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; request a free guide on NISAs from Hargreaves Lansdown

Johnny Handle, Northumberland, Ted Relph, President of Lakeland Dialect Society, and Sid Calderbank, Lancashire, founder of the National Dialect Day
newsMeet the enthusiasts determined to stop them dying out
The data shows that the number of “unlawfully” large infant classes has doubled in the last 12 months alone
i100Mike Stuchbery, a teacher in Great Yarmouth, said he received abuse
Arts and Entertainment
The starship in Star Wars: The Force Awakens
filmsThe first glimpse of JJ Abrams' new film has been released online
Rio Ferdinand returns for QPR
sportRio Ferdinand returns from his three-game suspension today
The Speaker of the House will takes his turn as guest editor of the Today programme
arts + ents
Arts and Entertainment
St Peter’s Seminary in Cardross. Argyll, has remained derelict for more than 25 years
arts + ents

Watch the spoof Thanksgiving segment filmed for Live!
Billy Twelvetrees will start for England against Australia tomorrow with Owen Farrell dropping to the bench
rugbyEngland need a victory against Australia today
Arts and Entertainment
The cover of The Guest Cat – expect to see it everywhere
Tyson Fury poses outside the Imperial War Museum in south London ahead of his fight against Dereck Chisora
boxingAll British heavyweight clash gets underway on Saturday night
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Austen Lloyd: Company Secretary

    Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

    Citifocus Ltd: German Speaking Client Specialist

    £Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

    Citifocus Ltd: Performance & Risk Oversight

    £Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

    h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

    £90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game