Grant Thornton partner pay drops £20k

Mid-tier firm Grant Thornton has shifted its accounting period by six months, from June to December, and has released an interim transparency report showing a drop in partner profit for the past 12 months

A spokesperson for Grant Thornton UK said: ‘The firm has decided to adjust its financial year end from 30 June to 31 December, as a later year end better matches the seasonality of our business and aligns with our global reporting commitments. This will not have any adverse impact on our people or clients.’

The interim transparency report states that during the period to June 2019, Grant Thornton reported ‘modest growth – increasing total revenue in the 12 months to 30 June 2019 from £491m to £502m (unaudited)’. This would also see the firm drop to number six position in the Accountancy Daily Top 75 Firms ranking.

Last year, Grant Thornton released its annual results in early December, but the decision to align its accounts with the wider Grant Thornton global network will see the results delayed until spring 2020 at the earliest.

Following the decision to pull out of FTSE 350 audit tendering, the firm has taken a severe hit to its audit profitability, down at £5.4m in 2019, compared to £13.5m in 2018 showed unaudited operating profit figures. Total audit fee income was £131.7m, in line with the previous year’s audited figure of £132.4m.

 In the same period, partner numbers rose from 188 to 200. The average profit per full share equity partner in the period was £323,000, compared with £343,000 the previous year.

Earlier this month the firm announced that it was planning to shed a ‘small number’ of partners, to meet business needs and ‘builds on steps we’ve already taken over the last year to ensure our operations are aligned to the changing needs of our clients and their stakeholders’, a Grant Thornton spokesperson said at the time. This followed cuts in the marketing and communications team earlier in the year.

The firm says it is currently undertaking a review of its partner remuneration structure to ensure a clearer link between partner remuneration and a partner’s contribution to its key goals around quality, value and talent.

In his foreword to the report, Grant Thornton CEO David Dunckley said it had been a year of change, both for the audit industry in general, and for the firm. He noted that ‘there have been some difficult decisions to make during the year.’

Dunckley said: ‘However, for the market to become more competitive, we have firm views on the changes required, and we have been consistent on these views in the last year.

‘We need time to invest further in our capacity to do more, larger audits. An environment where larger firms are split between non-audit and audit will hamper our ability to invest and is likely to be a disincentive for challenger firms to seek to operate in the large listed company audit market.

‘We accept that the audit industry needs an effective regulator. However, that regulator needs to see that it will have an impact on the marketplace and on market competition. We need an environment where a culture of improvement is fostered and regulatory fines, if imposed, are issued on a proportional basis.

‘Creating such an environment will enable all firms to continue to invest in audit quality and will promote the appetite of challenger firms, such as Grant Thornton, to re-enter the market for larger audits.’

The interim transparency report noted that Grant Thornton received a critical report from the Financial Reporting Council (FRC) in its review of its highest-risk clients, while it is also at the centre of ongoing investigations into the firm’s audit of the financial statements of Sports Direct International, Patisserie Valerie and Interserve.

The latest FRC Audit Quality Inspection (AQI) stated: ‘We [FRC inspectors] assessed four out of eight audits as requiring more than limited improvements, compared with two of eight in 2017/18. We have assessed ten of the 39 audits that we have reviewed over the past five years as requiring significant improvements. This percentage (26%) is markedly higher than any other firm we have inspected over the period. This level of audit quality is unacceptable.

‘The quality of the audits inspected in the year, and indeed the overall lack of improvement in quality over the past five years, is a matter of deep concern. We have therefore required the firm to prepare and implement a detailed action plan to undertake an overhaul of its audit practice to improve quality.’

In response, Grant Thornton said in the transparency report that it is now investing £7m in people, technology, training and tools to ensure it meets the objective of each file reviewed by the FRC and is working towards achieving at least a 2A score for its audit quality inspection reports by 2021.

Grant Thornton Change and Focus Interim Transparency Report issued 31 Oct 2019

By Pat Sweet, additional reporting Sara White

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