ratio is 1:13, while it is 1:18 at KPMG, 1:13 at Ernst & Young and 1:12 at Deloitte & Touche. At Arthur Andersen it was 1:16 in 1998.

At middle ranking firms, the ratio is lower, as one might expect. Chapman Floor Mazars has a partner to chargeable staff ratio of 1:7.7, BDO Simpson Xavier 1:8 and Grant Thornton 1:9, approximately.

IFAC Accountants would be exceptional among its peers in having a ratio of 1:17.6, while Farrell Grant Sparks comes in at the other end with a ratio of one partner to 4.33 other chargeable staff.


Measuring productivity of professional services firms can be an area of pitfalls and hidden tripwires. The caculation of fees per partner is a generally accepted, if somewhat simple, measure. Nonetheless professional services firms tend to be very conscious of this overall measure for their firm and for their competitors.

The figures presented in Table 3 are derived simply from the reported figures in Tables 1 and 2. The ranking of fees per partner shows an extensive lead for KPMG at ?1,458,000 fees earned per partner, which fits with the high partner to other chargeable staff ratio at that firm. Similarly, IFAC Accountants with nearly ?5 million in fees and a partner staff ratio of 17.6 show fees per partner of ?959,000. The next nearest is PwC, showing ?951,000 and Ernst & Young with ?944,000 per partner.

These are high fee incomes per partner in the Irish market. The average fee income per partner based on these results is ?864,000. However, the average ‘fee income per partner’ figures across firms is approximately ?500,000.

The majority of firms taking part in the survey report fee income per partner of ?300,000 to ?600,000. This is quite a range in itself, and being at the higher end could make a substantial difference to the profitability of a firm’s business.

Fee income per partner has increased in all reporting firms between the two survey dates. KPMG’s increase of ?186,000 points to an impressive growth in profitability as well as underlying revenue growth.

The other measure shown in the table, fees per all chargeable staff, including partners, shows a relatively tight range, with most firms falling between ?40,000 and ?70,000 fee income per chargeable staff member. Only Farrell Grant Sparks, KPMG and BDO Simpson Xavier exceeded this level. Farrell Grant Spark’s partner to other chargeable staff ratio of 4.33 explains its being an outlier on this measure.

Most firms have seen an increase in income per chargeable staff in and around 10%.

Staff levels

The Finance accountancy survey also asked respondents how many staff they intended to recruit at professional, non-professional and trainee levels in the coming year.
A total of 346 new positions for professionals was reported to be planned, up 10 per cent from the 315 professionals that firms reported as having been recruited in this year. 78 per cent of all recruitment will take place at the two largest firms. But some of the medium sized and smaller firms say that they plan a much greater proportional growth in professional recruitment.
Non-professional recruitment is planned to increase from 103 positions this year to 127 in the coming year, although a significant number of firms did not return any numbers under this heading. It is unclear whether this means zero or simply undisclosed recruitment.

The number of trainees expected to be recruited in the coming year is up 17 per cent at 499 positions.

Thus, growth in all three categories of recruitment is reported. Most firms, particularly those with higher numbers of staff, plan to grow staff levels to the order of 10 to 15 per cent.


Respondents were asked by how much basic pay rates had been increased after their last general salary review.

Nine firms reported increases in the range of ten to fifteen per cent, and another nine in the range of fifteen to twenty per cent. Remaining firms reported both higher and lower increases, but the broad picture of sizeable percentage salary increases in accountancy practices is clear.

As increases in basic pay, these are well in excess of the terms of Partnership 2000 which governs the public sector and many private sector unionised workforces. However, such increases are more closely related to the general increase in fee income of 18 per cent among respondents, and an increase in income per chargeable staff member of 10 per cent.

Asked how they saw salary levels in the industry in the next twelve months, more than half of the firms in the survey said that they envisaged salaries increasing by more than 10%. Only two firms envisaged increases of five per cent or less. A point was made that base salaries may increase at a slower rate as performance-related packages become more widespread.


Firms were also asked which firms, other than their own, they would judge to be possible candidates for mergers in the next year.

The clear consensus of opinion expressed was that mergers are expected or thought to be possible at all the mid-sized firms. Nigel Cox, partner with Hargaden Moor states that ‘due to current skills shortages, many firms, particularly in the mid range, may view this as a means to addressing staffing resource requirements’.

Anthuan Xavier of BDO Simpson Xavier said ‘we would see more mergers taking place between the second tier firms, to cope with the current economic boom. The growth in the industry is causing problems for some second tier firms who had not invested enough in their second tier management levels. This means that partners are doing ‘managers’ work, thereby stretching company resources. Recruiting at this level is very competitive. To overcome these issues some second tier firms are looking at potential allies to merge with.

Limited Liability

The expressed view of nearly all of the top twenty-five accountancy practices is in favour of some form of limited liability for professional services firms. 100 per cent of respondents said they favoured the introduction of limited liability for professional services. Anthuan Xavier, managing partner of BDO Simpson Xavier said that ‘professional services practices should be allowed the same limited liability protection as other services, as for instance, partners in professional services practices often hold no other assets other than those within the partnership’. He does not believe that proportionate liability will happen in the short term. ‘Limited partnership got the knock in the UK because of the tax issue’, he said, ‘because the revenue wanted to treat practices as companies not partnerships. Therefore no firm became an LLP in the UK as happened in the US’. There has been no response by the Irish government to the issue of limited liability so far.

Nigel Cox of Hargaden Moor agreed that there is a need to ‘put a level playing field in place with the US and other countries’. Dermot Grant of Hopkins O’Halloran Grant said that limited liability is needed to put our financial services business on a proper business footing and legal structure.
James O’Donovan of O’Donovan Caulfield Lavin believes that the introduction of limited liability is needed ‘to protect partners personal assets and reduce PI cost cover in addition to providing a personal investment vehicle to external parties’.

David Holmes of O’Connor Leddy Holmes argued for with ‘self-protection in an era of constant litigation.’

Roddy Ryan of Arthur Andersen’s preferred route is proportionate liability which he said ‘fair and just’.

Paul Carty of Deloitte & Touche said the current legal system in Ireland ‘places a risk of personal ruin on auditors, which exceeds the reward’. ‘This is driving people out of the profession and making it unattractive for new graduates considering a career in accounting. For this reason, Deloitte & Touche are in favour of the introduction of liability for professional service practices and believe three changes are needed:

l a change in current law from joint and several liability to proportionate liability;
l allowing incorporation as limited liability partnerships within Ireland;
l allowing limitation of liability by contract.

The UK has moved ahead on this issue and a bill dealing with limited liability is at an advanced stage.’

John Hogan of Ernst & Young believes the industry needs joint and several liability.
Donal O’Connor of PricewaterhouseCoopers said ‘we favour reform of the limited liability system and in particular a move to a system of proportionate liability rather than joint and several liability. We would encourage a change in the law to allow limited companies to conduct audits.’
Brian Conroy of Horwath Bastow Charlton said that limited liability permits flexibility in fund-raising, ownership and development of services.

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