Global accounting growth slowed in 2012, study finds
IAB research suggests market is under pressure
By CFOWorld.co.uk staff | CFO UK | Published 17:02, 31 January 13
Global accounting firms reported overall income growth in 2012 but the rate of growth dipped for the first time since 2009, according a new study published this week.
In its latest survey of global accounting firms, the International Accounting Bulletin (IAB), found the dip to be driven by downward pressure on fees, increased regulatory scrutiny and intense competition across the industry.
The global accounting network income grew 6 percent in 2012, slowing from 8 percent in 2011 while growth for accounting associations was flat for the year. Networks held 88 percent of market share with associations bagging the remaining 12 percent.
IAB found almost no year-over-year changes in the global market share within the Big Four (PwC, Deloitte, Ernst & Young, KPMG), which between them accounted for 67 percent of market fee income, up from 66 percent in 2011.
PwC retained its position as the largest global network, a title that has only been broken once, when Deloitte took top spot in 2010. However, the gap between Deloitte and PwC decreased to US$210 million in 2012 according to IAB figures. The gap between third-ranked Ernst & Young and fourth-placed KPMG increased significantly to US$1.4 billion, compared to only US$170 million in 2011.
This was mainly down to KPMG reporting only a 1 percent increase in revenues in the face of challenging market conditions, and reporting later in the year than its Big Four counterparts. Last year also saw a surge in M&A activity among the larger mid-tier networks, with BDO International merging with PKF International’s firms in Australia, China and the UK.
In order for PKF International to retain its status as an international network it has to secure replacement firms, however as of yet there has been no announcement. Some 11 firm leaders interviewed by IAB for the survey said M&A discussions – at least in their initial stages – were occurring with much greater frequency worldwide, and predicted that mergers on the scale of BDO UK and PKF UK were almost certain to occur more often in 2013.
IAB analyst Ana Gyorkos felt that the continued fee pressure, squeezed margins and the increasing cost of standard and regulatory compliance had led to the increased M&A activity.
“Especially in the developed markets M&A is the only way of significantly increasing market share, particularly for mid-tier networks, and increase margins as well as provide an alternative to the Big Four,” she told CFOWorld.
Worldwide, firms in Turkey (35 percent), China (28 percent) and India (20 percent) enjoyed the strongest average growth in the past year, as networks and associations invested heavily in these key emerging economies.
Specifically in a British context, Gyorkos believes the UK market will continue to retain its importance for global accounting networks.
“In light of the on-going tax debate in the country, the big accounting firms bear reputational risks in the UK. However, history is indicative of the fact they have managed it effectively. There is no reason to suppose that they wouldn’t on this occasion,” she concluded.
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