London Evening Standard: Accountants face day of reckoning on fees

EXTRACT: …Royal Dutch Shell, which simplified its processes during the year by ditching joint auditor KPMG, cut its Sarbanes-Oxley costs by $17m.

Robert Lea, Evening Standard
8 May 2007

The audit fee bonanza enjoyed by the Big Four accountants over the past four years has continued into the current annual reporting season but there are signs the boom may be dramatically slowing.

The Evening Standard can reveal that amid top-level calls for the major accountancy firms to reveal the profits they are making from auditing, the 10 most lucrative listed company audit contracts in the UK yielded a record £196m in fees last year, nearly 9% higher than in the previous year.

The fees gravy train being enjoyed by the Big Four – PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young who routinely pay their hundreds of partners more than £500,000 a year – has prompted unprecedented scrutiny by regulators looking to break up their oligopoly.

After a recent report from the Financial Reporting Council, the Big Four – who between them audit the whole of the FTSE 100 and 98% of the FTSE 350 – may be forced to reveal just how profitable their audit contracts are. Paul Boyle, chief executive of the FRC, said: ‘There is a view that as favoured suppliers they should be more transparent and reveal how much money they make from audit.’

Barclays has for the first time become Britain’s most valuable client after its audit fees paid to Pricewaterhouse-Coopers rose 50% to £33m.

After a further £11m in fees paid for tax and other advice Barclays was last year worth £44m to PwC, double the amount the bank was paying to its accountant two years ago.

At the heart of the boom is the Sarbanes-Oxley legislation in the US, which came in after the 2001 Enron affair, the world’s biggest corporate scandal.

Barclays’ figures reveal the basic statutory audit came in £1m more expensive last year at £7m.

However, the bank had to fork out a further £22m in fees ‘pursuant to legislation’ – auditor code for making a company and its directors Sarbanes-Oxley-compliant – up from £9m in the prior year.

Rival banks Royal Bank of Scotland and Lloyds TSB and the pharmaceutical giants GlaxoSmithKline and Astra-Zeneca were also landed big Sarbanes-Oxley bills last year.

Other major companies’ accounts, however, reveal they may be through the worst of the accounting fee bonanza which, with Sarbanes-Oxley and the introduction of new international financial reporting rules, saw accountants double their fees from major clients between 2003 and 2005.

HSBC pared down its Sarbanes-Oxleyrelated fees paid to KPMG in 2006 by $15.9m (£8m) while Royal Dutch Shell, which simplified its processes during the year by ditching joint auditor KPMG, cut its Sarbanes-Oxley costs by $17m.

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