The European Commission is planning to introduce a directive which would make it mandatory for companies with a public interest to rotate auditors, which could make it much easier for smaller audit companies to get into an area dominated by the Big Four.
“The directive is meant to come into force next year but the timeframe is not sure as there are still some aspects which are being honed,” Grant Thornton managing partner Mark Bugeja said.
“However, it seems clear that entities affected will have to rotate their auditors after a certain time, and that there will also be a cap on the amount of advisory work the auditor can do – around 40 per cent of the audit fee. This will ensure auditors do not get a contract by bidding very low for audit fees but then making it up through advisory fees.
“There will also be some services that auditors will not be allowed to provide, in order to ensure their independence,” he said.
The recent merger with EMCS will allow Grant Thornton to compete with the traditional Big Four accounting firms for these opportunities in Malta, Mr Bugeja believes.
“In the UK, multinationals tend to work with the Big Four, but Grant Thornton – which is fifth or sixth in the world depending on what criteria you apply – is very strong and is able to cater for other large companies. Here in Malta, this does not happen as the market is quite different, and all the firms, including the Big Four, are interested in the same clients,” he said. “We either take their clients or share different areas of work with them.”
With these opportunities in mind, Grant Thornton felt the best way to grow the company was through a merger. A number of other companies fit the bill who were, however, not keen to lose their autonomy.
“It is a shame because the sector is facing high compliance costs, quality assurance and regulatory pressures. So the economies of scale that result from a merger make sense,” he said.
Indeed, the merger with EMCS brought benefits for both parties. Grant Thornton, which is the fifth largest audit firm in Malta was double the size of EMCS but half its operations were based on audit, while EMCS had a much stronger advisory arm. Both did tax – although for different clients.
“One of the main benefits came from the advisory arm as we were both active but in very different sectors, so there was no overlap,” Mr Bugeja said.
“Now, the three areas of activity are fairly balanced – although there is scope for many new areas of advisory,” Mr Bugeja said.
Even though the fit was so strategic and the corporate chemistry so immediate, it took years of talks with EMCS to reach an agreement.
Not being one of the Big Four is not necessarily a negative thing: it means Grant Thornton has to stand out in its own way. The firm started out in 1975 as Manwel Bonello and Co., working with Deloitte Haskins and Sells until its 1990 merger with Touche Ross, when it took on Grant Thornton.
“To survive we have to offer a distinctive quality service. One thing that certainly makes a difference is the fact that we have a bigger ratio of partners to staff of 1:10, compared with the Big Four’s ratio of 1:16. This means clients have much more input from one of our nine partners,” he said.
The logistical side of the merger was fairly straightforward – at least for now – as the advisory units were centralised at the EMCS office at Tal-Qroqq while the EMCS tax department moved to Swatar.
“We will need to consolidate the offices as we have already run out of space here, and ideally we would eventually get everyone under one roof.
“Another problem is recruitment, and in fact, Stefano Mallia is now our human resources partner and we are doing a lot more to attract talent, including a larger presence in student areas,” he said.
Grant Thornton is also doing more business development with partner John Farrugia keeping an overview of the generation and follow up of leads.
The growth of principal Grant Thornton internationally will also mean more referrals, in addition to other support on technical and marketing, for example.
“We are also leveraging EMCS’s strengths. For example, we are using their expertise for the EU’s cost benefit analyses, which are very vast as they look not only at financials but also as the social, economic and environmental impacts,” Mr Bugeja explained.