The transformation process in the audit market can be described through the term “concentration”. The main factors that lead to this change can be divided into three groups: legal regulations, profession and market.
Regarding the regulation factors, starting this April, the reform established at European level regarding the financial audit services for commercial companies has become increasingly important. For this segment currently dominated by the Big Four, considerable changes arise. The selection and rotation of the auditors, the limitation of purchasing consultancy contracts to 70% of the fee practiced in the former 3 years, the special fiscal consultancy prohibition and the prohibition of exclusive contracts in favor of the Big Four, all these create new opportunities for audit and consultancy companies.
Other regulating factors are the legal compulsory quality procedures imposed to the audit companies and the high complexity of the international standards regarding IFRS. In Germany, out of a total of 13.000 auditors, only 3.800 have the experience and only 29% have the right to legally carry out financial audits. Moreover, small audit companies can now hardly cope with the number and complexity of the new IFRS.
The profession related factors are the aging of the personnel and the diminished attractiveness of the auditor profession in comparison to other professions, factors that lead to the decrease of the number of accreditations and expose issues in the recruitment of qualified staff.
Market factors can be classified in two development directions: a rapid and intensive internalization of the German economy and the desire of many clients to receive integrated legal, tax advice and audit services from a single source.
The concentration process can be clearly seen in the Luenendonk top of auditors and tax advisors: top 25 audit firms have a turnover of 6 billion Euro in Germany, or 46% in a total estimate market of 13 billion Euro. Two groups can be distinguished: 7 companies have a turnover significantly higher than 100 million Euro and 28 companies with a turnover of under 100 million Euro. The group of 7 companies has a total turnover of 5.3 billion Euro or 41% of the market, while the group of companies from 8 to 25 has a turnover of 711 million Euro or 5% of the market. In the Top 7, the turnover of the highest rated 3 audit companies is of 4.1 billion and of the last 4 of 1.2 billion. Also, in the top 25, the difference of 56 million Euro between nr. 8 and nr. 7 is considerable.
It becomes clear which of the described transformation factors can become important in the next concentration process: size, internationalization and a large palette of services.
We, at Roedl & Partner, have anticipated the opportunities of this process of change. We already possess a vast specialization of professional services through our 3700 employees. We also dispose of a significant expertise in the IFRS domain.
With the support of our 94 branches in 43 countries, we are prominent representatives for German companies on a global level. Our advantage is that we are a globally unified and not just a network of companies. This way, we can work on a global level with the same audit software and the same standards. Through legal, tax, IT and business consultancy and audit, we succeed to offer services from only one source. A good example of our services from a single source is represented by our international Due Diligence services offered in the areas of tax, legal, financial and accounting.
Moreover, our clients cam always benefit of a responsible contact person who coordinates the services and ensures non-bureaucratic solutions.
The changes that are taking place in the audit market are not only to be seen as an opportunity, but also as an engine for our future development.
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