A SURVEY of Western Australian listed companies has highlighted the dominance of accounting firm Ernst & Young in the local audit market.
The survey, commissioned by WA Business News and conducted by consulting firm Connect 4, found that Ernst & Young audits 76 out of 380 listed companies based in WA.
Ernst & Young also has the most lucrative clients, including Wesfarmers, Woodside and Foodland.
Among the other ‘big four’ accounting firms, KPMG and PricewaterhouseCoopers are having an interesting tussle for market position, while Deloitte ranks fourth.
Audit is one of the key services for accounting firms, for the revenue from audit services but also for the additional non-audit opportunities.
Critics often argue that the big four accounting firms have used audit as a ‘loss leader’ to pick up other work.
However the survey found that audit work generated substantially more revenue.
Collectively, the 380 WA companies in the survey paid their auditors $17.9 million for audit services and $13.4 million for other services.
The big four firms reaped the vast bulk of this revenue, with total audit fees of $14.7 million.
One of the big challenges facing accounting firms is their ability to continue cross-selling services, in light of the regulatory push for audit independence.
The Connect 4 survey also provides insights into the varied strategies of the second-tier accounting firms.
Stanton Partners, for instance, has a strong focus on junior exploration stocks and has 29 clients in the survey.
Other firms rank lower in the survey but have a strong audit practice based on unlisted and private companies.
PKF, for example, is external auditor for approximately 70 unlisted companies, including Len Buckeridge’s BGC, while Horwath’s clients include the State’s biggest private company, Robert Branchi’s Automotive Holdings Group.
Ernst & Young’s top clients were highly lucrative.
Wesfarmers, the State’s largest company, paid $1.7 million for audit fees and $1.2 million for other services.
Woodside paid $1 million for audit fees and $1.6 million for other services.
It was one of several Ernst & Young clients that paid substantially more for non-audit services.
Others in this category included Brandrill, Hartleys, Portman, Consolidated Minerals, National 1 and Amity Oil, all of which have been through a major restructuring or developed new projects.
There is little turnover in the audit market, though Ernst & Young recently added two new clients – iiNet (formerly audited by Deloitte) and Cooperative Bulk Handling (formerly PricewaterhouseCoopers).
Assurance & Advisory Business Services partner Greg Meyerowitz said WA-based listed companies were just one part of the firm’s audit practice.
He said Ernst & Young’s Perth office did a lot of work for global clients with WA operations, such as Rio Tinto and Barrick Gold.
Other clients include the Insurance Commission of WA, RAC and HBF.
KPMG ranked number two in the survey, with 55 listed clients including Alinta, Orbital Engine and Minara Resources.
A recent addition to its client list was Coventry Group (formerly BDO).
KPMG’s listed clients paid $2.4 million in audit fees and $1.8 million in non-audit fees.
Interestingly, PwC has fewer clients, with 35, but it generated substantially higher audit revenue ($3.2 million) and non-audit revenue ($3.1 million).
PwC’s top clients included Iluka Resources, Clough, Burswood and Straits Resources.
KPMG is the market leader at a national level, earning $73 million in audit fees from the top 200 ASX-listed companies.
Ernst & Young earned $50 million from the same group.
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