Non-Audit Subsidy
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Non-Audit Subsidy
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© The Z/Yen Group of Companies 2008
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May 2003 AUDIT PRICES
WILL SOAR AS AUDIT FIRMS STOP SELLING NON-AUDIT SERVICES EQUITY VALUES
SET TO LOSE BILLIONS SMALLER COMPANIES HIT HARDEST Z/Yen,
the leading risk/reward management firm, has answered the question “how much
might audit fees rise to cover the loss of fees from non-audit services?”.
The answer is: prices are set to soar.
Z/Yen has used data from BvD’s FAME database of 1.4M UK companies,
applying the data to PropheZy, Z/Yen’s risk/reward engine for building
predictive models. Z/Yen
tested PropheZy’s advanced statistical techniques on predicting audit prices
for 200,000 companies from the FAME database.
PropheZy met or exceeded most tests of statistical accuracy.
Z/Yen then examined the largest 100 companies in the UK, asking PropheZy
“what will the audit fee be in two years time if non-audit fees reduce from
current levels to nil?” PropheZy
predicts that the mean average audit fee will increase by some 58%.
That is a rise from £197M per annum to over £311M per annum for those
100 companies’ combined audit fees. This
rise represents about 0.58% of profit, which would wipe £1B to £2B off the
equity values of just those 100 large companies (based on conservative p/e
ratios). The median audit fee will
increase by 108%, i.e. more than double. The
smaller companies in the sample set will be hit much harder than the giant
companies. Michael
Mainelli (FCCA) and Ian Harris (ACA), Directors of Z/Yen Limited, pull no
punches. “For years, big audit
firms have claimed that they do not cross-subsidise audits with the sale of
non-audit services. This claim did
not make sense, but was hard to dispute until now.
Audit prices are already rising and we are confident that this over 50%
rise, as foretold by PropheZy, will come true.” Z/Yen
also built predictors to ‘Price-Your-Audit!’ and ‘Recommend-an-Auditor?’
which identify the most appropriate audit price and firm for a company.
Both ‘Price-Your-Audit!’ and ‘Recommend-an-Auditor?’ ought to be
useful tools for any audit committee. Z/Yen
has a more detailed predictor, “Who’s-Going-to-Move” for audit firms
themselves. More
detailed statistics from the ‘Price-Your-Audit!’ research and/or feature
article copy on this story and/or information on other newsworthy PropheZy
predictions are available for journalists to use upon request – please see
contact details below. For further information,
please contact Michael Mainelli or Ian Harris, tel: (020) 7562-9562, e-mail: michael_mainelli@zyen.com
or ian_harris@zyen.com Z/Yen
specialises in risk/reward management, an innovative approach to improving
organisational performance. Z/Yen’s
clients include blue chip companies in banking, technology and professional
services as well as charities and care organisations. |
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