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2013-12-19 09:45:39
Dec 18th 2013, 12:25 by C.R.
LAST December, the outlook seemed grim for the Big Four accountancy firms in Britain. Three out of the four, Ernst & Young, PwC and KPMG, announced they had cut pay for their British equity partners. KPMG was particularly badly hit announcing job cuts at all pay levels. Neither had Deloitte, the fourth, completely escaped the slowdown in the audit and advisory business. The previous year it was forced to cut partner pay as well.
But this year, business appears to have bounced back slightly. The four behemoths which offer services to companies ranging from auditing to consultancy increased their combined British revenues by 4.2% to just under 9 billion ($14 billion). Profits are also healthy. The job cuts and efficiency savings KPMG announced last year seem appear to have worked particularly well: profits in Britain rose 27% even though revenues only inched up by less than 1%.
It seems that much of the slowdown in their British businesses was linked to Europe s wider economic difficulties. A significant chunk of the four firms British audit and advisory fees came from FTSE100 and FTSE250 companies, most of which are multinationals with exposure to European markets. In 2011 all but one company in the FTSE100 was audited by one of the big four firms, as well as 239 out of those in the FTSE250, according to Hemscott, a research outfit.
Accountants do best when companies are growing and deal volumes are increasing. And sometimes, they are also happy enough when businesses do very badly, as they can earn fees as administrators liquidating firms. The slowdown in Europe displayed neither of these characteristics. In the face of uncertainty many businesses sat on their hands rather than performing the type of restructurings or acquisitions that would have earned fat fees for the big four in the past. As the euro zone emerged from recession this year, their underlying businesses appear to be growing again.
But more favourable conditions in Europe may not necessarily bring the same growth in their British businesses as they have seen in the past, especially in their audit divisions. Last year Britain introduced a new rule forcing companies to put their audit contracts out for tender every ten years. This has already increased the industry s costs as they now have to bid more often for work. New proposals from the Competition Commission in July have suggested shortening this period to five years. The European Commission is also planning to introduce new rules that force companies to change their auditors at regular intervals, as well as cap the amount of non-audit fees they can charge their clients. Although the big four have weathered the recession comparatively well in Britain, they are not quite out of the woods just yet.