A merger of international accountancy practices, KPMG and Ernst & Young, will ensure that KPMG retains its the top position in the Irish market. But it will mean that the current "Big Six" Irish accountancy firms will shrink to the "Big Four" after the recent merger of Price Waterhouse and Coopers and Lybrand. There will be some concerns over the reduction of competition. This news follows the announcement, last month, that Price Waterhouse and Coopers and Lybrand were to merge their worldwide operations.

The merger of the Irish operations of Price Waterhouse and Coopers and Lybrand would have displaced KPMG from the top slot in the sector.

But a merger of KPMG the number one practice in Ireland, based on fee income figures for 1997, with Ernst & Young, the number three firm, will create by far the largest practice in the Irish market.

KPMG had a fee income of £43.1 million in 1997, 44 partners and 838 employees, according to the latest Finance magazine survey. Ernst & Young generated fee income of £27.1 million, and has 36 partners and 486 employees.

Together, the firms would have fee income of £70.2 million, 80 partners and 1,324 employees. The combined Price Waterhouse and Coopers and Lybrand operations would have a fee income of £62.3 million, 79 partners and 1,177 employees. Price Waterhouse is the largest Irish firm in terms of partner numbers, with 45 partners. The company is the second largest in fee income terms with income of £35.8 million.

It has 645 employees. Coopers and Lybrand is fourth largest firm in fee income terms, with income of £26.5 million. It has 34 partners and 532 employees. However, the future fee income of each merged operation will depend on the extent to which conflicts of interest arise in looking after the interests of existing clients and on the new business that can be generated.

Each of the four firms act for some of the biggest Irish companies as auditors and advisers. There are likely to be some problems in a merged operation retaining the business of clients where those clients are operating in the same sectors.

For example, there must be some doubt that a merged Price Waterhouse/Coopers and Lybrand will be able to retain the audit business of both AIB and Bank of Ireland. Coopers and Lybrand audit the AIB accounts while Price Waterhouse audit the Bank of Ireland.

Among Ernst & Young's audit clients are the Jefferson Smurfit Group, CRH, Anglo Irish Bank and IAWS.

KPMG audit clients include Irish Permanent and Woodchester and the firm audited Waterford Foods before its merger with Avonmore. KPMG has a strong corporate finance and advisory operation. The managing partner at KPMG is Mr Jerome Kennedy while the managing partner at Ernst & Young in Mr John Hogan. The expected merger is unlikely to lead to job losses at the Irish operations of either firm because of the strength of the Irish market which had boosted the demand for accountancy services.

Market sources said that since the Price Waterhouse/Coopers and Lybrand merger announcement most of the larger firms in the market have been "looking at consolidation options".