The latest news among a host of London based Audit firms is coming on Grant Thornton Ltd that has announced its plan to adopt a pay cut for at least 300 of its staffs due to the expected revenue loss led by pandemic slowdown. Prior to that, other major accounting firms like PwC, KPMG, Ernst & Young, Deloitte and BDO have also announced such intentions to introduce selective pay cuts. Grant Thornton, however, has refused to take advantage of the governments furloughing scheme and has commented that the scheme is not best suited for the company so it would rather stay out of it. But the same sentiments have not been mirrored by the other firms who have placed anywhere between 100 and 700 of its employees under the benefit of the scheme.
Grant Thornton has about 4,500 employees in the country, and not all of its divisions are underperforming. Therefore, just those divisions that have been witnessing reduced business activity and working hours are reportedly being subjected to the pay cut scheme. The accounting firms in the country has been facing a massive disruption on virus-induced lockdown that has brought the world to the verge of deep economic recession. In addition, the company presently struggles through the loss of business activities as the UK government has provided businesses a relief to delay publication of their results on account of the pandemic lockdown situation. The country so far has nearly 124,000 infected patients of coronavirus out of which more than 16,000 people have died. The government has imposed a lockdown till the first week of May during which most of the business activities in the country will be either shut or will work with reduced productivity levels.
The Financial Conduct Authority (FCA) in the last month had allowed listed companies in the country to delay their financial reporting by anywhere between two months and six months on account of lockdown conditions prevailing in the country due to the coronavirus pandemic. Commenting on the reasons of the decision, the Authority noted the decreased manpower capacity with the accounting firms in the country for which it would be hard-pressed to deliver outside of its time and capacity constraints. However the decision also meant that the flow of business to these firms will also come down significantly, leading to many of them, if not all, going into the red. It was not just the governments decision to allow companies to postpone results declaration but also the lockdown conditions that is partly responsible for the anticipated losses. Several of the employees of these companies have been forced to work from home, ensuing that their productivity levels are not the same as that they would deliver in office. This has led to the whole industry failing to meet its client schedules and deadlines. Apart from certain activity types like merger and acquisition, new equity raising, and insolvency proceedings are now churning nil business for these firms due to the slowdown in business activity levels and new government circulars.
To support the falling business activity levels across the industries, the government has come up with furloughing schemes where it has offered to pay 80 per cent salaries of retained employees to a maximum of £2500 pounds per month. The Furloughing scheme that was announced by the government last month was set to culminate in May but with the constantly rising number of infections in the country the lockdown is likely to be extended necessitating the exchequers action. Previously, the government had allowed the benefit of the scheme to be extended to even large companies who couldn’t take advantage of the scheme earlier on being backed by the Bank of England Corporate Financing Facility. The British government has expressed its utmost concern about the rising unemployment levels in the country emerging from the coronavirus fallout. When the Furloughing scheme was announced it initially estimated that about 10 percent of the businesses in the country would place their employee in the benefits of this scheme. At that time, it was estimated that in terms of pay outs it would be costing the exchequer about £ 10 billion but the moment country entered into the month of April it became evident that the scope and severity of the pandemic had become more prominent and that far more number of companies will be applying for benefits of the scheme. Now it seems with the estimates coming in from various government and non-government estimators that the number of companies will be applying for the benefits under the scheme, number of people to be covered under the programme and with the time extension the programme is going to cost the exchequer in excess of £50 billion.
Except for Grant Thornton who would not be taking advantage of the governments furloughing scheme, several accounting firms are making good use of their own resources and the government scheme to reduce the burden of the pandemic on their bottom lines and their employees. Everyone has started to initiate pay cut measures, reduced their partners’ profit sharing pay outs and are implementing austerity measures to conserve as much cash as possible to tide through the current tumultuous period. Grant Thornton is reportedly expecting as much as 20 per cent of its profits to fall this year due to the pandemic.
At this time, there is no certainty about for how long the lockdown conditions in the country would prevail. But there is a strong hope of revival to be seen in the accounting segment of these audit firms, however, other revenue streams like acquisition, mergers, and due diligence seems to remain dry for a long term. These accounting firms especially the large ones have shown strong financial position to bear the cost burden of their employees by their own during crisis. But now on coming under the purview of governments furloughing scheme, it would not be surprising to see that these firms have placed most of their employees under the benefits of this scheme.