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Key Note report: Accountants struggle in 2009-10

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12th Oct 2010
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Contrary to what many people might assume, accountants are not benefiting from the recession, according to the profession’s annual statistical healthcheck from Key Note Reports.

The 2010 edition of Key Note’s Accountancy report estimates that the market contracted by 3%  in 2009 to an estimated £21.4bn. Its best prediction for the market in 2010 is that “it will have stablilised” during the first half of the year.

Keynote accountancy market growth curve 2005-14

Audit and accounting, tax and legal services and corporate recovery and business recovery saw a very modest rise in revenues in 2009, but management consultancy (including outsourcing) experienced a fall in revenues. Cutbacks in consultancy projects by large business, government and local authorities has hit this sector hard, and further government spending cuts indicate that larger firms in this sector will continue to feel the effects.

Whether large or small, the whole profession has experienced more pressure on fees and narrower profits. In firms where staff numbers have been cut, “the stresses are greater than ever”, says Key Note.

The Key Note statistic provide a useful long-term barometer on accountancy’s health. Little has changed in the structural split between a small group of very large firms at the top of the profession and a vast number of small firms and sole practitioners at the bottom, but Key Note’s figures indicate some worrying changes.

Structure remains the same - but smallest firms are hurting most
The number of UK firms engaged in accounting, bookkeeping, auditing and tax consultancy rose by 1.7% between 2008 and 2009 to 33,270. Two-thirds (62.5%) of these businesses generated a turnover of less than £100,000 in 2009, and 32.1% recorded a turnover of less than £50,000. Only 16.2% declared a turnover of £250,000 or more in 2009, while just 3.8% had a turnover of £1m or more.

In its 2010 report, Key Note points that during 2009 the number of firms with a turnover of less than £50,000 fell by 3%. “Some of these firms closed while others were bought out by rivals,” it adds.

Larger competitors had their own problems. While the number of firms turning over £500,000 and £999,000 grew by 8.5% in 2009, acquisitions drove much of this growth. Succession paths within the profession are becoming a major issue as a growing of accountancy partners near retirement age. If junior partners do not have the capital to buy out the older partners, often the only alternative to partners seeking an exit is to sell up – sacrificing the firm’s independence and often realising less than the older partners might have hoped for.

As has long been the case, the Big Four global firms dominate the profession. They audit almost all of the top 100 public companies, as well as the majority of the top 350 companies. “Broadly speaking, the composition of the top 50 firms — and especially the top 20 — has remained the same in 2009 as it was in 2008,” says Key Note.
 

Pain points and hot spots

  • Audit contracts - While audit fee income saw a modest 3% increase in to an estimated £4.6bn in 2009, the number of firms registered to audit continues to fall. From around 11,000 registered audit firms in 2002, the figure fell to 7,843 in 2009. Steadily reducing profit margins on audit work are fuelling this trend, along with the increasing regulation, supervision and training requirements for auditors, Key Note suggests.
  • Professional indemnity - The report also notes anecdotal evidence that while accountants are facing fewer lawsuits in 2010 than the previous year, “the fact that clients or investors are more ready to consider legal action against accountants has made accountants make liability insurance a priority issue,” Key Note concludes.
  • Forensic accountancy - Another bright spot in the market is forensic accountancy, which has flourished alongside the surge in recession-fuelled corporate fraud. As a specialist activity, the Big Four and mid-tier accountancy firms have prospered the most from this growth.
  • Technology factors: iXBRL and Cloud computing - The Key Note Report for 2010 indentifies the switch to mandatory efiling for Corporation Tax as a major challenge for next year and highlights the growing interest in Cloud computing.

Overall,  KeyNote is forecasting a very modest rise in the accountancy market in 2010, followed by slight growth in 2011. From 2012 onwards, growth should be a little stronger.

The full 2010 Accountancy Market Report is available to purchase online for £460.
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Replies (7)

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By bvijayakumarca
13th Oct 2010 12:44

Its surprising but true. The prosperity of the auditors/ accountants is proportionate to the prosperity of the clients mainly in the case of the small practioners. The work will be more in the adverse situations but the remuneration will not be proportionate, as the clients plead inability to pay correspondingly.

Its surprising because in the case of big practioners, there should be spill over opportunities to other small practioners due to the competition and then conflicts of interests in the case of consultancy assignments. However, its not happening that way for whatever be the reasons. 

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By Kirsty McGregor
13th Oct 2010 14:31

Re: Keynote Accountancy Report

This is completely in line with the research that we at The Corporate Finance Network have conducted on our member firms’ fees.  We found that general practice compliance fees have decreased by 4% on average, but 3% across the firm, because their corporate finance fees tempered the effect, with an average increase of 26% across the network.

We have had some very impressive results from our firms this year. One £1.5m turnover firm which was already billing in six figures for corporate finance work in 2008/9, has now more than doubled those fees this year.   The firms that want to do more corporate finance work are finding our tools extremely beneficial, as they are unique and not available anywhere else in the market.  The more savvy accountancy firms are realising that in order to diversify away from compliance work, not only do you need the right approach, but you need to have the support and access to centralised resources that make that it viable to offer these services effectively.  I'm not sure that there's anything equivalent for Forensic Accountancy, so it's not an area I think many small/medium sized practices will be able to offer.

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7om
By Tom 7000
13th Oct 2010 14:39

Old Practitioners

Not a problem where I am. It seems there is a glut of people wanting to buy accountancy firms and no one selling... The agents hardly ever have anything for sale and when they do theres a queue of people buying. Dont see this as an issue myself.

 

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By justsotax
14th Oct 2010 10:16

If you put the same in you will get the same out.....

(or something like that).....many accountancy firms have not changed the way they do things to take account of the 'recession', they are doing the same things they did before...only that as clients go out of business, or reduce in size so it follows the fees go down.  They don't deal with as many company purchases/sales, companies who were above the audit threshold fall below, employee numbers in clients fall and so payroll fees fall, businesses go out of business and as businesses reduce in size so does the fee.  So whats new!?  I would guess this happened in the last recession?! (and the one before that!?).....

Doing a little SWOT analysis may unearth some little gems (how many small businesses will be starting in the next 1-2 years)....

Aren't we here to provide business advice (to help our clients survive and prosper in these times) as well as the more traditional work.....

We can only benefit from the recession if we make it our friend....if firms don't change the way they do things its not surprising we see these type of figures.  Some firms will be benefiting, but only those who have identified what the clients require and have followed this by making th apprpriate changes.

 

 

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By richardterhorst
14th Oct 2010 11:43

Conflict of interest should give more work to smaller accounting

 One reason is that conflicts of interest does not interest the big players. They don't care. Seen a number of instances of this. 

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By Bob Harper
14th Oct 2010 13:00

Easy pickings

I see it the other way, there is more opportunity than ever before. 

There is no doubt that the economic climate provides a unique opportunity for firms with ambition because the market is disturbed and business owners are looking for better value.  Firms can connect with clients on the pain caused by the recession. They can educate the market on why their proposition is better and win new and better business.

The weakness is established firms is their inability to agree and implement a strategic plan. New, young and small firms can take advantage of this.

The questions are:

How many ambitious firms are there?How quickly can they mobilise and implement?How much do can they take on?

Too many firms are going through the motion with too many clients and I wish the proactive, ambitious firms well. They and the UK businesses deserve each other.

Bob Harper

Portfolio Marketing

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By justsotax
14th Oct 2010 14:22

I don't always agree with you Bob...

but on this occasion I do....its the firms who are unwilling to change that struggle....those with ambition and a willingness to accomodate the changing requirements of the client or indeed the services they offer the client will win in this environment....so small businesses able to apply such changes quickly are well positioned...

One other thing....who is it that assumed that accountants would benefit in the current climate anyway....?!?  what basis have these people come to that conclusion......

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