This report examines the market for accountancy services in the UK. These can be split into four sectors: management consultancy; audit and accounting (often called assurance or business assurance); taxation and legal services; and corporate finance and business recovery.
Accountancy in the UK is an industry that is in the middle of much change. Profits are lower than they have been for many years and competition is fierce, especially among the top 30 or so firms. More is being asked of accountants, and their image has taken a battering following the demise of some important clients in the US, the UK, Italy and Australia. Meanwhile, new accounting standards are being introduced by international accounting bodies, which will demand more expertise from UK accountancy firms.
The accountancy market in the UK is still growing, but at a much slower rate than in the late 1990s. Key Note estimates that the total fee income from accountancy and related services in 2003 was around £14.44bn, with corporate finance and business recovery the strongest performing sector.
The accountancy industry is dominated by the so-called 'Big Four' firms. PricewaterhouseCoopers, Deloitte & Touche, KPMG and Ernst & Young audit more than 90% of the top 100 UK public companies, as well as most of the top 350. Although the 'Big Four' hold a dominant position, their revenues have not grown as fast as those of many of their competitors. However, even these competitors are finding life difficult, as margins on audit and taxation services are slim. Although consultancy is seen as the most profitable sector, most accountancy firms have seen their revenues rise by only a modest amount in this area. The Management Consultancies Association says that, on a like-for-like basis, overall fee income generated by its members rose by 13% in 2003. Few accountancy firms can say that they have done as well in the consultancy sector.
The industry is growing increasingly concerned about auditor liability. The fact that Ernst & Young is to face a court case in 2005, in which substantial damages are being sought by Equitable Life, is worrying the profession. Another concern is the Inland Revenue's strict attitude towards tax avoidance. The Inland Revenue has made plain that specific tax avoidance schemes that it has not vetted will result in the accountancy firms that sold the schemes being fined. This has caused confusion and uproar, as it appears that the Inland Revenue has not made its demands clear.
Another concern is the raising of the audit threshold. Until the end of 2003, any business with a turnover of £1m or more had to be audited. However, HM Treasury has now raised this threshold to £5.6m. This means that thousands of small businesses no longer need to be audited by an accountant. Small firms are overjoyed, and the Federation of Small Businesses has applauded the Chancellor of the Exchequer for saving these small firms both time and money. In contrast, the accountancy industry is vexed by this decision. For the top ten accounting firms this will make little practical difference, as they mainly deal with businesses with turnovers greater than £5.6m. However, for small accountancy firms, the loss of these small clients could have a significant impact on their business.
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