Blow to accountants as bid to fix professional fees flops

The Competition Authority of Kenya (CAK) has rejected accountants’ proposal to fix prices, arguing that such a move would kill competition and innovation in the sector.

The Institute of Certified Public Accountants of Kenya (ICPAK) had in 2015 requested to be exempted from competition rules – a move that would allow it to set minimum professional fees for accounting services.

READ: Accountants, surveyors seek exemption from competition rules

ALSO READ: Accountants lobby to fix auditing charges

But the CAK rejected the request in a November 2016 decision, arguing that the benefits of minimum fees were outweighed by potential harm they would cause in the marketplace.

“Introduction of fee guidelines will decrease competition, increase costs, reduce innovation and efficiencies and limit choices to customers and is in fact likely to raise the cost of accountancy services beyond the reach of some consumers,” the CAK said.

The accountants had wanted to set minimum fees for services offered to different categories of business, including saccos, pension schemes, public benefit organisations and non-assurance service firms.  

Accountancy firms failing to adhere to the guidelines are usually deemed culpable of professional misconduct.

ICPAK had argued that the minimum fees would ensure fair remuneration for accountants while preventing widespread undercutting in a market where operating costs are rising fast.

In addition, the institute contends that minimum fees would increase professionalism among accountants and help eliminate illegal operators.

“Resonating effect”

Those arguments do not appear to have convinced the CAK, which has taken ICPAK to task for failing to clearly demonstrate how minimum fees will improve professionalism or insulate consumers from the adverse effects of a price threshold.

The high operating costs associated with harsh market conditions ought to be dealt with on a case by case basis, the CAK said, rather than entangling the whole profession with price restrictions. The authority also fears setting a precedent.

It says allowing the accountants to set minimum prices could have “resonating effect” on other professional services, especially in the financial services sector.

Wang’ombe Kariuki, the CAK director-general, declined to comment on the decision until it is published in the Kenya Gazette.

“But I can say that the authority does not encourage floor pricing because it facilitates service providers rather than consumers,” he said.

ICPAK has over 18,000 members. Small audit firms, who are often played off against each other by clients, stood to gain the most from a price guideline.

ICPAK acknowledged receiving CAK’s letter and indicated that it may appeal the decision.

“We have received a decline on the application to have a remuneration order for accountants. We are analysing it and are considering an appeal,” said ICPAK chief executive Patrick Ngumi.

Rise in demand

The Competition Act prohibits professional bodies from setting prices for their sectors. However, the law also allows the CAK to grant exemptions where such measures will promote exports, bolster declining industries or in cases where the benefits outweigh the cost of a less competitive environment.

Demand for audit services has been on the rise in Kenya since the Companies Act 2015 came into force. The law requires audits for all companies with an annual turnover of more than Sh50 million and groups of companies with a turnover of more than Sh720 million.

Accountants are not the only professionals who have sought to set minimum fees for their services. The Advocates Remuneration Order sets out the minimum fees lawyers can charge for a range of services.

In 2013 the CAK stood against the Law Society of Kenya (LSK) arguing that an attempt to increase legal fees was illegal and in breach of competition laws.

Lawyers later revised their legal fees in 2014, a move the CAK says resulted in 40 per cent price increase for legal work.

The Institute of Surveyors of Kenya has a case pending with the Competition Authority in which it is seeking to set minimum fees for practitioners in the sector.

Mr Kariuki said applications by other professional bodies seeking to set minimum prices will be decided on a case by case basis.

The applications come at a time when the World Bank has identified services as big drivers of Kenya’s growth.