Accounting Firms Services and Pricing

Competition

Angelica M. Caliwag

Dr. Julieta T. Hernandez

February 28, 2015

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Thesis: The clients preference on audit firms is not based only on the pricing
and the services they offer but on the quality of the service, the reliability, and
the relationship the firm establishes on their clients.

I. Accounting Practice
A. History of Accounting Practice
B. Responsibilities and Practice of the Profession
II. Auditing Firms Competition
A. The Big Five Accounting and Auditing Firms

1. SGV & Co.

2. Manabat Delgado Amper & Co
3. Isla Lipana & Co.
4. Manabat Sanagustin & Co.
5. BDO Alba Romeo & Co. (Philippine Member Firm of BDO
International)
B. Services Offered by Auditing Firms

III. Client/Companys preference of audit firm

A. Big/Famous Accounting firm or Small/Regional Accounting Firm

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Accounting Firms Services and Pricing Competition

Around 3600 BC in Mesopotamia, China, and India to Central and South

America, record keeping was already common and the evidence of this was
the clay tablet which contains tax assessments

and payments as

researchers have translated (Valencia & Roxas 1-2). Thousand years ago,
accounting already exists as mentioned in the New Testament of the Bible.
Matthew 25:19 states, After a long time, the lord of those servants came to
settle accounts with them.
However, accounting system continued evolving, from the double entry
system into the T-Account and expanded into the Ledger under our present
system (Valencia & Roxas 2). Accounting dynamically developed from manual
to electronically assisted information systems because of the rapid growth of
industrialization, mergers and consolidations, and globalization of business
(Valencia & Roxas 5).
Accounting has four major specialized field namely public accounting,
private accounting, government accounting, and Accounting Education. Public
Accounting

offers

their

services

(external

auditing,

tax

services,

and

managerial advisory services) to clients for a fee. Alternatively, accountants

are said to be in Private Accounting when they are employed in a private

enterprise or in a non-profit organization. Government Accounting focuses on

the proper custody of government funds and their purposes. On the other
hand, Accounting Education involves teaching accounting, taxation, and some
business subjects. (Valencia & Roxas, 44)
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The Accounting professions most significant service to the public is
auditing. The businesss own accountants perform the Internal Auditing.
(Horngren & Harrison, 7) External Auditors are accountants who review
financial statements to verify the accuracy of company reporting. They are
expected to maintain a relationship of strict independence and professionalism
with the firms for whom they work for, e.g. they shouldnt hold stock in their
clients company so that independence of their opinions may not be
questioned. (Lexicon 78)
An Accountant has the responsibility to assure, specify auditing
procedures,

and

compile

engagement,

his/her

work

also

includes

summarization, analysis, advice, counsel or interpretation with respect to

taxation matters; and the preparation of a tax return or other statutory filing
(Code of Ethical Principles and Rules of Conduct, 3).
The difficult part of being a CPA is that advertising your profession in
order to gain clients is prohibited; one also shall not refer a client for services
to another one engaged in the practice of public accounting for a commission
or other compensation (Code of Ethical Principles and Rules of Conduct, 8). So

in order to assure your career and income, being employed in an accounting

firm will be helpful.
85 percent of the 2,600 largest corporations financial statements are
audited by the largest Accounting firms (Horngren & Harrison, 5). In the
Philippines, there are five large and famous accounting and auditing firms
such as: SGV & Co., Manabat Delgado Amper & Co., Isla Lipana & Co., Manabat
Sanagustin & Co., and BDO Alba Romeo & Co.

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SGV & Co. (SyCip Gorres Velayo & Co) which is an affiliate of Ernst &
Young, one of the biggest international auditing firm is the Philippines' largest
multidisciplinary professional services firm with eight offices across the
country. They employ nearly 4,000 professionals from various disciplines. We
provide integrated solutions that draw on diverse and deep competencies in
assurance, tax, transaction and advisory services. We uphold the highest
standards of quality. In fact, SGV & Co. remains the only ISO 9001-certified
professional services firm in the Philippines a distinction we have maintained
since 1996 a written description on their website.
The top 2 in the Big 5 is the Manabat Delgado Amper & Co., formerly
C.L. Manabat & Co. is an affiliate of Deloitte Touche Tohmatsu (DTT). The
Deloitte global affiliation combined with the Firms growing reputation in the
local market led to double digit growth in clientele and resources. They employ

about 450 professionals in 2 cities Bonifacio Global City (BGC) in Taguig, and
Cebu offering an array of professional services, serving a wide range of
clients across various industries.
Isla Lipana & Co., formerly Joaquin Cunanan & Co. is the top 3 in the Big
5. They are affiliated with the PricewaterhouseCoopers. sticking to the highest
quality standards in delivering audit and assurance, tax and advisory services
within and outside the country, they have provided professional services in
the Philippines for 91 years.
One of the fastest growing practices in the Philippines and among
the KPMG practices in the Asia Pacific region is the Manabat Sanagustin &
Co. (formerly Laya Mananghaya & Co.). Being an affiliate of KPMG, they rank
second in number of top 1000 Philippine corporations audited.
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They are said to be consistently ranked as a Tier 1 Philippine Tax Practice and
as a Tier 1 Transactional Advisory Firm.
Lastly, the BDO Alba Romeo & Co. (Philippine Member Firm of BDO
International). ALBA ROMEO & CO. CPAs special skills lie in its application of
local knowledge, and its experience and understanding of the international
context to provide an integrated global service. Common operating and
quality

control

procedures

are

not

constraint

to

innovation

and

independence of thought, but the starting point. It is a vigorous organization

committed to total quality service.

Audit firms are hired by companies to assess their financial information

and determine if that information is complete and accurate (Wiley, 1). There
are several field of work offered by an auditing firm, one is Tax Accounting it
aims to comply with the tax law and to minimize taxes to be paid. In order to
do this, accountants prepare tax returns and plan business transactions. CPAs
also give advice on investments and transactions to make, they provide a wide
scope of advice such as improvements in the business management structure
and accounting systems to help managers run a business, this field of work is
known as Management Consulting. Another is Cost Accounting, it analyzes a
businesss costs to help managers control expenses and Budgeting sets sales
and profit goals and develop detailed plans. (Horngren and Harisson, 7)
Analytical studies indicate high-quality companies are more likely to hire
large audit firms and are more likely to pay low audit fees (Titman and
Trueman, 76). Similarly, Thornton and Moore argue that companies with strong
internal controls are more likely to choose high-quality
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auditors. (333-349) Previous fee studies significantly underestimate the

returns attributable to higher audit quality, because they ignore the
advantageous (adverse) selection effects experienced by large (small)
auditors(Titman and Trueman, 159-172).

Another competition that happens in an auditing firm is on employment.

When it comes to job opportunities, having a big 5 name on a resume is a sign
of professionalism, and quality that is accepted worldwide. Not to say that the
smaller firms dont breed the quality accountants that big 5 firms do, but
brands matter, and familiar names are going to resonate better when they
look at your resume, rather than the small regional firm that they have never
heard of. Big firms also provide a lot of opportunities that employees at
smaller firms may not be able to get just like your future job plans in working
abroad, big firms have offices all across the world. (Dalgliesh, 1)

Reliable and experienced people are asked in a Q&A Forum in a website

what audit firm can handle growth and what are the difference between the
big and small/regional auditing firms, the answers found was divided into
opinions. Some agrees on being involved or partnering with big auditing firms
while some suggests not to.

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Jeff
Answered:

Taylor

(2011), Chief

Finance

Officer at Communications

Co.

Much depends on what you want. If you want a partner with the
full resources of a "big 4" firm behind them, and who may be able
to give you a deal on year 1 fees but will be very expensive
otherwise, that's the big 4.
Another

one

came

from

Keith,Perry

(2011),

Vice

President

Finance at Rexanto:
I would never work with that Big 4 firm again (or, likely any other
unless I had to do so). They "discounted" the fees, but that was
only to bring them closer to the fees that the regionals bid.
Preston Kavanagh (2011), A Partner at The ILS Funds commented:
I love the Big 4 industry expertise. I work in insurance, and it
makes a huge difference to have a firm that tracks industry issues,
already understands a range of actuarial methods, can handle a
systems-centric audit.
Erich Stolz, Chief Finance Officer at Muehlhan Surface Protection Inc.
added:
I have worked with the Big 4 and also with some other national /
regional firms. I prefer working with other than the Big4 firms there are very good other regional and national firms for
(sometimes) 50% lesser fees than the Big4. It really depends on
the auditing director / manager who you like and who really can
help you in various aspects you may have.

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Lastly, an answer from Paul Weinberg (2012), President at The CPA

Exchange, Inc.:
by the far the most important factor is having a Partner on your
engagement that (a) understands your business (b) understands
the industry in which you operate and (c) fits with the culture of
your organization. Your Public Accounting firm needs to fit your
culture, not vice versa. Do not settle. No firm is better than the
other. They all have various aspects that are subject to various
opinions.

Based on their answers, we can conclude although financial aspects are

to be considered, the size and popularity of an auditing firm should not be the
basis. The real competition lies between the integrity, quality of services they
offer and the attitude or how auditing firms work and care sincerely without a
motive of interest for what the client will pay for them.

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Works Cited
About

R.G.

Manabat

&

Co.

2015.

http://www.kpmg.com/ph/en/about/Pages/default.aspx
About Deloitte. Deloitte. 2015. http://www2.deloitte.com/ph/en.html
Alba Romeo & Co. http://www.bdoalbaromeo.ph/
Best Big 4 Accounting Firm - What Are The Differences? Accounting Firms
and Services.
Proformative,

Inc.

27

http://www.proformative.com/questions/best-big-4-

Aug

2013.

accounting-firm

Charles T. Horngren, and Walter T. Harrison, Jr. Specialized Accounting

Services. Accounting.
Prentice Hall, Inc. Englewood Cliffs, New Jersey. 1989. 5-7
CGA-Canada Code of Ethical Principles and Rules of Conduct Version 2. 14
May 2013: 9-15.
Clive S. Lennox, and Jen C. Ireland. The Large Audit Firm Fee Premium: A Case
of Selectivity
Bias? Greenwood Publishing Group Inc. 2000: 89-90.

Code of Ethical Principles and Rules of Conduct Version 2. Canada. 14 May

2013: 7.
Edwin G. Valencia, and Gregorio F. Roxas. History of Accounting Basic Accounting.
4th Ed. 2014: 2-5

Investors say switching from Big Four is okay. News. Punong Bayan &
Araullo. Makati City.
2015: 1.
Isla Lipana & Co. is PwC in the Philippines PricewaterhouseCoopers. 2015.
http://www.pwc.com/ph/en/about-us/index.jhtml

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Jeremy Dalgliesh. Bigger is Better! Why You Should Choose a Big Firm. PwC
Edmonton.
Edmonton. 15 Aug 2012. 1
Melissa Wiley. What do audit firms do? Conjecture Corporation.19 Jan 2015.
http://www.wisegeek.com/what-do-audit-firms-do.htm
SyCip Gorres Velayo & Co. (SGV & Co.) SGV & Co. 2014. http://www.sgv.ph/about-

us/
Thornton,

D.,

and

G,

Moore,

1993,

"Auditor

Choice

and

Audit

Fee

Determinants." Journal of
Business Finance and Accounting 20 (3): 333-349,
Titman, S., and B, Trueman, 1986, "Information Quality and the Valuation of
New Issues," Journal
Of Accounting and Economics 8: 159-172