Fears grow of price war among accountants: ICA concern underlined as Caird replaces KPMG with Ernst & Young to save on charges

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FEARS of an escalating price war among accountants were fuelled yesterday when Caird Group said it had replaced its long-standing auditor, KPMG Peat Marwick, with Ernst & Young because it was cheaper.

E&Y substantially undercut KPMG's price during a beauty parade, something increasingly common in the profession but one that the Institute of Chartered Accountants is watching closely. It recently toughened its rules on auditors quoting lower fees.

Caird, the waste management company emerging from financial crisis, estimated it would save more than 15 per cent on the basic audit fee - pounds 77,000 last year. KMPG charged a further pounds 151,000 for work during a reorganisation.

The ICA said quoting lower fees was not improper. But it was concerned that auditing standards should not fall while firms fought for business during the severest recession the profession had faced. Firms are cutting back - Coopers & Lybrand is shedding 15 per cent of partners this year - and few are making profits from auditing.

Chris Parker, Caird's finance director, said he did not choose the lowest tender among three bidders against KPMG. 'We were after value for money, not lower quality,' he said. E&Y and KMPG would not comment.

Under recessionary pressures audit firms are adopting more aggressive marketing techniques. Cable and Wireless and Rolls-Royce moved from Coopers & Lybrand to KPMG and United Biscuits dropped Coopers for E&Y for substantially lower fees.

Other companies have abandoned smaller firms for those in the big six, leading to accusations of predatory pricing or 'lowballing', whereby large firms are considered to be prepared to charge uneconomic fees for audits in the hope that they will pick up more lucrative general advisory or consultancy work.

Earlier this year the ICA issued stronger guidelines on the issue but, after investigating at the urging of the Department of Trade and Industry, declined to outlaw the practice. Under the new rules firms that have used fees as a means to obtain work must demonstrate that the standard of their work has not suffered and that the client was not misled about what fees might be in succeeding years.