Links helping small audit firms take on the Big Four

Mid-sized firms are increasingly joining such global networks to push for mega contracts, which have for long been the preserve of the Big Four accounting firms. [iStockphoto]

In 2017, the office of the Auditor General advertised for accounting firms to bid for some jobs.

Alekim & Associates, a mid-sized accounting firm founded by Mr Felix Kimoli, was one of the companies that responded to the advert.

One of the considerations for the winning bidder - and which had a weight of around 30 per cent of the total marks - was to be internationally affiliated.

Although Mr Kimoli's firm could do the job, it was not affiliated with any international network.

As expected, it missed out on the lucrative tender but gained some invaluable lesson: big jobs come to those who look big.

The loss fired him up to look for an international network of accounting firms. He got one with MGI Worldwide, an international network of accounting, legal and consulting entities with members spread over 101 countries.

The following year, Alekim & Associates evolved into MGI Alekim LLP Certified Public Accountants.

Since then, Mr Kimoli says the firm has always been evaluated at the same level with other internationally affiliated accounting firms, including the Big Four - PriceWaterhouseCoopers (PWC), Deloitte, KPMG and Ernst & Young.

"It gave us a chance to be able to bid with confidence because we are internationally recognised," said Mr Kimoli, who was hosting other member firms of MGI Africa in Nairobi for a two-day conference.

It is not just accounting firms like Kimoli's that have taken advantage of the international appeal of global accounting networks or franchises to boost their businesses.

Mega contracts

Mid-sized firms are increasingly joining such global networks to push for mega contracts, which have for long been the preserve of the Big Four accounting firms.

But the pressure is also coming from the clients themselves, who are under pressure to manage their costs, according to Audrey Danasamy, the regional director for MGI Africa.

Ms Danasamy noted that after the Covid-19 pandemic, which negatively affected many businesses, including multinational corporations, subsidiaries of the big listed companies became obsessed with cost-cutting.

The mid-sized accounting firms offered them the same support as the one they received from the big audit companies at a lower price, says Ms Danasamy.

"In fact, they (the multinational corporations) get more personalised service," said Ms Danasamy, noting that the small member firms tend to be fully engaged in the whole audit process.

"You know, if you are a client of the Big Four, you might see your engagement partner at the start of the engagement and the end of the engagement."

True, several factors influence the audit fees that accounting firms charge, including the size of the auditor, reputation, experience and competition in the market.

Other factors, according to studies, include the industry specialisation of the auditor and the Big Four status of the auditor. Big, profitable firms with risky operations such as banks tend to attract higher audit fees.

But Ms Danasamy does not have very high regard for the term "Big Four," noting that all the respective partners have the same qualifications.

"So in terms of quality of work, Big Four or MGI Alekim or MGI Worldwide, it is the same," she explained.

Ms Danasamy gave an example of a subsidiary of a German multinational corporation, which asked not to be named, for which the MGI member firms in Kenya, Nigeria and Ghana consult.

"[This is] because they find that it is a subsidiary, it is smaller, but our members can support them at a much localised, personalised level," said Ms Danasamy.

The Big Four, however, leverage their bigger workforce and years of experience to clinch jobs.

But with more and more firms joining the fray and competition getting intense, the audit fees are likely to be lowered.

Official figures show that by the end of 2020, there were 6,103 firms engaged in accounting, bookkeeping and auditing activities as well as tax consultancy globally.

This number, however, has barely increased over the last five years.

In five years to 2020, these firms increased by 31 from 6,072 in 2016, an indication that there are still high barriers to entry into the highly regulated industry.

Medium-sized enterprises

Two-fifths of these 6,103 firms had more than 49 employees, while another 38 per cent had between 20 and 49 employees, an indication that most of the accounting firms in Kenya are either small or medium-sized enterprises.

There were 8,584 permanently employed staff by auditing and accounting firms in the year under review, an increase from 8,370 in 2016.

However, most of the external audit jobs, especially plum government contracts and auditing of publicly listed firms, are under the iron grip of the Big Four firms.

But by being part of a global network, the mid-sized firms are offered a degree of global weight and reach, which helps them to build a strong brand that is acceptable to multinational corporations.

But being part of a global network is also helping small firms in Africa and India, where there are more resources than work to get outsourced jobs from several firms in America.

"So, why shouldn't we within the MGI family have an agency where those who need the extra capacity and resources and those who need the work come together?" said Chief Executive MGI Worldwide Chris Borneman.