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The second tier rises

WITH former accounting giant Andersen soon to face US justice after the collapse of energy giant Enron, second-tier firms are starting to see some opportunities arising.

With the fall of Andersen, many small to medium-sized enterprises that were being audited by the big-five accounting firms are starting to consider whether having such a big name on their financial statements is necessary.

Industry insiders believe there is a considerable audit price differential – up to 50 per cent – between the top and second-tier firms.

They also believe large public companies such as BHP-Billiton, News Limited and Wesfarmers will keep their audits with the big-five because they provide ‘bankable’ names to the market.

But even the international reach of the big five is being challenged by second-tier players.

Second-tier firms such as RSM Bird Cameron and Bentleys MRI are both members of international affiliate groups.

Perth hosted last week’s inter-national roll out of RSM Inter-national’s audit methodology and independence policy.

RSMi executive vice-president international Pat Tabor said adopting a consistent audit methodology would help the group win more business.

“None of the big-five has succeeded in adopting a seamless approach,” Mr Tabor said.

“Just because the firm carries the same name does not mean it offers the same service from jurisdiction to jurisdiction. We mandate the use of international desks, which I think will boost quality.”

Bentleys MRI director of tax consulting Graeme Jolley said the loss of Andersen created huge opportunities for second-tier firms for two reasons.

“The first comes from the issue of audit versus other services. Enron has certainly brought that into focus,” Mr Jolley said.

“The second is that the Andersen break up could shake out a lot of SME firms that could turn to firms such as ours.”

Mr Jolley said there was a price differential between top and second-tier firms, largely due to the heavy international infrastructure the big players had to support.

“We don’t have to cater for that international structure because we work on the affiliation model,” he said.

Barrington Partners partner Roger Sullivan said the issue of independence could bring opportunities for non-accounting auditing firms.

“While the big public companies will still choose the top-tier firms for their audits, the issue of independence may cause them to turn to other firms for consulting services. This is a big opportunity for smaller accounting players,” Mr Sullivan said.

Andersen was one of the global big five accounting firms, along with Deloittes Touche Tohmatsu, Ernst & Young, KPMG and Pricewaterhouse Coopers.

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