Lowballing, unfair competition or freedom of choice?
Jeremy Newman doesn't normally hold back. But his latest blog post will really set the cat among the pigeons. The BDO chief describes how his firm pitched for a due diligence assignment for the UK subsidiary of a (continental) European company.
It priced its work at a maximum fee of £200,000. 'The company’s auditor – a Big Four firm – was also asked to quote and the top end of their fee range was well over £600,000,' he says. Obviously BDO believed the work was theirs. But no.
Newman goes on to say that the parent company told the UK subsidiary to 'discuss the position further' with the Big Four firm which promptly reduced its fee by about half. Discussions continued: 'The Big Four firm were told that provided they reduced their fee to £220,000 (i.e. 10% more than our fee quote) the job was theirs. The Big Four firm duly obliged.'
I can't think of such a tale being made public before - even during the height of the lowballing allegations of the 1990s. Surely companies should be questioning pricing strategies of firms that are prepared to slash their fees by two-thirds?
Another interesting dimnesion is how the audit choice debate is now global. Even if a UK subsidiary chooses a mid-tier firm because of the climate in the UK - it may still be overruled by an overseas parent based in another country - where perhaps the quality gap is wider.
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