Tough battle over tender issues

When the RAC announced it was switching to a new accounting firm, the former auditor cried foul. Roger Trapp reports

Today the Royal Automobile Club in London's Pall Mall plays host to an annual meeting of its members that is attracting more than a little attention. The reason is that the club has signalled its intention to drop its auditors of 16 years, BDO Stoy Hayward, in favour of Price Waterhouse.

Though not unworthy of comment, this move alone would not have brought the curious to the organisation's door. After all, businesses of all sorts are getting used to the idea of putting such appointments out to tender. No, what is causing all the fuss is that Stoy has cried foul over the selection process.

In a letter circulated to the 13,500 people who are today being asked to approve the appointment of PW, it in effect claims it lost the job because of predatory pricing, or "lowballing", by its bigger rival. Such claims are not new. And they are not confined to PW, which has in the past been dubbed "Half-Price Waterhouse" because of its perceived fondness for the practice. They have been whispered - chiefly by second-tier and middle-ranking firms about members of the Big Six - since the recession of the early Nineties began to put pressure on fees. But this row is unprecedented because Stoy has chosen to make a public issue of it.

In a statement issued at the start of the affair late last month, PW insisted it did not indulge in predatory pricing in order to obtain new audit appointments. "The firm has no need to do so, and it would not be commercially sensible," it added, in keeping with the established Big Six line on the issue.

As evidence for its defence, PW cites the letter to members from the RAC chairman pointing out that all three of the potential new auditors - Ernst & Young and Arthur Andersen, as well as PW - bid below £200,000 in attempting to win the work that last year was carried out by Stoy for more than £300,000.

This by itself is no answer, of course. Instead, it might merely reinforce the view that "they are all at it". Certainly, a belief that the situation is becoming worse - to the detriment of the profession overall - appears to be behind the decision to go public.

It is easy to question Stoy's motives, especially since it admits that it reduced its 1994 price by £50,000 because of greater efficiencies and the recognition that it was facing competitive tender. This would not be the first time that an organisation or individual has appealed to the greater good in attempting to deal with some personal slight. But it is also important to realise that this is not a risk-free strategy for a firm that has made the headlines in the past - for its association with such corporate failures as Polly Peck and Astra. Not only does this move advertise the fact that it has lost a client it would rather have retained, it might also tempt existing clients to threaten to go elsewhere unless their fees are reduced substantially.

But the firm has made a conscious decision to do battle this time, at least in part because it believes that the RAC electorate - made up as it is of many sophisticated businessmen and more than a handful of accountants and lawyers - is in a good position to appreciate the issues. It has apparently received support from some in advance of the meeting.

The dispute also comes at a time when the whole concept of the audit is under consideration. Recent research which suggests that qualified audit reports are on the decline only reinforces the growing public perception that the exercise is becoming increasingly worthless, and little more than a commodity provided for compliance purposes.

In such an atmosphere it is felt by some that - whatever the lofty views of the Auditing Practices Board and the Institute of Chartered Accountants' newly launched audit faculty - the appeal of the audit to many firms of accountants is the access that it grants to other, more lucrative, forms of work. The RAC, for instance, is perhaps surprisingly a rather complex organisation that is about to undergo a good deal of change - and is therefore ripe for consultancy services.

But others in the profession claim that the very fact that the issue of auditor independence is under the spotlight is prompting many clients to look anywhere but to their auditors for other services. Indeed, there appears to be a schism between those companies that want their auditors to provide just about every other accountancy-related service and those that keep audit separate from everything else.

If the profession does not take a firmer stand on what might amount to loss-leading, say the likes of Stoy, a change of government might force firms to split their practices in this way. While such a solution might curb the perceived excesses of the largest firms, it would also hit Stoy and its counterparts lower down the league table, since it is their clients who tend to need a little accounting advice from their auditor but are unable or unwilling to pay substantially extra for it.

Nobody expects Stoy to win over the RAC rank and file today. But most agree that the aftermath will be interesting. Clark Whitehill, another medium-sized firm that in recent months has lost to the Big Six clients of the stature of J Sainsbury and the Woolwich building society, has taken up the issue behind the scenes.

Though the ability to provide specialist expertise, rather than fees, was thought to be the cause in each of those cases, the result would appear to be the same concentration of the choicest clients in a few hands. And that means, suggest the cynics, that this select group comparatively quickly reaches a point where it can force prices back up.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins win the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
News
news
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    No postcode? No vote

    Floating voters

    How living on a houseboat meant I didn't officially 'exist'
    Louis Theroux's affable Englishman routine begins to wear thin

    By Reason of Insanity

    Louis Theroux's affable Englishman routine begins to wear thin
    Power dressing is back – but no shoulderpads!

    Power dressing is back

    But banish all thoughts of Eighties shoulderpads
    Spanish stone-age cave paintings 'under threat' after being re-opened to the public

    Spanish stone-age cave paintings in Altamira 'under threat'

    Caves were re-opened to the public
    'I was the bookies’ favourite to be first to leave the Cabinet'

    Vince Cable interview

    'I was the bookies’ favourite to be first to leave the Cabinet'
    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor