Sept 12, 2006 — The nation's 100 largest public accounting firms saw fees grow a record-breaking 16.5 percent for fiscal year 2005-2006, and all 100 experienced positive growth, according to a new report.

Results from the Inside Public Accounting study of firm growth reveal the biggest growth years in the history of the IPA 100. Until last year, when growth was 16 percent the previous high was 15.3 percent during the high-tech bubble years.

The IPA 100 firms not only grew the top line at a record rate, but they did so more profitably. Although the income growth rate slowed 13.9 percent -- from 20.9 percent last year to 18 percent this year – other measures of profitability increased:

Average profit margin (income as a percentage of net fees) rose from 31.9 percent to 32.7 percent, pointing to an increased emphasis on cost containment.
Net income per partner (NIPP) surged to $453,952 over last year's $407,720 -- an increase of 11.3 percent. (Average IPA 100 NIPP per equity partner was $595,708 – an indicator of profitability measured for the first time this year.)
Average partner compensation rose 8.4 percent, up to$427,298 from $394,088 in 2005 for all partners at IPA 100 firms.
This year's surveys reveal an increasing polarization of accounting firms by service offerings, indicating a dramatic shift toward service specialization. Of IPA 100 firms providing data on revenue by practice areas, 39 percent report that at least half of their fees come from just one service line: 27 percent derive at least half of their revenue from audit, 10 percent earn at least half their revenue from nontraditional services, and two firms generate 50 percent or more of their revenue from tax.

Mergers remain a potent growth tool, but marriages between IPA 100 firms are becoming rarer. For the first time in more than a decade, no firm dropped out of the IPA 100 due to an upstream merger. Intermarriage between IPA 100 firms has been tailing off over the last few years -- last year, only one firm, American Express Tax & Business Services, dropped off due to its acquisition by RSM McGladrey. The 100 largest firms still actively seek merger partners, but nowadays, they tend to fold in smaller shops with appealing geographic or niche strengths rather than marry their IPA 100 peers, the report says.

Other trends noted by the IPA study:

Net income per partner is up 28 percent over the past three years for all partners, including nonequity partners.
Average partner compensation is up 19.6 percent over the past three years. Partners appear to have left more money in their firms this year than they have in some years.
Net fee per charge hour is up 10.4 percent in the past three years. This number correlates closely with revenue per employee, which increased 11.4 percent in the past three years.
Among IPA 100 firms, only five have a net fee per charge hour of less than $100, while five have net fees per charge hour of more than $200.

SmartPros--To order copies of the August 2006 issue of IPA highlighting the IPA 100