Accountancy chief says four is a number that works in the UK

AS THE chairman of KPMG Europe, the newly created accountancy leviathan, John Griffiths-Jones is not one to shirk away from tough challenges. Currently in the final throes of integrating the firm's UK and German operations, a process that brings together more than 17,000 staff across 44 offices, the straight-talking Old Etonian is bracing himself for further upheaval.

In April, a government-led probe into the dominance of the "Big Four" accountancy practices - KPMG, Deloitte & Touche, PricewaterhouseCoopers and Ernst & Young - found that competition was being hindered, preventing smaller peers from gaining a foothold among Britain's leading listed companies.

Of those businesses making up the FTSE 350 index, 98 per cent have their accounts audited by the Big Four. In Scotland, the same four firms have a grip on the top 30 companies by turnover.

Griffiths-Jones denies there is any cosy relationship between the profession's hardest hitters, and says he would welcome the entrance of a fifth or sixth major player.

Last month's announcement that Grant Thornton and rival RSM Robson Rhodes are to merge could go some way to appeasing the critics.

But, even if the enlarged group achieves its goal of 500 million in annual revenues three years down the line, it will be half the current size of the smallest Big Four beancounter, Ernst & Young.

"I'm a great believer in competition," says Griffiths-Jones, talking to The Scotsman on a visit to KPMG's Edinburgh base in Saltire Court.

"I'm surprised at the accusations of a cosy relationship. As a group of professionals there is some pretty earnest competition going on.

"An extreme alternative is to nationalise us - create a single UK audit office. It has been talked about, but the question would be: when am I going to get my accounts done?

"There are surely other things in the world that are more broken than the Big Four accounting firms."

The investigation into the stranglehold of the Big Four has already produced a string of recommendations.

Money from private equity houses and financial institutions could be used to fuel the growth aims of smaller practices. Such a move would involve the relaxation of age-old rules restricting the ownership of accountancy firms to qualified accountants.

Griffiths-Jones believes that the accounting regulator is "doing the right thing" by promoting choice, but is wary of any p ro-active or outside move to broaden the numbers.

"We are absolutely not arguing that four is the right number," he stresses, "but equally we are asking politely not to have our business disrupted by artificial manoeuvring just to get five of six firms."

"It is probably more difficult to compete at the very top, which is where the noise is loudest. However, once you get down into the FTSE 250 firms, and certainly when you get down into much of corporate Scotland, I'd say the likes of Grant Thornton was perfectly strong competition."

Griffiths-Jones, a company man for 30-odd years, and territorial soldier for 14 of those, is joined in the third-floor office suite by KPMG's affable Scottish chief, Craig Anderson.

The pair, as one might expect, sing from the same hymnsheet on corporate and industry matters.

Anderson makes it quite clear, for example, that when his people are pitching for work "it certainly doesn't feel like there is any lack of competition".

Reflecting on the 1980s when it was the Big Eight pulling the strings, Anderson argues that industry consolidation is indicative of a changing marketplace, with businesses demanding greater specialism.

"I don't think anyone would suggest that the quality now is less than it was historically," Anderson says. "I'm sure in most cases people would regard the quality as being higher.

"There is greater internationalism about the place. People don't necessarily have to go to London to get the skills they are looking for. Clients are increasingly demanding and want more, and they are right to expect more."

KPMG's Scottish boss reckons that the demands of home-spun businesses with extensive overseas operations - the likes of Weir Group, Wood Group and Scottish & Newcastle - would stretch the limits of those accountants sitting just behind the Big Four.

Flagging double-digit growth north of the Border (KPMG's year-end is September) both men highlight the areas where business is currently booming, including the public sector.

"We see there is a great opportunity to work with the public sector to increase efficiency," notes Anderson. "They are being a bit more careful and clever about how they spend their money. There is more of a willingness to select contracts other than on the basis of the lowest cost, which was historically the case.

"As a taxpayer, as opposed to a supplier of services, I feel happier with the way they are dealing with our money than I was a few years ago."

Griffiths-Jones, who expands his KPMG chairman's role to become head of the enlarged European business on 1 October, adds: "We made a determined decision to get more into the public sector and are very pleased with the progress.

"More generally, we are determined to build a very strong regional network. We want to have a world-scale platform but deliver on site using local people.

"We have been working at this pretty hard and quite aggressively really for the last four or five years. It has proved to be a really successful way to do business. We offer a lot of empowerment at the local level."

When talk turns to the recent Holyrood elections, Griffiths-Jones takes a detached stance - perhaps wisely.

Making it clear that his is "very much a southern perspective", he says he believes that minority government is going to "really test the system".

"That's nothing to do with who's won," he adds, "but just how do you run a minority government? After the excitement has died down, it's the stability and predictability and the effect on jobs and the economy that's going to come through.

"My guess is that with a minority government, nothing that dramatic is going to happen."