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14 Jun 2016 12:30pm

Mid-sized accountancy firms competing with Big Four in non-audit areas

Mid-sized accountancy firms in the UK are increasingly moving away from traditional audit services and competing with the Big Four firms in other areas, according to research by MGI Worldwide

The percentage of the mid-tier UK accountancy firms’ income from non-audit work rose to 55% in 2015, up from 50% in 2014, and just 48% in 2013, the research found.

Big Four firms’ income from non-audit work was 61% of their total fee income in 2015.

Medium-sized international accounting networks are also diversifying with 46% of fee income coming from non-audit services like consultancy, insolvency and tax advice in 2015, according to MGI Worldwide.

Clive Bennett, chief executive of MGI Worldwide said, “Audit is generally considered an accountancy firm’s bread and butter but it is a highly competitive and low margin market, so it’s great that firms are now branching out and offering additional high return services.”

He added that the trend of diversifying beyond audit should not be restricted to the Top 20 accountancy firms.

“There is no reason why SME accountancy firms shouldn’t see this trend of diversifying as an viable option for their own businesses.”

According to MGI Worldwide, the ability to undertake cross border work is one of the reasons why many mid-sized firms are closing the gap on the Big Four.

The accounting network added that the new EU audit reforms have also incentivised mid-sized firms to look for alternative ways to generate fee income aside from their core audit work.

New rules obliging companies to change their audit provider every 10 years has created more competitive pressures in the audit market, which in some instances has forced down pricing for audits, according to MGI Worldwide.

Bennett added that the increased risks associated with audit are causing firms to move away from it.

“As courts and audit regulators get more aggressive, so the legal risk for auditors grows. Add that risk to eroding margins and it is obvious why many firms, big and small, are moving away from audit. The regulators and legislators are going to have to face up to this problem. And quickly,” he said.

The research also revealed that an increasing number of medium-sized accountancy firms are beginning to earn significant revenues from service lines that were practically non-existent a decade ago such as cyber security, data analytics and regulatory advice.

“Mid-sized firms that have chosen to focus on specific services have quickly become specialists in these areas, offering prospective clients expertise that can match the bigger firms whilst still maintaining the personal touch of a smaller organisation,” Bennett said.

MGI Worldwide added that the broader UK consulting market grew almost four times faster than the wider economy UK in 2015, an increase of 8.2% to £6.79bn, therefore presenting a highly profitable market for those accountancy firms looking to branch out into new service lines.

Sinead Moore

 

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