The top UK accounting firms have lost more than £200m a year in fees from major corporate clients on the back of the Enron scandal.
A global clampdown on the add-on services audit firms can sell to their clients has seen the Big Four accounting giants lose lucrative consulting contracts on a massive scale.
That, plus a collapse in mergers and acquisitions and a slowdown in corporate activity, has seen blue-chip earnings for PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte & Touche tumble.
Latest FTSE 100 annual accounts show many of Britain's biggest companies slashing the fees they are paying their external accountants.
While audit fees among the UK's top companies have stayed fairly stable, half a dozen blue-chip companies alone have chopped some £100m worth of work with their accountants.
Following the Enron scandal – when audit failure was blamed on bust accountant Andersen earning the majority of its $100m a year from the energy trader in non-audit work – pressure has grown on companies to break up allegedly 'cosy relationships' with its audit firms.
Unilever, historically one of the single largest earners for Britain's biggest auditor PricewaterhouseCoopers, cut its payments for non-audit services by nearly £30m to just £15m in 2002. In its accounts, the Anglo-Dutch household goods and foods giant says it has beefed up its internal rules to ensure its auditors remain 'objective and independent'.
Specifically it states: 'Throughout 2002 our policy was that our external auditors may not tender for any new general consulting work. Previously they were able to tender for general consulting projects.'
Lloyds TSB, which cut its previous year's £12m of consultancy fees by nearly three quarters, said it has also banned the firm from pitching for such contracts.
A collapse in one-off big ticket contracts has also hurt the firms.
GlaxoSmithKline cut its non-audit fees by £20m to £15m, with £8.6m of that cut attributable to the fees earned by PwC previously advising on the pharmaceutical giant's merger.
Glyn Barker, head of audit and business advisory at PwC insists it is just not the post-Enron effect which is hurting its business. 'Clients need to demonstrate and justify to shareholders why they are employing their audit firm for non-audit work but the evidence we have is that the effect is not significant,' he said.
Barker said the fall-off in fees is more likely attributable to the big firms' sale of their consultancy businesses, the collapse in corporate deals and tough trading conditions experienced by their clients.
Non-execs are watchdogs
Non-executive directors serving on companies' audit committees are being made responsible for ensuring auditors remain independent and objective in their relations with big business.
As part of the Higgs Report reforms, audit committees will be told to explain in annual reports why auditors are paid for any work over and above the audit.
Shareholder lobby groups have said they will check to ensure there are no 'cosy relationships' between finance directors and audit engagement partners. Clamping down on non-audit work has been seen as a quid pro quo for Trade Secretary Patricia Hewitt not insisting on rotation of auditors.