Business Opinion The big accountancy firms earned themselves a few Brownie points last week with the publication of the annual performance tables in Finance magazine. The partial disclosure of their financial performance is in marked contrast with the obsessive secrecy that surrounds their counterparts in the legal profession.
The accountants volunteered details of their fee income, and some other data about staff numbers which in turn allowed a comparison of the firms in terms of their money-making efficiency. Not surprisingly KPMG and PricewaterhouseCoopers (PwC) were pretty much neck and neck in terms of size, with fee income of €152 million and €151 million respectively. Both have around 24 per cent of the market. Farrell Grant Sparks topped the efficiency table, turning in a tidy €127,000 per employee, compared to €112,000 for KPMG and €105,000 for PwC. However, the firms did not disclose their profit figures.
But, as luck would have it, last week also saw the publication by PricewaterhouseCooper's UK partnership of its 2004 annual report which contained a comprehensive set of financial statements including a full profit and loss account.
It showed that the UK firm made a profit of £384 million on a turnover of £1.57 billion, which works out at a margin of around 24 per cent. Applying this figure to the large Irish firm would suggests profits last year in the region of €36 million at KPMG and PwC. Looking at the other big firms, it implies profits of €22 million at Ernst & Young (turnover €93 million) and €21 million at Deloitte (turnover €87.3 million).
These figures in turn suggest that the average partner at one of these firms is taking home something in the region of €500,000 a year. Interestingly enough this is pretty much the figure you arrive at if you try to extrapolate the earnings of a partner in one of Dublin's big law firms from publicly available information on UK practices.
It's a lot of money. Some would argue it's an obscene amount of money in a country which can't provide enough hospital beds for its citizens. But that is another debate entirely and we shall not concern ourselves with it, beyond making the point that the negative publicity that would ensue must be one of the reasons why large legal and accountancy firms are so circumspect about their earnings.
But the main reason, as they never tire of telling us, why they don't make their figures public is that they are required to organise as partnerships and not limited companies. They cannot avail of the protection of limited liability and thus the issue of filing returns with the Companies Office does not arise. The historical rational for this was that if the partner's personal assets are on the line, they are more likely to act prudentially. But the size and nature of the potential malpractice suits that can now arise has brought into question whether this approach remains viable.
In the UK and other jurisdictions, professionals can avail of limited liability partnership structures, but the trade-off is greater disclosure. PricewaterhouseCoopers has gone down this route in the UK, hence last week's disclosure.
Most Irish lawyers and accountants claim they would welcome such a move here, but they are not exactly beating down the Government's door to bring it about.
Perhaps they should. Leaving aside the whole liability issue there are a number of good arguments for greater financial transparency, ranging from the ethical to the practical.
Starting with the former, it can be argued that both lawyers and accountants are in effect guaranteed work by the State which has constructed a vast legal framework with lawyers and accountants at the very centre. It includes things such as the requirement for limited companies to be audited, and people having a right of access to the courts and legal representation. It is reasonable that citizens should know whether the beneficiaries of these structures are profiteering.
It is similar to the case put forward last week by the Oireachtas Committee on Small Business which called for the large supermarket chains to publish their figures to show that they are not benefiting unduly from the high price of food.
While there is a certain moral weight behind this argument, it is unlikely to cut much ice with the average partner in a Dublin law firm or accountancy practice.
A more pragmatic argument is the whole issue of a perceived lack of competition in the sector. Every time an independent review of the Irish economy is carried out, the lack of competition in professional services is trotted out. Last week's annual review by the International Monetary Fund was no different. It called for more competition in the services sector to help contain costs in the export sector.
It was just the latest in a long line of reports to make such allegations and no doubt accountants and lawyers are sick of hearing it. But as long as there is little or no transparency about their businesses, then they will continue.
The best way to reassure their clients and the public at large that there is plenty of competition and that they are not making excessive profits would be to publish their figures. If they don't believe me, they can always ask their clients what they think.
