City File: Auditors 'hit small clients'

AUDITORS have been squeezing smaller clients to offset pricing pressure from their big corporate customers, according to a new report on audit fees at public companies. It also reveals a huge discrepancy in the fees companies of the same size and sector pay, writes Helen Kay.

The survey, by Glasgow-based JDH Consultants, spans 647 companies including the FT-SE 500. Together they generate total fees of pounds 508m - pounds 310m in audits and pounds 198m in non-audit work.

Audit fee income is up 2 per cent on last year, with Arthur Andersen, which saw an 11 per cent increase in revenue, leading the field. However, the 37 smaller auditors also included in the study showed an 8 per cent drop in income as they were battered by bigger rivals.

The same pattern of big winning out at the expense of small emerged with clients. Apart from Grant Thornton, the auditors surveyed generally secured larger increases from small clients. The trend for big companies with clout to go to tender - or threaten to do so - partly accounts for this pattern. Companies going to tender last year saved an average 32 per cent in fees.

More disturbing still for clients was the widespread variation in fees among companies of the same size and sector. In the health and household sector, fees varied by a factor of as much as 10; one company with turnover of pounds 1bn paid pounds 1,700 per million pounds of sales, while another paid only pounds 170.