ACO Water Management

The fast growers with 2007 year-ends included
Nexia International, with fee income growth of 35 percent to €12
million ($18 million), KPMG with 28 percent growth to €269 million,
Kreston International with 26 percent growth to €17 million, DFK
with 26 percent growth to €5 million and Mazars with 24 percent
growth to €26 million.

By contrast, the two professional services
entities with decreased fee incomes both had 2008 year-ends. BDO
Simpson Xavier’s fee income dropped 4 percent to €69 million,
although it did part company with its Cork office at the beginning
of the financial period. Baker Tilly Ryan Glennon’s fee income fell
3 percent to €8 million.

The slowing economy was not the only change in
the Irish economic landscape. On 13 October 2006, the UK and Irish
governments, together with the major political parties in Northern
Ireland, initiated the St Andrews Agreement, which set forth a
roadmap for the devolution of power in Northern Ireland and marked
the final stage of a peace process that began with a cease-fire in
1994. The peace process has led to Northern Ireland and the
Republic of Ireland growing towards a single economy and many of
the accounting practices are following this trend.

In this year’s fee table, the fee income is split
into two columns, as some firms and associations only disclosed
Republic of Ireland (ROI) figures, while others only disclosed
all-island figures. We also provided the opportunity for ROI
networks and associations to display their all-island figures in
order to provide better comparability. The total revenue for the
firms that released all-island figures was €686 million, an
increase of 15 percent on the previous year. Those firms and
associations that supplied ROI revenue or both were included in the
ROI total, which grew 13 percent to €447.9 million.

KPMG Ireland has operated as an all-island
practice since it opened an office in Belfast in 1974. This June,
Ernst & Young Ireland followed suit when the partners of the
Northern Ireland and Republic of Ireland firms voted unanimously to
form an all-island practice that will operate within the network’s
new Europe, Middle East, India and Africa (EMEIA)-area practice.
However, for this year’s survey, Ernst & Young still reported
only ROI figures.

Deloitte and Ireland’s largest professional
services firm, PricewaterhouseCoopers (PwC), retain separate
Northern and Republic of Ireland practices. The senior partners of
both firms told the International Accounting Bulletin
there are no plans to integrate the practices in the near future.
However, in this year’s survey PwC provided all-island figures for
the first time, saying the firm no longer discloses its numbers on
a separate basis.

While PwC’s new structure for disclosing fee
income follows the all-island trend, its fee income growth of 11
percent to €322 million for the year ended June 2007 is at odds
with the majority of the firms surveyed. It is the lowest growth
for a firm with a financial year that ended before the global
subprime crisis hit.

Despite this, PwC senior partner Ronan Murphy is
upbeat about the firm’s growth and says a positive outlook is
reflected in the recent appointment of 11 new partners.

It was PwC’s non-core services lines that
performed best. “While our core services of assurance and tax
compliance have continued to grow at moderate levels, we have seen
strong growth in the areas of tax and business advisory services,”
Murphy says.

He adds that the tax advisory line has performed
well because clients who continue to invest in Ireland require
corporate tax planning and structuring advice. “In particular,
continued inward and outward investment has resulted in strong
demand for international tax, regulatory and transfer pricing
advice,” he explains.

Murphy says the economic slowdown presents a
mixed blessing for professional services firms: “We have redirected
some of our experienced resources in response to client demand. A
number of our people have been retrained and are specialising in
areas like process improvement, cost control and business recovery,
which is where the key demand for our services is right now.”

KPMG’s huge fee income growth for the year ended
April 2007 was more in line with the pre-credit crunch average.
Managing partner Terence O’Rourke attributes the growth to the
combination of great people and a strong underlying economy.

He comments: “Other factors in there would be we
have a strong tax practice and the tax guys were particularly busy
and very successful. We were winning market share, we were
continuing to pick up audits. A number of new listed companies have
come to us and that was happening right down the scale as well. The
advisory side was also strong.

“Basically, it was very balanced growth, which is
one thing we were happy with. It was not one side doing much more
than the other.”

The all-island factor

O’Rourke says KPMG’s all-island model was another
driver behind the firm’s strong growth: “We were able to benefit
from that as well, especially the all-island tax practice. Having
UK tax specialists and Irish tax specialists in the same firm is
very good – lots of our clients want both UK advice and Irish
advice.”

Mazars Ireland managing partner Joe Carr also
attributes the firm’s fee income growth of 24 percent to
“excellent” people in a buoyant market. The key areas of growth for
the firm were within the banking and insurance sectors. IT
assurance, including audit and security review, was another major
area of growth, as was strategic corporate finance.

Mazars’ highlight for the year was successfully
setting up a project finance unit in Belfast as a joint venture
with the Mazars UK firm. An initiative planned for this year will
involve the mid-tier firm leading a European construction services
team.

“We are bringing a number of colleagues from
Mazars around Europe and we are co-ordinating it from here in
Ireland to offer European-wide services to construction firms,”
Carr explains.

Tough times ahead

The heady results from firms with 2007 year-ends
contrasts with firms with 2008 financial year-ends. The combination
of a sharp adjustment in Ireland’s domestic housing market,
combined with international financial market turbulence, has hit
the nation harder than most.

Speaking at the recent release of the Central Bank
and Financial Services Authority of Ireland’s 2007 annual report,
the authority’s governor, John Hurley, said 2007 ended with a
greater-than-anticipated slowdown in growth and
higher-than-expected inflation. The trend has continued into
2008.

PwC’s most recent economic outlook demonstrates
the severity of the slowing economy – the Big Four firm predicts
Ireland’s GDP growth will be 0.4 percent in 2008, down from 6
percent in 2007.

Deloitte’s 15 percent fee income growth to €165
million and Ernst & Young’s growth of 7 percent to €148 million
were indicative of the slowing economy. Deloitte managing partner
Pat Cullen says he was content with the firm’s growth.

“I might have been less happy if it was the year
to December ’07, but the fact that [the year end] is May ’08 takes
in a lot of the difficulties that were there for the year,” he
says.

Deloitte’s growth was driven by the combination
of a strong Irish economy at the beginning of the firm’s financial
year, coupled with return on investments.

“Over the last number of years we have made a big
investment in people and training and I think that has reflected
itself in terms of the quality of the service we have given to
clients. Our reputation has been growing significantly over the
last few years,” Cullen says.

Cullen adds that the slowing economy has meant a
reduced number of transactions. “That reduction in transactions
potentially impacts a number of service lines – it impacts our
corporate finance area, which takes in transaction services,” he
says. “There would also be a knock on effect for areas like tax in
terms of tax advice around some of those transactions.”

The reduction in transactions work in a difficult
economy is compensated to some extent by growth in restructuring
and reorganisation work, however there can be a slight lag between
one dropping off and the other picking up, Cullen adds. “When
companies start struggling a bit, at times it can take them a
little while to recognise that they need help. Sometimes they don’t
always come looking for help in terms of restructuring and
reorganisation as early as they should do, so there can be lag in
terms of new work coming in to replace the reduction in
transactions,” he says.

Cullen expects an increase in restructuring work
will boost the firm’s revenue in the current financial year. “We
can already see that happening,” he says. “That takes in everything
from advising banks on clients who are in difficulties in terms of
how to manage that, right the way through to the end of the cycle
when someone goes into liquidation.”

Grant Thornton Ireland’s fee income growth of 13
percent to €45 million in the year ended May 2008 was considerably
slower than its 33 percent growth during the previous year.
However, managing partner Paul Raleigh does not attribute this to
the credit crunch.

“There are two things to remember. One is we did
a merger [with Robson Rhodes] last year, which helped our numbers.
The second thing from our point of view is as you get bigger,
absolute growth doesn’t show as high in percentage terms. A €5
million increase in absolute terms is still a significant amount,”
he says. “I think we had very solid growth, good performance across
all our service lines. We have a good balance in our practice here
between audit, tax compliance and specialist services. We have
worked hard on all of the areas and I think everyone performed well
last year.”

Raleigh expects the economic slowdown to affect
the firm more during the current financial cycle. He says a solid
client base will help growth remain steady.

“We have a very rounded and very solid practice,
so I think that while everyone is going to be affected by this,
we’re still in a position where we can have a strong performance
this year. And, I think some business lines are going to see very
strong growth – like corporate recovery and forensic services –
they are certainly busier than they were last year.”

Raleigh says the balanced practice didn’t evolve
by accident and attributes it in part to an initiative called
Vision 2008, which set forth the firm’s strategy from 2003 to
2008.

The firm will launch its strategy to 2012 in
October this year. A key part of this next phase will be taking the
balanced practice and moving it out into the public interest sector
as an alternative to the Big Four.

Raleigh emphasises the firm, and international
network, will endeavour to do this in an aligned and structured
manner.

“It’s building on the strengths that we have as
opposed to saying ‘well we are now just going to focus all our
attention in one new area’… It means that we move a little bit
slower, but get a better foundation,” he explains.

The slowing economy has also affected
recruitment. Cullen, O’Rourke and Raleigh all say staffing was a
challenge before the credit crunch hit, but less so now.
“Recruitment was still an issue in the first half of [last] year.
It became less of an issue in the second half,” Cullen says.

The Deloitte managing partner explains the reason
recruitment is no longer such an issue is the slowing economy means
less demands on staff. “We are beginning to see that coming
through,” he says. “Recruiting the people at the very top end of
the market is still not easy because there will always be a limited
pool of the very good people. It has become much easier in the
middle rank management.”

O’Rourke, too, says that in 2007 KPMG was still
hampered by resource constraints. “We would still have had more
work really than we could comfortably deal with, so we were putting
more pressure on our people than we really like to.

“We have fantastic teams and they rose to the
challenge, but [it’s difficult] when you get people continually
going from project to project,” he says.

The resource constraints have now eased. “We
added a lot of people in 2007, we pretty much dealt with that, so
at the end of 2007 we were much better off than we were at the
beginning of 2007,” O’Rourke explains. KPMG grew its staff numbers
by 20 percent during its 2007 financial year, and has added more
people since the year end.

Recruitment challenged the firm on many levels,
O’Rourke says: “It has been causing strain and not just on the
client service people but our support people, our recruitment
people, our education people, but they have dealt with it very well
and we have come through that very successfully.”

Another success for KPMG during the past year was
further integrating its advisory services. “Our advisory businesses
were separate businesses… and we put them under the one umbrella,
so now they all co-ordinate and they are working together,”
O’Rourke says. “The edges are a bit blurred between some of those
practices and we want to take the benefits of having very strong
teams in some of those and being able to work in other areas, so
our advisory people are going to market as one advisory team, not
really caring whether it’s a corporate finance job or a transaction
services job.”

Movement into the public interest market has been
a highlight for Grant Thornton. “That is part of an international
strategy,” Raleigh explains. “In the UK [Grant Thornton] are number
one on the AIM market and last year the US firm had more listed
company wins than anybody else – significantly more. In Ireland, we
have also seen ourselves grow in terms of the number of public
interest clients who now use us for non-audit and, also
increasingly, audit services.”

Auditor liability and establishing the role and
influence of the Irish Auditing and Accounting Supervisory
Authority (IAASA) were the two main regulatory issues for KPMG
during 2007.

“[EC internal markets and services] commissioner
[Charlie] McCreevy has said [auditor liability reform] is a
necessary part of improving and making the audit market in Europe
more modern and effective… so that has been an issue that we have
continued to work hard at. We have had a couple of our partners
particularly involved both in discussions and formulating
approaches with the government and with the regulator, the IAASA,”
O’Rourke says.

Greater scrutiny

The IAASA, which has been in operation since
2006, is “a new kid on the block”, O’Rourke adds. “We are all
feeling our way in it and it has been positive I think. They are also the financial
reporting regulator in terms of monitoring the quality of the
published financial statements of listed companies and they are
beginning to flex their muscles on that, which is good because they
are doing it very sensibly.

“It does mean more issues for us in terms of we
have got someone else looking over our shoulder at some of the
things that maybe the analysts and the marketplace might not have
been that concerned about.

“There is also the issue of [the IAASA’s] supervision or oversight of the audit inspections and audit
disciplining, which is an emerging area. We are not sure what is
going to happen there, but that is something that we will
watch.”

Despite the challenging economic environment for
the year ahead, Cullen says Deloitte expects to continue to grow
strongly.

“In any market, even a difficult market, there
are always opportunities to grow and you just have to try and
adjust and target what you are trying to sell to clients – that’s
what we will be trying to do,” Cullen says.

Carr says Mazars’ growth for the year to August
2008 will not be as high as the 2007 year-end. However, he says
that due to the firm’s size and nature as a niche corporate player,
its goal is to win market share and grow even in a declining
market. He explains the downturn in the financial services market
will not affect Mazars.

“Because of our size, by winning market share we
can still grow very significantly and that’s what we are doing in
certain areas such as the funds area, the insurance area and in
some of the specialist areas within financial services,” he says.
“Had we a very large share of the market, which we don’t, then our
growth would be constrained. The fact is people are looking for
better value and are looking around a little bit more. It’s
actually a more open market, believe it or not, for firms like
ourselves now.”

PwC has not finalised its figures for its June
2008 year-end, however, the firm is optimistic it has withstood the
downturn in Ireland’s economy.

KPMG also hasn’t finalised the figures for its
April 2008 year end, but it is getting close. O’Rourke says the
growth will be slower, but will remain double-digit.

“The other issue is really what is the next year
going to be like?” he adds. “Financial services is the sector we
thought might come under more pressure, but in fact our business
continued to be strong there.”

A lot of KPMG’s major clients in a variety of
sectors are still performing very well. However, O’Rourke warns: “I
think looking forward to the next 12 months it certainly looks much
more challenging than we have faced for quite a number of
years.”

For the complete list of all surveys in IAB for 2008,
please see below.

To view full size tables click on them: