RSS feedsTax work for accountancy firms outside the Big Four is on the increase, partly because of the problems that the four dominant firms face.
The impact of Sarbanes-Oxley legislation on US companies has been well documented, yet growing concerns over auditor independence, and a perceived lack of competition in the accountancy marketplace, is having a knock-on effect.
Sarbanes-Oxley affects some 100 or so UK-listed companies, all of which have a large international dimension, all of which are audited by the Big Four. So how can this have an impact on smaller firms, such as those that are considered in the middle tier?
Despite this perceived lack of competition, large companies will almost certainly continue to be audited by the large firms. But they do not need to go to these same firms for other services, particularly tax.
Here, there is not the need for massive international networks, just a demand for deep technical knowledge and a broad business sense – characteristics in which the Big Four do not have a monopoly.
‘We have an established national presence, but the things that are happening in the larger firms following Sarbanes-Oxley are opening doors for us in FTSE 350, where tax problem solving and tax advice for listed companies is providing us with huge opportunities,’ says George Bull, Baker Tilly’s head of tax.
The whole issue has opened up that end of the market to mid-tier accounting firms. Bull believes that even though the critics would suggest buying the Big Four because, like IBM, they’d never get fired for doing so, the early successes of smaller firms breed further success.
Bull is not alone in this belief, though there is a job to be done convincing other financial directors and audit committees that it can work. Gradually, FDs and heads of tax at the smaller end of listed companies are beginning to see there are alternatives.
'This is an opportunity for many firms,' says Bull. For many years it was a terribly difficult – almost impossible – market to break into. The credibility barrier was extremely high. But that has come down several notches, so mid-tier firms can now demonstrate they are capable of delivering the tax services at the highest possible level.
Ian Evans, head of tax at Grant Thornton, concurs with this view. ‘We did some market research to establish what buyers of tax services were looking to do in the light of regulation and this led us to believe there was an opening for firms such as ourselves. Regulation has started to make buyers of tax services less than loyal to their audit providers. This could involve switching to another firm and/or setting up a panel of suppliers which could, of course, include law firms.
Evans describes his firm’s approach as twin-track, where it continues to work with privately owned businesses but now look for work from public interest companies. ‘You can’t be serious in this marketplace without depth of resource, and that is something you cannot build overnight. Two years ago, we only had a couple of people in London looking after international tax; now we’ve got 32 people in this area in London and 16 outside London,’ he says.
Evans believes having this greater depth and breadth of technical skill is of benefit to his smaller clients as well, especially as more and more companies are trading internationally. So there shouldn’t be any fears that smaller companies would feel neglected as their tax advisers go after bigger fish.
Though, of course, if this were to be the case, then small-scale firms would be able to benefit from this thanks to a similar knock-on effect. Likewise, Evans doesn’t believe that work will go back to the big firms as the heat reduces in the corporate governance debate. ‘It would only go back if other firms did not step up to the plate.’
And, as Bull says: ‘It’s all opportunity.’
THE RIGHT STUFF
Winning big business boils down to two areas: responsiveness and value for money. All clients like to be treated as if they are a key client. If a company is outside, say, the Fortune 500, the feeling might be that the Big Four wouldn’t be interested.
But it’s not just about boosting the numbers; it’s about boosting them in the right areas. It is about a combination of lateral hires from industry, such as tax directors, plus those with experience in the profession – in areas such as transfer pricing, expatriate services and international indirect taxation.
And quality has not been diminished. ‘We are finding we are able to attract a good standard of candidate,’ says Ian Evans, head of tax at Grant Thornton. ‘I’m very confident that we have got the people here and that we can do the business.’
