PwC warns that reforms will cost it audit clients

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PricewaterhouseCoopers chairman Ian Powell has warned that the accountant will lose audit clients following a sea-change in the way the market operates, despite announcing that 874 partners have pocketed an average of £705,000 each in 2013.

PwC’s coffers have been boosted of late by a number of high-profile audit wins, such as HSBC and Cairn Energy, as big listed groups look to put that work out to competition on a more regular basis. FTSE 350 companies have been accused of having too cosy a relationship with the Big Four bean-counters, which has led many to review their auditors ahead of Competition Commission reforms that will mandate them to do so every five years.

Despite the successes, Mr Powell pointed out that PwC is the country’s biggest auditor of FTSE 100 blue-chip companies,  so it would be “naïve” to think that it wasn’t “likely to lose some” big-name clients. KPMG, Deloitte and EY are second, third and fourth in a small gaggle of auditors that have a stranglehold of the market, which has angered smaller rivals and prompted the regulator’s intervention.

But Mr Powell was buoyed by PwC’s results, which saw revenue grow 3 per cent to nearly £2.7bn in the year to June, with opportunities for further success being eyed up in the Middle East and Central and Eastern Europe. The partners’ share of the profits was up 4 per cent on 2012, while Mr Powell pocketed £3.6m, a rise of £300,000.

At group level, profit was up from £727m to £740m, but Mr Powell stressed that competition for work “remains tough”. The Big Four accountants have been keen to emphasise that they fight ferociously to win work from each other, meaning that there is sufficient competition to keep their fees down.

Mr Powell argued that the result has been that PwC has had to provide-better quality service for the fees that it charges. He told The Independent: “These companies are sophisticated buyers of audit. They understand the firms that have invested enough to do these audits. If you look at pricing pressure, it is intense.”

However, he suggested that the regulator’s reforms could backfire, with a mandatory tender of every five years proving so costly that auditors would become more selective over which work they tried to win.

“This is an inappropriate measure,” he argued. “This puts an additional burden on business and on us at a time when we’re trying to invest.” 

The Competition Commission inquiry, led by Laura Carstensen, said that the introduction of mandatory tendering would cost the City about £30m a year. However, the former Slaughter  and May lawyer has been accused of underestimating the financial impact, with some estimates putting the figure as high as £140m.

The European Union is also looking to hit the Big Four with its own sweeping reforms, but is losing a race to hit a deadline to agree the proposals by next year. If that timetable is missed, the EU will have to go through the whole process of developing its ideas again.