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KN74001

KEY NOTE ACCOUNTANCY JULY 2001

Overview

Editor: Jenny Baxter
ISBN: 1-84168-225-X

This report covers: accountancy, accountancy services, management consultancy, audit, accounting, assurance, tax, legal services, corporate finance, business recovery, forensic accounting, actuarial services, transaction services, outsourcing, share issues, stock market flotations, project finance, structural finance, disposals, mergers and acquisitions, management buyouts, MBO, factoring, leasing, debt management, private finance initiatives, PFI, privatisation,

Companies covered include: Big Five, Institute of Chartered Accountants in England and Wales, ICAEW, Chartered Institute of Management Accountants, CIMA, Accounting Standards Board, ASB, PricewaterhouseCoopers, PwC, KPMG, Deloitte & Touche, DTT, Ernst & Young, Andersen, Arthur Andersen, BDO Stoy Hayward, Grant Thornton, Pannell Kerr Forster, PKF, Baker Tilly, Horwarth Clark Whitehill, HLB Kidsons, Smith & Williamson, Moore Stephens, Mazars Neville Russell, Tenon Group, RSM Robson Rhodes, BKR Haines Watts, Levy Gee, Saffery Champness, Chantrey Vellacott DFK, Kingston Smith, Bentley Jennison, Hacker Young, Solomon Hare, Haysmacintyre, Menzies, Wilkins Kennedy, Cooper Lancaster Brewers, Reeves & Neylan, Francis Clark

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EXECUTIVE SUMMARY

This report looks at the UK accountancy market. Accountancy services can be segmented into four main groups: management consultancy, audit and accounting (which is often called assurance, especially by the larger firms), tax and legal services, and corporate finance and business recovery.

The accountancy industry is enjoying a boom period. Recent growth has been outstanding and Key Note estimates that total industry fee income reached £10.46bn in 2000, which represents an increase of 14.3 percent on 1999. All sectors are growing strongly, but the fastest growing sectors in 2000 were management consultancy and corporate finance/business recovery.

The industry has become highly concentrated. Key Note estimates that the top 50 firms have 67.8 percent of the market, and the top five firms — known within the industry as the Big Five — have a massive 54 percent of the market. However, despite the dominance of the Big Five, the small to medium-sized firms are showing strong growth and look set to retain their share of the market — and, in the long term, to enlarge it. There is widespread apocryphal evidence to suggest that a significant number of clients are moving from the Big Five to some of the larger medium-sized firms.

Two of the larger firms — KPMG and Ernst & Young — have sold off their consultancy businesses, while PricewaterhouseCoopers (PwC) is set to sell or float its consultancy business some time in 2001 or 2002. Of the other Big Five firms, Andersen (now wholly separate from what was once called Andersen Consulting) and Deloitte & Touche are seeking to retain their consulting businesses. One of the biggest discussion points in the industry is whether an auditor should also be a consultant to its client. In the US — where the Big Five have massive market shares — the pressure is on firms to divorce their consulting from their auditing. In the UK, the pressure is much less intense, although the question is increasingly being asked.

Currently, one of the important features of the industry is the drive to create larger firms at mid-tier level. While none of these medium-sized firms is likely to challenge the Big Five, they still perceive a need to grow, to be able to offer the range of services required by their clients. Another issue is the expected raising of the audit exemption limit in the near future, which would mean that any business with a turnover of less than £4.8m would not be required by law to have an annual audit. This will affect all small and medium-sized firms, but to what degree is not at all clear. While some accountancy firms are clearly worried about the effect it might have on their business, others remain unconcerned.

Key Note forecasts that the market will continue to show good growth between 2001 and 2006. The companies constituting the Big Five will remain unchanged, but many of the mid-tier firms will continue to gain strength.

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Text © 2001 Key Note

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