Rival attacks PW over low audit fee

BDO Stoy Hayward, the accountancy firm, has made an unprecedented public attack on Price Waterhouse, one of the big six practices, accusing PW of predatory pricing in replacing Stoy as auditor of the Royal Automobile Club.

Stoy is using the rarely employed legal right to address RAC shareholders directly, and urge them to reject the proposed change of auditor at the club's annual meeting on 17 May.

In a letter sent to all the RAC's 13,000 voting shareholders this week, Stoy claims that PW is prepared to take a loss on its £160,000 audit fee in order to win lucrative tax and management consultancy work from the RAC. Stoy's bid was £250,000.

Stoy questions whether PW will be able to provide "the independence and objectivity" required of auditors by charging such a low fee. It also points to the rising rate of litigation against the big auditors and their difficulty in finding affordable professional indemnity cover.

Stoy said yesterday it had decided to make a stand over the issue of "low-balling", which it claims is increasingly used by the big six to poach audit work from their smaller brethren.

Such highly competitive tendering was rare before the recent recession, but intense competition and the decline in consultancy work has led to open scrapping over the more or less fixed pot of audit work.

The issue is a raw subject among medium-sized accountancy firms, which feel they are being squeezed out by unfair practices. A spokesman for Robson Rhodes, another medium-sized firm, commented: "Low-balling endangers the whole of the profession and may lead to a lowering of standards."

Price Waterhouse and the RAC have sent separate letters to shareholders. PW says it "wholly rejects the allegations and innuendo in the BDO Stoy Hayward letter sent to RAC members".

Stoy claims that PW's price would translate into an hourly rate of £53, which would not even cover wage costs. "It's a rock-bottom rate," a Stoy source said yesterday.

PW states in its letter that Stoy's estimate of a £53 hourly rate is incorrect. "PW is confident that the fee quoted to the RAC will cover a thorough audit, using the advanced and efficient audit techniques which are a hallmark of PW," the firm said.

The firm denied there was any possible conflict of interest with winning further consultancy work from the RAC, and said its professional indemnity insurance was more than adequate.

The RAC, which runs a club in Pall Mall and another in Epsom, appears bemused by the sudden outbreak of audit wars. Its own letter to shareholders comes down firmly on the side of Price Waterhouse.

"PW were selected because a rigorous appraisal showed them to be the best-equipped to meet our needs. The substantially lower PW audit fee was a secondary, though worthwhile consideration."

The Institute of Chartered Accountants in England and Wales, the auditors' professional body, is thought likely to keep its head beneath the parapet in the dispute. Smaller firms form the bulk of its membership, and are increasingly vocal in attacking perceived anti-competitive practices by the big firms.

The RAC said that two other firms among the big six, Arthur Andersen and Ernst & Young, also tendered fees of below £200,000, against Stoy's £250,000.