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Kenya: Firms Angle for Auditing Job At Stock Exchange
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Business Daily (Nairobi)
4 May 2008
Posted to the web 5 May 2008
Michael Omondi
A battle for control of the external auditor's job at the Nairobi Stock Exchange (NSE) among the top three auditing firms is on as the financial advisory firms race to boost their profile.
The NSE has invited tenders from Deloitte, KPMG and PricewaterhouseCoopers after the bourse dropped Ernst & Young as its auditing consultants.
With competition for auditing contracts having intensified in recent years, having a number of high profile listed firms on the auditors' client list, notably from the financial sectors, has emerged as an arsenal for market growth.
"A clients' profile with a high number of quoted firms especially from the financial services makes it easier for auditors to win big contracts," says Ashif Kassam, the managing partner of HLB Ashvir, a tax and audit consulting firm.
And with the NSE offering the quoted companies a platform to trade their shares, the quest by the big four auditing firms to have the bourse on their client roll has gone a notch higher.
The big four auditing firms include Deloitte, Ernst and Young, KPMG and PricewaterhouseCoopers.
"The NSE is no different from other high profile firms, but having it does increase an auditor's profile," adds Mr Kassam. The race for the NSE account is set to trigger a pricing war among the three firms as they angle to impress the NSE board for the job.
Already the NSE board is aware that it may be in a position to squeeze a discount from the three firms, and this partly explains why the board dropped Ernst & Young after it hiked its audit fees by 15 per cent.
But Deloitte, while admitting that they offer competitive pricing for their services, said they would not offer the NSE any special discounts.
"We have been in and out of NSE on a number of occasions and we treat the NSE as any other firm," said Sammy Onyango, the managing partner at Deloitte.In recent years, the big four auditing firms have been scrambling to do auditing jobs for listed companies, with firms from the financial sector their focus.
These firms include bankers and insurance firms, who have continued to post record breaking profits over the past five years egged on by the robust economy.
But as the top four audit firms maintain their stranglehold of the listed companies, their dominance, which looked unshakeable years back, is under threat from mid-sized and locally owned firms.
They are borrowing tricks from the old book in the global accounting scene by either buying a franchise licence so as to be associated with the world's biggest and most prestigious firms or by selling a sizeable stake.These partnerships are not only giving mid-sized firms instant name recognition, but are getting them into the lucrative and small club of auditing and consulting for multinationals.
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"We are getting big jobs simply because of the international association," said Mr Charles Gitau, a partner at Carr Stanyer Gitau, which is associated with Nexia International. "The technical backup we get from our international partners and the brand power is paying dividends."
In recent years, seven of the top 15 firms, excluding the big four, have formed partnerships with local accounting firms as they seek to spread their foothold across the globe with the emerging markets like Kenya being their focus.For instance, PKF International joined forces with Kassim Lakha to form PKF Kenya in 2002 while Baker Tilly International - the eighth largest accounting firm in the world - went for Merali's Certified Public Accountants in 2006; Grant Thorton International - the sixth largest accounting firm - went into partnership with DS Trivedi and Company in 2003.
With the growing partnership between indigenous mid-level firms and leading global networks, a shift in the market structure is unfolding as the smaller companies continue to win contracts from the top four.
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