Agencies are warned: don't insist that clients use only a 'big four' auditor

The accountancy standards body has written to the six major agency groups.

Agencies are warned: don't insist that clients use only a 'big four' auditor

Agency groups should not demand that advertising clients use only the "big four" accountancy firms to carry out contract compliance.

That’s according to the Institute of Chartered Accountants in England and Wales, which has told the big six global agency groups that they are being "unhelpful in terms of restricting market choice and competition".

The ICAEW said advertisers should be free to appoint any qualified chartered accountant – regardless of its size.

Tony Bromell, head of integrity and markets at the ICAEW, has written to the chief financial officers and chief legal officers of WPP, Omnicom, Publicis Groupe, Interpublic, Dentsu Aegis Network and Havas, as well as ISBA, the IPA, the Association of National Advertisers and the World Federation of Advertisers.

The letter said that it is up to an advertiser to appoint an auditor to check that the agency has stuck to its obligations, but it is "not uncommon" for an agency to stipulate that "only one of the what are commonly referred to as the 'big four' or 'nationally or internationally recognised' accountancy firms [Deloitte, EY, KPMG and PwC] may be chosen to perform the compliance audit".

Bromell continued in the letter: "We consider such clauses to be unnecessary to ensure quality service and unhelpful in terms of restricting market choice and competition.

"Indeed, in the statutory audit market, ‘big four only' clauses have now been outlawed as unnecessarily restricting competition and choice."

Any chartered accountant is held to "the same exacting standards, regardless of whether they are sole practitioners, small firms or large firms", Bromell said, adding that "size, of itself, should not be relevant" when choosing whether a firm is suitable.

Contract compliance is not regulated, unlike financial auditing, so the ICAEW cannot ban "big four only" clauses.

Bromell told Campaign that he wrote the letter after some ICAEW members from smaller, specialist firms alerted him to the fact that some clients were adopting "big four only" clauses.

It suggests that relations between some advertisers and agencies remain tense over contract transparency, two years after ISBA and the ANA recommended advertisers tighten up their contracts.

Adrian Jenkins, a director at Financial Progression, a company of chartered accountants that specialises in marketing contract compliance, said he contacted the ICAEW after winning, and then being unable to proceed with, client work.

Some agency groups have insisted on using a "big four only" clause for media buying and creative contracts with clients, according to Jenkins.

"I know people at brands, particularly in procurement, are unhappy about ‘Big Four only'," he said. "Some agencies have seen the light and others haven’t. It’s costing the firm money and it’s anti-competitive."

Jenkins declined to identify any agency group but said he has encountered the problem multiple times with more than one group. He hopes the ICAEW letter will "ensure a level playing field" for all contract compliance firms.

Stephen Broderick, chief executive of FirmDecisions, another contract compliance company that employs chartered accountants, said: "In my experience, almost all of the big groups have ‘top four only' clauses in some clients' contracts and their starting point in negotiations is to insist on ‘top four’ only.

"Many clients don’t understand the implications of a ‘top four only' clause," Broderick added. "It is often not in advertisers’ best interests for contract compliance work to be done by 'big four' auditors, as they are generalists and not specialist in media and marketing."

Tension over agency contracts first broke into the open two years ago when Sir Martin Sorrell, then chief executive of WPP, clashed with FirmDecisions.

Sorrell said at the time: "We think, for audit purposes, you should use a professional auditor – ie one of the ‘big four’ firms."

WPP, now under new leadership, has adopted a more emollient line in response to the ICAEW letter.

A spokesman for Group M, the media buying arm of WPP, said: "We believe clients should use independent media auditing firms for media auditing work. Likewise, clients should use independent accredited audit firms or specialist firms for financial auditing.

"Clients should have choice and we have a track record of working well with accredited or specialist firms that are independent, as well as the 'big four'."

Omnicom, Denstu Aegis Network and Havas declined to comment. Interpublic and Publicis Groupe did not respond to a request for comment.

The IPA insisted that agency groups do not push "big four only" clauses in "many" of their contracts.

Richard Lindsay, legal and public affairs director of the IPA, said: "Having received the letter from the ICAEW, we discussed the issue with several of the large networks.

"Each was quick to confirm that they do not seek to impose ‘big four’ restrictions on clients.

"As far as we are aware, then, it is not the case that many client agency media buying contracts contain ‘big four only' clauses.

"Ultimately, our members simply want to ensure that any firm instructed by a client to audit their business is competent to do so and we agree that ICAEW chartered status is a recognised badge of quality."

A senior figure at a large advertiser with experience of contracts painted a different picture, saying some agency groups use a "big four only" clause "as something to trade in negotiation". Big sums are at stake because advertisers want to check their money has been spent properly in the £500bn-a-year global ad market.

Debbie Morrison, director of consultancy and best practice at ISBA, said: "ISBA has always advocated that clients must be able to select their own financial auditor, as long as they are a member of a professional accountancy body, experienced in audit and independent of both client and agency.

"We welcome this initiative by ICAEW to clarify the legal position on choice, which reflects the position outlined in ISBA’s media framework terms." ISBA's media framework is a guideline for advertisers to use in their agency contracts.

Sam Tomlinson, partner at PwC and leader of its media insight and assurance practice, said: "PwC is wholly in agreement that ‘big four only' clauses are inappropriate in any context.

"Indeed, when advising on version two of the ISBA client-agency media framework, we took care to ensure that the guidance notes explicitly recommended against these types of restrictions.

"We believe clients should select a professionally qualified and regulated auditor with media expertise, not select based on size."

Bromell said some clients may mistakenly believe that size matters when it comes to choosing a chartered accountant, thinking "we’ve heard of these people, so they must be better".

He said: "It’s the specialist ability that matters, rather than the size."