Audit burden for top firms grows
TOP companies' audit costs are soaring and set to go even higher in an accounting advice bonanza experts believe could replicate the Millennium Bug boom for IT contractors.
Accounts filed by Britain's major corporations in recent weeks reveal that audit costs among the top 20 biggest audit fee-payers went up on average by about 15% last year.
For major financial services groups doing the most work ahead of the introduction of new international accounting standards from next year, the fee rises are far higher.
Audit costs at Lloyds TSB and Norwich Union insurance giant Aviva leapt by about a third last year while the fees HSBC and Royal Bank of Scotland have been charged by their auditors rose by around a quarter.
Accountants say rising audit costs reflect the extra work needed to update accounts for new international financial reporting standards, new European Union regulations and the Sarbanes-Oxley Act clampdown in the US, which make the boards of multinational companies far more accountable for the information they produce.
Eric Anstee, president of the Institute of Chartered Accountants, has warned that international accounting standards being introduced next year will lead to a 'shock wave' for financial markets.
He said that companies will have to do far more to get up to speed with changing accounting rules, and would have to work on how best to present the changes to ensure effective communication.
ICA technical director Robert Hodgkinson likened the pressure on companies' finance departments and their auditors to the surge in demand for IT specialists to ensure computer systems were Y2K compliant.
'It is challenging and in the short term there is going to be pain,' he said. 'It depends on how well-prepared companies are in advance, though our research shows quite of lot of companies have work to do. Because of the timescale, there is demand for advice and for people of expertise and that is likely to be quite expensive.'
Rising audit costs could also set the alarm bells ringing for the competition authorities. The old 'big eight' audit firms have contracted to just four in the past 15 years.
In the previously more competitive market, audit firms were suspected of keeping the statutory audit fee low in the hope of gaining higher-margin additional 'risk assurance' or tax advisory work.
#&149; RISING audit fees could not have come at a better time for the big accountancy firms. They have lost lucrative contracts for non-audit advisory work either because their consultancy practices have been sold or clients, fearing for the independence of the audit, are not giving auditors other work. PricewaterhouseCoopers has lost millions of pounds of business from big clients such as Unilever and GlaxoSmithKline, have cut back by around a third. Other companies have put a ceiling on how much they will spend on additional non-audit work. Halifax group HBOS, whose audit is worth about £7m a year to KPMG, has put a £2.5m limit on other work.
