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Why audit is still big business

Big Business

By Ian Lavis on behalf of Praxity Global Alliance


Contrary to popular belief, audit isn’t dead. In fact, it represents 40% of total fee income within Praxity – the world’s largest alliance of independent accounting and consulting firms.

Audit remains a significant and growing revenue generator across the profession, according to new data on fees published in the International Accounting Bulletin (IAB).

However, there are marked differences in service line revenue streams of independent accounting firms within Praxity Global Alliance and those of the ‘Big Four’, BDO and Grant Thornton.

Biggest revenue generator

Audit was by far the biggest revenue generator of Praxity participant firms in 2018, accounting for 40% of combined global revenues.

The service line grew at a healthy 13% within the Alliance compared to between 8% and 9% at the Big Four and just 4% at Grant Thornton.

Tax services, the second largest revenue stream within Praxity, accounted for 24.7% of total fee income of participant firms, up 14% on the previous year. Again, the growth rate outstripped the Big Four and was considerably higher than BDO (6%).

The strong performance of audit and tax within Praxity helped participant firms achieve record global revenue of $5.83 billion, up 12% on the previous year.


Graeme Gordon, Praxity’s Executive Director, says the robust performance of audit within the Alliance is due to the greater flexibility of Praxity participant firms compared to the Big Four and other accounting networks. He adds “Independent firms are better able to tailor their audit and assurance approach to fit clients’ needs, rather than being forced to adopt a one-size-fits-all offering.”

There are also other factors at play, including a shift in focus of the Big Four, strong international cooperation within Praxity, and the agility of independent firms.

Gap in the market

Nicholas Benbow, Director of Audit and Assurance at Praxity participant firm William Buck, says: “The Big Four and large mid-tier firms are increasingly getting into non-audit services that create independence conflicts, and it is more lucrative for them to pursue these revenue streams. This has opened up an opportunity for Praxity participant firms within audit.”

This shift may explain the fact that advisory services currently only make up 18% of the total fees of Praxity participant firms, with a growth rate of just 3% year on year.

In contrast, advisory services account for a much larger proportion of global revenues of the Big Four. More than half (58%) of Deloitte’s revenue now comes from advisory services alone. Growth of advisory is also higher at the larger networks.

Global expertise

Another key factor for the strength of audit among Praxity participant firms is a change in the way clients approach international audit. Nicholas Benbow explains: “Clients are becoming more flexible with their audit arrangements, and therefore it is not as crucial for clients with audits involving several different jurisdictions to go with the one brand.  This is where Praxity participant firms step in.”

Praxity participant firms help clients in this way by sharing knowledge and expertise with co-professionals in more than 100 countries. It means clients operating across international borders gain access to global expertise at the local level.

Responsiveness is also key, especially for those firms requiring swift solutions to fast-changing business requirements. Nicholas Benbow adds: “In the past couple of years, particularly here in Australia, there has been a lot of growth with start-up companies going to Initial Public Offerings. Praxity participant firms are nimble and commercially savvy to understand these businesses and price them effectively for risk, and it is a space we know well. The Big Four and large mid-tier firms are generally very clunky in handling this due to their more bureaucratic approach and unfamiliarity with the environment.”

While these factors have driven the growth of audit worldwide among Praxity participant firms, it is important to note that there are important audit differences in different geographies, even within the Alliance.

Geographic differences

In North America, for example, participant firms often have stronger advisory businesses than their counterparts in Europe and other parts of the world.

John Roberts, Managing Partner of Services at Praxity participant firm DHG, based in the US, says this is partly due to different rules.

Joint audit – where two audit firms are appointed by a company to express a joint opinion on its financial statements – is mandated in France for most companies required to prepare and publish consolidated financial statements. It is also mandated in certain countries for large banks or insurance companies, such as South Africa for banks.

“Some European firms have benefitted from dual audit requirements and rotation rules but the US does not have these requirements,” John explains. He adds: “As such, many of the Praxity participant firms in North America have focused on maturing their advisory practices.  Advisory in many North American firms is growing at a faster pace than assurance and tax.”

Consequently, the fee split at DHG is roughly even between assurance, tax, and advisory, and John points out audit contracts are not as big a growth area. “It’s a more mature market with longer sales cycles and does not have the same pace of growth.”

Another key factor in the US is pressure on pricing, John says. He adds: “We continue to see pressure on the pricing of assurance in North America whereas we can drive incremental value in advisory. There is so much change going on in the landscape but we are seeing the move to advisory in the US without a doubt.”

Advisory is also a major revenue stream for William Buck in Australia (62%), largely due to a number of business to business mergers in recent years, although audit and assurance is still a significant chunk of business at 17%.

Nicholas Benbow explains: “The big difference in these numbers, with Australia having less audit focus and more business advisory, is the types of clients.  At William Buck our core focus is on middle market private clients.”

He says differences in service line fees among Praxity participant firms can also be explained by differences in the size of the firm, the size of the client, and the markets they specialise in.

He adds: “The drivers of demand for audit vary – from meeting compliance and regulatory requirements through to the bespoke and specific needs of stakeholders, like banks, private equity or private shareholders. As long as stakeholders continue to be separate from the enterprise there will always be a need for audit, and we tend to find that as that separation becomes more distinct, the more value and premium is placed upon the audit process.”

While it is clear there are significant differences around the world, there is no doubt audit and assurance remains big business for Praxity participant firms.

The flexibility of these firms to tailor their approach to the exact needs of clients in specific markets bodes well for future growth, not just in audit and assurance, but across all service lines.