The Mutual Benefit Group has selected Accenture Claim Components to replace the insurer’s legacy claims systems. They currently use Accenture Duck Creek Policy Administration as its core policy processing system, writes personal and commercial lines in Pennsylvania and Maryland.
Accenture’s award-winning policy and claims software offers carriers an integrated, end-to-end suite of software with modules that can be implemented individually or as part of a broader migration strategy. Insurers of all sizes can benefit from a flexible suite of P&C software that allows them to configure products, transact lines of business and process claims.
Michael A. Jackowski, global managing director of Accenture Software for P&C Insurance was understandably pleased with the announcement:
“Being selected by Mutual Benefit Group is an affirmation of the strength of our claims and billing solutions,” he said. “We are pleased that another mid-market carrier has selected Accenture Claim Components, reinforcing the fact that Accenture now delivers the industry’s most advanced claims technology to carriers of all sizes. The additional selection of our billing system illustrates that we are succeeding in our goal of building the strongest suite of insurance software in the industry.”

The post Accenture: Software modernization initiative awarded by Mutual Benefit Group appeared first on Big4.com.

Ready. Set. Jump!

Attention Big 4 talent!

Your star is on the rise. The market for talent is heating up the most we’ve seen in the past three years. Whether you’re in public accounting or private industry, your experience, skills and qualifications are being viewed as increasingly in demand and desirable.

Opportunities are being created, either by increased budgets, revenue growth, or simple old fashioned turnover. And turnover there is – even the most cautious & risk averse CPA’s are dipping their toes back in the pool.                                                                                                    

What does this mean? Increased opportunity and visibility, better compensation (hallelujah to that!) and the validation of an economy who’s engine is just starting  to hum.

If you’ve been thinking about what’s next on your career ladder, now may be the time to start thinking about leveraging your skills and value. If you’ve been out of the game for a while, fairly new to it or not sure where and how to begin, here are a few suggestions.

Update your resume – I know it sounds like a no-brainer, but I’m often surprised at how often I ask for one and it’s not .  Doing so is a great start for multiple reasons. First, it’s the initial step of doing something to start the process. And by listing your accomplishments, responsibilities and goals it re-familiarizes you with YOU! Compiling, then seeing your experience in black and white is clarifying.

Secondly, when that perfect opportunity comes your way, you’re ready to respond. Keeping a current resume available means you’re not scrambling to remember years of  detail, projects and dates. You can tweak it for specific opportunities or update it every time you’ve accomplished/added something new in your current position.

With Social Media and so many job boards, it’s easy to tap into the existing job market. If you’re well employed and passive, a well networked and completed Linked In profile will get you noticed. Being well connected and active in  your circles will expose you to trends and leads. Know who the reputable recruiters are in your demographics and sector and connect with them.

It’s a great time to consider the next step in your career – be prepared, be aware and venture out a little.  Opportunity is calling.

Cindy Cremona, CPC has over twenty years experience as an Executive Recruiter. Her main focus is in Accounting and Finance, primarily placing senior level roles for clients mainly in the technology sectors.

Cindy works extensively with CPA’s and current/former Big 4 alumni. As a ‘Change Agent’, Cindy has a wealth of knowledge and expertise for CPA’s transitioning from public accounting or to the next step in their careers.

Please visit her website www.hirealternative.com

The post Musings From Cindy Cremona, CPC – Recruiter Of Big4 Candidates appeared first on Big4.com.

The post Featured Job: Corporate Tax Senior Associate, Grant Thornton appeared first on Big4.com.

I recently placed a candidate in a considerably lower level role than I normally do. Most of my recruiting assignments are for senior level positions with experienced executives. It’s always personally rewarding to enhance someone’s career, both professionally, financially and personally, but this recent placement gave me a different buzz. One I remember liking from earlier in my own career. It’s the great feeling of making a difference in someone’s life, probably one they’ll always remember and knowing I helped create a turning point in their careers.

This also put me in mind of experiences placing  candidates coming directly out of Big 4 for the first time. I did my fair share of these transitions in the good old pre-IPO, pre-SOX days, circa mid-late 1990’s. Hard to believe the many changes that have occurred since, from Enron to the great recession. The one thing that hasn’t changed though is how young talent feels, making the leap of faith from a public accounting firm to private industry. I’m quite sure attorneys and accountants struggle with some of the same questions when leaving the world of prominent law firms and the Big 4. After all, they’ve been groomed for success and high expectations, pitted against their peers for recognition, fostered in an environment of similar professionals; all hard working, bright and ambitious up and comers. Some see a clear path towards partnership while others dread yet another busy season.

And then someone like me comes along – whispering in their ear of opportunity, title, compensation increases, the chance to have a more structured lifestyle. Maybe they’ll work just as hard, after all I believe cranking out the hours is just ingrained in the Big 4 psyche. Regardless of the inducement, there comes a time when the right opportunity hits a nerve and the considerations of change come into play.

What makes transitioning out of Big 4 so different? In addition to their accounting firm experience usually being their first role out of a college they were recruited from, there’s the comfort level of professional commonality and equality. Everyone starts off in a comparable position, with similar skills and education. Everyone is working towards the same goal. Expectations are set and met; there are mentors and an established pattern for growth.

It’s no wonder the thought of leaving the prestigious society created in their firms is such a difficult decision. Here the CPA can rely on mentorship, interesting work and variety. Their peers share the same workload, similar challenges and are bound together in a culture of hard work and long hours. And even though they have worked with and alongside their clients, going to work for them is a completely different ball game. Contemplating submitting their work for the Auditors to review, getting involved in everything from journal entries to financials and often a big challenge in learning how to motivate and lead non professional staff.  Leaving the cocoon of a big 4 environment is a daunting proposition and let’s face it – Managers and Partners will always encourage their star performers to stay.

Despite all the inducements to stay (excluding the long hours!), Big 4 talent often does make it’s way into the private sector. Most do it successfully, embracing private industry, thriving in new challenges and learning how to lead and motivate. Transitioning into the corporate world is almost a right of passage. Their talent is welcomed and embraced whichever side of the fence they ultimately choose.

Cindy Cremona, CPC has over twenty years experience as an Executive Recruiter. Her main focus is in Accounting and Finance, primarily placing senior level roles for clients mainly in the technology sectors.

The post Musings From Cindy Cremona, CPC – Recruiter Of Big4 Candidates appeared first on Big4.com.

Interview link: http://www.accountantslike.com/2012/02/accountants-like-interview-with-bob.html

Amazon link (Kindle option too): http://www.amazon.com/Ex-Why-Bob-Sinnott/dp/146360677X/ref=sr_1_1?s=books&ie=UTF8&qid=1329317643&sr=1-1

The post Interview With Big 4 Satirist appeared first on Big4.com.

ACME Business Consulting helps organizations achieve specific and critically important business objectives. We are leaders – catalysts, augmenters and force multipliers. ACME teams are comprised of senior-level managers with Big 5 experience, advanced educations and past successes. In other words, it takes a lot to rattle us.

As an ACME Senior Manager, you will tap into your left and right brains. With your left you will bring real-world analytic skill, methodology and planning. From your right you will hone creativity, sensitivity and smarts as you navigate and lead business transformation projects. This position requires strong leadership skills, project management discipline and an understanding of the methods and tools used to achieve success.

http://www.big4.com/jobs/career/39633/Senior-Consultant-Oregon-Or-Portland

As an ACME Senior Consultant, you will be a critical player on large, complex projects. You will excel at bringing real-world analytic skill, methodology and planning to ACME-led engagements. You will be responsible for managing and delivering key components and deliverables on large projects and programs. This position requires strong analytical skills, project management discipline and an understanding of what it takes to be a successful member of a high performing team.

http://www.big4.com/jobs/career/39617/Senior-Manager-External-Reporting-California-Ca-Sunnyvale

Senior Manager, External Reporting Yahoo

Role: Manages and participates in the preparation of all external financial reporting – including earnings releases, annual report and other required SEC filings. Coordinates the information gathering process involving interactions with finance personnel across the organization and also interacts with the Company’s external auditors. Provides technical consulting support to financial management at the corporate and divisional level on the treatment of accounting issues, implementation of new accounting standards, compliance with U.S. GAAP, and SEC regulations. Monitors compliance with U.S. GAAP, SEC and PCAOB regulations in the context of financial reporting. Also, manages and participates in the monthly preparation of internal financial reports.

The post Jobs Of The Week For Big Four Alumni and Professionals Jan 2012-1 appeared first on Big4.com.

This week Big4.com brings you KPMG’s financial results on Strong Business Growth Leads To US$22.7 Billion In
Revenues, Ernst & Young’s report on Risk Amid Continued Uncertainty In 2012
For Life Insurers, PwC’s findings that Gaming Revenues To Reach US$182.8
Billion, Accenture’s report on Cities Missing Smart Opportunity To Measure
Hidden Value, Deloitte’s Proposed Reform To Family Justice System, and Ernst
& Young’s analysis of Growth Expected In India’s Media and Entertainment
Industry.

Each week
Big4.com covers key news, events, happenings, opinions and blogs relating to
all the Big Four accounting and consulting firms. You can view this video our
website and on Big4.com’s channel on Youtube. So, let’s start with this week’s
round-up of the top news!

KPMG: Strong Business Growth Leads To US$22.7 Billion In Revenues

KPMG recently announced member firm
combined revenues totaling $22.7 billion for the fiscal year ending September
30, 2011.  The company recorded strong
growth across all functions. Audit revenues rebounded to grow 5.8 percent in
U.S. dollars, or 1.8 percent in local currency terms, to US$10.48 billion
against strong competition in the marketplace and a difficult business
environment. Tax revenues grew 13 percent in U.S. dollars, or 8.5 percent in
local currency terms, to US$4.69 billion. Advisory revenues rose 14.8 percent
in U.S. dollars, and 11.2 percent in local currency terms, to $7.54 billion.

Ernst & Young’s Risk Amid Continued Uncertainty In 2012 For Life Insurers

According to Ernst & Young’s new Global
Insurance Center US Outlook, there are several issues US life and annuity
insurance companies will need to grapple with in 2012. Among these are low
interest rates that should persist until at least 2013, increasing the risk of
spread compression for existing products. Insurers may also be challenged by
future Congressional efforts to reform the federal tax code. Implications exist
here for both corporate-level taxes and policyholder tax issues.

However, life insurers can leverage web technology to develop stronger ties to customers amid these other concerns.

PwC’s Gaming Revenues To Reach US$182.8 Billion

The release of PwC’s new annual report
“Global Gaming Outlook: The casino and online gaming market to 2015″ has some
interesting findings including the fact that spending in the US will rise by
5.0 per cent from US$57.5 billion in 2010 to US$73.3 billion in 2015.

Future casino upgrades and a
new casino licence will enhance the South African casino market as well, but
compared with the prior decade—when a number of new casinos opened—there will be relatively little growth from new casinos during the forecast period.

Accenture: Cities Missing Smart Opportunity To Measure Hidden Value

A new report published by
The Climate Group, Accenture, Arup
and Horizon Digital Economy Research at The University of Nottingham states
that cities are missing the opportunity to turn unused data and infrastructure
into new low carbon solutions and services.

The report Information
Marketplaces: The new economics of cities, indicates that while cities are using
information and communications technology (ICT) to improve their sustainability
and efficiency, they are not recognizing or measuring the full value of smart
initiatives. The report suggests cities should start with a common set of
metrics that can be translated into financial and non-financial values.

Deloitte: Proposed Reform To Family Justice System

Building
on the recommendations set out by the Family Justice Review panel in November
2011, Deloitte has proposed a new
model of service integration in the family court service.

These recommendations include Data analytics being used to measure service
effectiveness and predict when outcomes for children or young people may be
compromised by the system, enabling the organisation to be accountable to local
children, young people and citizens and commissioned targeted services on
behalf of a region with alternative financing vehicles for funding implemented.
Ernst & Young: Growth Expected In India’s Media and Entertainment Industry

A new study by Ernst & Young shows that India’s
growing digital media consumption and favorable demographics are key drivers
for future growth in the country’s media and entertainment industry.

With registered revenues of US$16.3 billion in 2010,
the Indian Media and Entertainment (M&E) industry is expected to see
revenues in excess of US$25 billion over the next four years according to the
report, ‘Spotlight on India’s Entertainment Economy’. The report notes India’s increasing per capita income,
growing middle class and working population are generating huge domestic demand for leisure and entertainment.

The post Check out the latest Big Four video (Dec 2011-2) appeared first on Big4.com.

We had the opportunity to talk with Protiviti’s Scott Wisniewski on the current state of GRC, its ongoing evolution, linkage of Internal Audit (IA) with GRC, the new product release and much more. According to Wisniewski, the market for GRC is rapidly moving up from simple compliance to higher value-added levels, where GRC is strongly connected to an organization’s ultimate strategy, its performance management imperative and effective allocation of assets and resources. While Sarbox was a key driver in initial years, regulatory compliance and overall need for risk management are ensuring that GRC is gaining audience in the C-suite of many companies. Internal audit is an independent and objective assessment to improve risk management effectiveness, and thus is an integral component of GRC.

Wisniewski feels that currently companies are trying to manage the space between governance and control and bringing together disparate groups under one integrated risk management umbrella. The key objective is to achieve high organizational performance adjusted for business risk. And in this context, IA becomes essential to ensure GRC is fully managed and goes beyond simple compliance with audit standards to ensuring a strategic focus on enterprise risks.

Technology is key to managing all the different processes, projects and groups which fall under the scope of GRC. Protiviti’s Governance Portal is such an integrated technological system which enables companies to focus on financial controls, compliance, enterprise risk, IT governance and internal audit building on monitoring and reporting of multiple workflows and processes. Within the portal, the integrated audit management system facilitates risk assessment, planning, electronic work papers, issue management, time & expense management and reporting.

Protiviti released this portal in 2003, and since then, it has been instituted by hundreds of leading companies all over the world, both within the US and in countries across Europe, Asia and the Middle East. Sales for the portal have been up significantly in the first half of the year, with strong demand from Japan, Australia, UK, Mexico and India.

Wisniewski attributes this performance to three key factors. Firstly, companies themselves are realizing the need for an integrated GRC system; while Sarbox remains a key driver in Japan, broader regulatory compliance and information protection risk management have become key drivers of growth within the US as well as internationally. Second, Protiviti offers a strong solution for clients with powerful integration functionalities, deep product features supported by depth and long experience in IA consulting. Third, Protiviti appears to be gaining share as companies become clients by supplanting competitors with the Governance Portal.

The new Time and Expense reporting capability allows senior IA management to fully track time and money spent by the IA staff on various projects, thus enabling them to monitor project performance at a granular level with consequent efficiency gains in achieving IA goals under budget and on time; while improving reporting to the Audit Committee of the Board of Directors.

The monitoring of time and expenses related to audit and non-audit projects, as well as to administrative and personal activities enables better project tracking, resource utilization reporting and budget management. Auditors and managers can create timesheets based on the audit master schedule and then update it with actual time and expenses, which along with variance analysis leads to improved resource utilization.

According to Wisniewski, Protiviti’s commitment to this space, as evidenced by this release of the T&E module is making Protiviti’s Governance Portal a product of first choice by companies.

The post We Talk With Protiviti on Governance Risk Compliance and Internal Audit appeared first on Big4.com.

Chris Nelson, Big4.com

We knew this was going to be big, and there was so much buzz about the first social media company to go public that something had to happen on the first day.

And it did, NYSE:LNKD stock doubled from its offering price of $42-$45 to end the day at $97, which on about 100 million shares outstanding values the company at nearly $10 billion.

That is 50 times 2010 sales, and 650 times the 2010 profits. That’s a P/E of nearly 650, which would put it likely as the most expensive stock in the world.

Did LinkedIn leave money on the table? Analysts can argue that LinkedIn could have easily priced the stock at $80 and still have it fully subscribed. Which means that the company left $300 million it could have easily taken into its treasury. Not that the $300 million it raked in was bad, but $600 million is even better.

And now to another metric. What is the value per user of LinkedIn?

$10 billion by 100 million members indicates each member is worth $100.

We remain slightly skeptical about the 100 million figure, based simply on our experience.

Our group Big Four Professionals and Alumni Network (Big4.com) with 50,000+ members is now one of the 50 largest groups on LinkedIn, and is the LARGEST corporate and LARGEST alumni group on LinkedIn.

Wonder what market capitalization would be for our group??!! At $100 per person discounted to even half at $50 per internal group member, the value would be 50,000 * $50 or $2.5 million!!!

The post NYSE:LNKD Hot IPO Gets $10 Billion Market Cap. Our LinkedIn Group Is Largest Corporate appeared first on Big4.com.

US manufacturing activity has been a bright spot coming out of this recession, and now we have some hard data for a sense of this resurgence. McGladrey finds 90% of manufacturers and distributors are optimistic about their future, which can lead to more jobs, greater innovation and continued growth for the industry and U.S. economy as a whole. The spring 2011 McGladrey® Manufacturing & Distribution Monitor finds 45 % of companies are thriving and growing; twice as many compared to last year, and the highest instance since 2007.

And this is translating into better news for the manufacturing workforce – 56 % plan to increase their workforce in the next 12 months.

Karen Kurek, national manufacturing lead for RSM McGladrey notes manufacturing are the North Star of the U.S. economy, and they are back in business. Manufacturing directly employs an estimated 12 million – and has added one-quarter-million jobs since December 2009, so these results are very encouraging since a healthy manufacturing industry means a healthy U.S. economy.

Some more interesting findings:

Industrial equipment, transportation and energy and clean-tech are growing the fastest

Food and beverage was strongly up in 2010, but surprisingly is decreasing this year due to rising commodity prices, the economy and consumer confidence

Manufacturers are focusing on exports and global expansion to stay competitive and successful

While the overall outlook is bright, issues on the horizon include rising commodity prices, the state of the U.S. economy and federal regulation.

The post McGladrey: 90% Manufacturers & Distributors Optimistic On Future, 56% Plan to Hire appeared first on Big4.com.

And this is not an isolated issue either.

Sony is now indicating that about a 100 million accounts may have been compromised.

And it is being hauled in front of the US Congress to explain its actions.

Now after the fact, Sony has a new CIO and security software installed. But we heard a US Congresswoman on NPR today who indicated this may be just too late and after the fact.

Another step that Sony is taking is to hire Protiviti and two other data security firms to help make sense of this leak and intrusion.

The Wall Street Journal reports that “Sony said Tuesday that it hired Protiviti Inc., Guidance Software Inc. (GUID) and Data Forte Corp. to help conduct its investigation into data breaches that occurred last month”

Protiviti, as you may recall is the risk management and internal audit parts of the erstwhile Arthur Andersen.

And this may be as high profile as it gets for a security data firm as this issue is going to get a lot of attention from a large number of agencies and companies in the coming months.

And we would be quite interested to know (as would 100 million others) how hackers were able to brazenly enter through Sony’s security firewalls and steal all this data.

The post Protiviti To Help Sony Manage Hack Attack appeared first on Big4.com.

John Fowler, Big4.com

Rising stockmarkets and better investor receptivity making you itch to go public?

Internal shareholders sick of private trading platforms?

Wanna get rich?

Perhaps an IPO is in your stars, what with investors now looking positively at new companies to hit the capital market.

But wait, are you ready with all the reporting, and the compliance with regulations, and the need for deep internal control?

Protiviti can help, their new pre-IPO guide is a detailed roadmap in how you can go  public and stay away from landmines. This readiness guide addresses governance, compliance, regulatory issues, transparency, IT infrastructure, post-recession challenges and more

Protiviti’s Guide to Public Company Readiness: Frequently Asked Questions (www.protiviti.com/publiccompanyreadiness) looks at all important considerations   from critical financial reporting requirements to compliance issues and risk management, while showing you how to be efficient and cost-effective while also staying focused on critical growth initiatives.

With detailed answers to nearly 90 questions, you can know find out how long it typically takes, major milestones within the process, how the nature of public company requirements has changed in recent years, and the cost of taking a company public and being public, governance and regulatory/procedural issues; and risks associated with incomplete or ineffective preparation for an IPO.

Steve Hobbs, a Protiviti managing director and leader of the firm’s Public Company Readiness practice brings up an interesting point, he notes that despite all the help that companies apparently get in going public,  “We’ve observed that many organizations don’t have a full understanding of how the public company readiness process needs to permeate nearly every part of the pre-IPO organization, from finance and IT to human resources and operations.”

And so the book covers,

PCR Effort Overview

Accurate Financial Reporting

Efficient Financial Close

Sarbanes-Oxley Act Compliance

A Scalable IT Environment

And best of all, its FREE, instead of paying tons of money to your investment banker and IPO consultant, think of curling up with this book before you tuck into bed and have a successful IPO.

For a free copy of this book, to http://www.protiviti.com/publiccompanyreadiness.

The post Protiviti Gets You All Set For An IPO In This Rising Stockmarket appeared first on Big4.com.

In mid-2010, Willam Blair issued a Market Perform rating on the LECG (NASDAQ: XPRT) stock, noting that while losses continued due to weak demand, high admin costs and consultant departures, there were glimmers of hope for a subdued recovery on the horizon. Earlier, in August 2009,  LECG had acquired SMART Business Advisory and Consulting LLC (SMART) for $40 million, funded by 11 million common shares and 6 million preferred shares for a $25 million cash investment into LECG by Great Hill Partners (the majority shareholder of SMART).

Steve Samek (ex CEO Andersen USA) would be the CEO of the combined companies and the press release was full of promise. But it was the $33 million of SMART’s debt which LECG acquired and the string of continuing losses which would prove the eventual downfall of the firm.

LECG was formed in 1988 and in 2007 posted its highest ever revenues of $370 million and net income of $13 million. But the Great Financial Crisis of 2007 hit the firm very hard as demand for its high-end expert consulting services started to fall off, while costs stayed stubbornly high. Losses continued ever since 2008, with 2008, 2009 and 2010 posting continuing and expanding losses. SMART was supposed to  help, and it did somewhat with revenues in the Corporate and Governance sector doing rather well, but Economic Consulting was a huge drag on the revenue and bottom line.

In early Feb 2011, LECG announced that FTI Consulting was interested in purchasing the entire company, though it came as no surprise as rumors of this had been flying around earlier. However, FTI was only interested selectively in acquiring the premium LECG’s European business (around $30-40 million of revenues) and some parts of the US business. Publicly, this expression of interest for the entire firm and then reduction of that interest to a few pieces seemed to have set off the entire process into high gear in March 2011. LECG announced that it had gained some stay on its debt payments, but indications of meeting that fully seemed quite dim.

Eventually, FTI did purchase several European and US  practices on March 31, 2011 for $27 million in cash plus $11 million in liabilities (200 professionals and $80 million revenues). Grant Thornton UK and US picked up the attest and tax advisory business. Other consultants scattered or joined other firms. This left LECG with less than a hundred consultants, which had been over 1,000 just a few months ago. Steve Samek resigned as CEO on April 5, 2011 and Bruce Rogoff, President of The Staten Group, a restructuring firm took over as new CEO.

Other deals in the pipeline:

Sale of UK based consulting practice to Grant Thornton UK

Sale of retail securities practice to management team

Sale of insurance tax and actuarial practice to as-yet-unnamed accounting firm

Sale of legal consulting practice to Huron Consulting

Various other sales of smaller practices to other firms, expert groups or individuals

With this imminent complete dismantling of the firm, the remaining 70 employees will likely leave in a few weeks.

Almost all of the moneys received will go to debt holders, leaving stockholders with nothing. Great Hill, after a number of financial changes, will be left with 71% of all outstanding common stock.

NASDAQ will be delisting XPRT on Sep 26, 2011 since its face value was less than 1 dollar a share for 30 consecutive business days.

In its heyday in 2003-2005, LECG’s stock traded at about $25 per share with a market cap of around $500 million. Today, it opened at 18 cents a share with a market cap of under $7 million. The stock has been on a downward spiral for several years now as forward-looking investors gradually gave up hope.

LECG was formed 23 years ago, and served over 18,000 matters for 10,000 clients in 50 countries. It was a storied consulting firm, attracting top consultants, specialists and well-respected experts for companies and litigation matters.

This spectacular collapse in a matter of weeks shows how continued losses, debt and inability to quickly manage costs can bring even the most respected and revered firms to financial ruin in a matter of weeks, reminiscent of Andersen in 2002. Many of the LECG consultants were ex Big Four employees and found an intellectually stimulating environment at the firm.  We will miss LECG as a firm, and wish all its employees at all other firms and on their own a very safe landing and continued career success.

The post LECG Spectacularly Collapses In Just Weeks. Practices Dismantled. Stock Plummets. End Of Long Story appeared first on Big4.com.

And Grant Thornton (and EthicsPoint) have highlighted at 10 common misconceptions that can increase the likelihood of corporate FCPA violations.  Just like urban myths, these seem to have found residence in the mind-space of top company executives and not quite ready to be dislodged. So here are the 10 common misconceptions, courtesy of Grant Thornton LLP:

Below are 10 common misconceptions companies should address to stay in compliance with the FCPA and potentially avoid penalties:

1. “Based on our company profile, we don’t have any FCPA risks.”

2. “We are a private company so we don’t have to be concerned with the FCPA”

3. “Our employees know our position on ethics because our policies spell it out.”

4. “As long as employees and agents have certified that they have not paid bribes, we have done enough.”

5. “These are challenging economic times. We need to make cutbacks in FCPA compliance, just as we have in all other areas of the business.”

6. “Our global whistleblower hotline is effective because no violations have been reported to date.”

7. “Since we don’t have a controlling interest in our overseas business partnership, we have no need or authority to extend our compliance program and policies.”

8. “We will determine how to address an FCPA violation once a violation is identified.”

9. “Every business unit and sales office undergoes the same FCPA compliance testing, regardless of the type of business and location.”

10. “Common practice in our industry is to pay for airfare and lodging for foreign officials to attend conferences or trade shows.”

If you read through this, and nodded your assent, you are wrong, wrong and wrong.

In truth,

Even if you have just a few foreign transactions, you should access FCPA risks

Private companies are not immune to FCPA enforcement

Top executives must fully emphasize FCPA compliance

Simple certification by employees, sales agents, consultants or others is not enough

You cannot cut back on FCPA compliance due to budget reductions

Misconduct reports rarely come into the corporate hotline

Even JV partners must comply with FCPA and local corruption laws

You cannot handle misconduct on the fly

A company’s risk of FCPA or local anti-corruption law infractions may vary based on the location and type of business conducted.

And finally, you cannot pay extravagant travel and entertainment expenses for officials to attend conferences

“The large number of FCPA cases and the formation of specialized FCPA units within Federal agencies, suggest that this is a long-term initiative for regulators,” says Bill Olsen, Grant Thornton LLP Economic Advisory Service principal and the firm’s FCPA practice leader.

If you sobered up after reading this, then GT and this blog have made their point. FCPA and UK Bribery Act are tough no-nonsense regulations which demand total compliance from all organizations and the consequences of non-compliance can be severe.

The post Ten Common Myths That Can Potentially Land You In FCPA Trouble appeared first on Big4.com.

The UK House of Lords’  Economic Affairs Committee recently issued a report on it’s inquiry into Auditors’ market concentration and their role, to better understand the dominance of the Big Four and its effects on competition and choice; and whether traditional, statutory audit still meets today’s needs.

And the report is a tough, no-nonsense look at the UK audit market, confirms its huge market concentration, berates the Big Four firms for their lax role in the financial crisis and proposes some alleviating recommendations.

The UK audit market, the report says is “clearly an oligopoly with all the attendant concerns about competition, choice, quality and conflict of interest.”

Further, it (the firms) gave no warning of the banking crisis, and moreover, “Its regulatory structure, in the UK and internationally, is complex and unclear. “

But is it necessary and critical to investors, regulators and commentators.

And there are very interesting facts: “The Big Four’s domination of the large firm audit market in the UK is almost complete: in 2010 they audited 99 of the FTSE 100 largest listed companies, which change auditors every 48 years on average.” In the UK financial sector, there is even less choice – only Big Three, since Ernst & Young are not active.

And the report criticizes the firms’ failure to sound the alarm in the run-up to the financial crash, in that”confidential dialogue between auditors and bank regulators had fallen away before the financial crisis so that there was no pooling of information or concerns which might have given warning or allowed some action to mitigate the worst effects. This failure to maintain dialogue seems to the Committee a dereliction of duty. “

And the Committee has 3 main recommendations:

1. 1. A detailed investigation of the large-firm audit market by the Office of Fair Trading, with a view to an inquiry by the Competition Commission so that all the interrelated issues surrounding concentration, competition and choice can be thoroughly examined in depth and in the round.
2. 2. Prudence should be reasserted as the guiding principle of audit
3. 3. A new framework of banking supervision should provide for bank audit to contribute more to the transparency and stability of the financial system

And then the committee poses a question, often unasked and more frequently unanswered: Why did the Big Four become so dominant?

(1) Economies of scale

Natural forces support  economies of scale. High concentration is due to market forces: investors demand audit quality and appropriate capability for complex audits across the world. And no one was really looking at this  – Mr Philip Collins, Chairman of the Office of Fair Trading (OFT), saying “It is a market in which we have a keen interest but it is not a market in which we felt it appropriate, in the last seven or eight years, to conduct a detailed review because other things had been happening.

(2) Safe choice

Seen as safe choice by audit clients, since Audit committees go by franchise value alone and do not analyse audit teams. Many say, “there is a regulatory sense that big is best” and “the reputational advantages of having a Big Four as your auditor”. And change to a new medium-sized audit firm has lots of downside and no upside. And finally, banks or organisations themselves are stipulating upfront that they will only employ a Big Four firm.

(3) Other factors: i.  the internationalisation of business; ii.  the scale of investment and capital required in an audit firm;  iii.  economies of scale in audit; iv.  a semi-captive market; v.  non-interventionist competition authorities; vi.  the perception that big is best; vii.  the reputational assurance of using Big Four auditors; and viii.  the fall of Arthur Andersen.

And then the reports poses another key question – What if Big Four became Big Three?

It would be quite disastrous as  they find out – the market for large-firm audit could become even more concentrated. Companies say, “Big Four to Three firms I think would be regarded by most large companies in the UK, certainly by our company, as an unwelcome change.” The Association of British Insurers (ABI) also suggested that the remaining Big Four might not in any event have the “necessary … firepower to absorb a failed Big Four firm”.

The Big Four themselves oppose any further concentration. Deloitte’s Mr Connolly said: “I would be uneasy about it going down to three.” Mr Griffith-Jones said: “We need a regulator to prevent it getting any more concentrated than it is at the moment.

Regulators:  The FRC is clear that a Big Three would not be acceptable. It emphasises “the need for a clear statement that the Government/competition authorities would break up a Big Three.”[27]

In the end they conclude, while it may be intolerable to have the Big Four, a loss of one of the Big Four would restrict competition and choice to an unacceptable extent.

The whole report is an excellent read, the Committee exposes without fear, speaks without obfuscations and asks (and tries to answer) tough questions. In this, it is a strong report, with candor not generally seen in this area. Perhaps a similar report for all the developed economies are in order. http://www.publications.parliament.uk/pa/ld201011/ldselect/ldeconaf/119/11902.htm#evidence

But the key issue is, despite the Lords blasting the Big Four firms, what is to be done with the recommendations, and how will it impact the market. The challenge is the very large number of factors which favor concentration and very few that favor even competition. That makes the climb for the non Big Four that much harder, and for the foreseeable future (unless some catastrophic event), things are likely to see only small changes over time. Unless, of course, the paradigm itself shifts quickly, and that no one can really forecast today.

The post UK House of Lords Report Blasts Big Four Firms Dominance and Behavior appeared first on Big4.com.

The Big Four are hiring! All the firms have made quite public pronouncements on their needs for large numbers of accounting, tax and advisory professionals over the next few years. Professional services, after going through a bit of slowdown over the last few years, is bouncing back again. And Accenture, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers PwC are all looking to hire in the thousands. Demand for professional services is increasing, especially in emerging countries as also in globalization initiatives.

But this is news that is known to you and all other professionals. So if you are interviewing with one of the top four accounting firms the competition will likely be fierce.  All of the Big Four rank high in employee satisfaction, workplace situations, training and compensation packages, so securing a position with them can be a daunting experience.

So after managing to gain an interview, you want to make the most of the opportunity.  Here are some tips on making the best impression:

1) Do your research

Each of the Big Four has their own niche.  Do your research on the specific company that you are interviewing with.  Be sure to know the major details (CEO, recent mergers and acquisitions, net worth, current stock trading price), but also what might be considered minor details (company mission statement, awards given, causes the company donates to).  Work those details into answers that you give.  For example, if asked why you want to work for PWC, you want to mention several reasons and conclude with, “As a working mother, I am impressed with your 2009 designation of 100 Best Companies by Working Mother Magazine.”

For an insightful look at how the Big Four firms have performed, check out our 2010 Big Four Performance Analysis and try to impress your interviewer with these great statistics.

2) Dress the part

This of course depends on the company you are interviewing with, as corporate culture can vary widely, but if you are unclear, it is best to err on the conservative side, especially for the Big Four firms.  This means a dark suit with minimal jewelry.  It goes without saying that you should be well-groomed (hair neat, nails clean and trimmed). Save the bright red lipstick for another time and think minimally when it comes to makeup.  If it’s raining, bring an umbrella so you aren’t soaking wet when you arrive to the interview.  Carry any paperwork in a neat file or bag.

3) Paper Trail

Everyone should have a brag book that they bring with them to an interview.  The brag book is a snapshot of your academic and professional history and should include the following items:

Resume

Letters of recommendation

Copies of awards given (professional and personal)

Documented success (be careful not to share any confidential company documents)

Positive reviews and HR documents (again, take note of confidentiality)

Anything that demonstrates your ability to go above and beyond (you can be creative here and share personal achievements such as volunteer activities, community involvement, sports participation, etc.)

If possible, you should be able to leave a copy of your book with the interviewer (and a copy for each interviewer if you will be meeting with more than one person) to keep.  However, if you need your copy returned, bring a self-addressed, pre-paid envelope.   Your book should have a professional cover, be bound, and have a table of contents for easy viewing.  Bigger isn’t necessarily better with brag books.  Too much information can be overwhelming, so be selective and pick things that are truly highlights.

4) Timing Is Everything

Arrive to your interview location at least twenty minutes before the start time.  Give yourself plenty of time if this is your first time to the interview location and account for unexpected delays like traffic, and expected ones such as parking.  Once you have arrived, use the restroom and either brush your teeth or have a breath mint or piece of gum (finish it before you leave the restroom).  Take a few moments to compose yourself and then go check in.

5) STAR Treatment

You will be asked to give examples of your previous work experience and situations in which you faced challenges.  Follow the STAR format when answering questions.  Listen very carefully to the question you have been asked and then respond using the following steps:

Situation: give an example of a situation you were involved in that resulted in a positive outcome

Task: describe the tasks involved in that situation

Action: talk about the various actions involved in the situation’s task

Results: what results directly followed because of your actions

If this is a new format to you, then have a good friend ask you questions and practice your STAR response. It takes some practice, but is a very useful tool for keeping you on track and avoiding tangents in your responses.

6) End On A Good Note

In this day of instant messages, texts, and e-mail, a handwritten note is a rare commodity and one that will set you apart for the competition.  If you know there will be a quick turnaround in the decision-making process, bring stationary, write your note in the lobby of your interview location, and ask the receptionist to deliver it to your interviewer (if you were interviewed by multiple people, then write a separate thank you note for each person).  Your thank you note doesn’t have to be lengthy, but be certain to thank the interviewer for their time and reference something from the interview (“I enjoyed sharing my experiences with you at Company X and look forward to bringing my skills in account management and custom service to [insert company name here].”

If you do have time to mail the thank you note, then including a newspaper clipping, magazine article, or print-out from an online source positively referencing the company would a nice touch.  In any case, don’t get as caught up in the writing of this note as much as the sending it.  Do it as soon as possible to show that you have good, prompt follow-through. And check out these great YouTube resources on the Big Four firms hiring process. Good luck!

http://www.youtube.com/watch?v=9K0UZPqqkzg

http://www.youtube.com/watch?v=3JLjPz2ZKp8

http://www.youtube.com/watch?v=L7-0C5RFgSU

http://www.youtube.com/watch?v=09AoKc5NG5Y

http://www.youtube.com/watch?v=MYxOUhi52CE

http://www.youtube.com/watch?v=ferYQkxIkCU

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This is surely going to leave a lot of professionals and partners in these firms wondering where they were a few days ago, and what quick shifts they have to make this week. More so, firm clients will be equally confused and may need a lot of explaining and hand holding.

It appears that KPMG may have made the first move on March 23, 2011 by incorporating the entire BDO firm (except a small portion) with over 1,000 professionals. Then on March 24, 2011 BDO announced its admission of a new Brazilian member firm – BDO RCS Auditores Independentes, formerly a member of the Crowe Horwath network, with 250 partners and staff in 6 offices and fee income of R$20 million (€9 million or about $14million), is the fifth largest accounting firm in the country. BDO’s former member firm in Brazil will be joining the network of KPMG.

It appears that BDO was the larger firm, so KPMG wins in terms of size, BDO gets runner up by becoming smaller but not zero, and Crowe Horwarth unfortunately gets left behind in the musical chairs game.

Brazil has become a very important country for all the accounting firms, given its recent tremendous growth and enormous potential. KPMG already boasts strong growth in Brazil and this acquisition will only help. No news on what Crowe Brazil will do next.

All this will be effective this week on March 31, 2011. And we would say – look out for similar acquisitions to happen in the Big Four, Big Six and Big Ten space, especially in emerging markets.

The post Brazil Merry Go Round – KPMG Acquires BDO Who Acquires Crowe Horwarth… appeared first on Big4.com.

And now many of the recent newsletters are available as an archive for your convenience.

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This is a guest post from Hunter Richards of Software Advice.

Accounting firms have traditionally been a big channel for software sales. They had so much sway in driving accounting deals early on, in fact, that many – including Accenture, BearingPoint, and PricewaterhouseCoopers PwC – morphed into IT consulting firms. In the SMB market, accountants still drive accounting software decisions for their clients. So their recommendations can say a lot about the readiness of cloud computing technology.

“I’m a firm believer in [the cloud] – I really am,” says Carolyn Duffy, who directs business advisory services for Hein & Associates. “But if I had some special legacy system, I would have to look at the integration issue.”

Similar concerns from accounting firms like these, along with the Big 4, should get the attention of software makers. Given these firms’ history of influencing the software-purchasing decisions of their clients, their perspectives matter. The list of concerns may initially seem troubling for the cloud, but vendors are releasing new services and products that suggest future improvements.

Customization

“If you have a secret sauce in how you want to handle some orders or how you handle your pricing, then often times the cloud might not be the best way to do that,” says Doug Wiescinski, a partner at accounting firm Plante & Moran.

Accountants often cite customization problems as a reason to avoid the cloud, but software vendors such as NetSuite and Intacct have already gotten the message and have built customization tools. As more of these hit the market, the process could be easier in the cloud than it’s ever been for on-premises systems.

Data Integration

“Every additional outsourced app brings another set of steps to go through to create and delete accounts and a new ID and password for the employee to have to remember,” says John Neall, chief information officer of accounting firm UHY. “That may not seem like a lot. But when you multiply that by the number of apps that employees are required to run, it becomes very time consuming just to maintain operations.”

Cloud applications have typically offered limited application programming interfaces (APIs), middleware and other integration tools that are widely available for on-premises systems. But a number of new middleware offerings, such as Informatica, SnapLogic and Dell’s Boomi, are beginning to fill the void with mature APIs and other products – so integration is also becoming more convenient.

Cost

“The pricing models [of the cloud] have been inconsistent,” says David McDonald, a senior managing consultant at BKD, another accounting firm. “Usually, once you get to the five-year range, your TCO is higher for the cloud versus on-premise. And you own nothing.”

Some accounting professionals warn that cloud systems can incur a higher total cost of ownership (TCO) than on-premises alternatives, despite its ability to save money with lower up-front costs. But the on-premises approach is often not an option for smaller firms without the up-front cash for professional IT resources. The nature of smaller, recurring payments actually empowers these businesses to use software when it’s otherwise impossible.

IT Staffing

“The added benefit of a team of [in-house] IT professionals that care about the business” can be much more valuable than services from “a vendor hosting thousands of other clients,” says UHY’s Neall.

Accountants also recommend comparing outsourced IT services with the value of a dedicated in-house team. Businesses have a love-hate relationship with IT, so they may prefer to shift that function to the software vendor; this concern is unlikely to have a major deterrence effect.

The Big 4

What have you heard about the Big 4 firms? Do they share these concerns? Let us know what you’ve heard in the survey.

This post was sourced from here.

____________________________

Hunter Richards

Accounting Market Analyst

Software Advice

(512) 364-0118 (office)

(800) 918-2764 (toll free)

hunter@softwareadvice.com

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Nothing also on Capgemini and Accenture

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Susan Black, Big4.com

The post Big Four Firms Are Top 100 Companies To Work For, Says Fortune Magazine appeared first on Big4.com.

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10 November 2010

(blog) Who says bean counters can’t win constituencies? Or keep their hotly-contested seats?

This mid-term election puts 8, yes a full eight Certified Public Accountants to the august US House of Representatives.

The AICPA indicates that all five CPAs won their re-election bids and three additional CPAs were added to the House. The returning CPAs were:

Republican
John Campbell of California
Michael Conaway of Texas
Lynn Jenkins of Kansas

Democratic
Collin Peterson of Minnesota
Brad Sherman of California

And there are three new CPAs:

Steven Palazzo, a Mississippi Republican, defeated 11-term Democratic Rep. Gene Taylor in that state’s 4th District.

Jim Renacci, an Ohio Republican, defeated freshman Democratic Rep. John Boccieri in that state’s 16th District.

Bill Flores, a Republican, defeated veteran Democratic Rep. Chet Edwards in Texas’ 17th District.

That makes 5 Republican and 3 Democratic CPAs – a total of 8 – which sort of mirrors the general composition of the overall House. And these 8 constitute about 2% of all House members, in others words one of 50 representatives is an accountant and slogged hard to pass their CPA exams! And digging in, it appears that certainly 2 of the 8 were Big Four alumni.

The AICPA also notes that the Senate Finance Committee is expected to keep Sen. Max Baucus, a Montana Democrat as chairman. The current ranking member, Iowa Republican Sen. Chuck Grassley, having easily won re-election, is expected to become the ranking member on the Judiciary Committee. Importantly says the AICPA, Baucus and Grassley are champions of the accounting profession’s effort to ban tax strategy patents, and their positions on Finance and Judiciary will remain very helpful to moving that legislation forward.

Here’s some more background on these CPAs which we pulled together from the House website, Wikipedia and candidate websites. It certainly appears that two of these eight have worked for one of the Big Four firms, for the others, we are not entirely sure at this time.

John Campbell of California
Congressman Campbell holds a Bachelor of Arts Degree in Economics from the University of California at Los Angeles, and a Masters Degree in Business Taxation from the University of Southern California. For nearly 25 years, Campbell worked in the automotive industry. He spent a majority of his career representing several automobile franchises, including Nissan, Mazda, Ford, Saturn, and Saab.

Michael Conaway of Texas
He earned a BBA degree in Accounting from Texas A & M University-Commerce in 1970. After serving in the Army at Fort Hood, Mike resumed his career with Price Waterhouse & Co. he returned to the Permian Basin with Price Waterhouse and settled in Midland where he later worked with George W. Bush as the Chief Financial Officer for Bush Exploration.

Lynn Jenkins of Kansas
Lynn graduated from Kansas State University in Manhattan, Kansas and Weber State College in Ogden, Utah, earning a degree in Accounting with a minor in economics. Following graduation, Lynn became a Certified Public Accountant and practiced public accounting in the private sector before entering public service in 1998.
Certified Public Accountant, Public Accounting/Specialty Taxation, 1985-present
Accountant, Baird, Kurtz and Dobson
Accountant, Braunsdorf, Carlson, and Clinkinbeard
Owner, Private Accounting Services

Collin Peterson of Minnesota
Moorhead State University, Moorhead, Minnesota, 1966.
Bachelor of Arts, Double major in Business Administration and Accounting, Minor in Political Science
Certified Public Accountant (CPA), Detroit Lakes, Minnesota, 1968 – 1990.

Brad Sherman of California
Before joining Congress, Sherman was on staff at one of the nations’ big-four CPA firms. Sherman is a Tax Law Specialist and a CPA. While at the firm, he audited large businesses and governmental entities, provided tax law counsel on multi-million dollar transactions, advised entrepreneurs and small businesses on tax and investment issues, and helped represent the Government of the Philippines under President Aquino in a successful effort to seize assets of deposed President Marcos. Sherman was also an instructor at Harvard Law School’s International Tax Program. Sherman received his law degree from Harvard and his Bachelor’s degree from UCLA.

Steven Palazzo of Mississippi
Palazzo is a Certified Public Accountant. He attended the University of Southern Mississippi for both his MPA and Bachelor’s degree. He is also a member of the Sigma Chi Fraternity. His service in the military provided Palazzo with a unique understanding of the Expatriate taxation and how it affects U.S. citizens working abroad and paying taxes to the U.S. Government. Through this knowledge, Palazzo and his wife started Palazzo & Company, PLLC, in 2001 to help US citizens working abroad. Over the years and with a lot of blood, sweat and tears, Steven and Lisa have grown this small, home-based business into an international Expat CPA firm specializing in individual income taxes. His company currently serves more than 2000 clients in 25 countries.

Jim Renacci of Ohio
Jim earned a bachelor’s degree in business administration from Indiana University of Pennsylvania. Shortly after graduation, Jim moved to Wadsworth, Ohio where he initially worked as a certified public accountant. In 1985, Jim entered the healthcare industry, forming LTC Management Services, which owned and operated nursing home facilities throughout Ohio. Renacci worked as a CPA after college. In 1985, Renacci formed LTC Management Services. LTC’s primary business was to own, operate and manage nursing facilities throughout Ohio.

Bill Flores of Texas
He graduated Cum Laude with a B.B.A. in accounting from Texas A&M University in 1976. He also went on to receive an M.B.A from Houston Baptist University in 1985.
Flores served as CFO for two publicly traded energy service firms from 1986 through 1998. From 2002 to 2006, Flores was the Senior Vice President and CFO of Gryphon Exploration Company. (blog)
 

The post 8 CPAs In The New House of US Reps, One of 50 Is An Accountant, 2 Big Four Alumni appeared first on Big4.com.

Lisa Chapman, Big4.com
November 2, 2010

Just today, there is a flurry of merger and acquisition activity in the Big Four space, and this reflects the mega trend we have been noticing over recent months, in that M&A activity in this space is high and likely to continue to be that way for a while.

Across the spectrum, we are noticing that the larger firms are absorbing smaller firms, or in other cases, loose alliances are being solidified into actual combinations.

We infer this is due to the appetite for acquisitions and niche capabilities now showing up in the larger firms combined with a nice exit strategy for smaller firms.

Another trend is that size does seem to matter, and smaller firms which have had general attachments to larger entities are now completing the circle by merging themselves into the larger conglomerate.

Just today, November 2, 2010, a busy day for M&A activity, we note five mergers or combinations spread all over the world:

KPMG Saudi Arabia and KPMG Norway join KPMG Europe LLP, bringing that combination total to 16 firms, and solidifying KPMG Europe both in Scandinavia and the Middle East

Huron Consutling purchases Click Commerce to provide enhanced services to research institutions. This despite Huron’s languishing stock price.

Accenture purchases Knowledge Rules to enhances its Pegasystems BPM capabilities

Jingdu Tianhua Hong Kong becomes Grant Thornton Hong Kong with 100 professionals and ambitious plans for growth

BDO USA attracts partners and firms from McBride and Shopa in Delaware USA, previously McBride and Shopa was part of the BDO Seidman alliance since 2000

As we said earlier, this looks to be only the beginning of a long-term upward trend in merger activity in this space.
 

The post What A Day In Big Four M&A! Deals Abound All Over The World appeared first on Big4.com.

by Susan Black, Big4.com
 

(blog) We have blogged earlier about Universum’s World Most Attractive Employer Survey and this year Universum says it best themselves, “Big 4 challenge Google’s
position as the world’s most attractive employer 2010.”

Quite true, as apart from Google in the number one spot, all the Big Four firms have monopolized the remaining four spots on the Top 5 in the business section. KPMG makes the smartest move from rank 8 in 2009 to rank 2 in 2010. Ernst & Young is ranked 3 in 2010, moving up from rank 5 in 2009. PricewaterhouseCoopers (pwc) is ranked 4 in 2010, actually down two spots from rank 2 in 2009. Deloitte is ranked 5 in 2010, up 5 from rank 10 in 2009. Accenture is ranked 25 in the top 100.

Yes, stodgy old accounting firms are considered the most attractive employers in the entire planet. Move over, Goldman Sachs, Coke, P&G, JP Morgan, Microsoft, BMW and McKinsey – none of them make the top 5. Accounting and tax are hot now!

“The World’s Most Attractive Employers 2010” is based on a survey with 130,000 career seekers, with a business or engineering background. Google still “manages” to keep the number 1 spot, but faces tough competition from the Big4 firms, especially in 2010.

“We’re witnessing the auditing firms and FMCG companies reconquering their talent group after a brief love-affair with the IT industry”, said Michal Kalinowski, Universum’s CEO. Banking and Investment industry, Management Consulting, and Oil & Gas companies are perceived as less attractive employers.

Here are 4 key findings from this survey:
1. American multinationals increase their lead over the rest of the world.
2. Employer Brands decoupled more and more from Corporate Brands.
3. Companies that help talent develop the “me brand” are more attractive.
4. Perception of industry and brand are interdependent.

Kudos yet again to the Big Four firms for this global accolade! (blog)

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Lisa Chapman, Big4.com
25 August 2010

(blog) We saw it yesterday buzzing around in the news, and also confirmed by the Financial Accounting Standards Board (FASB) that its current chairman Robert Herz is retiring on his own accord almost two years before the end of his term, much to the surprise of the industry, the Board and the Financial Accounting Foundation (FAF). Robert H. Herz was appointed FASB chairman on July 1, 2002, and was reappointed to a second term effective July 1, 2007 for a 5 year term. Previously, he was a senior partner with PricewaterhouseCoopers.

Leslie Seidman has been appointed Acting Chairman, effective October 1, 2010. Ms. Seidman started her career as an auditor in the New York office of Arthur Young & Company (now Ernst & Young LLP) and is a CPA.

In other developments, The Board of Trustees of the Financial Accounting Foundation (FAF) today announced that the will grow from five to seven members. From 1973 until 2008, it had 7 members and then got reduced to 5 last two years before it goes up again.

So, a lot happening over at the FASB in the course of one evening!

One of the significant changes supported by Mr. Herz was the “fair value” model for reporting of financial assets, which we covered comprehensively in our previous blog post:

http://www.big4.com/?page=blog_item&url=we-talk-to-pricewaterhousecoopers-on-financial-instrument-reporting-599

And we said there,

“The International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) undertook a joint project in late 2008 to look at all accounting aspects for financial instruments, with a view to improving the usefulness and increasing the consistency of financial instrument reporting through simplification and convergence of the current US and international accounting models.

While jointly begun, the IASB and FASB have moved to different end points. The FASB has been more radical in suggesting a complete change – in that all financial instruments should be reported at fair value, including bank loans and deposits. On the other hand, the IASB preferred to stay in line with current reporting guidelines – in that instruments to be held for the longer term be reported at amortized cost, and those held for the shorter term be reported at fair value.

The FASB would like to present all financial instruments at fair value in the balance sheet and include that measure in the determination of GAAP equity. (the “fair value” model). Net income would continue to be based on amortized cost for longer term instruments and fair value for shorter term instruments. Any periodic differences between amortized cost and fair value for longer term instruments would be booked as other comprehensive income. The FASB also requires presenting financial instruments at amortized cost on the balance sheet supplementally, thus providing investors both sets of information for their analysis. Some argue that the advantage of reporting assets at fair value is that it incorporates all market information, not just management’s opinion; and it can be an early warning system when markets are trending down.

PwC’s survey reveals….But one theme dominates – investors responding to this survey generally prefer the mixed model, since they indicated that it better reflects how the institution is thinking about the asset. They tend to use amortized costs in their analysis for future cash flow predictions.”

Yes, the PwC survey indicated that investors, and many banks prefer the IASB’s version of the “mixed measurement” model more than the drastic change required by the FASB’s “fair value” model.

With the surprise departure of Mr. Herz, his crucial swing vote for the “fair value” model drops off, leaving Ms. Seidman with the power to influence her choice, the “mixed measurement” model, much to the delight of US banks, who much prefer this approach. Mr. Herz’s departure leaves the leaves the board split 2-2, and Ms. Seidman, who dissented to FASB’s model and favours the IASB’s model will now as acting chairman, have the crucial casting vote to swing the board quickly before the board again increases its size to seven members.

Mr. Herz’s departure is being widely speculated, as his term was marked by intended and then modified changes to the “mark to market” rule, which the FASB proposed and then had to back-down due to intense pressure from banks, investors and politicians.

In any case, this departure brings back the focus to new standards, and how this all plays out with a new Chairman and an expanded board will be an interesting story, with many twists and turns. (blog)
 

The post FASB Chairman Herz, ex-PwC, Unexpectedly Retires. Seidman, ex-E&Y, Is Acting appeared first on Big4.com.

James Spencer, Big4.com
19 August 2010

(blog) The recent release of the Communities and Local Government spending data for the last year 2009 may have been meant as a political gimmick, but it’s proven very useful to see who is really up and down in the reasonably secretive world of public sector procurement.

So we decided to try to mine this data to the best possible extent to see how the Big Four firms fared With all indications that there is going to be a slowdown on public sector procurement by the LibDem government, it would be a good to see who has the biggest share of this pie.

Of course we should point out some caveats in using this raw data. For a start, most name changes cannot be quickly spotted. Secondly, there were some surprising omissions, for example Accenture. Could the entire local government departments not have done any business with Accenture? A notable omission means that it must be so!. Finally this data cannot be extrapolated – what’s going on in the Department of Communities and Local Government may not be representative of what’s going on elsewhere. After all there are big discrepancies across departments.

So without further ado, let’s see who is winning and who’s losing.

As we did our number crunching across all these multiple spreadsheets, there were a number of small names which popped up. Winston Gross & Co, a nine person, two partner firm in Camden charged the least (that we’ve found) with £1,500 for “Financial Services” to the Community Development Foundation.

More familiar middle tier names then started to appear. Littlejohns is charging £4,836 to the Thames Gateway Development Corporation. And there are others with surprisingly low scores, such as Baker Tilley, Grant Thornton and Chantrey Vellacott. Jeffreys Henry has a decent contract with the Community Development Foundation, while Moore Stephens has an internal auditing contract (through AHL Business Assurance) with the Valuation Tribunal Service.

Then there’s a big jump in the numbers. Ernst & Young are the lowest scoring of the Big Four, which is a sole contract with the Home & Communities Agency, and this agency does do business with all the Big Four firms. The National Audit Office also ranked among the top five.

PKF is the highest scoring firm outside the big four, largely also on the back of the Home & Communities Agency. This agency also provides the main income for both Deloitte and KPMG. If its role is to create “thriving communities and affordable homes” we may be pushed to ask why it is spending a ton of money with top accountancy practices?

Finally there is the outright winner, PricewaterhouseCoopers. The firm charged more than all the other accountancy firms combined. Just over £4 million was charged in 2009 to a wide variety of departments. A whopping £1.8 million alone was for “Strategic Consultancy” from the Communities and Local Government department.

This is only the opening salvo, and many interesting facts have emerged. With other departments laying open their spending shortly, a more balanced figure may emerge, though we doubt the Big Four rankings will change that much. (blog)

Provider – Total Spend in GBP

Winston Gross & Co – 1,500
Littlejohn Chartered Accountants – 4,836
Baker Tilly Tax and Advisory Services – 10,975
Grant Thornton – 14,789
Chantrey Vellacott DFK – 23,476
Jeffreys Henry – 23,978
Moore Stephens – 29,957
Ernst & Young – 197,441
PKF (UK) – 293,329
National Audit Office – 345,450
Deloitte – 758,982
KPMG – 773,505
PricewaterhouseCoopers – 4,036,993

(Note: Big4.com believes in these figures, but does not guarantee their accuracy)

The post UK Government Reveals Consultant Spend, Big Four Firms Garner Millions appeared first on Big4.com.

July 20, 2010

Company CFOs, as guardians of corporate coffers, have been under severe pressure in this economic crisis, equally to maintain profitability and efficiently manage their own financial organization. Revenue enhancement, cost control and risk management is still job number one. But not far from that is the acquisition, nurturing and retention of those who really make it happen – the accounting staff within their organizations.

Often considered dull, green-shaded, number-crunchers residing deep within headquarters, accounting personnel in the CFO organization have really taken center stage today as companies navigate this financial crisis. Keeping track of where the money comes in, where it flows to and all the myriad of new regulations is just par for the course. Accountants today are rapidly asked to become business leaders, possessing soft skills, adept at communicating and influencing others, and getting engaged in high profile cross-functional teams.

The paradigm for accountants, and for the profession is quickly shifting. And this fast change in the environment prompted Grant Thornton’s Public Policy and External Affairs service line to dig deeper into the CFO psyche and see their thought process in attracting, training and retaining accountants.

And some of the results are quite surprising.

In interviewing 32 Chief Financial Officers all across the world and in the public and private companies, Grant Thornton found that talent management scored high on the CFO agenda – in three distinct ways – how they brought in talent from the outside; how they trained in-house personnel; and how they retained them for the long term.

We had the opportunity to discuss with Ms. Gina Kim, Director Public Policy and External Affairs at Grant Thornton, the findings of a very interesting and insightful recent study that uncovered how CFO thought about, dealt with and managed accounting talent in their companies. Some outcomes were fairly counter-intuitive, but all results have serious implications on how the accounting profession should evolve to meet the requirements of their key clients.

First, bringing in talent. Conventional wisdom would indicate outsiders are needed to fill technical gaps existing in the company; and must possess detailed accounting knowledge and capacity to understand and apply complex regulations. But that does not seem to be the case. CFOs hiring external talent say the biggest challenge is there are not enough individuals in the market with necessary soft skills. Yes, these so called “personality or people skills” triumph over all other characteristics, a surprise even to Ms. Kim who did not expect such a result.

Alas, while accountants focus on the ‘hard” technical side in their resumes, employers are looking for leadership, intuition, and people management skills. Sadly, this is really far some solid accounting debits and credits. This has an important implication for CPAs looking to work in a corporation – emphasize the operational skills, show-up the leadership attributes and highlight the problem solving capabilities – since that is what the boss is looking for!

Another interesting finding – 50% of CFOs think that increased workload and number of hours has made corporate finance and accounting careers less attractive. No kidding – the hard work needed to become a top finance professionals is turning away folks today!

The study also looked at how CFO face the challenge of training accountants within their companies. And this is somewhat of a Catch 22. Consider this. Accountants have to deal with complex regulation – which are rapidly changing. So they need training. But they have no time to do so since they are doing the jobs of all the folks who are no longer there. Adding to this – training budgets have been drastically reduced. And CFOs feel that external classroom-based training really does not really help in real world situations. And while on-the-job training within the organization is the best way to inculcate soft skills and deep company knowledge, it is often not that easy to find suitable opportunities. So accountants and CFOs are somewhat stuck in the face of such challenges. Nonetheless, CFOs rated “enhancing critical thinking, problem solving and leadership skills level of their staff” the top factor in nurturing internal talent. So they are finding and need to find creative ways to train their subordinates.

Finally, the study looked at how CFOs plan to retain their current accounting staff. As Ms. Kim points out, in today’s dull job creation climate, finance folks are staying put. But CFOs fear rapid loss of personnel when the economy improves. And you would think that more money would help retain professionals. No, say the CFOs – surprisingly, compensation ranked fourth among factors leading to voluntary turnover. Number one turned out to be work/life balance followed by limited potential for advancement. Yes, accountants want to have a happy medium between slaving away in the office and spending time with their families. And also to advance up the corporate ladder.

Money is a motivator for sure, but CFOs feel that higher pay usually loses its power over the long run. So CFOs are finding ways to keep accounting talent really engaged in their current positions, by offering high-profile assignments with professionals from other departments, leadership opportunities and face time with senior management.

So what do CFOs need to do today to fully manage their in-house accounting talent? Ms. Kim provides three key recommendations. First, look for gaps on technical competencies and soft-skills across the spectrum, bring in external talent and train internal personnel to meet those gaps. Second, keep pushing for on-the-job training – a lower cost and more effective way to teach real-world skills. Third, provide opportunities for accountants to demonstrate their experience and gain new skills. Do provide equitable pay, but also recognize non-monetary factors can really motivate and retain employees.

The findings of this key study goes much beyond CFOs – it informs job candidates they need to acquire and showcase soft skills; it exhorts accounting professors to teach people management is as important as technical knowledge; and it pushes the accounting profession to create, nurture and develop accountants who are well-rounded strategic leaders bringing value to their organizations.
 

The post We Talk with Grant Thornton on Accounting Talent Management appeared first on Big4.com.

Lisa Chapman, Big4.com

Today’s Financial Times article can be a kick-off to an interesting and controversial debate.Should the Big Four firms enter the credit rating business?Quoting the Financial Times of London, there seems to be some very preliminary thinking by KPMG and PricewaterhouseCoopers UK…First, KPMG:John Griffith Jones, chairman of KPMG in the UK and co-chair in Europe, told the Financial Times it had discussed the move as – being one of the four biggest accounting firms in the world – it had the skills, knowledge and people to provide credit ratings.

However, Mr Griffith Jones said KPMG was "passively considering it", not actively debating it."It is something that we talk about as a plausible thing to do. It is effectively something we would be proficient at doing . . . But it s not on the agenda at the moment," Mr Griffith Jones said.Next PricewaterhouseCoopers UK:Richard Sexton, UK head of assurance at PwC, said it continually looked for areas to grow its business from its "core skills that include assurance, opinions and underpinning public trust".Note that none of these two firms have solidly indicated that they will be venturing into the credit rating business; and each has clearly stated this is only initial thought with no underlying substantive plans.

But consider that US credit rating agencies are right in the middle of the crosshairs of regulatory agencies and lawmakers for their role in the mortgage, CDO and debt markets and the ensuing economic crisis. Given this background, should this be area for business development for the Big Four firms?

On the positive side, the firms have access to all the financial information of their clients, and are (theoretically) independent assessors of this information with a mandate to provide unbiased accurate information to investors. This fiduciary duty is similar to that of (again, theoretically) credit rating agencies. Also, the big four firms would have (or can easily obtain) the knowledge and expertise to analytically perform credit analysis, though they will certainly lack the long history and database resident in a pure credit rating firm.

The big four firms are also well positioned, in terms of global reputation, distribution and reach, and access to investors to take on, if they wish, this new service line, and scale up to big numbers. Also, note that regulators could favorably look upon new competition in this space to shake up the industry, and in hindsight, having multiple rating agencies could have provided differing viewpoints, perhaps more dissent, higher level of choice to investors, and less conflict of interest.

However, the challenges are more daunting in our opinion. First, there is bound to be large conflict of interests – certainly a firm cannot be doing credit rating of its own audit clients (whether public company, private company, municipality, bond issuer or sovereign entity) – that would be totally against its independent third-party position. Second, this would require a large mental shift in the audit mind-set – in the auditing world, historical financials are audited with a large number of caveats, in the credit rating world, opinions are needed on prospective debt issuance – which requires opining on the future based on analysis of the past – perhaps a big mental leap in of itself.

Third, there is additional liability and risk from this service, notwithstanding the high levels of margins in this business (30%++) and good profits. In addition to the long-tailed liabilities of the audit, the firms could open themselves up to litigation from a larger set of stakeholders who rely on credit rating opinions to purchase securities.

Note that Moodys, Standard and Poors and Fair Isaacs are all facing tough litigatory and regulatory environments today; but they are nevertheless entrenched oligopolistic competitors who have been long time in this (at least till recently) lucrative business.In our initial opinion, the unfavorable aspects seem to far outweigh the positive aspects, at least as we see today from an US perspective.

But this is a very fluid environment, and many pieces in this jigsaw puzzle could quickly move around. For example, a bill in the US senate would direct the US SEC to set up a self-regulatory organization, the Credit Rating Agency Board, which would select the firms assigned for the initial rating for ABS (asset-backed securities). And this could potentially invite competition into the industry, dominated by the three SEC-designated Nationally Recognized Statistical Rating Organizations.

Also, Moody’s stock price has dropped to a third of what it was just a few years ago, and while S&P is part of McGraw Hill and Fitch is a subsidiary of the Paris-based Fimalac group – there’s some possibility of a buy-out or sale of these companies as things evolve. All this could, in a strange way, pull the Big Four firms in to the picture.

Things may be somewhat different in the UK and on the European Continent, which could present more favorable conditions for the Big Four firms to enter this particular sector.As we said right in the beginning, this can bring up much debate and different viewpoints, and we have only covered the tip of the iceberg in the blog post.

It’ll sure be interesting to see if the firms do make any concrete steps to step in, and what ensues from all the players who have a stake in this large and very critical part of the economy.KPMG, PricewaterhouseCoopers, Credit Ratings, Standard Poors, Moody, Regulation

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Susan Black, Big4.com

From an article today from Sydney Morning Herald, we were tickled to learn that Big Four in Australia refers typically to the largest four banks in that country. Seems like its different down under!

The headline reads, “Bank results show big four resilient ”, so when we actually went to read the article, we found it was a study and comment by Andrew Dickinson the head of banking at KPMG, a Big Four firm, that the outlook for Australia’s largest banks was quite positive, "The relatively mild impact of the global financial crisis in Australia left Australian banks with strong balance sheets and a strong international reputation."

Australia s major banks have demonstrated that they are quite solid by increasing their first half profit and reducing bad debts resulting from the economic crisis, according to KPMGThe “Big Four Banks” in Australia areANZ Banking Group LtdWestpac Banking CorporationNational Australia Bank Ltd Commonwealth Bank of Australia Ltd KPMG’s half year banking survey shows the four major banks posted total net profits of $14 billion, up from $9.7 billion in the second half of last fiscal year, due to a resilient Australian economy and prudent management.

Net cash profits were $10.4 billion, from $8.4 billion in the previous half, and loan impairment charges also fell. According to PricewaterhouseCoopers banking leader Mike Codling, the results illustrated the resilience of the major Australian banks, "We now have significant confidence that we ve passed the low point for credit growth.”While both accounting firms were quite positive, some analysts were disappointed with the weaker than expected interest margins.

Australia, has bounced back rather nicely from the global economic crisis, with much credit going to its large natural resources which are being consumed in great quantities by a resurging Chinese economy.Well, we have here two of the Big Four commenting on the Big Four, and that’s quite strange to see, but we’ll go along with our mates from the land of the Southern Cross!Big Four, KPMG, PricewaterhouseCoopers, banks, Australia, resilient, AZN, CBA

The post The Big Four Down Under Means Something Else! appeared first on Big4.com.

Lisa Chapman, Big4.com

Watch private equity to get a good sense of ground-level operating performance and cash flow.When these typically hard-nosed guys get optimistic, then very likely things are getting better.And that’s what RSM McGladrey has just found out. A recent survey of senior 148 top private equity firm execs shows they seem to be essentially done with aggressive cost cutting at their portfolio companies and now are confident on future growth and profitability. Many plan to hire soon, and are back again to making deals.

This is a big change from 2009, when private equity (PE) firms were proactively cutting costs and slashing payroll. Now things are different – 31% want to increase staffing levels, compared to 8% who expect staffing levels to shrink. Also PE firms have gone back to their core competencies of “big picture” issues such as strategy, lender relationships, finance and accounting, rather than be neck deep in operations, an area which they try much to leave to their operating managers.

Bob Jensen, managing director with RSM McGladrey and a leader in the firm’s private equity practice, aptly says, “…But now they’ve made the difficult cuts and can focus on growth – whether organic or through acquisitions. We’re seeing PE firms returning to dealmaking, especially in the lower middle market.”While operations are now under control, deal making, while expected to increase, seems to have its own set of challenges.

Raising capital, acquiring acquisition debt financing, sellers’ unrealistic valuation expectations and lack of attractive acquisition candidates are all impediments that are making M&A quite hard.But, things are improving, 56% expect to complete two to five add-on acquisitions in 2010, and 43% plan on completing at least two or three platform acquisitions; and 9% forecast adding six or more platform companies to their portfolios.

Hector J. Cuellar, president of McGladrey Capital Markets, “At the same time, many funds still have a fair amount of dry powder they’ve yet to deploy, and the debt financing picture is steadily improving.” As many, who have worked in PE-owned companies, or have done business with them in some fashion know, these firms are intensely focused on optimizing cash flow and managing assets at their most efficient level.

If these firms are back again focused on growth, it’s really a sign that cost-cutting is quite done and marketing and business development can swing back up again, along with general hiring at portfolio companies.And, that’s a dose of good news on Main Street at a time when uncertainty is hitting Wall Street.Private Equity, portfolio companies, growth, hiring, operations, survey,

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 Lisa Chapman, Big4.com

Both Financial Times and Wall Street Journal are reporting that AT Kearney and Booz & Co. are considering a merger to bulk up and get into seventh place globally behind McKinsey and Boston Consulting Group.

However, no no decision had been made yet and discussions could well fall apart as the deal needs approval of the partners of the two firms. And the two different cultures of both firms could provide an impediment to a true long term combination.

What s driving this combination?

In general, consulting firms want to expand operations to match the increasingly international requirements set by their clients. Further, the economic recession has placed considerable pressures on high-priced consultants in many softer markets, with average rates per hour falling precipitously by 10 to 15% in 2009. Moreover, strategy consulting may be facing its own longer-term declining demand curve, certainly as compared to IT and Outsourcing consulting businesses, which are bigger in size and much more international.

This is a combination of near-equals – AT Kearney s 2009 revenues of $786 million, 2,700 employees, 240 partners, founded 1914; while Booz had 2009 revenues of $1 billion, 3,300 staff and 200 partners, founded 1926.

The Wall Street Journal makes an interesting point that the merger is motivated by the need to increase size in order to compete with Accenture, Deloitte Consulting, which are well positioned today to match global client needs owing to their huge depth and breadth all across the world. Even if these firms combine to a $1.8 billion size, they would be barely one-tenth of Accenture or one-fifth of Deloitte Consulting. Accenture (whose detailed financial figures are available publicly), clearly has shown that the global recession has made a dent, but not much more owing to its size and diversity of services, and Deloitte Consulting, while impacted in 2009, appears to be back in growth mode, hiring again strongly at least in the US.

For these large Big Four behemoths, they will likely be acquiring to add to their size, and a forced merged seems quite out of the question.

Nothing definite has emerged till now on this merger, but watch for more news in the coming weeks.

And of course, we just could nt pass up the opportunity for a great headline!

Accenture, AT Kearney, Booz, consulting, culture, Deloitte, merger, strategy

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John Fowler, Big4.com

Many of our readers in the professional accounting, reporting, tax and corporate finance fields are already familiar with the impending adoption of IFRS rules in the US and many countries all over the world. We thought we would write a bit about the current situation and how it is being handled at the Big Four accounting firms, given that it is going to be a critical issue for them in terms of public auditing, financial statement reporting as public company clients either converge GAAP to IFRS or convert fully to IFRS in the next few years and require hand-holding, guidance and advice from the Big Four firms.Let’s review what’s been happening currently, albeit from a predominantly US perspective.

On November 14, 2008, the US SEC released its proposed roadmap for the adoption of IFRS in the Unites States. Concurrently, the G20 country leaders issued a statement confirming their support for developing a single set of high-quality global accounting standards. While other high-priority issues (financial crisis and regulatory oversight etc.) have overtaken accounting standards change in the US, the move to IFRS in the US seems inevitable.In the November 2009 Roadmap, the SEC did not set a definitive adoption date, but several milestones. If these were to be realized, it could mean the required use of IFRS by US issuers starting 2014. The SEC proposed a “staged” adoption schedule: large accelerated filers being asked to change in 2014, accelerated filers in 2015, and all other public companies in 2016.

The SEC will reconvene in 2011 to see progress toward these milestones to determine whether to set mandatory adoption dates, demonstrating the SEC’s continuing commitment to common global accounting standards.In light of these developments, there are two parallel tracks on which the IFRS train is proceeding, one being the convergence of US GAAP to IFRS in the US and the other being the total wholesale conversion of local accounting standards to IFRS in other countries.

1. Short-term convergence in the USRegardless of when US companies have to adopt IFRS, in the short-term there is continued convergence between US GAAP and IFRS accounting standards, followed by ultimate conversion to IFRS. An agreement between the Financial Accounting Standards Board and the International Accounting Standards Board called the Memorandum of Understanding pledges to improve both US GAAP and IFRS in 11 major topical areas.

And progress continues on each of these projects.According to PricewaterhouseCoopers, “As such, US companies will face an unprecedented wave of US GAAP accounting changes over the next several years, most of which will be heavily influenced by IFRS. The complexity and significance of these sweeping changes greatly exceeds that of most prior US GAAP changes. For example, significant changes are expected in how to account for major accounting areas such as revenue recognition, leasing, consolidation, financial instruments, debt and equity. The effects of these accounting changes reach far beyond just financial reporting.”

2. Continued global conversion to IFRSOn the other hand, many countries around the world, examples being Canada, India, and Mexico are planning to convert fully to IFRS from their local standards in the next few years for use in capital markets and/or statutory financial reporting. The recent release of IFRS for small and medium-sized entities may accelerate this global adoption.Companies in the US, while not directly on IFRS, will be impacted by IFRS adoption in other countries, especially when they have foreign subsidiaries, have non-US joint venture partners, are engaging in M&A outside the US.

In addition, IFRS will drive the behavior of non-US subsidiaries, vendors, and counterparties, impacting financial reporting, tax policy, and merger and acquisition activity.PricewaterhouseCoopers believes that US companies should actively participate in the adoption process of their non-US subsidiaries. Failure to do so risks costly inefficiencies or incompatibilities when IFRS adoption takes place in the US.Big Four Firms IFRS ResourcesWe have also gathered below a list of URL resources from the Big Four firm websites, which are quite abundant, current and informative. The resources which we have listed below cover a lot of ground, from a 50,000 feet overview of IFRS to deep detailed discussions on specific accounting issues.

Also, there are a number of guides (KPMG’s August 2009 168 page pdf being a great example) which layout exactly the differences between GAAP and IFRS. There is also a lot of honest opinion, critique, overview of current events and long-term outlooks which provide a rich perspective.

These resources and URLs are being continually updated (Deloitte’s GAN and Ernst’s Outlook). We must also point out that there are a good number of podcasts, newscasts, audios and video forums which provide multi-media richness to dry documents.By educating and alerting their clients, the Big4 firms, quite smartly, are ensuring that the clients come to them first for advice as needed, as also subconsciously pushing the need to start preparing for eventual convergence or conversion right away (with consequent advisory fees accruing to the firms from client preparatory engagements).

We’ll continue to monitor this, meanwhile love to have comments from our readers on what they are seeing in their professional circles on IFRS convergence or conversion.

Deloitte & Touche

IFRS Global Home Pagehttp://www.deloitte.com/view/en_US/us/Services/audit-enterprise-risk-services/Financial-Accounting-Reporting/International-Financial-Reporting-Standards-IFRS/index.htmIFRS US Home Pagehttp://www.deloitte.com/us/IFRSIFRS Resource Libraryhttp://www.deloitte.com/view/en_US/us/Services/audit-enterprise-risk-services/Financial-Accounting-Reporting/International-Financial-Reporting-Standards-IFRS/article/8f2bbf2733101210VgnVCM100000ba42f00aRCRD.htmGlobal Accounting Newshttp://www.iasplus.com/index.htmIFRS Publications (Including the monthly IFRS In Your Pocket guides)http://www.iasplus.com/dttpubs/pubs.htmDeloitte Debates – IFRShttp://www.deloitte.com/view/en_US/us/Insights/Browse-by-Content-Type/Deloitte-Debates/IFRS-International-Financial-Reporting-Standards/index.htmDeloitte Newsletters – IFRShttp://www.deloitte.com/view/en_US/us/Insights/Browse-by-Content-Type/Newsletters/IFRS-Insights-Archive/index.htmIFRS Webcastshttp://www.deloitte.com/view/en_US/us/article/d89f0d7c67ffd110VgnVCM100000ba42f00aRCRD.htmDeloitte IFRS e-Learninghttp://www.deloitte.com/view/en_GX/global/services/Audit/global-ifrs-offerings-services/ifrs-implementation-services/ifrs-elearning/index.htm

Ernst & Young

IFRS Home Pagehttp://www.ey.com/US/en/Issues/Governance-and-reporting/IFRSGlobal IFRS Overviewhttp://www.ey.com/GL/en/Issues/Governance-and-reporting/IFRS/Issues_IFRS-OverviewIFRS Outlook – August 2009http://www.ey.com/GL/en/Issues/Governance-and-reporting/IFRS/IFRS-outlook-current-issueIndustry 360 Degrees – IFRShttp://www.ey.com/GL/en/Industries/Industry360—Industry—International-Financial-Reporting-StandardsWebcastshttp://www.ey.com/GL/en/Industries/Industry360—Industry—International-Financial-Reporting-Standards

KPMG

KPMG International Financial Reporting Group Home Pagehttp://www.kpmg.com/Global/Interests/IFRG/Pages/default.aspxIFRS Compared to GAAP Home Pagehttp://www.kpmg.com/Global/IssuesAndInsights/RegularPublications/Pages/IFRS-GAAP-comparisons.aspxAugust 2009 Publication (168 Pages pdf)http://www.kpmg.com/Global/IssuesAndInsights/ArticlesAndPublications/Pages/IFRS-compared-US-GAAP-Aug-09-overview.aspxAccounting Research Online (requires paid subscription)https://www.aro.kpmg.com/aroext/login/login.aspxKPMG IFRS Institutehttp://www.kpmgifrsinstitute.com/

PricewaterhouseCoopers

US IFRS Homehttp://www.pwc.com/us/en/issues/ifrs-reporting/index.jhtmlIFRS versus GAAP Documenthttp://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences-september-2008.jhtmlIFRS Video Learning Centerhttp://www.pwc.com/us/en/issues/ifrs-reporting/ifrs-video-learning-center.jhtmlSign Up for IFRS First Emailshttp://www.pwc.com/us/en/issues/ifrs-reporting/newsletters/subscribe-to-ifrs-first-newsletter.jhtmlIFRS Webcastshttp://www.pwc.com/us/en/issues/ifrs-reporting/webcasts/index.jhtmlInteractive IFRS Financial Statements Demohttp://www.knowledgelaunch.com/interactive_ifrs/?WT.ac=US2GX%20IFRS%20demo?WT.ac=US2IFRS%20demoIFRS Publicationshttp://www.pwc.com/us/en/issues/ifrs-reporting/publications/index.jhtmlInteractive IFRS Adoption Map by Countryhttp://www.pwc.com/us/en/issues/ifrs-reporting/country-adoption/index.jhtmlIFRS Bloghttp://www.pwc.blogs.com/ifrs/IFRS Newsletterhttp://www.pwc.com/gx/en/ifrs-reporting/ifrs-and-corporate-reporting-newsletter.jhtmlIFRS and US GAAP: similarities and differences – September 2009 (September 23, 2009)http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences-september-2009.jhtml

The post Big Four Firms Provide Excellent Resources On IFRS Conversion appeared first on Big4.com.

John Fowler, Big4.com

Fortune magazine just released its much-awaited 2010 Fortune 500 list of the top US companies, and not surprisingly, Walmart topped the list with a whopping $408 billion in annual sales, followed by oil giants, Exxon Mobil and Chevron, global conglomerate General Electric and the nation’s largest bank, Bank of America coming in fifth place with $150 billion in revenues.

There are only 16 companies with sales over a billion and the 50th ranked company Pepsico has sales of $43 billion. The 100th ranked company is Amazon.com with $24.5 billion in sales, and if we look to place the Big Four firms, though they are private partnerships, PricewaterhouseCoopers and Deloitte will place in the first 100 and Ernst & Young and KPMG will place in the top 150 of this august list.PricewaterhouseCoopers had 2009 annual sales of $26.2 billion, so this would place at notional rank 91 just below TIAA-CREF currently ranked 90th with sales of $26.3 billion and just above CHS currently ranked 91st with revenues of $25.7 billion.

Similarly, Deloitte with 2009 annual sales of $26.1 billion would be right behind PwC with a notional rank of 92, and ahead of CHS. Ernst & Young with 2009 annual revenues of $21.4 billion, would have a notional rank of 116, just below DirectTV currently ranked 116th with sales of $21.6 billion and just above Emerson Electric currently ranked 117th with revenues of $20.9 billion.KPMG with 2009 annual revenues of $20.2 billion, would have a notional rank of 119, just below TJX currently ranked 119th with sales of $20.3 billion and just above AMR currently ranked 120th with revenues of $19.9 billion.

While this Fortune lists only the very largest public companies, the Big4 firms place right along the very elite of organizations.Fortune 500, Big Four Firms, ranking, revenues, sales

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David Nelson, Big4.com

Tuesday, October 27, 2009

We have blogged earlier about Universum, the employer branding company, particularly on their MBA and undergraduate surveys of top employers. The Big Four firms, Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers and Accenture typically make the top ranks in their surveys.Now they have come up with the world’s Top 50 most attractive employers, their first global index of employer attractiveness which highlights the world’s most powerful employer brands, those companies that excel in talent attraction and retention.

To come up with these results, nearly 120,000 students at top academic institutions in US, Japan, China, Germany, France, UK, Italy, Russia, Spain, Canada and India chose their ideal companies to work for.And the Big Four firms are again on the very top of this list. Against some very tough competition and some very tough critics (students!) all the firms made the Top 10 Global top 50 business list, in august company of Google, Goldman Sachs, McKinsey and Microsoft.

Accenture was just a tad behind at rank 23.Global Top 50 BusinessCompany Ranking 2009 Google 1 PricewaterhouseCoopers 2 Microsoft 3 Goldman Sachs 4 Ernst & Young 5 Procter & Gamble 6 J.P. Morgan 7 KPMG 8 McKinsey & Company 9 Deloitte 10 Accenture 23 Interestingly, Universum also put together a global top 50 engineering company list, and the Big Four firms also make good rankings on that list as well, again aside top companies such as IBM, Intel, BMW and General Electric.

In this list, Accenture was the first of the Big Four at rank 20, with KPMG making the last of the lot at rank 47. Big Four firms are not typically known for engineering, so we are certainly surprised at this. Perhaps the definition is broader than just hardcore engineering, in which case, the Big Four firms do offer services in hardware, software, outsourcing, system design, ERP, social media and disciplines related to business information technology.

Global Top 50 EngineeringCompany Ranking 2009 Google 1 Microsoft 2 IBM 3 BMW 4 Intel 5 Accenture 20 Deloitte 29 Ernst & Young 33 PricewaterhouseCoopers 37 KPMG 47 In any case, Big Four professionals can feel quite proud of this ranking, and alumni can use this in their cocktail conversations! Posted by www.Big4.com at 7:56 PM 0 comments

Universum Big Four Firms Dominate UK’s Large Cap Market, Is Big Three Possible? The Financial Reporting Council (FRC), the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance just published its Fourth Progress Report on the implementation of the MPG recommendations on Promoting Choice in the UK Audit Market.While the report generally deals with progress on a number of FRC’s key strategic initiatives, there is a very interesting analysis on the concentration of the auditing market in the UK which is dominated by the Big Four firms, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.

Here is the summary conclusion from the report, “Appendix 2 shows changes in market concentration from 2006 to August 2009. Since that date the market has see a slight increase in the number of FTSE 350 companies with non‐Big Four auditors, although looking at the latest figures compared with those in February 2009, it is possible that this trend may now have stalled. Subsequent to August 2009, the FRC is aware of at least one FTSE 350 company which has changed from a non‐Big Four auditor to a Big Four firm.

Non‐Big Four firms remain strong in AIM and to a lesser extent in the FTSE Small Cap and Fledgling indices.”This Appendix has a lot of information on market concentration statistics. Essentially it looks at public companies represented in the four key UK indices (FTSE 100, FTSE 250, FTSE Small Cap and AIM) and shows the percentage of public companies in each index audited either by a Big Four or non Big Four firm.

The time period spans November 2006 to August 2009.There are some startling findings and interesting conclusions from this study.In the FTSE 100 in August 2009, PwC audited 41% of public companies, KPMG audited 25%, Deloitte audited 21%, E&Y audited 15% and non-Big Four audited 1%. In the FTSE 100 in November 2006, PwC audited 42% of public companies, KPMG audited 22%, Deloitte audited 18%, E&Y audited 17% and non-Big Four audited 0%. In this large capitalization segment, it is clear that the Big Four firms clearly dominate this market. Non Big Four firms have a negligible share of this market.

Yes, that’s a measly 1%. It is certainly up from 0% a few years ago, but nothing to write home about. It also appears that KPMG and Deloitte took share from other two Big Four firms, this could be due to the large size of KPMG UK and KPMG Europe; and Deloitte’s increasing share of the Big Four pie.In the FTSE 250 in August 2009, PwC audited 28% of public companies, KPMG audited 21%, Deloitte audited 26%, E&Y audited 20% and non-Big Four audited 6%. In the FTSE 250 in November 2006, PwC audited 31% of public companies, KPMG audited 23%, Deloitte audited 24%, E&Y audited 19% and non-Big Four audited 3%.

In this larger set of public companies, while the Big Four firms have a majority share, non Big Four firms have a reasonable share which has doubled in recent years. PwC’s share loss is noticeable over this periodIn the FTSE Small Cap in August 2009, PwC audited 22% of public companies, KPMG audited 21%, Deloitte audited 19%, E&Y audited 18% and non-Big Four audited 20%. In the FTSE Small Cap in November 2006, PwC audited 23% of public companies, KPMG audited 20%, Deloitte audited 18%, E&Y audited 20% and non-Big Four audited 19%.

In these smaller sized companies, it is clear that while the Big Four firms have a four-fifths of the market but the non Big Four firms also enjoy a 20% share. In the AIM in August 2009, PwC audited 11% of public companies, KPMG audited 15%, Deloitte audited 11%, E&Y audited 8% and non-Big Four audited 55%. In the AIM in November 2006, PwC audited 10% of public companies, KPMG audited 13%, Deloitte audited 10%, E&Y audited 7% and non-Big Four audited 60%.In the alternative market, the Big Four firms actually are in a minority position with the non Big Four firms having a majority share, though this share has decreased by a substantial 5% over the last few years.

Overall, it is evident that large public companies overwhelmingly choose Big Four firms as their auditors. The high concentration in this sub-segment clearly limits choice for multinational companies which may require either deep auditing expertise or substantial presence in countries all over the world, which clearly rules out smaller firms, leaving the field completely to the larger behemoths.As we travel down into the smaller capitalization companies, non-Big Four firms have increasing share, either since the Big Four firms do not devote resources to penetrate this segment or the non Big Four firms offer more customized services to smaller clients who may not need the sophistication or breadth of a large public accounting firm. This stands to reason too.

The loss of share of non-Big Four firms in AIM is troubling.The demise of Andersen has significantly concentrated market power in just four firms. The exit of any one of these firms, if at all conceivable, can have a significant impairing impact on choice for clients. The choice is narrow already. Conflicts between audit, tax and consulting rules out certain choices for public auditors. And if that pool were to shrink, choice would completely disappear.We have argued in our earlier blog posts that the reduction of the Big Four to Big Three would have serious financial impacts on the audit and tax industry, on financial markets and on investors in all countries all across the world.

The structure in other countries may not be exactly as the UK, but quite similar, with Big Four firms dominating the upper client echelon. Financial regulators and market participants would at all costs avoid the failure or exit of any player or combination of players. We think No Deloitte & Young, No KPMGPwC, No EYPwC or any other alphabet soup. Consider that the KPMG was penalized $450 million in the US, but allowed to continue as a firm after paying that fine. The aftermath is too difficult, we believe, to live with.

While the ultimate fear of an exit may be unfounded, Paul Boyle, Chief Executive of the FRC, did say, “The FRC remains concerned about the significant uncertainty and cost which could arise in the event that one or more of the Big Four audit firms left the market. Regardless of the actions taken by market participants, this risk is likely to remain significant in the medium to long term. It remains to be seen whether market-led actions will prove to be sufficient to reduce this risk to an acceptable level.”Clearly this is a concern for governmental regulators, and though Mr. Boyle claims the risk is “significant”, we would think that the possibility of occurrence is very small.

The Big Four will continue to the Big Four for a long time to come. We really like our site name as it is!!What do you think about exit, demise or combinations? Possible? Probable? Allowable? ???

The post All Big Four Firms Make The Worlds Top 50 Most Attractive Employers List appeared first on Big4.com.

James Spencer, Big4.com

June 10, 2010

It sounds too good to be true. The deficits that are looming over Europe could actually be cut by not only raising taxes, but actually lowering them. That’s exactly the situation that the governments of Europe find themselves today. But the chances are that they will not cut those taxes directly.

The truth that taxes can be raised beyond the point where they can raise any more money has been called the “Laffer curve” (http://en.wikipedia.org/wiki/Laffer_curve). The Laffer curve looks like an inverse parabola with government tax revenue on the vertical axis and the tax rate % on the horizontal axis. Like most attempts to make the economically obvious into an easily digested graphic, this fails to do so. Essentially the idea is that when tax rates are low then raising the tax rate will get in more money. However when the tax rates keep rising then the tax take will go down as people are less incentivised to work and more incentivised to do nothing. If the tax rate ever gets to 100% the tax take will be near zero as no one produces anything.

So far so obvious. Why have these taxes been allowed to rise to the point where they have started to lower the total tax take? There are plenty of explanations, but the short answer is because the results of taxes i.e. social welfare payments are that popular with the public.

Some taxes are popular because they serve some sort of social good, for example more money could be raised by lowering duty on cigarettes as fewer people give up smoking and smuggling across borders diminishes. Similarly taxes on the highest paid tend to be very popular, but over the medium term cut down drastically on the amount of money that they rake in as people invest in expensive tax advisors or take up jobs abroad – options not open to the less well-paid.

Governments have had limited success in persuading the voters that by cutting popular taxes they can actually increase revenues. It’s not the most intuitive idea to sink in with folks not that familiar with the shape or impact of the Laffer curve.

There is another, perhaps morally less honest, way to do this. That is to build loopholes into the tax system and code. It is a far less open way of cutting taxes, but it has the same effect and public anger is muted. And if truly, a country is on the falling side of the Laffer curve, such an effective cut can potentially raise tax revenues.

Additional tax loopholes are a bonanza for corporate tax department and the helpful folks from the Tax Services of the Big Four firms. With more complexity and exemptions that the government creates, it is effectively lowering the tax rate for corporate taxpayers and creating work for Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers, for whom this would be a very welcome development. In Europe today, as governments look for ways to generate more tax revenues, it may be an area for tax professionals to brush up on complex tax schemes become more, and not less, popular.

Big Four, tax, revenues, Laffer Curve, tax rate, social payments, loopholes
 

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David Nelson, Big4.com

Grant Thornton Reports Doubling of Revenues Since 2002 Grant Thornton (GT) is technically not a Big 4 firm, but certainly home to many Big Four alumni. When we reviewed their recently reported financials, it was clear that the firm is growing rapidly, and seemed to be catching up with the Big Four in the audit, tax and advisory space, at least on some key parameters.In its financials,

Grant Thornton LLP, US member firm of Grant Thornton International, indicated sales of $795 million for the year ending December 31, 2005. Revenues climbed 25% from $635 million in 2004, and were up 64% from $485 million in 2003. 2005’s revenues grew 99% from $400 million in 2002, nearly doubling in four years with a compounded average growth rate of 26%.

This is quite impressive performance in such a short period of time, though understandable given GT’s smaller size. The larger size of a Big Four firm would preclude such high levels of growth in consecutive years. Despite this doubling in revenues, Grant Thornton says that its partner count grew 36% from 312 to 425 and employees grew 52% from 3,129 to 4,781.In other words, revenue per partner increased from $1.28 million in 2002 to $1.87 million in 2005 and revenue per employee increased from $127,836 in 2002 to $167,333 in 2005.

How can we put this in perspective? One way would be to compare to a Big4 firm. And just for example, we choose the firm KPMG US, which is a member firm of KPMG International.Our data is the best available estimates from public sources and the internet. In 2002, KPMG US had estimated sales of $3.2 billion, 1,471 partners and 17,577 employees. In 2005, KPMG US had estimated sales of $4.7 billion, 1,600 partners and 19,600 employees.

So KPMG’s revenues grew at a cumulative annual growth rate of 14% in this period.On a per unit basis, revenue per partner increased from $2.15 million in 2002 to $2.94 million in 2005 and revenue per employee increased from $180,406 in 2002 to $239,796 in 2005.Clearly, GT’s per unit metrics are below a larger scale global firm such as KPMG, but the gap appears to be shrinking. For example, GT’s revenue per partner was 59% of KPMG’s revenue per partner in 2002, but this had increased to 64% in 2005.

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David Nelson, Big4.com

Thursday, March 23, 2006

Big Four Firms Try to Mitigate Audit Risk Several of the Big Four firms have been in the news recently due to a common issue: the long-tailed effects from the risk of auditing public companies.Deloitte is facing the impact of its Parmalat audit. It is tackling lawsuits from the new turnaround Parmalat management, which is trying to sue Deloitte for audit malpractice. Parmalat, the Italian dairy company had previously filed for bankruptcy after discovery of accounting issues.

A suit against Deloitte’s international arm will likely ensue and along with it another against Grant Thornton.KPMG is embroiled in a case against Targus Group, a computer case maker whose products are used commonly by road warriors, where it trying to have the exact details of the case not be disclosed in course of settling the issue with the company.Ex-Andersen auditors testified recently in the Enron case, claiming that Enron management had not fully disclosed what they knew about a goodwill write-down and the use of reserves in managing earnings.

These are just some examples of the large-scale impacts that audit decisions can have on accounting firm many years in the future, regardless of whether the client company goes bankrupt.There has always has been considerable risk in auditing and certifying a public company financial statement as accurate and representative. Now, in the post-Enron, SOX-dominant era, this risk has considerably magnified.

Accounting firms can face lawsuits from companies, shareholders and even from governmental agencies. These can be arduous and financially damaging, as well as diverting senior management attention from key business issues.Not surprisingly, there appears to be a trend for accounting firms to include limitations in their audit engagement contracts with clients.

Such contracts may insist that the ultimate recourse for the company be some form of arbitration or dispute settlement mechanism rather than litigation. In the medical industry, malpractice insurance premiums for surgeons and physicians has risen significantly in recent years, driving up their cost and negatively impacting margins. Similarly, with increases in the risk of the audit business (as exemplified here), business insurance premiums are likely to rise. And the total amount payable is likely to be capped.

The Big Four firms, quite aware of this, seem to be proactively taking measures to mitigate this situation.

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Nita Teoh, Big4.com
Jul y 9, 2010

The Asia Pacific Region has been a growth hot-spot for the Big Four firms, as strong increases in the emerging economies in this region has fueled demand for financial and professional services.

As our 2009 Big Four Firms Financial Performance Analysis (available at http://www.big4.com/?page=blog_item&url=the-2009-big-four-firms-performance-analysis-450 or download the entire pdf analysis at http://pdfcast.org/pdf/the-2009-big-four-firms-performance-analysis), shows Asia Pacific has been steadily gaining revenue share over the last six years.

While 2009 was not such a good year in terms of revenue for all the Big 4 firms (Deloitte, Ernst and Young, KPMG and PricewaterhouseCoopers, Accenture), growth prospects and forecasts in the Asian Pacific region for 2010 remain very strong.

Which means that demand will likely be up for a whole host of services that these firms provide.

GDP for the region is forecast at 7.5% for 2010, and is expected to settle at 6.75% in 2011, based on the IMF World Economic Outlook, July 2010.

Compare this to the state of the world’s economy, with a projected growth of 4.5% for 2010. It’s still early days yet as regions recover from the devastating impacts of the GFC.

Here is a quick synopsis on how Asia Pacific countries are fairing:

Australia and New Zealand

“In Australia and New Zealand, growth is expected to be about 3 percent in 2010, before accelerating to 3½ and 3¼, respectively, in 2011, with still-robust commodity prices boosting private domestic demand.” , says the IMF World Economic Outlook, July 2010.

Australia’s economy is closely tied to that of its neighbors and is reliant on the near-insatiable demand from China for Australia’s abundant mineral resources.

Big 4 firms have their ears to the ground on the Mineral Resources Rent Tax and are keenly awaiting the announcement of Prime Minister Gillard’s new Climate Change Policy.

The Reserve Bank of Australia has interest rates on hold at present, with speculation surrounding possible cash rate hikes at its next August 3 board meeting.

It will also be interesting to see how well Australia positions itself as a “full services” financial services hub in years to come.

Singapore

Australia’s close neighbor Singapore is a trusted gateway as an international financial center and home to many multi national companies who are headquartered in this region.

This is not surprising given that Singapore was ranked number one in the “ease of doing business” category by the World Bank in its “Doing Business in 2010” Report.

Singapore experienced a phenomenal growth of 32.1% in Q1 of 2010, according to that country’s Ministry of Trade and Industry.

The Monetary Authority of Singapore estimates annual growth for 2010 at around 7 to 9%.

China

And last but not least, the powerhouse economy of China expects double digit growth in 2010 with a slight slow down in 2011.

Again according to the July 2010 (IMF World Economic Outlook, “In China, given the strong rebound in exports and resilient domestic demand so far this year, the economy is now forecast to grow by 10.5% in 2010, before slowing to about 9.5% in 2011, when further measures are taken to slow credit growth and maintain financial stability.”

With such positive buzz and optimistic forecasts for countries, which have generally escaped the recession which roiled the developed world, we would not be surprised if Asia Pacific turns out another great performance for all the Big Four firms

We’ll be reporting on this in a few months in the upcoming 2010 Big Four Firms Performance Analysis. Till then, keep an eye on Asia.

Asia Pacific, growth, prospects, Big Four, GDP, Australia, China
 

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Nita Teoh, Big4.com
July 8, 2010

We discussed in our earlier blog the impact of the Big Four firms on the change in the Australian Prime Minister from Kevin Rudd to Julia Gillard (http://www.big4.com/?page=blog_item&url=did-the-big-four-firms-help-topple-the-australian-prime-minister-577).

And Julia Gillard the new Australian Prime Minister has been busy at the helm on quite a few fronts. The punters are gambling on the announcement of an election as soon as August next month. According to opinion polls, the public is keen for the election to roll on as soon as possible.

She has been in negotiations with the mining industry on a revised Mineral Resources Rent Tax, and looks to have successfully navigated her way through quite a hot bed of coals.

The other big-ticket item still to be announced in the lead up to the election is the release of a new climate change policy by the new PM.

Big Four firms (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers) specializing in sustainability and climate change consulting are also staying tuned to garner any news about the proposed new climate change policy in Australia.

Back in March 2010, PricewaterhouseCoopers issued in conjunction with the Institute of Chartered Accountants a Business Briefing on “20 Issues on the Business Implications of a Carbon Cost”.

In the days of Rudd leadership, the Carbon Pollution Reduction Scheme (CPRS) was the preferred Emissions Trading Scheme (ETS) proposed.

Regardless of the exact ETS proposed, the Report identifies five broad areas of interest for businesses having to operate within a low carbon economy regime:

Impacts on shareholder value
“’Business as usual’ is no longer an option and business leaders need to act to ensure the net impact of the transition will create value for the organization.”

Impacts on pricing and cost
“Understand the accounting implications of the relevant strategic opportunities, and ensure that this is realistic in terms of future cash flows and other activities.”

Funding and working capital requirements
“The impact of the proposed ETS, or other potential policy responses, will add costs for most organisations. It is expected that the most significant cost increases will be for cost of supplies, working capital requirements, financing requirements and debt coverage. and meeting financial reporting and assurance obligations.”

Reporting systems, processes and controls.
“That management have adequate, accurate and timely carbon information to support business decisions.”

Help transition to a low carbon economy.
“If an alternative legislative mechanism is adopted to introduce a cost of carbon, it will still be important for business leaders to understand the impacts on their business and their ongoing obligations.”

No matter what shape or form Julia Gillard’s climate change policy might take – an ETS or some other emission reduction policy – the Big4 firms in the Asia Pacific region will be busy consulting to clients transitioning to a low carbon economy.

Adopting a “business as usual” attitude will no longer be a viable option for businesses.

Australia, Climate Change, Prime Minister, Low carbon, emissions,
 

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James Spencer, Big4.com
July 7, 2010

George Osborne, the Chancellor of the Exchequer of the United Kingdom had a tightrope to walk while presenting the recent UK Emergency budget. Should strict austerity measures be taken to control the burgeoning fiscal deficit or be avoided in order not to derail the nascent economic recovery?

A tough choice for the country and a rough position between a rock and a hard place.

Osborne’s budget did lean much towards austerity, which was welcomed in general by investors and by the business. But it was not without its critics. He labelled it simply “unavoidable”.

Here’s a look at how the Big Four firms in the United Kingdom analyzed the budget.

On the one hand, Ernst and Young’s flagship ITEM club offered some praise for George Osborne’s austerity budget. ITEM, which is an economic forecasting department that focuses on private sector clients, believes that while the budget was a “well constructed package that should reduce the risk to the recovery” they also believed that the Office for Budget Responsibility (OBR) which now advises the government on the macro-economic situation, was “underestimating the impact of this significant fiscal tightening”.

The ITEM club, and by extension Ernst and Young, seem to think that the budget is a necessary thing in the medium term, but it will be painful in the here and now.

KPMG backed up Ernst and Young saying that the budget was “a carefully balanced budget leaving many SMEs [Small and Medium Enterprises] feeling that they haven’t done too badly”.

PricewaterhouseCoopers PwC were also broadly supportive saying “Overall, the emergency Budget puts in place a credible plan to eliminate the UK’s structural current budget deficit over the lifetime of this Parliament.”

Deloitte, or their public sector part of it, was not so sure. Rebecca George, a public sector partner has said that the cuts are too much too soon. “Budget cuts of that magnitude have rarely been experienced in Government and certainly not in the living memory of any of today’s civil servants.” The same could be said of the public sector partners and their staff, although KPMG’s public sector group claimed that “public services provision as we know it is not sustainable any longer”, as it needs radical reform.

This appears to be a very real divide (mirroring the Osborne tightrope) among the various constituents in the firms. In general the big four have echoed the opinion of other British businesses, both large and small, who have said that the deficit needs to be reduced but the majority of this reduction should not be met by taxes. This is very much about keeping Britain competitive as a place to do business, and as the Big Four exist to service competitive businesses they are very much in favour of that.

However in all of the Big Four there are large public sector practices that have done very well due to the increase in government spending. So these folks are not just worried about the government spending cuts, but its eventual impact on the consulting business. This may be a bit unfair on the public sector practices who have generally had a lower profitability than other parts of big four businesses, but which still provide a very useful service – in offer advice that career civil servants are somewhat reluctant to offer.

Nonetheless, after a bit of shock in the UK, the country seems to have settled down to fully absorb the consequences of such austerity measures. And surely, there will be more opinion from all sides as some unintended impacts do arise in the future.

Here are the links to the firm analyses:
(http://www.ey.com/UK/en/Newsroom/News-releases/Item—10-06-22—OBR-underestimates-impact)
http://rd.kpmg.co.uk/mediareleases/21900.htm
http://www.pwc.co.uk/pdf/emergency_budget_summary.pdf
http://www.deloitte.com/view/en_GB/uk/news/news-releases/924356b68f069210VgnVCM200000bb42f00aRCRD.htm

http://rd.kpmg.co.uk/mediareleases/21852.htm

UK Emergency budget, George Osborne, austerity measures, budget deficit, business

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Susan Black, Big4.com

July 6, 2010

In a terse statement this evening from Booz & Company, the firm is calling off any merger possibilities with A.T. Kearney, saying, "Booz & Company and A.T. Kearney confirm that they have ended discussions about a possible merger of their two partnerships. While the two firms greatly respect each other’s legacy and capabilities, they have determined that their future aspirations will be best realized as separate partnerships."

According to the Wall Street Journal, this is the most recent of several times that merger talks have emerged between the firms. It would have been a cashless merger with a combined partnership. Apparently, Booz CEO Shumeet Banerji met with partners in six countries in recent days to get their feedback on a possible deal, and he didn t find them to be especially enthusiastic about the fit between the two firms. Indeed, past talks between the two firms fell apart because of partner resistance during similar road shows by the then CEO. Because both firms overlap in certain areas, such as operations consulting, Booz partners saw little advantage to sharing their turf with Kearney counterparts, this person said. A skeptical partner typically said, "Wait a minute. That s what I do," this person recalled. The merged firm would have been the world s 14th-biggest management consultancy and seventh-biggest management-strategy consultancy.

We had blogged about this earlier on June 5, 2010 (http://www.big4.com/?page=blog_item&url=at-kearney-boozes-big-four-firm-stay-sober-538), where we said, "However, no decision had been made yet and discussions could well fall apart as the deal needs approval of the partners of the two firms. And the two different cultures of both firms could provide an impediment to a true long term combination."

And it does look like that we were generally right.

Partner resistance to sharing their clients, territory and books of business with another led to the undoing of the deal. According to the WSJ, partners were even cool with the Booz CEO, knowing that the merger requires the assent of majority of partners, and every partner s vote is needed. Both these firms are similar in nature, and in clients perception offer high-quality but competing services in a wide variety of areas. So even though size of the overall firm would have helped the merged firm compete better in the marketplace, it appears that micro-economics of marginal personal profitability scored over macro-economic long term profit potential. Eventually, partners voted with their pocketbooks, turning down what would be potentially long term gains against immediately visible short term profits. This is the Booz side of the story, but it is likely similar on the Kearney side too. After all, if your clients are given away to another partner from the other firm in the same area of expertise, where does that leave your rainmaking potential and take home pay. Can you really blame them?

Score one for human factors (and perhaps fear and greed) over cold corporate rationality!

And so, we are left with two smaller firms competing with each other in the marketplace. The other victors, apart from partners, in this game – corporate clients who can now pay competitive (rather than oligopolistic) rates for consulting services!

Booz, Kearney, merger, partners, profits, cashless, discussions, partnership
 

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James Spencer, Big4.com
July 1, 2010

As the old saying goes, there’s nothing certain in the world except death and taxes.

Taxes can be avoided (to some degree) by going to tax havens, jurisdictions that shelter corporate and individual profits from onerous taxation.

Tax avoidance is often portrayed as a hole in which untapped tax revenues finds its way down. Bahamas, Ireland, Chanel Islands, Andorra and Belize have low or no taxes, and do attract dozens of companies which flock to take advantage. One of the biggest measures of tax avoidance has been people salting away money in tax havens.

Many recent tax measures have focused on closing down the “loopholes” in an apparently painless way of raising revenue. And governments are fighting back. The US’ Foreign Account Tax Compliance Act (FATCA) "forces foreign financial institutions, foreign trusts, and foreign corporations to provide information" on undisclosed assets held by Americans after Dec. 31, 2012. Switzerland has complied, and likely will many others.

In the so-called “Foot Report”, (http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/d/foot_review_deloitte.pdf) Deloitte UK found that among other things that British Crown Dependencies and Overseas Territories (the “CDs and OTs”) in the context of tax avoidance by UK corporates that retail banks have established offshore deposit-taking operations in the CDs and OTs to serve local and expatriate customers. Use of certain CDs and OTs, particularly for incorporation of special purpose companies, facilitates tax based structured finance activity by investment banks, which can have significant tax revenue effects. And they make an important conclusion, that “Our conclusion is that the unexplained UK corporation “tax gap” (of which avoidance involving use of the CDs and OTs will be an unidentified sub-component) is likely to be significantly lower than previous estimates.” For which, Deloitte has been somewhat criticized.

Despite this finding, tax structuring for international organizations with a view to reduce total global tax, including the judicious use of tax havens, is not far from the agenda of Big Four firm offerings as part of their Tax services.

Consider in the small country of Gibraltar (2,642 square miles), all the Big Four have offices, and offer services designed for tax efficiency

For example,

PricewaterhouseCoopers Gibraltar says, “Gibraltar is a very attractive jurisdiction from a tax efficient perspective. It is a white listed jurisdiction and one of the very few in the EU with such attractive Rules. In addition there is no Capital Gains Tax, Inheritance Tax or Value Added Tax in Gibraltar.”

Deloitte Gibraltar’s tax services are designed to assist clients to take full advantage of tax legislation in support of their business objectives. Gibraltar Tax legislation encourages the tax efficient use of Gibraltar by non-residents and we can provide specialist advice in this area.

KPMG Gibraltar provides a range of tax planning and advisory services to local and international companies, including cross-border tax planning, including transfer pricing and consideration of permanent establishment issues; identification of tax efficient structures for investment into overseas property; group reorganisations and restructuring; and tax planning for the owner managed business, including tax efficient extraction of profits.

Can these tax havens ever be shut down?

The evidence suggests that they will not be. Consider this – if there are a lot of tax havens then the rewards for being a tax haven are relatively small. And if a big economy in your neighbourhood (think Lichtenstein vis a vis the European Union) throws its weight around and tells you to pay more taxes, then you will. After a while, there will be some hardy hold outs who will benefit, as the pressure gets intense, the rewards of holding out get much better. It helps if you’re either a relatively large economy or a very small one to take advantage of continuing to be a tax haven.

So what if all the countries got together and start pressuring these “hold outs” (as example the OECD)? Some havens will crumble, like Switzerland. But others may stay strong as the rewards start to get bigger. Then some countries may also start creating large loopholes, as Ireland has, to prevent movement to tax havens.

(There’s some real tricky incentives in this game!)

So very likely, tax havens in some form or the other will survive. And the Big Four firms’ Tax Services are certainly rooting for that scenario!

Tax havens, Big Four, Gibraltar, tax avoidance, OECD, Foot Report, Deloitte, Tax
 

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David Nelson, Big4.com
June 29, 2010

We blogged yesterday about the impact of the Supreme Court decision on the Public Company Accounting Oversight Board, which was mainly procedural rather than operational. Apart from requiring that PCAOB members could be removed by the Securities and Exchange Commission “at will” rather than “for cause”, the Court did not require any significant changes in the operation of the PCAOB.

All is well also on the flip side.

The 2002 Sarbanes-Oxley act is also safe.

Opposers to the act, who were hoping that this case might shut down the legislation, or at minimum, force Congress to re-examine its foundation and lessen its impact…..were essentially sidelined.

The Supreme Court surgically bifurcated the separation of powers issue from the general purview of the Act, deciding not to go too deep in that direction. By doing so, it kept the act and its full impact essentially intact. This means that investors get the protection of company officers signing off on their financial statements plus a check on the internal accounting controls of public companies. Both are good benefits to them of better corporate governance.

On the other hand companies have to continue to spend dollars on full compliance, though there is a chance that smaller companies could be excluded from the Act, provided Congress allows this.

Also good news for Big Four firms (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers), in that all their services to comply with the Act are still needed by companies today. Though the big money bonanza in instituting these systems may no longer be there, there’s still good dollars to be made in consulting or assisting clients.
 

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David Nelson, Big4.com
June 28, 2010

A deeper reading of today’s Supreme Court judgment reveals two critical points:

One

PCAOB Board members are removable by the Securities and Exchange Commission (SEC) only for good cause. However, the Court had an issue with how the Board members could not be removed by the President of the United States, even for good cause. Since PCAOB was considered part of Government, it had to function in sync with the President’s agenda, and thus he should have full power over appointing anyone and removing anyone he chose from the PCAOB hypothetically for any reason. The Congress of the United States through the Sarbanes Oxley Act, in effect prevented the President from removing PCAOB members and thus fully managing the Executive Branch. This was against the Constitution’s fundamental separation of powers, thus unconstitutional.

The consequence of the Court’s decision is that PCAOB Board members will be removable by the SEC at will, rather than only for good cause. How this will exactly done, the Court left to other legislature, but it did order that the “double-tenure” effect be removed in order to be constitutional.

Two

The Court made an important distinction in that it found only this part of the Sarbox act unconstitutional. It maintained that all other aspects of Sarbanes Oxley relating to PCAOB – including all other aspects of the SEC’s oversight, the structure of the PCAOB and its programs are otherwise unaffected; and still valid.

Thus, as the PCAOB says, “ Accordingly, all PCAOB programs will continue to operate as usual, including registration, inspection, enforcement, and standard-setting activities.”

So the PCAOB continues its normal operations as usual, and will be among other things issuing more inspection reports, which we see are in a little bit of a slowdown over the past few weeks. The PCAOB members have lost a little bit of their job security for sure, but in the new order they will be properly constitutional.

All other plaintiff arguments were dismissed by the Supreme Court

So PCAOB wins some and loses some, but it stays in existence, and got its share of national fame in being the subject of a Supreme Court certiorari, a decently rare situation for any standard government agency.

PCAOB, Supreme Court, unconstitutional, SEC, President, at will, for cause
 

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David Nelson, Big4.com
June 28, 2010

“We are asked, however, to consider a new situation not yet encountered by the Court.”

This sentence in the opinion of the the Supreme Court of The United States (SCOTUS) says it all – they and we are dealing with new material and new situations hitherto not encountered.

But in a definitive and precedent-setting ruling, the Supreme Court of The United States (SCOTUS) turned down a section of the 2002 Sarbanes Oxley law that created the Public Company Accounting Oversight Board, a national board that reviews auditors of public companies.

SCOTUS asks rhetorically – The question is whether these separate layers of protection may be combined. May the President be restricted in his ability to remove a principal
officer, who is in turn restricted in his ability to remove an inferior officer, even though that inferior officer determines the policy and enforces the laws of the United States?

And their judgment:
We hold that such multilevel protection from removal is contrary to Article II’s vesting of the executive power in the President.

The SCOTUS said that the earlier law violated the constitutional requirement on the separation of powers among the branches of government. The court argued that the PCAOB was “part of the Government”.

Here is the background to this case:

“The petitioner Free Enterprise Fund, a nonprofit organization sued the Board and its members, seeking, inter alia, a declaratory judgment that the Board is uncon-stitutional and an injunction preventing the Board from exercising its powers. Petitioners argued that the Sarbanes-Oxley Act contravened the separation of powers by conferring executive power on Board members without subjecting them to Presidential control. The basis for petitioners’ challenge was that Board members were insulated from Presidential control by two layers of tenure protection: Board members could only be removed by the Commission for good cause, and the Commissioners could in turn only be removed by the President for good cause. Petitioners also challenged the Board’s appointment as violating the Appointments Clause, which requires officers to be appointed by the President with the Senate’s advice and consent, or—in the case of “inferior Officers”—by “the President alone, . . . the Courts of Law, or . . . the Heads of Departments.”

The United States intervened to defend the statute. The District Court found it had jurisdiction and granted summary judgment to respondents. The Court of Appeals affirmed.

The SCOTUS made four judgments:

1. The District Court had jurisdiction over these claims. The Commission may review any Board rule or sanction, and an aggrieved party may challenge the Commission’s “final order” or “rule” in a court of appeals under 15 U. S. C. §78y.
2. The dual for-cause limitations on the removal of Board members contravene the Constitution’s separation of powers.
3. The unconstitutional tenure provisions are severable from the remainder of the statute.
4. The Board’s appointment is consistent with the Appointments Clause.

ROBERTS, C. J., delivered the opinion of the Court, in which SCALIA, KENNEDY, THOMAS, and ALITO, JJ., joined. BREYER, J., filed a dissenting opinion, in which STEVENS, GINSBURG, and SOTOMAYOR, JJ., joined.

The Court ruled that “petitioners are not entitled to broad injunctive relief against the Board’s continued operations. But they are entitled to declaratory relief sufficient to ensure that the reporting requirements and auditing standards to which they are subject will be enforced only by a constitutional agency accountable to the Executive.

This is a complicated judgment, our next post will cover more detail and implications

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Susan Black, Big4.com
June 24, 2010

RSM McGladrey (tax and consulting) and partner firm McGladrey & Pullen (assurance) recently decided to go to market under the "McGladrey" brand. Combined, the firms are fifth-largest U.S. firm with revenues of $1.5 billion, 7,000 professionals in nearly 90 offices. Also, the firms recently realigned to focus on national lines of business and industry. Both firms are members of RSM International, the sixth largest global network in the world, and operate as separate legal entities in an alternative practice structure

We wonder if this is the influence of C.E. Andrews, who took over last year 2009 as president and chief operating officer of RSM McGladrey. C.E. Andrews was almost 30 years at Andersen; most recently as head of Audit. And Andersen did shorten its prior name of Arthur Andersen and changed its logo from the double doors to the orange sun.

Here’s the old logo:

And here’s the new logo which was unveiled in style.

…on a life-sized 144-square-foot cake weighing approximately 1,100 pounds of 124 pounds of flour, 517 pounds of sugar and 125 dozen eggs that took 10 hours to assemble. McGladreay created the cake in partnership with Minneapolis-based grocery retailer Lunds and Byerly’s in an attempt at a Guinness World Record.

The cake’s theme was, what else, GOLF, with a life-sized putting green on it.

To celebrate the occasion, the firm invited 8 distinguished guests, including golfer Chris DiMarco; RSM McGladrey President and COO C.E. Andrews; McGladrey &Pullen Managing Partner Dave Scudder; Special Olympics Minnesota representatives; and several respected members of the Minneapolis community.

Their goal, – attempt ten approximately 20-foot golf chips at the “putting green.”

For each golf ball that lands on the cake, the firm will donate $250 to Special Olympics Minnesota. And for each “ace in cake” or hole-in-one, the firms will donate $2,500. Chris DiMarco took multiple chips for charity.

We searched quite a bit, but couldn’t find any pictures, or how much was raised for charity.

In any case, we like the new logo and the shorter name. Logos perhaps don’t do that much for revenue generation, but the integration of audit with tax and consulting is sure to bring efficiencies, provided all the partnership issues get worked out amicably.

McGladrey, new logo, integration, golf, RSM, C.E. Andrews, Andersen, Pullen
 

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June 19, 2010

John Fowler, Big4.com

That s what Mr. Tommaso Padoa-Schioppa, 69 said about the recent Euro crisis, which spurred an unprecedented response from the ECB recently.

But that s not why he s making news today.

The former Italian Finance Minister was appointed for a three-year term from July 2010 as Chairman of the trustees of the International Accounting Standards Committee Foundation. The IASC Foundation oversees the London-based International Accounting Standards Board, selects its members and raises funds for its operations. He will take over from Netherlands Finance Minister and Deputy Prime Minister Gerrit Zalm, who currently serves as Chairman and whose term was expiring this year

Mr. Padoa-Schioppa served briefly as IASC Foundation chairman in 2006, before he was named Italy s finance minister.

Mr. Padoa-Schioppa will remain in his current role as chairman of the European operations of Promontory Financial Group, a financial-services consulting firm. He ia also president of Notre Europe, a Paris-based think tank that focuses on European unity, and a former member of the European Central Bank s executive board.

The IASC Foundation is changing its name effective July 1 to the IFRS Foundation, after International Financial Reporting Standards, the global rules.

Mr. Padoa-Schioppa has his work cut out, as the whole world moves towards a single international accounting standard. This standard has been adopted in principle by many countries, but its actual application schedule is varying across nations.

He will also need to bring closer together U.S. and international accounting standards, with the US GAAP having served as international standards for a long time.

One point of disagreement between the IASB and the U.S. Financial Accounting Standards Board is how financial instruments held by banks are to be valued. The FASB wants them all valued at fair value, while the IASB wants to take a moderate approach of fair value / depreciated value depending on the duration of the asset and the intention of the bank. PricewaterhouseCoopers has done some good work in this area, and we ll be blogging on it soon.

We ll see how prescient he has been perhaps in describing his own role as he navigates through somewhat uncharted waters.

(The IASC Foundation is an independent, not-for profit private sector organisation working in the public interest. The IASB (International Accounting Standards Board) is the independent standard-setting body of the IASC Foundation)

Mr. Tommaso Padoa-Schioppa, IASC, Chairman, IFRS, Trustees, accounting
 

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June 18, 2010
David Nelson, Big4.com

June 30, 2010 is rapidly approaching, and it is a key deadline for US audit firms.

The Public Company Accounting Oversight Board (PCAOB) requires all its registered firms (over 2,200 of them) to file an annual report with the Board, with the first annual reports due June 30, 2010. The report (in Form 2) covers the 12-month period ending March 31, 2010; and contains general information on the firm plus some very interesting numbers which may be available to the public for the first time (we believe) in a consolidated summarized format in one place.

Provided the firms allow it (more on this later).

In addition to all the factual wordy stuff required in this lengthy form, there are a few nuggets of key information which we would love to see in one place.

First, the composition of audit, tax and non-audit fees as a percentage of the total fees charged by an audit firm to its audit clients. This can be deduced from the 10-Ks of each public company, but don’t believe its made available in such a clear summary form.

Second, the number of accountants and the number of CPAs in all firms. Again, aggregate numbers of Audit personnel are generally reported by the firms, but rarely with this precision.

But (as always), there’s a catch.

Firms can choose to keep these confidential if they wish.

And we suspect a number of firms will do just that.

If they do report, we’ll have a ton of great information on an industry, which provides only the minimum of information to the public.

And if they don’t, we’ll just deduce they are ducking under the covers – again.

Either way, it’ll be news once we get to see the final public reports when released by the PCAOB.

Here are the relevant items from Form 2:

Item 3.2 Fees Billed to Issuer Audit Clients

a. Of the total fees billed by the Firm to all clients for services that were rendered in the reporting period, state the percentage (which may be rounded, but no less specifically than to the nearest five percent) attributable to fees billed to issuer audit clients for-

1. Audit services;

2. Other accounting services;

3. Tax services; and

4. Non-audit services.

b. Indicate, by checking the appropriate box, which of the following two methods the Firm used to calculate the percentages reported in Item 3.2.a -

1. The Firm used as a denominator the total fees billed to all clients for services rendered during the reporting period and used as numerators (for each of the four categories) total fees billed to issuer audit clients for the relevant services rendered during the reporting period.

2. The Firm used as a denominator the total fees billed to all clients in the Firm’s fiscal year that ended during the reporting period and used as numerators (for each of the four categories) total issuer audit client fees as determined by reference to the fee amounts disclosed to the Commission by those clients for each client’s fiscal year that ended during the reporting period (including, for clients who have not made the required Commission filings, the fee amounts required to be disclosed).

c. If the Firm has used a reasonable method to estimate the components of the calculations described in Item 3.2.b, rather than using the specific data, check this box and attach Exhibit 3.2 briefly describing the reasons for doing so and the methodology used in making those estimates.

PART VI – PERSONNEL
In Part VI, the Firm should provide information that is current as of the last day of the reporting period.

Item 6.1 Number of Firm Personnel

Provide the following numerical totals -

a. Total number of the Firm’s accountants;

b. Total number of the Firm’s certified public accountants (include in this number all accountants employed by the Firm with comparable licenses from non-U.S. jurisdictions); and

c. Total number of the Firm’s personnel.

PCAOB, Audit Firm, Annual Report, Form 2, Audit fees, issuers, personnel
 

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June 17, 2010
James Spencer, Big4.com

At one time it used to be so simple, at least in Europe. The national governments taxed, the European Commission wanted to tax and the local authorities had no real powers to speak of. Of course they had some tax on land ownership and in some cases there would be some limited income tax abilities – but that was it, really. In KPMG, Deloitte, Ernst & Young or PricewaterhouseCoopers you did not really hear many questions about Scottish income tax or Bavarian taxation of corporate entities.

In fact what you did hear was that the European level was the place where the tax professionals had to be. VAT professionals had always paid a close interest to what happens at the European level, but the other functions also started paying attention. This may have made sense when looking at the European divisions of American or Japanese companies, but things are changing.

Now we are seeing a real crisis in the Eurozone following dramatic events in Greece, Portugal, Spain and Iceland, and a potential break up is being openly discussed. Even if the Eurozone does muddle through this time, it will likely be radically changed. One of the overlooked elements of this crisis is that the regions are likely to grab a far greater share of the tax pie from both national governments and the European Union.

This is because national governments find will find that they can’t afford a swath of services that they used to provide as a matter of course. They will either leave these to the local and regional governments, or they will by default step in. With that, they will need greater tax raising powers. Already this is happening in Scotland, with both Wales and Northern Ireland following on. There are pressures in Germany and Italy for regions to take a greater share of the power.

Putting aside the regions, some of the richer national governments will start to dictate to the European Union in the same way that some of the poorer national governments will have to get used to being dictated to. Germany and the Netherlands are getting more Euro-sceptic, and the Euro-sceptic British have a government that wants to wrench control of taxation. The European Commission may talk of taking over greater powers of tax across Europe, but this is blowing in the wind.

This may have two strange effects on the big four partnerships. Firstly there will be more need to know in greater detail regional tax solutions – as an example, what the difference between Scottish and English corporate tax policies are. There will also be a pressure to rethink the mind-set of a large singular European tax solution and begin to see taxation at a much local dispersed level. If there is an independently minded government and business culture in Scotland, Milan or Bavaria – how will they deal with a partnership of PwC or Deloitte run with a pan-European perspective?

If the current pressures are so enormous that the Eurozone itself is starting to consider a deconsolidation or other extreme measures, would not this have an impact on all the Big Four firms in Europe? Of course, only time will tell how these events will playout.

Big Four, Eurozone, Tax services, regional taxation, uncertainty, tax policy
 

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June 15, 2010
Nita Teoh, Big4.com

The release of the Federal Budget in May 2010 paints a bright future for the Australian economy. The budget predicts a return to surplus in 2012-13, as this commodity-rich country sells its wares to hungry Asian economies. The Government has forecast real GDP growth of 3.25 % in 2010-11, with a further increase to 4% in 2011-12. These are far better numbers than most other developed economies, and the robustness is evidenced by the recent hike in interest rates.

The budget announcement comes at a time when Australia has emerged relatively unscathed from the global financial crisis in comparison to other countries.

The strength of China’s economy is also another hotly discussed topic in Australia – not surprising given that exports to China amounted to a staggering $42.4 billion in 2009. (Source: Department of Innovation, Australian Government)

Robust economies and healthy companies are true growth-fuel for Big Four firms – PricewaterhouseCoopers, Deloitte, Ernst & Young and KPMG.

A large number of issues highlighted in the Federal Budget will keep the Big4 firms busy consulting with clients in the Asian Pacific region. Some issues apply across the board, whilst others will affect specific sectors such as the Australian financial services industry.

First, tax. The Australian Government is focused on improving GST compliance and has earmarked $337.5 million to the Australian Tax Office to improve compliance by businesses in this area.

Tax regulatory changes to come into effect include:

• A reduction in the company tax rate to 29% in 2013-14 and to 28% in 2014-15;

• A change to capital gains tax for corporate entities in relation to earnout arrangements and extending CGT rollover relief;

• A reduction in the interest withholding tax rate that will be paid by financial institutions on offshore borrowings.

Firm Tax Services in the country would be gearing up to help companies navigate these changes, especially the implications of the Resource Profits Super Tax (RPST) on the mining sector.

Second, impending reforms for the financial sector. The Government supports the recommendations of the Johnson Report (November 2009) to position Australia as a leading financial services hub in the Asia Pacific region, indicating that Australia has arguably the most efficient and competitive ‘full service’ financial sector in the Asia-Pacific region. Countries with high quality financial sectors like Australia should be reaping the full benefits by exporting their financial services skills and experience to other countries. Companies in Australia in the financial services sector will need to ensure that they are competitively positioned in order to deliver quality and cost effective services to offshore clients.

We sense consulting folks in the Big Four firms looking for that next bank which wants to improve their position and internal processes.

Already, we are seeing that the Big Four firms are having quite a good revenue run in the country. Just look at the Big Four 2009 financial performance for Australia, which shows that :

PricewaterhouseCoopers – Australasia and Pacific Islands revenues increased 1.4%, versus an increase of 0.2% for the overall firm
Deloitte – Australia revenue grew 11.5%, versus 1.0% for the overall firm
Ernst & Young – Oceania revenue fell 0.4%, versus a fall of 0.2% for the overall firm
KPMG – Asia Pacific (which includes Australia) revenue grew 3.9%, versus a decrease of 2.6% for the overall firm

And with an optimistic budget and positive business sector, its quite likely that a repeat uptrend in the country is to be expected when results are announced later this year.

Australia, Big Four, budget, revenue growth, super resource tax, consulting

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There’s a fascinating story from The Times of London today by Alex Spence, Professional Services Correspondent, on something that seems right out of Arabian Nights, and it goes something like this:

Big Four firm spots major growth opportunity and makes a big investment
Big Four firm then raids another Big Four firm for top talent
Both Big Four firms sign accord and agree to truce on recruitment
Secrets out, but first Big Four firm continues to expand to meet its goals

In this case the first firm is PricewaterhouseCoopers and the second is Ernst & Young, and the battle ground is the high-value audit and consulting market in the Middle East.

It appears from The Times that in May 2009, PwC UK bought out PwC’s Middle East practice from PwC Global for £15 million. And then began to invest “millions of pounds into the practice in an attempt to unseat Ernst & Young as the dominant accountant in the region.”

Then PwC begins to poach more than 20 partners from Ernst & Young, almost 20% of the total E&Y partnership all across the Middle East, mainly from E&Y consulting business. According to The Times, and perhaps the most interesting part of the story, “The moves began last summer but were kept secret because of a settlement between the two firms. PwC agreed that it would not approach any more Ernst & Young staff in return for Ernst & Young agreeing not to take legal action to block the departures.”

Wow! This seems already a lot like investment banking with top bankers and their teams (and their clients) being poached away by rival firms. But the settlement to keep things secret is clearly novel. Clearly now, the secret settlement has given way to light of day (kudos to Alex Spence of The Times for unearthing this story).

The Times goes on to say that PwC wants to ramping up its Middle East operations to double from current $250 million currently to $500 million within two years – that’s a 41% compounded annual growth! in an area which is flush with cash and will invest heavily in government-led infrastructure and provide “huge consulting fees for foreign advisory firms.” So there’s a huge pot not only of black gold but also of the real stuff in the Middle East.

Further, PwC has recruited 25 new partners and 400 staff over 12 months, brought in another 17 partners and 250 junior fee-earners from Britain, America and Australia to a massive total of 170 partners and almost 3,000 staff across 12 countries. Ian Powell, PwC’s UK chairman and senior partner, says, “We see the Middle East as a huge opportunity and we want to be No 1 in the region.”

As to the other Big Four firms:

Ernst & Young has 4,200 and “remained “easily the largest” of the Big Four in the Middle East, despite the onslaught by PwC, and that it was on track for a record performance this year.” E&Y also apparently hired Michael Green to lead its regional advisory practice and Fahad Altoaimi as managing partner for its Riyadh office; and has 140 open positions across the Middle East.

Deloitte has 2,000 employees, and intent on building its Middle East Islamic finance group in 2010 to meet demend for sharia-compliant products. As we have blogged earlier, Deloitte was appointed the lead on the restructuring of Dubai World’s debt, with Aidan Birkett taking the role of permanent Chief Restructuring Officer.

KPMG has 2,000 employees and equally focused on growth in these emerging markets.

From a quick analysis of the 2009 annual reports, we see that the Middle East was an area of tremendous growth for each of the Big Four firms, despite a global recession, the region provided spectacular revenue growth numbers from 2008 to 2009, see below:

PwC’s Middle East and Africa region fell from $715 million in revenues in 2008 to $704 million in revenues in 2009, a drop of 1.5% in US Dollar terms, but a growth of 9.1% in local currency terms, second only to South America, and a strong performance in terms of growth.

Ernst and Young’s Middle East revenues grew 18% from 2008 to 2009.

For Deloitte, Africa and the Middle East region grew revenues by an astounding 21.3% from 2008 to 2009.

For KPMG, its Middle East and South Asia (MESA) region was the fastest growing practice with a 25 percent growth rate from 2008 to 2009.

Clearly, the audit and consulting rush is on, a good hundred or so years following the black gold rush!!

PricewaterhouseCoopers, Ernst and Young, Middle East, growth, consulting, Dubai World

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This morning in New York City and likely all other big US metro cities, there was a big give-away of Bloomberg’s newly revised Bloomberg Business Week magazine, and on the cover was cardboard slip with an intriguing line, “Let’s assume your time is valuable.”

And then if you did flip on the back of that insert you would notice that the free copy was “Compliments of Grant Thornton”, and truly was being handed away free by folks gently putting one in your hand. This is Bloomberg’s big push to get into the print content market, and their recent purchase of BusinessWeek (at a real low price) enables them to ride on a well-known name in business circles.

However, Grant Thornton’s involvement in this venture is not clear, there’s clearly some cost involved in a gratis distribution, and looks like the firm is chalking that investment as a good one in getting its name out to top professionals who generally take these magazines and peruse them in their offices. Within the magazine, there was no article or ad on the firm (though Hugh Grant and John Thain are mentioned!)

Its surprising that none of the Big Four firms were sponsors, so Grant Thornton is just a bit ahead on the cutting-edge of PR in getting good ground-level (truly!) publicity in an unusual fashion.

Grant Thornton, Bloomberg BusinessWeek, free, giveaway, magazine, content, business, news, public relations

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Huron Consulting Group Inc. (NASDAQ: HURN) came out today with Q1-2010 results, revenues were $138.9 million for Q1 2010 compared to $151.1 million in Q1 2009.
Diluted EPS from continuing operations for Q1 2010 was $0.14 compared to $0.28 in Q1 2009.

Net income was $2.5 million, or 12 cents a share (including option expense), compared with $7.1 million, or 35 cents a share, in the year-ago period. Wall Street analysts were expecting 22 cents a share, including options expense. Revenue trailed analysts’ view of $141.9 million.

Thus quarterly results were short of Wall Street expectations. However, as we see later, 2010 outlook was comforting, bringing in the bulls and pushing up the stock.

Q1- 2010 operating income of $7.8 million was almost half of $14.3 million in Q1-2009.
Q1- 2010 EBITDA fell 38.0% to $13.4 million, or 9.6% of revenues, compared to $21.6 million, or 14.3% of revenues in Q1-2009.

By segment, Health and Education consulting revenue (the largest) fell 16.4% from $92 to $76 million, Legal consulting zoomed 44% from $23 to $33 million, and Financial Consulting fell 20% from $36 million to $29 million.

Q1 2010 average number of full-time billable consultants was 1,272 at 64.3% utilization and $248 per hour against 1,471 at 68.7% utilization and $253 per hour for Q1 2009. Average number of FTE professionals was 994 for Q1 2010 compared to 710 in the same period last year.

From a comparison of number of full time billable consultants in Q4-2009 of 1,284 to Q1-2010 of 1,235, it seems that Huron has reduced its workforce by about 50 consultants in the quarter, with about 25 coming from the Financial Consulting side, which has utilization in the mid-fifties. From a year ago, Q1-2009 level of 1,455 has shrunk by 220 to current level of 1,235. All this shows aggressive cost control in face of slowing revenues.

“Huron performed in line with our expectations during the first quarter. In spite of the continued economic uncertainties, which we anticipated would make this a challenging quarter, we saw renewed strength in our Legal Consulting segment and some improvement in the factors impacting our Health and Education Consulting and Financial Consulting segments. We expect this will lead to improved results in subsequent quarters,” said James H. Roth, chief executive officer, Huron Consulting Group. “We remain confident that we are well positioned to increase our revenue across all three of our segments during the remainder of the year, consistent with the reaffirmation of our full year 2010 guidance.”

Huron offered reassuring outlook for this full year, with revenues of $600-$640 million, EBITDA of $98.5-$106.0 million, GAAP diluted EPS of $1.55 to $1.75. Of course, this is lower than what was realized in 2009, but again, not as precipitous a fall as was the general consensus.

From our perspective, we are encouraged to see stability maintained in the quarter, and an optimistic outlook for the year. Legal consulting growth is commendable, though utilization% in that segment continues to be in the 50%s. The rate per hour is holding up quite well, despite a tough environment, which indicates that clients are continuing to see value in Huron’s consulting propositions.

Though disappointed by the quarter, investors preferred to look to the longer term health of the company, and seemed to like what they saw. From yesterday (April 28, 2010) closing price of $22.11 per share, the stock zoomed 8% for the day ending today (April 29, 2010) at $23.89.

Huron Consulting, Q1-2010, earnings, revenues, expectations, 2010 outlook

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Just yesterday, April 21, 2009, Grant Thornton released its revised projections of the economic impact of the upcoming 2010 FIFA World Cup, now about 50 days away, on South Africa. And this was carried this morning April 22, 2010 by the Wall Street Journal, with a slightly different slant.

Grant Thornton’s titling was quite optimistic, “2010 FIFA World Cup visitors will stay longer and spend more”, while The Wall Street Journal preferred the half-empty cup stance with a “World Cup Expects Fewer Visitors”

This stylistic difference apart, Grant Thornton most recent analysis does project that 373,000 will visit South Africa, down from an earlier projection of 483,000 overseas visitors, but they will stay an average of 18 days and spend SA Rand 30,200 and watch 5 matches compared to the 14 days and SA Rand 22,000 and 3.4 matches projected earlier. The net effect is still unaltered in that the World Cup will add 0.5% to the country’s GDP.

Of the 373,000 visitors, 105,000 (earlier projection of 125,000) are expected to be non-ticket holders; 85,000 of whom would come from Africa for a short visit. 228,500 overseas ticket holders will account for 38% of ticket sales, but ticket sales to Africans will account for only 2%. Sadly, local ticket holding visitors from the African continent will now be only 11,300, a 77% drop from earlier projections of 48,145, which GT attributes to “failure in distribution channels and unaffordable pricing.”

On the economic front, the impact will be R93 billion, with foreign tourism contributing 16%, and the majority from national governments spending on infrastructure and operational expenditure. Government spend has increased R39.3 billion, up a lot from original 2007 budgets of R17.4 billion. All this adds to an additional 0.54% of 2010 country GDP, which is a large chunk of the 2.0% to 2.5% expected without this event. Also, the World Cup will sustain 695,000 jobs, of which 280,000 annual jobs will be sustained in 2010 and 174,000 by the net additional economic activity in this year.

According to Gillian Saunders, Principal of Grant Thornton Strategic Solutions, “We continue to be upbeat about the impact of the World Cup…the stadia will be full and it will be great event; the profiling of South Africa and future spin-offs have always been the real benefit of hosting an event of this magnitude.”

Clearly, this is a big event for South Africa, even if the home team does not feature on any winning countdowns (a recent projection placed Germany as the winner), it will be a big morale and image booster for the nation. And for those who have seen the movie Invictus, all South Africans will be clearly rooting for a fairy tale ending both for their team and for the positive economic impact such a global event brings.

Grant Thornton, South Africa, FIFA World Cup, Soccer, Economic Impact, Jobs

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Accounting Today (www.webcpa.com, http://www.webcpa.com/news/Accounting-Today-Top-100-Firms-2010-53590-1.html) came out recently with its very insightful, comprehensive and timely 2010 annual ranking of accounting firms in the US. From this wealth of data, we will focus selectively on the Big Four and Next Four firms in this blog post. Thanks to Accounting Today for collating and publishing this very useful summary.

In the lead article in this report, “Signs of growth: faint, fragile, but real”, author Daniel Hood notes, that “the revenues of the Top 100 Firms in Accounting actually shrank by 2.85 percent in 2009 — the first time they have done so since the list achieved its present format in 1994.” This is the same conclusion that we also reached in our report on the Big Four firms.

However, he also points out the optimistic side of the picture, “While the six biggest firms (those with over $1 billion in revenue) recorded decreases in revenue in 2009, the two other tiers of the Top 100 actually grew their revenue — the 20 firms with between $100 million and $1 billion by 5.23 percent, and the 74 firms with under $100 million by 3.64 percent. (See
Databank, page 5.) Given the current economic climate, those are numbers worth noting.”, which validates the title of the article, providing hope that 2010 will be a turnaround from 2009.

The Big Four

All the Big Four firms experienced a decline in sales from 2008 to 2009, with Deloitte and PricewaterhouseCoopers holding up best against a tough economic climate, and with revenues at KPMG down the most. We had similar figures and conclusions in our report “The 2009 Big Four Firms Performance Analysis”(http://bigfouralumni.blogspot.com/2010/01/2009-big-four-firms-performance.html ) which explored in great detail each of the world’s top accounting firms.

There are two very interesting insights from this data, which focuses only on the US portion of the revenue picture. Note further that all these revenues are “gross revenues” for each of the Big Four firms,

Deloitte is the largest firm in the US, well ahead of PricewaterhouseCoopers US. On a global scale however, Deloitte is just around $100 million below PwC in total 2009 global revenues. Ernst & Young maintains its third-place ranking in the US, in line with its third rank on a globab basis.

All firms had an increase in partnership ranks, however, three of the four had a decrease in number of professionals from year to year. Ernst & Young’s data in this regard seems out of sync, and as we have found in our analysis, this firm supplies only the minimum of data conducive to deep analysis.

Here’s the detail on each firm:

The largest firm in the US was Deloitte with $10.7 billion in 2009 net revenues, down 2.90% from 2008 revenues, split 37% Audit, 24% Tax, 34% Advisory and 5% Other. Deloitte has 2,968 partners, up 0.88%, 30,637 professionals, down 4.64% and 42,367 total employees, down 4.53%.

Behind Deloitte was PricewaterhouseCoopers with $8.2 billion in 2009 net revenues, down 2.60% from 2008 revenues, split 52% Audit, 32% Tax, 16% Advisory and 0% Other. The firm has 2,235 partners, up 1.68%, 22,729 professionals, up 2.85% and 31,681 total employees, up 2.47%.

Following Deloitte and PwC was Ernst & Young with $7.6 billion in 2009 net revenues, down 5.63% from 2008 revenues, split 41% Audit, 33% Tax, 23% Advisory and 5% Other. The firm has 2,500 partners, up 8.70%, 17,500 professionals, down 6.91% and 25,600 total employees, down 5.88%.

The last of the Big Four was KPMG with $5.1 billion in 2009 net revenues, down 10.62% from 2008 revenues, split 48% Audit, 27% Tax, 25% Advisory and 0% Other. The firm has 1,847 partners, up 1.60%, 15,803 professionals, down 4.59% and 22,960 total employees, down 3.99%.

The Next Four

In our recent blog post (http://bigfouralumni.blogspot.com/2010/02/next-four-bdo-rsm-grant-thornton-and.html) we explored the rankings of the Next Four firms, which are multi-billion dollar accounting and tax networks in their own right.

Again, we highlight two findings from all this information:

RSM is the largest firm in the US, well ahead of BDO US. On a global scale however, BDO is the fifth largest firm in the world, ahead of sixth-place RSM. Also Grant Thornton US is seen ahead of BDO US, though GT Global places seventh on a global revenue front, behind BDO and RSM.

Even in the next four, we are seeing a revenue decline, with RSM holding up much better than the rest. RSM’s global revenues actually increased 8%, which along with Baker Tilly was only one of the top networks to increase revenues.

Here are some details on the Next Four:

RSM / McGladrey and Pullen is the first of the Next Four with $1.5 billion in 2009 net revenues, down 0.47% from 2008 revenues, split 44% Audit, 35% Tax, 20% Advisory and 1% Other. The firm has 751 partners, up 1.76%, 5,331 professionals, down 1.48% and 7,755 total employees, down 0.27%.

Grant Thornton follows RSM / McGladrey and Pullen as second of the Next Four with $1.1 billion in 2009 net revenues, down 5.17% from 2008 revenues, split 47% Audit, 26% Tax, 27% Advisory and 0% Other. The firm has 535 partners, down 4.29%, 3,700 professionals, down 8.01 and 5,414 total employees, down 7.29%.

BDO is third in the Next Four with $0.6 billion in 2009 net revenues, down 5.92% from 2008 revenues, split 60% Audit, 25% Tax, 15% Advisory and 0% Other. The firm has 273 partners, up 2.63%, 1,849 professionals, down 13.60% and 2,712 total employees, down 10.20%.

Baker Tilly Virchow Krause is in the last place of the Next Four, with a rank of number 13 in the Accounting 100 firms ranking, and despite being ranked 8 worldwide on a total revenue basis. In June 2009, the firm was renamed Baker Tilly from Baker Tilly Virchow Krause, and in November 2009, the firm merged with Beers and Cutler of Washington, DC and this merger presumably accounts for the large percentages seen here. The US firm has $260 million in 2009 net revenues, up 20.37% from 2008 revenues, split 37% Audit, 33% Tax, 25% Advisory and 5% Other. The firm has 108 partners, up 14.89%, 1,1,48 professionals, down up 9.23% and 1.370 total employees, up 10.84%.

Accounting 100, Big Four, Deloitte, PricewaterhouseCoopers, Revenue, 2009, Drop, Partners

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Grant Thornton has some less than promising news for finance professionals.

The firm surveyed 496 U.S. CFOs and senior comptrollers from March 22 through April 5, 2009, and found that 53% plan no salary changes in the next 6 months, while 32% plan to decrease and 15% plan to increase.

On the bonus front, there is also equal pessimism, 47% plan no change, 44% plan to reduce, and only 8% plan to increase.

In terms of pricing pressure, 68% are most concerned about employee benefits costs, while 29% are concerned about raw material costs and another 26% are concerned about energy costs.

Only 12% are more worried about their organization’s ability to continue as a going concern compared to this time last year. 44% are equally worried, while another 44% are less worried than last year.

In other findings, only 5% of respondents plan to raise stock options and other forms
of equity-based compensation, 29% plan to reduce and 66% will maintain.

In another data point showing good turnaround for the capital markets, 77% of respondents are not having difficulty in accessing credit in general, while 23% are experiencing some form of difficulty.

Overall, it appears that while the panic and the total pessimism that was evident in financial executives has somewhat dissipated, some clouds of worry still remain in this demographic. This generally conservative population is not about to loosen the purse strings to provide any more salary or benefits to the working professionals. After a good two to three years of salary freezes and zero bonuses, there is a growing pent-up demand for normalization of wages for the professionals who have managed through some really tough times.

That appears unlikely to happen in the next 6 months, but as the employment market improves, companies would need to rethink compensation packages in context of a larger retention strategy for key financial (and other operating) executives. In an economy that is appearing to rebound quicker than observers were predicting, demand for top talent will put upward pressure on wages, and the labor market will have to clear at the right wage versus opportunity equilibrium. Till that time however, Grant Thornton’s pessimistic outlook on wages and bonuses is likely fairly close to the truth, and professionals will have to manage their costs much better in face of a pretty flat incoming salary and bonus stream.

Grant Thornton, salary, bonuses, survey, flat, finance, professionals, executives

The post Grant Thornton: Do Not Expect Higher Salary or Bonus This Year appeared first on Big4.com.

Thursday, February 25, 2010

At 20,000+ members, one of the largest networking groups for Big 4 Firm alumni and professionals

New York (PRWEB) February 23, 2010 — Big4.com, the premier social networking forum for alumni and professionals of Accenture, Andersen, BearingPoint, Capgemini, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers announced today that its LinkedIn.com sponsored group, the “Big Four Firms Alumni & Professionals Global Network”, (http://www.linkedin.com/groups?about=&gid=1022) has exceeded a landmark level of 20,000 group members. This group is now ranked fifth of over 90,000 alumni groups, and in the top 150 (top 0.3%) of over 500,000 LinkedIn group of all categories.

“LinkedIn is the leading global social network for professionals, and our group provides a well-recognized platform within LinkedIn for alumni and professionals from all the Big Four firms. The group helps members extend their networks, reconnect with old colleagues, apply to challenging job opportunities and engage in valuable discussions. The group is truly global with members from North and South America, Europe, Africa and Asia.” stated David Hunter, Vice President at Big4.com.

He further said, “We are pleased to see the group growing at more 1,300 members each month. We welcome Big Four alumni and current professionals to join, including those who have worked at Arthur Andersen, Andersen, Andersen Consulting, Arthur Young, Ernst & Whinney, Price Waterhouse, Coopers and Lybrand, Deloitte Haskins and Sells, Touche Ross, Peat Marwick Mitchell, Klynveld Main Goerdeler, as also BearingPoint, Resources Global Professionals, Protiviti, Big Four spin-off firms and firms affiliated with the Big Four from all countries. We are also enabling group membership to recruiters and search firms who benefit our members by providing job opportunities specific to their background. The job board on this group very active with dozens of new opportunities posted daily, and the group hosts lively discussions and relevant news. The group is unique by including professionals with a common culture from all the Big Four firms.”

The group is at Big Four Firms Alumni & Professionals Global Network (Big4.com) http://www.linkedin.com/groups?about=&gid=1022. Prior membership at LinkedIn is needed. Both memberships are free.

About Big4.com

Big4.com is the tax and accounting profession’s premier resource for Big 4 professionals and alumni. Our goal is to build upon the commonly shared experiences of alumni and professionals who have worked or are at any of the Big four firms and provide a trusted online platform for inter-alumni connectivity, enabling users to post and apply to attractive opportunities, get updates on Big 4 news, and happenings through our official site blog. Big4.com has a strong presence on key social media platforms:

Twitter: www.Twitter/big4alum (2,700+ followers) was recently ranked one of only five “The Top Five Twitter Feeds for Job Hunters in Accounting” by FINS/Wall Street Journal
LinkedIn: The Big Four Alumni and Professionals group is one of the largest alumni groups with 20,000+ members. http://www.linkedin.com/groups?about=&gid=1022
Facebook: The Big4 fan page has 900+ fans at www.facebook.com/big4page
Xing: The Big Four Alumni and Professionals group has 800+ members at https://www.xing.com/net/big4alumni

The post The Big Four Group at LinkedIn Crosses Membership Landmark appeared first on Big4.com.

The SEC just released a statement on IFRS which shows its supportive position and reaffirms its belief in that a single set of high-quality globally accepted accounting standards would benefit U.S investors, thus actively encouraging the convergence of U.S. Generally Accepted Accounting Principles (U.S. GAAP) and International Financial Reporting Standards (IFRS). Also, the SEC directed a committee led by Chief Accountant, James Kroeker (ex KPMG partner) to prepare a Work Plan, to figure out all the implications of the use of IFRS by U.S. companies, taking into account current state and eventual completion of various “convergence projects” between U.S. and international accounting standards-setters.

This report is expected by October 2010, and by next year 2011, the SEC will decide whether to incorporate IFRS into the U.S. financial reporting system, and if so, when and how.

As background, in November 2008, the SEC proposed a Roadmap, and received more than 200 comment letters from a wide variety of market participants, including investors, regulators, issuers, accountants, attorneys, academia, standards setters, and international organizations. All commenters were supportive of the goal of having a single set of high-quality globally accepted accounting standards (GAAS), but had varying opinions on how to achieve this end. In that Proposed Roadmap, the SEC had said that 2011 would be the time frame to make any decision on implementation, and in general it appears to be keeping to that timing.

The charter for this Work Plan is then to carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets. The Work Plan will focus on six key issues:

1. Comprehensiveness: Determining whether IFRS is sufficiently developed and consistent in application for use as the single set of accounting standards in the U.S. reporting system.

2. Independence of Standard Setting: Ensuring that accounting standards are set by an independent standard-setter and for the benefit of investors.

3. Investor Education: Investor understanding and education regarding IFRS, and how it differs from U.S. GAAP.

4. Impact on US Environment: Understanding whether U.S. laws or regulations, outside of the securities laws, for example tax laws and regulatory reporting, would be affected by a change in accounting standards.

5. Impact on Issuers: Understanding the impact on companies, both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations and litigation contingencies.

6. Human Capital Readiness: Determining whether the people who prepare and audit financial statements are sufficiently prepared, through education and experience, to make the conversion to IFRS.

Timing

So, after the Work Plan is developed later in 2010, the SEC will make a determination in 2011, and then it feels that US issuers will need 4 to 5 years to implement this, so the first date that the US can migrate from GAAP to IFRS is 2015 or 2016, and certainly not before 2015.

Impact of Change to IFRS

For several decades now, US companies, regulators, auditors, investors and other stakeholders have fully imbibed the implications of GAAP, and built other infrastructures which rely on these standards. It is fully integrated in almost every facet of the US financial, accounting and capital market system. Also with the tremendous liquidity of the US capital markets, both local and foreign investors understand GAAP financials, and make trillions of dollars of key decisions based on that understanding.

It has been the de-facto standard for a long time, so migration to another set of rules and standards (though a very relevant goal, which no one disputes) has large implications on a whole set of organizations, companies, firms, investors, policies, some of it quite obvious, while some impacts are quite complicated and may not be so visible at first glance.

Consider the questions that are raised in perusing through the initial charter of the Work Plan Committee, which shows that even after a decision is made to adopt IFRS, the pathway to implementation has to be thoughtfully considered for all stakeholders:

Are the IFRS standards of sufficiently high quality to support the Commission’s mission of protecting investors and facilitating capital formation?
Can IFRS be supported by an infrastructure that ensures that the standards are established by independent standard setters, and are rigorously and consistently interpreted and applied?
How will investors understand and compare US companies who have already begun to report early using IFRS standards?
Is the IFRS sufficiently developed or applied in practice to be adopted as a single
set of global standards, since it is somewhat less detailed and offers prescriptive guidance?
Is there sufficient auditability and enforceability of IFRS, including the risk of opportunistic accounting etc.?
Is the IASB a strong enough body to be an independent standard setter that is accountable, independent, and free from undue influence
What impact will changes have, say on regulators and the IRS, who have built systems that rely on U.S. GAAP as a basis for their reporting regimes.
What additional costs, effort, and time must companies incur on accounting systems, controls, and procedures due to this transition?
What will be the role of FASB should IFRS be incorporated into the U.S. financial reporting system for U.S. issuers.
Since IFRS currently differs from U.S. GAAP in a number of areas, will there be significant investor education required on IFRS?
What is the impact on PCAOB, through convergence of PCAOB standards with IASB?

What We Think

So, publicly and openly the SEC did validate in this statement their unequivocal support for a global accounting standard, and it appears that all the comments did also align with the need to achieve this singular goal. However, the question of when still remains to be fully and completely addressed, the SEC is giving itself time till next year, and then if the work plan and the convergence projects provide sufficient evidence and clarity, it will propose an effective date for transition “four or five years” in the future.

The accounting industry ought to be fairly pleased with this open support, but investors, companies and firms continue to be in the dark on the exact date of this transition. Only the passage of time over the course of this year and the next (with public pronouncements from the Work Plan committee) will the timing question get better clarification. Till then, US companies and audit firms will need to operate with uncertainty, keeping one foot in
GAAP, while tentatively putting the other foot on the IFRS camp.

Impact on Auditors

In closing, we ask: what is the impact on auditors? We reproduce below an extract from the 71 page Work Plan which deals specifically with this issue, and you can see that it can have implications on how auditors are trained, what new tools and approaches they will need to conduct their audit, how IFRS impacts the larger versus smaller firms, and whether firms can maintain quality in face of high demand. Note that all the Big Four firms have already begun anticipating this move and are proactively aligning their accountants, systems and investor education efforts towards this end.

“C. Auditor Capacity

Incorporation of IFRS into the financial reporting system for U.S. issuers could strain audit firm resources if sufficient training and time are not provided. The Proposed Roadmap noted that “[a]udit firms would need to consider elements of their systems of quality control, such as their practices related to hiring, assigning personnel to engagements, professional development and advancement activities.” An increase in the demand for IFRS expertise may affect the availability of audit services, with consequences on audit quality, cost, and audit firm concentration.

While some commenters expressed that moving to IFRS is likely to have little or no effect on the availability of audit services and audit quality, others expressed concerns about a likely reduction in these areas, along with an increase in both internal and external audit costs, due to IFRS being less comprehensive and requiring more application of judgment.

Others commented that the consequences of a move to IFRS for U.S. issuers on audit firms may differ based on audit firm size. With respect to the large audit firms, commenters believed that a move to IFRS for U.S. issuers is likely to have little or no effect on the availability of audit services and audit quality. Two large audit-firm
commenters noted that they currently audit foreign private issuers as well as subsidiaries of foreign multi-nationals that report under IFRS. Further, they anticipated leveraging personnel from other member firms in countries that have already moved to IFRS.

On the other hand, opinions were mixed on the impact of moving to IFRS on “smaller” audit firms. The Proposed Roadmap stated that the potential use of IFRS by U.S. issuers:
[M]ay be particularly challenging for less globally-oriented audit firms, which typically may have fewer resources available through affiliated or network firms located in jurisdictions in which issuers already report in accordance with IFRS. This could be a further factor affecting concentration in the auditing profession.

One commenter expressed concern that current IFRS expertise is concentrated within the “Big Four” public accounting firms, which could allow for opportunistic business behaviors when dealing with other competitors and regulators. However, others commented that an SEC mandate to move to IFRS would not affect the competitive position of smaller firms.

In light of these differing views, the Staff will analyze for the Commission’s benefit potential auditor capacity constraints with respect to IFRS and their consequences, should the Commission determine in the future to incorporate IFRS into the financial reporting system for U.S. issuers. Specifically, the Staff will:

Analyze concerns regarding auditor capacity constraints, including the effect on audit quality, cost, and audit firm concentration and competitiveness.
Determine possible approaches to mitigate these concerns and the extent of, logistics for, and estimated time necessary to undertake these approaches.”

The post SEC Reaffirms IFRS Commitment, But Pushes Adoption Out To 2015 appeared first on Big4.com.

Tuesday, February 23, 2010

Huron Consulting Group Inc. just released its full year 2009 financial numbers, with full year 2009 revenues of $663.9 million (before reimbursable expenses), growing 7.9% from full year 2008 revenues of $573.8 million (before reimbursable expenses). For the Q4-2009 quarter, revenues of $162.9 million, decreased 0.7% from Q4-2008 revenues of $164.0 million. On a GAAP basis, full year 2009 net income was a loss of $(32.9) million compared to a net income of $10.1 million for full year 2008. On a per share basis, full year 2009 was a loss of $(1.63) compared to full year 2008 diluted earnings per share of $0.53. Dragging 2009 net income lower was a 2009 goodwill impairment charge of $67.0 million and restatement-related expenses of $17.5 million.

In general, these results were ahead of Wall Street expectations.

However, gross income (which we compute as revenues minus direct costs) were $228 million in 2009 higher than the comparable figure of $201 million in 2008. Full year non-GAAP adjusted diluted earnings per share was $3.24 compared to $3.47 in the same period last year. Adjusted EBITDA was $144.0 million, or 21.7% of revenues including discontinued operations, compared to $150.7 million, or 24.5% of revenues including discontinued operations, for the same period last year.

Huron’s average number of full-time billable consultants increased 7.8% to 1,386 for the full year 2009 compared to 1,286 for 2008. The average number of full-time equivalent professionals was 860 for the full year 2009 compared to 834 for 2008. Full-time billable consultant utilization rate was 68.5% during full year 2009 compared with 67.7% during the same period last year. Average billing rate per hour for full-time billable consultants was $270 for the full year 2009 compared to $260 for the same period last year.

Health and Education Consulting had strong growth, while revenues in Legal Consulting fell and in Financial Consulting, revenues declined sharply.

As many may recall, Huron had to restate its 2006, 2007 and 2008 and the first quarter of 2009 financial results to account for the wrong accounting for certain acquisition-related payments received by selling shareholders of four acquired businesses, and this was completed on August 17, 2009, Huron completed the restatement. In addition, Huron took a goodwill impairment charge in Q3-2009 for $106.0 million non-cash pretax charge with $67.0 million relates to continuing operations and $39.0 million relates to discontinued operations (the Galt division which was sold in Q4-2009).

Outlook for 2010

Huron expects full year 2010 revenues to be between $600.0 million to $640.0 million; 2010 EBITDA of $98.5 million to $106.0 million; adjusted EBITDA of $107.0 million to $114.5 million, GAAP diluted EPS of $1.55 to $1.75, and non-GAAP adjusted diluted EPS of $2.00 to $2.20.

Let’s dig into some of the numbers and provide some color on these results:

The sales increase of $55 million from 2008 to 2009, a good 8%, shows the strength of Huron’s customer franchise, despite the tough economy, it is able to increase the top line by selling value-added services at a nice clip and able to service and further penetrate its client base. The increase in $28 million of gross margin also shows that that direct costs are also nicely in control. At the operating income line, after backing out all the one-time charges, 2009 adjusted operating income was $80 million (12.7% of revenue before reimbursable expenses) compared to 2009 adjusted operating income of $52 million (9% of revenue before reimbursable expenses), a nice increase of $28 million in dollar terms and a good 3.7% improvement in percentage terms too.

The drop in adjusted EBITDA margin from 2008 to 2009 is troubling though, showing some deterioration in producing dollar margin from dollar sales.

Huron’s outlook for 2010 at nearly flat sales but lower EBITDA is likely the most troublesome part for investors to digest. An increase in 2010 is to be expected for consulting firms as the global economy moves towards recovery. Analysts were expecting $669 million in revenues for 2010 much higher than Huron’s outlook though Huron’s guidance for EPS of $2.00 to $2.20 is higher than analyst consensus of $1.93.

Wall Street seems to have done an about turn on expectations going forward, while bottom line earnings were the sole focus of investors in the recent past, the whole story is now focused on the top line. Investors are now looking for sales growth, and increases in revenues from additional sales or widgets sold to customers, not on how much the company has controlled costs. Wall Street is now looking for companies to grow to create value, not shrink to retain value.

So not surprisingly, investors were not wowed by the beat of 2009 expectations, but seemed to set their sights on 2010 revenues and beyond, and the tepid revenue outlook did its part to dissuade stock buyers. The stock today Feb 23, 2010 is now a whopping 9% below on its closing price from yesterday Feb 22, 2010.

The post Huron Shares Dive on Tepid 2010 Revenue Outlook appeared first on Big4.com.

Our staff writer Scott Cytron, reviews below the strategies non-Big Four firms are using to increase revenues in this environment….

Tactics include outsourced business, increasing advisory services and retaining quality talent
By Scott H. Cytron, ABC

Although accounting is often thought of as a recession-proof industry, Big4.com’s 2009 Big Four Firms Performance Analysis released in January 2010 paints a somewhat different picture in revenues, personnel and service delivery.

In the face of very difficult external conditions, all Big Four firms (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers) experienced annual declines in revenues from 2008 to 2009. However, the study expects that 2010 performance will be better, though it’s debatable whether a repeat of multiple years of double-digit growth will be possible in the future.

What does this mean for any firm smaller than a Big Four? In this challenging environment for the accounting industry, large regional firms, and small- and medium-sized firms, have to come up with innovative strategies to grow their top line. Focusing on client needs, expanding beyond traditional audit and tax services, outsourcing activities from the Big Four, and employee engagement are four tactics smaller firms are using to increase revenues this year.

“Smaller firms should proactively target and solicit clients from larger firms that may be open to a cost saving – a result of the economy that may not have been there two years ago,” says Arlis Esnough, president of the Association for Accounting Administration (AAA) and firm administrator for Hansen, Jergenson, Nergaard & Co., LLP in Minneapolis, Minn. “Smaller firms also need to increase their exposure, especially where they can showcase technical knowledge, as well as get the firm and its principals known and in front of their target market and community.”

Esnough says many businesses must understand what they need, as well the kind of firm that can provide the best solutions. There are choices: deciding between the personal touch and the kind of direct partner contact a small CPA firm offers, or choosing a large CPA firm with more expensive fees to buy the higher-level knowledge and experience.

“Smaller firms can be more competitive in pricing services,” says Esnough. “Making firm principals available to prospects and clients is a good way to demonstrate an improved service model. Be proactive, responsive and committed to deadlines. This demonstrates a services model that many larger firms, with higher leverage, can sometimes struggle to provide.”

Big Four firms have been proactively growing their advisory service lines. In 2004, Advisory Services constituted 22 percent of combined firm revenues. In 2009, in a span of just five years, this grew to 28 percent, making advisory services the fastest growing source of revenues outside audit and tax.

Certainly, regional and local firms continually rely on advisory services to build revenues, often cross-selling these services from a firm’s tax and assurance client base.

“Just being a compliance provider is a losing proposition; without advisory services such as litigation support, bankruptcy consulting, business valuations and other management consulting services, clients will ultimately move on,” says Michael I. Daszkal, CPA, managing partner of Daszkal Bolton, LLP, a full-service firm in South Florida. “The key to communicating this information is to consistently provide clients and referral partners with a steady and focused stream of information about the value the firm can offer. For example, we recently rolled out an aggressive program to push our advisory business to existing clients in an effort to expand fees, but more importantly, to keep them happy.”

Similar to most other accounting practices in markets where the Big Four also have offices, firms of all sizes with specialty practices or niche interests exchange or take on outsourced business from large firms – an unusual, but quite profitable additional source of revenues for smaller firms. Dawn Hanna Bell, immediate past president of the AAA and firm administrator for Wright, Griffin, Davis and Company in Ann Arbor, Mich., says smaller firm partners should create personal relationships with partners in larger firms in order to capture some of this outsourced business.

“This would facilitate larger firms feeling more confident and comfortable with the concept of outsourcing to smaller firms,” she says. “Having a specific area or specialty to offer for outsourcing and communicating this to larger firms would help. In addition, keep staff aware and communicate the connection with alumni from their schools.”

Big Four firms have outsourced benefit plan audits, tax compliance, internal control outsourcing, SOX 404 and international tax to Daszkal Bolton.

“In my experience. there is an art form to selling to the Big Four,” says Daszkal. “In our case, we use our Big Four-type talent, quick response times and reasonable fee structure to keep prominent in the minds of Big Four referral sources. Since our firm has a large number of former Big Four professionals, we are able to work through multiple channels to stay connected and identify outsourced opportunities as they arise.”

Finding talented professionals – and retaining them for the partner level in Big Four firms – remains an ever-present issue. According to the Report’s findings, there are about 34,000 partners in all the Big Four firms overseeing a steep pyramid of about 470,000 professionals.

In contrast, smaller firms offer a faster track to partnership, with these partners managing fewer associates. This provides a conducive professional environment and, eventually, a higher level of client service.

“The road to partnership in the Big Four is a tough and long process,” says Daszkal. “Our firm culture has facilitated an environment that allows us to attract Big Four alumni looking to fast track their career. Like other firms, we do this through work-life balance and competitive pay, but we also tout the fact that smaller firms can find quicker, often more viable opportunities in middle-market companies the Big Four can’t serve. There are a greater number of companies to pursue.”

As the economy improves and business escalates, all accounting firms, no matter their size, will no doubt be closely monitoring the marketplace for additional sources of revenue. The leaders will be the firms who remain innovative in their approaches to retain clients, while continuing to market their services to prospects and referral sources.

For more information, download a complete copy of the Big Four Firms Performance Analysis.

Scott H. Cytron, ABC, is a frequent contributor to industry publications covering professional services industries, including accounting, healthcare, financial planning, collections and debt, and high-tech. He is a staff writer for Big4.com and works with many CPA firms to increase their recruitment and retention efforts through communications and marketing strategies. Visit his blog at www.absolutecytron.com, and contact him at scott@cytronandcompany.com.

The post Non-Big Four Firms Increase Focus on Revenue Growth Strategies appeared first on Big4.com.

Monday, February 08, 2010

Protiviti, as many will recall, was principally Andersen’s internal audit service line, and these professionals joined the multi-billion dollar organization Robert Half International ($RHI) in 2002 to form their own division, separate from the staffing units for which RHI is better known for – Accountemps, Office Team and Management Resources. Starting with just over 700 employees in 25 locations, Protiviti has certainly grown in size and scope, and now is a global business consulting and internal audit firm providing risk, advisory, and transaction services; with 2,500 professionals in 62 locations in 17 countries worldwide. The Protiviti division accounts for 13% of total parent company RHI revenues; and within Protiviti itself, international operations were 30% of total Protiviti revenues.

All the senior management at Protiviti continue to be Andersen alumni:

Joseph A. Tarantino, President and Chief Executive Officer, ex-head of Arthur Andersen’s Financial Services Assurance practice for metropolitan New York
Carol M. Beaumier, Executive Vice President, Global Industry Programs, ex-partner in Arthur Andersen’s Regulatory Risk Services practice
Robert B. Hirth Jr., Executive Vice President, Global Internal Audit, ex-partner with Arthur Andersen
James Pajakowski, Executive Vice President, Global Risk Solutions, ex-partner with Arthur Andersen
Gary Peterson, Executive Vice President, International Operations, ex-partner at Arthur Andersen

We haven’t focused on Protiviti for the longest time, but our attention was brought back after seeing RHI’s full year 2009 results. We were quite surprised to see that despite its size, Protiviti had a full year 2009 loss. Yes, a loss of $30 million for the entire year on revenues of $384 million.

To dig deeper into this situation, we had to go back all the way to 2007, analyze a whole series of quarterly earnings and read through multiple earnings transcripts (courtesy: SeekingAlpha.com).

An interesting picture emerges from our analysis, vividly demonstrating the intensity and rapidity of the global slowdown, and consequent management efforts to cope with business shrinkage.

In 2007, Protiviti had revenues of $552 million, gross margin of $175 million (32% of revenues), and operating income of $21 million (4% of revenues). In 2008, revenues held reasonably flat at $547 million, but gross margin had decreased by $20 million to $155 million (28% of revenues), and operating income fell by $14 million, a full 66% to $7 million (1% of revenues). In 2009, the situation had rapidly deteriorated, with revenues falling 30% to $384 million, gross margin plunging by $75 million to $80 million (21% of revenues), and operating income declining precipitously by $38 million to a net loss figure of $(31) million (negative 8% of revenues). In a matter of just 24 months, Protiviti’s top line had eroded by 30% and its operations had gone from a healthy profit to a huge loss.

A deeper look at the quarterly earnings for two full years, 2008 and 2009, reveals the full extent of the situation.

In 2007, Protiviti had good operating results, with 3,300 employees, up a whopping 16% from 2006, as management hired talent in sync with increased demand for its services.

From Q1-2008 to Q3-2008, in the first three quarters of 2008, revenues continued at the 2007 quarterly run-rate of about $140 million, but total costs, principally direct compensation costs from all the increased staff levels were up 4%, increasing from 68% of revenues in 2007 to 72% of revenues in the first three quarters of 2008. Things were still on a decent footing at that time, operating income was a few million dollars profit on the average each quarter, not at 2007 levels, but certainly not at losses either. The expected increase in 2008 revenues had not been seen, and the increased cost line continued to pressure Protiviti’s profits. A review of the Q3-2008 quarterly earnings call shows that management was cautiously optimistic about Protiviti’s performance and prospects, and there were initial efforts to bring costs in line with flat revenues. Given that RHI had not ever managed Protiviti through a downturn, senior management could not provide decent guidance on revenues for the upcoming fourth quarter.

Then, with the collapse of Lehman Brothers in September 2008, the financial crisis became really severe in Q4-2008.

In Q4-2008, Protiviti’s revenues fell to $125 million, $15 million below the run rate seen in the last three quarters, but Protiviti had already started moving to reducing its cost base. Both direct costs and SG&A costs were quickly reined in, and the cost base in Q4-2008 was reduced by $12 million in comparison to Q3-2008, to almost offset the $15 million loss in revenue. Overall, operating income for Q4-2008 decreased to $1 million from $4 million in Q3-2009.

At the end of 2008, Protiviti had seen flat revenues to 2007, but a sharp drop in profits. The firm had 3,200 employees, 100 lower than the 3,300 at the end of 2007, through some initial layoffs. Its likely no-one imagined how 2009 would turn out.

In Q1-2009, Protiviti’s revenue fell to $100 million, $25 million below Q4-2008 (some of this was attributed to seasonally slow first quarters), but this is when Protiviti really started to manage its employee base. It took an $8 million extraordinary charge in the quarter for severance costs, with an intent to manage its employee compensation costs in line with falling revenues. There was also a contemporaneous reduction in SG&A, but the quarter still ended with a $11 million operating loss, as total costs in the quarter could not come down far enough with the rapid decline in revenue.

In Q2-2009, quarterly revenues had fallen another $10 million to $90 million, however, the cost base also fell by $10 million from the previous quarter and the operating loss position of $11 million held steady from the prior quarter. Protiviti took an additional $2 million employee severance restructuring charge in the quarter. By this time, management had recognized the severity of the issue and were taking active steps to manage costs in line with declining revenues. Management said that US operations had better profitability than international operations, which were being scrutinized in detail. Also, the division was taking steps to diversify away purely from Internal Audit and Sarbox type work into IT audit and co-sourcing to create a larger set of non-correlated service lines.

By Q3-2009, the positive cost impact of the reductions in staff were showing on the bottom line. Q3-2009 revenues were $96 million, a good $6 million better than the $90 million in Q2-2009 in terms of revenue, with the third quarter being sequentially generally better than the second quarter. Costs in Q3-2009 were also $7 million better than Q2-2009, with the net result that operating profit increased by $12 million from Q2-2009 to Q3-2009. Q3-2009 turned in a small operating income of $1 million. Q3-2009 gross margin% matched what were historical levels in the first half of 2008.

In Q4-2009, the operating situation was quite similar to Q3-2009, as revenues and costs generally held steady and flat. Revenue was $96 million, staff utilization improved and operating income was essentially zero.

Protiviti ended 2009 with $384 million in revenue, 30% lower than 2008, and with an operating loss of $21 million (net of restructuring charges) compared with $7 million of operating profit in 2008. The big change in 2009 was the employee base, the year ended with 2,500 employees, 700 employees lower than the end of the previous year. This was a gut-wrenching 22% reduction in staff, in that 1 out of every 5 professionals with Protiviti who was working at the end of 2008 was no longer at the firm in 2009.

As we turn into 2010, management appears much more bullish about Protiviti’s 2010 prospects and indicated generally that the division will aim to generate positive operating profit for this year. The problem seems to lie in Protiviti’s operations outside the US, which are offsetting a higher level of US profitability, and there seems to be serious effort to turn that around. It indicates that operating costs levels have now been sized to a $400 million revenue business; and anecdotal evidence at Protiviti consultants indicates there is growing confidence that there will higher levels of business in this year.

Anyone who has passed through this crisis will recall with clarity how difficult the last quarter of 2008 and the first half of 2009 really was. This is a case study on Protiviti, but likely representative of all consulting and accounting firms, who faced and continue to face a crisis unprecedented in modern times. The decline in Protiviti (a Big 4 firm spin off) is in line with the decreases in Advisory service lines at the Big Four firms, however the magnitude of the fall is much higher at Protiviti, much to its smaller size and smaller footprint in higher-growth emerging countries of the world.

While we have been able only to tell the story from the public financials, we do recognize there is a deep human cost, in terms of lost jobs, continued unemployment, potentially poor morale, and tough disengagement and working conditions. We invite Protiviti alumni to join the Big4 LinkedIn group, which has a robust discussion and job board to extend their network and keep abreast of developments. And if any of our readers have first-hand or deeper knowledge of this situation, we welcome your comments.

The post Protiviti Responds to Tough Financial Crisis, Now More Bullish appeared first on Big4.com.

We recently published our extensive financial analysis on the Big Four Firms (read here, download here), and with some recent revenue announcements by the next set of firms, here is a brief overview of The Next Four, the second set of international but smaller accounting firms.

As you can see below, these are large complex organizations in their own right, and likely to place in the global Fortune 500 as independent entities. They are multi-billion dollar, multi-firm, transnational enterprises, with presence in 100+ countries, and providing a wide variety of accounting, tax and advisory services. In another industry, they would be good contenders for top positions, but the sheer size of each of the Big Four firms totally dwarfs their presence in the accounting & tax firm sector. Consider that the combined revenue of these four firms (~$16 billion) is less than the revenue of the smallest of the Big Four firms (KPMG at $20 billion).

To recap:

First, PricewaterhouseCoopers, still the largest firm in the industry
Second, Deloitte, just a bit behind PwC
Third, Ernst & Young
Fourth, KPMG, the smallest of the Big Four firms

Fifth, and a distant follower to KPMG is BDO International, which had total combined fee income for all BDO Member Firms of US$ 5.026 billion for the year ended 30 September 2009, a creditable year over year increase of 1.7 % in euro terms but a decrease of 2.3 % in US dollars terms. In local currency terms, excluding the effect of all currency movements, revenues actually increased 4.5%, with the appreciating US dollar reducing this by about 7% when results were reported in US dollars from 2008 to 2009.

Europe and North America both decreased combined fee income, but Asia Pacific, Middle East and Sub Saharan Africa regions each had an increase of some 20% in Euro terms. Latin America grew by almost 10% in Euro terms.

Audit & Accounting grew by 4.5%, Tax fell by 3.9% and Advisory services fell by 10%. The total number of people increased from 44,002 in 2008 to 46,035 in 2009, while the network’s offices grew from 1,095 to 1,138 over the same period.

In recent news BDO Seidman, the US member firm, simply became BDO.

Sixth, and jumping over Grant Thornton to take that sixth spot is RSM International with 2009 worldwide revenues of US$3.87 billion, up a solid 8% from 2008. Of this global revenue, Americas have US$2.65 billion, Europe has US$837 million, Asia Pacific has US$349 million; and Africa & Middle East with a small figure of US$36.8 million. RSM International has 32,492 people, comprised of 3,150 partners, 23,262 professional and 6,080 administrative staff in 736 offices in 76 countries.

There were some bright spots for RSMI which led to this increase. In 2009, Singapore and China revenues rose 31% and 17% respectively, with good showings from Philippines, New Zealand, Indonesia and Malaysia. Revenues in Belgium shot up 69% due to a local merger while member firms in Malta and Portugal also grew by over 25 percent each. RSM Tenon, the newly merged UK member firm, increased the UK firm revenues to US$406 million.

RSMI’s 8% increase in revenue was a key factor in displacing Grant Thornton from sixth place, as Grant Thornton’s revenue went the other way, dropping by 9%.

Seventh, and just behind RSM International is Grant Thornton International (losing that sixth spot), with combined global revenues of $3.6 billion from its 96 member firms for the year ended 30 September 2009. Revenues for 2009 were flat in local currency terms from 2008, but declined 9% in US dollar terms from 2008.

Assurance revenues at $1.6 billion (46% of total revenues) increased 5% in local currency terms but dropped 4% in US dollar terms against 2008. Tax revenues of $763 million (~25% of total) were flat to 2008 in local currency terms but were down 9% in US dollar terms. Specialist advisory services revenues were $884 million (25% of global dollar revenues), down 5% in local currency but down 16% in US dollar terms

Latin America and the Caribbean had solid local currency growth of 13%. Europe, Middle East & Africa revenues were flat at local currency terms. Greece (up 11%), Poland (12%) and Belgium (19%) were top performers. 2009 North American revenues were down 1% from 2008. Asia Pacific revenues were up by 14% at constant exchange rates, helped by a 23% increase in revenues by the India member firm.

Grant Thornton’s 9% drop in revenue led to its displacement as the sixth largest accounting firm in the world. An unexpected surprise indeed.

In Eighth place is Baker Tilly International with 145 member firms in 110 countries and 2,800+ partners and 25,000 people. Baker Tilly’s revenues for fiscal year 2008 were US$2.95 billion, up 18% from 2007. We could not find Baker Tilly’s 2009 revenues, but presume they were higher than 2008.

According to the recently published rankings of 40 accounting organizations from the International Accounting Bulletin’s annual world survey, average network revenues dropped 6% to $122 billion and average association revenues increased only 3% to $20.8 billion. The Bulletin says that this is a nearly a 20% revenue turnaround for networks with some of the largest firms affected, corroborating our earlier analysis of the Big 4 firms. Only two firms in the top 10 – RSM International and Baker Tilly were able to increase their revenues from 2008 to 2009.

The Bulletin further noted that Audit demand was affected by severe fee reductions, as high as 40% in come cases. Tax demand suffered as clients generally paid less tax, affecting the appetite for tax planning advice. But the most impacted was corporate finance with 2009 being the worst year for M&A deals since 2004. Restructuring services were in good demand. Most firms noted heavy investment in Asia-Pacific, with Asia Pacific, the Middle East and Latin America reporting solid growth.

The IAB predicts, as we did in our analysis, “If the networks’ recent growth trends continue, Deloitte will overtake PwC this year.”

Note that the revenues for the Big Four firms fell 7% from $101 billion in 2008 to $94 billion in 2009. In 2009, it is interesting to note that the total global revenues of all the other 36+ large accounting firms combined were only $26 billion ($122 billion minus $94 billion). And the 6% drop in the industry is largely defined by the 7% drop in the mega Big Four firms (PricewaterhouseCoopers, Deloitte, Ernst & Young and KPMG).

The IAB’s analyis is in sync with our findings, and the big surprise is clearly RSMI’s move to the sixth spot, swapping places with Grant Thornton. We shall look out to next year where there are two close races: Deloitte versus PricewaterhouseCoopers to be the largest accounting firm on the planet and RSMI versus Grant Thornton for sixth and seventh spots.

The post The Next Four: BDO, RSM, Grant Thornton and Baker Tilly. And A Surprise appeared first on Big4.com.

Friday, January 22, 2010

All the Big Four firms recently made Fortune’s 2009 “100 Best Companies to Work For” list, though not at the very top as we have become very accustomed to seeing in BusinessWeek or Diversity or Working Mothers magazine. Nonetheless a very creditable performance against a tough crowd of equally impressive and quality peers. 2009 sported tougher competition as three of the five firms dropped rank from the 2008 listing.

In addition, we are seeing a varied picture with firms actively cutting positions to some minor increases at Deloitte and PwC from 2008 to 2009, in line with the general decrease in business for these firms in the Americas.

Check out our January 2009 blog post on the 2008 rankings

However, tough external conditions appear to have created some welcome bonuses for employees, either through additional holidays, a sabbatical program or less travel.

Fortune has a rigorous process to select these top companies, and with a large chunk of the selection process based on true employee responses, its hard to game this list, so makes the results reliable. It conducts the most extensive employee survey in corporate America with 347 companies in the overall pool. Two-thirds of a company’s score is based on the results of survey sent to a random sample of employees from each company with questions on attitudes management’s credibility, job satisfaction, and camaraderie. The other third of the scoring is based on the company’s responses on pay and benefit programs, hiring, communication, and diversity.

Ernst and Young was the first to rank among the firms at #44 for 2009, moving up 7 ranks from #51 in 2008. E&Y has 24,815 US employees, down 4% from 2008, and Fortune commented that “E&Y offers a traditional pension in addition to a 401(k). The firm is courting alumni via a new magazine, Connect.”

Deloitte follows Ernst and Young with #70 rank in 2009, but down 9 ranks from # 61 in 2008. Deloitte had 39,065 US employees and actually increased its staff count by 1%, as we have said earlier, Deloitte seems to be the most resilient among Big Four firms to the global slowdown. Fortune says, “Firm has invested $300 million in Deloitte University, a 107-acre campus in Texas that opens in 2011 and will be the “symbolic heart” of their organization.”

PricewaterhouseCoopers is just behind Deloitte at #71 for 2009, falling 13 ranks from #58 in 2008. PwC also increased its ranks by 1% in the US and had 29,387 US employees in 2009. Fortune did pick up on this employee level increase and the minor bonus in terms of holidays, stating, “Accounting firm had minor layoffs (less than 1% of the staff), canceled 2008 year-end holiday parties, and gave two extra paid holidays to employees.”

Accenture who had just made the list in 2008 with a #97 rank moved up smartly by 13 ranks to #84 for 2009. Accenture was quite tough in letting people go in the US, dropping headcount by 7% to 30,000 US employees. According to Fortune, “Management consultant adopted new Smart Work program to cut down on time employees spend at client sites; 36 offices have videoconferencing facilities.”

KPMG was the final firm to make the list this year at #88 in 2009, dropping a whopping 32 ranks from a creditable #56 in 2008. KPMG also slashed employees, and as our previous performance analysis shows, had the largest drop in revenue among Big Four firms, KPMG had 20,972 US employees in 2009, down 7%. On the bright side though, Fortune reported that, “Audit firm introduced a sabbatical program allowing employees to take leaves of four to 12 weeks at 20% of pay. Some 450 employees immediately signed up for it. Employees average 25 paid days off.”

The post All Big Four Firms Are Best Companies To Work For In 2009 appeared first on Big4.com.

Tuesday, January 05, 2010
THE 2009 BIG FOUR FIRMS PERFORMANCE ANALYSIS

DOWNLOAD THE FULL STUDY HERE

An Analysis Of The 2009 Financial Performance Of The World’s Largest Accounting Firms

By Big4.com

January 2010

THE 2009 BIG FOUR FIRMS PERFORMANCE ANALYSIS
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EXECUTIVE SUMMARY

2009 was a difficult year overall for the Big Four accounting firms: Deloitte, Ernst & Young (E&Y), KPMG and PricewaterhouseCoopers (PwC), as their financial performance was affected by tough external conditions, slow global economic growth, cost-conscious clients and sluggish merger and acquisition activity.

After an extraordinary period of continuous revenue growth from the early 2000s to 2008, combined revenue for the four firms in fiscal 2009 did fall by 7% from fiscal 2008 in US dollar terms. Revenue decreases in US dollar percentage terms ranged from negative 5% for Deloitte to negative 7% each for Ernst & Young and PricewaterhouseCoopers to negative 11% for KPMG.

The large fall in US dollar terms was also driven by the appreciating US dollar during the period. Despite this, the combined revenues of the Big Four firms was an astonishing $94 billion, with PwC retaining its leadership position as the largest accounting firm on the planet by narrowly beating Deloitte.

The Americas region represents about 40% of global revenues for the Big Four firms, but its share has been falling over the years, due to the preponderance of mature markets. Contrary perhaps to common belief, Europe, Middle East and Africa has the highest percentage of total revenues for the Big Four firms at 45%. Asia Pacific, while being the smallest region at 15% of revenues, has posted the highest growth rates, owing to the strong upswing in many emerging Asian economies.

The Audit service line accounts for almost 50% of total revenues and has been generally holding at this level across the years. Tax services experienced strong growth in 2006 to 2008, in sync with global merger and acquisition transactions activity. Advisory services has been the fastest growing service line as the firms extend their services into risk management and business consulting.

The Big Four firms cumulatively employ more than 600,000 professionals globally, with a total of 34,000 partners overseeing a steep pyramid of about 470,000 professionals.

Despite the world’s worst financial crisis for over 70 years, the Big Four firms turned in quite a creditable performance, with revenues falling only by a small percentage in local currency terms. For 2010 and beyond, we will likely see a return back to revenue growth, though it is debatable whether a string of double-digit growth over multiple years will be seen for the next few years. 2010 will also be an interesting year to watch for any changes in Big Four rankings, with a close race between Deloitte and PricewaterhouseCoopers for the leadership position.

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REVENUE PERFORMANCE

2009 Reverses Multi-year Revenue Growth Trend

2009 was a difficult year overall for the Big Four accounting firms: Deloitte, Ernst & Young (E&Y), KPMG and PricewaterhouseCoopers (PwC), as their financial performance was affected by tough external conditions, slow global economic growth, cost-conscious clients and sluggish merger and acquisition activity. After an extraordinary period of continuous revenue growth from the early 2000s to 2008, mostly at a double-digit percentage rate, combined revenue for the four firms in fiscal 2009 did fall by 7% from fiscal 2008 in US dollar terms.

Quite apart from operating considerations, the large fall in US dollar terms was also driven by the appreciating US dollar during the period. The decrease in local currency terms was at a much lower level, ranging from negative 3% to positive 1%.

Despite the decrease in revenues, these large accounting firms posted some big numbers in 2009, their combined revenues was an eye-popping $94 billion, dropping from an all-time record level of over a $100 billion in 2008. Revenue decreases in US dollar percentage terms also differed across firms, ranging from negative 5% for Deloitte to negative 7% each for Ernst & Young and PricewaterhouseCoopers to negative 11% for KPMG. In local currency terms, revenue decreases were more modest, from positive 1.0% for Deloitte, 0.2% for PricewaterhouseCoopers to negative 0.2% for Ernst & Young and negative 2.6% for KPMG.

The difference across firms was driven by the intrinsic nature of the firm itself and varying compositions of service lines and geographies and a small effect due to fiscal years which spanned different calendar months. Deloitte’s fiscal 2009 ended on May 31, 2009, E&Y and PwC’s fiscal 2009 ended on June 30, 2009 and KPMG was the last to close out the fiscal year on September 30, 2009. In 2009, this small difference in fiscal year-ends would have had a relatively higher impact, for example, KPMG’s fiscal year 2009 coincided exactly with meltdown in financial markets as Lehman Brother collapsed in September 2008. Other Big Four firms had three to five fewer months of this negative impact.

Fluctuations in the US dollar also contributed to the higher level of percentage drops. The US dollar appreciated strongly from mid-2008 to mid-2009 against a basket of foreign currencies, after staying weak in the prior twelve months. This had an unfavorable effect, as depreciating local currencies, where the firms earned revenue, were converted into US dollars, in which the firms reported their annual results. In general, decreases expressed in US dollar terms were about 7% lower than decreases expressed in local currency terms.

PricewaterhouseCoopers retained its first place as the largest accounting firm on the planet with revenues of $26.2 billion, narrowly beating Deloitte, a very close second with revenues of $26.1 billion. Ernst & Young took the third spot at $21.4 billion, and KPMG maintained its position as the smallest of the Big Four firms at $20.1 billion of revenues. Deloitte proved to the most resilient firm to the tough economy, with its revenue falling only 4.9% in US dollar terms, while close rival PricewaterhouseCoopers’ revenues decreased 7.1%. This enabled Deloitte to close the gap against PwC in 2008 to be at almost at par in 2009. In 2010, it will be interesting to see who will gain the leadership spot, as a relatively stronger performance by Deloitte could well edge it past PwC.

The Big Four firms have had an astonishing run up in total revenues over the last six years. In 2004, combined firm revenues were only $60 billion, but by 2008, this had moved up at a compounded annual growth rate of 14% to exceed $100 billion. Some of this gain was from the collapse of Andersen, as Andersen’s $10 billion or so of revenues in 2002 was generally redistributed over the remaining four firms. Beyond this, the global financial boom in the middle of the decade, combined with assertive penetration into emerging economies provided the engine for revenue increases.

This positive trend rapidly reversed in 2009, the first time in six years, as economies all over the world came to an abrupt halt in mid-2008, with many countries going into recessions, and ultimately affecting the seemingly unstoppable growth in Big Four firm revenues. Even with this drop in 2009, the six year compounded annual growth rate from 2004 to 2009 was 9%, a remarkable achievement, given that these multi-billion dollar enterprises had to grow their size by nearly 60% from a high starting point by either finding new revenue opportunities or penetrating current clients.

Despite being auditors for the world’s public companies who are required to report extensive details on their financials, the Big Four firms provide only very high level financial information with minimum commentary, with consequent impact on the depth of possible analysis in our study.

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2009 FIRM PERFORMANCE

We blogged on each firm’s 2009 financial performance as they sequentially reported on The Big Four Blog, and we encourage our readers to read those analyses to obtain a flavor of the timing and our immediate response.

Ernst & Young was the first to report its 2009 financials, and with Deloitte following (on a much delayed schedule) it became clear that the year was turning out to be quite challenging on the revenue line. PwC followed suit, showing flat revenue growth on a local currency basis. KPMG was the last to report in December 2009, and its revenues fell the most among all the four firms. Additional data points from the UK member firms, where the Big Four firms have to provide more detailed information, proved that the pressure on the top line was also leading to lower bottom lines and decreased profits per partner.

In 2009, while revenues fell drastically in developed markets, all firms generally noted that emerging markets were more resilient against slowdowns, and revenues rose in many developing countries. The appreciating US dollar caused the percentage drop in US dollars to exceed the more modest drops in local currency. In general the firms’ results met our expectations, though KPMG’s sharp fall was quite surprising. In addition, Ernst & Young changed their method of reporting in 2009, choosing to report combined, rather than consolidated revenues, which led to a lower level of reported revenues.

PricewaterhouseCoopers’s FY 2009 global revenues for the year ending June 30, 2009 was US$26.2 billion, a 7.1% decline from the US$28.2 billion in FY 2008 in US dollar terms. However, on local currency terms FY 2009 revenues were actually higher than FY 2008 by a modest 0.2%. This performance enabled PwC to remain the largest accounting firm on the planet.

In terms of service lines, Assurance grew 2.0% in local currency terms to $13.1 billion, but in terms of US dollars, revenues actually fell by 4.8% from $13.8 billion in 2008. PwC attributed this to market-leading strength of the business and its continued focus on improved customer service and very competitive pricing. Tax services fell by 0.3% in local currency terms to $6.9 billion, but fell 7.5% in US dollar terms from $7.5 billion in 2008. Tax was impacted by the worldwide decline in corporate deals and restructuring work. Advisory services fell by 2.9% in local currency terms to $6.1 billion, but fell 11.4% in US dollar terms from $6.9 billion in 2008. This service line was the hardest hit by the global slowdown, as M&A and IPOs dried up and private equity firms slowed, while bankruptcy and restructuring work provided some offset.

In terms of geographies, Asia revenues rose about 4% to $3.7 billion in local currency terms but falling about 5% in US dollar terms from $4.0 billion in 2008. Revenues in the smaller regions of Middle East & Africa (up 9.1%) and South & Central America (up 13.3%) also rose strongly in local currency terms, showing strong growth in emerging markets. In the developed world, revenues in both Europe and North America declined, and since these account for 85% of total PwC revenues, they essentially drove the results for the firm. Revenue growth was high in a number of PwC member firms around the world, with particularly good results in Japan, Russia, Spain, Sweden and Canada.

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Deloitte Touche Tohmatsu, the global firm, reported fiscal 2009 revenues for the year ending May 31, 2009 of US$26.1 billion, an increase in local currency terms of 1%, but a drop of 4.9% in US dollar terms from 2008.

By service line, Consulting (Advisory) was the fastest grower at 7.3% in local currency terms; and in US dollar terms, revenue increased 2% from $6.3 billion in 2008 to $6.5 billion in 2009. Audit was relatively flat against 2008 in local currency terms; in US dollar terms, Audit shrank by 6.4% from $12.7 billion to $11.9 billion. Tax was also relatively flat against 2008 in local currency terms; in US dollar terms, Tax revenues decreased by 5.5% from $6.0 billion to $5.7 billion. Financial Advisory Services revenue fell 6.1% in local currency terms, but in US dollar terms, fell by 13.8% from $2.4 billion in 2008 to $2.0 billion in 2009.

In terms of geography, Americas dropped 1.3% in local currency terms and 3.7% in US dollar terms from $12.9 billion in 2008 to $12.5 billion in 2009. Europe, Middle East and Africa rose 2% in local currency terms but dropped 9.0% in US dollar terms from $11.3 billion in 2008 to $10.2 billion in 2009. Asia Pacific grew 4.7% in US dollar terms from $3.2 billion in 2008 to $3.4 billion in 2009. The Asia Pacific region had local currency growth of 7.6% and was the fastest-growing region for the fifth consecutive year. India’s revenues grew 29.9%, Australia grew 11.5% and Japan grew 11.3% in local currency terms.

Africa, the Middle East, and Latin America and the Caribbean posted high growth rates of 21.3%, 15.6% and 13.7% respectively, in local currency.

Despite this remarkable performance, Deloitte was unable to beat PwC to be the largest Big Four firm in the world. Its 2009 revenues of $26.1 billion were behind PwC’s 2009 revenues of $26.2 billion by only $100 million or 0.4%. We had indicated in our earlier analysis that a 4.5% decrease in Deloitte’s revenues in US dollar terms would make it the largest among the Big Four firms. However, Deloitte’s overall revenues actually dropped by 4.9% from 2008 to 2009, narrowing, but not completely closing the gap against PwC. By showing remarkable performance in 2009, arguably one of the toughest environments in recent memory, Deloitte has shown that it is a strong contender for the leadership position.
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Ernst & Young’s combined worldwide 2009 revenues for the year ending 30 June 2009 were US$21.4 billion, decreasing a modest 0.2% in local currency terms from the comparable period in FY 2008 of US$23.0 billion in global revenues. In US dollar terms, the revenue actually declined 6.8% from 2008 to 2009.

Assurance Services with FY 2009 revenues of $10.1 billion offset price pressure with market-share gains, and revenues declined only 0.7% in local currency terms, but 6.3% in US dollar terms. Global Tax Services with FY 2009 revenues of $5.8 billion was up 1.8% in local currency terms due to increased tax enforcement, but dropped 5.2% in US dollar terms. Advisory Services with FY 2009 revenues of $3.6 billion was up 1.5% in local currency terms due to sustained demand for risk management and performance improvement, but dropped 6.0% from $3.8 billion in 2008 in US dollar terms.

Transaction Advisory Services with FY 2009 revenues of $1.9 billion, had a 6.9% decrease in local currency terms due to fall in M&A volumes, but revenues decreased a large 14.8% in US dollar terms from $2.2 billion in 2008.

Across E&Y’s five geographic areas, Japan grew at 7.5% in local currency terms, due to the acquisition of 1,000 professionals from accountancy firm Misuzu; and revenues increased 20% in US dollar terms. The Europe, Middle East, India and Africa (EMEIA) area grew 1.8% in local currency terms, but declined 9.7% in US dollar terms. Oceania decreased 0.4% in local currency terms, but declined a dramatic 15.9% in US dollar terms. The Far East decreased 2.7% in local currency terms and 5.9% in US dollar terms. The Americas area decreased 3.2% in local currency terms, but 5.5% in US dollar terms.

There were some bright spots however, with many of the emerging markets achieving strong revenue growth, including the Middle East at 18.6%, India at 13.1% and Brazil at 8.0%.

Ernst & Young made a key change to their reporting of revenues in 2009, electing to show combined, not consolidated revenues by eliminating intra-firm billings. E&Y restated its 2008 revenues down from $24.5 billion as originally reported to $23.0 billion reported as restated in 2009. The reason provided for this change was, “In line with our globalization efforts to harmonize policies across member firms, revenues for 2009 and 2008 related to member firm billings to other member firms have been eliminated from the financial information presented here. This financial information represents combined not consolidated revenues, and includes expenses billed to clients.”
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KPMG reported 2009 combined revenues for the fiscal year ending 30 September 2009 of US$20.1 billion versus US$22.7 billion for the prior 2008 fiscal year. This was an 11.4% decline in US dollars terms and a 2.6% decline in local currency terms, which was the highest drop among all Big Four firms.

By service line, Audit 2009 revenues were $10.0 billion versus $10.7 billion in 2008, down 6.9% in US dollar terms but a 0.5% increase in local currency terms. In the global financial services industry, Audit services’ revenues actually grew 7%.

Tax services revenues in 2009 were $4.1 billion versus $4.7 billion in 2008, a 13.4% decrease in US dollar terms and a 4.3% decrease in local currency terms. But certain practices within Tax did very well: Transfer Pricing grew 5.3%, Indirect Tax grew 8% and International Executive Services grew 7.8%, all in local currency terms.

Advisory services revenues of $6.1 billion in 2009 decreased versus $7.3 billion in 2008, by a large 16.6% in US dollars terms and 6.6% decline in local currency terms. However, Advisory in China and the Middle East posted double-digit growth.

By geography, Americas Region had 2009 revenue of US$6.3 billion versus US$7.2 billion in 2008, decreasing 12% in US dollar terms and 8.6% in local currency terms. Bright spots included Brazil with 5% revenue growth, Mexico with 8.2% growth, Venezuela grew 22.9% and Chile’s revenues rose 22.7%, all in local currency terms.

In Europe, Middle East and Africa, combined KPMG member firm 2009 revenues were $10.7 billion versus $12.4 billion in 2008, dropping 13.5% in U.S. dollars terms and 0.6% in local currency terms. Middle East and South Asia was the fastest growing sub-region in Europe; and KPMG in Africa had a 9.3% growth in local currency terms.

In Asia Pacific, combined 2009 revenues of $3.1 billion decreased 1.1% in US dollars terms but grew a substantial 3.9% in local currency terms. Some countries posted spectacular results: Korea had 19.4% growth, Vietnam and Cambodia each had 17.5% growth, and Japan had 7.2% growth, all in local currency terms. KPMG said that Asia Pacific member firms are beginning to see an increasing number of M&A transactions especially in China and Korea.

Revenues in the BRIC countries as a group grew 4.3%. Middle East and South Asia was the fastest growing practice with a 25% growth rate. KPMG’s BRIC headcount increased by 11.5% this year, with BRIC headcount nearly quadrupling in the past ten years.

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REVENUE BY GEOGRAPHY

The distribution of revenues by geography shows some very interesting insights. Contrary perhaps to common belief, Europe (including generally Europe, Middle East and Africa), rather than the Americas region (including Canada, the US and South America), has the highest percentage of total revenues for the Big Four firms, averaging 45% of total worldwide revenues. Americas average about 40% and the Asia Pacific countries (including India, South Asia, China, North Asia and Australia) have the remaining 15% of the revenue share.

The Americas

The Americas represent about 40% of global revenues, but its share has been falling over the years. From 2004 to 2009, there has been a noticeable drop of about 3% in the Americas region’s share of the total revenue for all the firms. In 2005, 43% of combined firm revenues were reported from the Americas region, whereas in 2009, it had dropped to only 40% of total firm revenues.

There also appears to be large variation across firms in the amount of revenue from this geographic region as a percentage of their global revenues. For example, Deloitte at the high end, sources 48% of its revenues from the Americas and KPMG at the low end has only 31% of its revenues from the Americas. Ernst & Young and PwC each have about 40% of their total revenues from the Americas, in line with the total firm average.

While Latin America, and particularly Brazil and Mexico have provided good growth opportunities for growth in recent years, the predominance of the mature markets of USA and Canada with slower growth has generally limited the expansion of Big Four firms in the Americas region. The 3% revenue share loss has generally gone to Asia Pacific, where emerging markets such as China, India, Korea and Vietnam have grown at disproportionately higher rates.

Europe

Europe, surprisingly, is the largest region by revenue for all Big Four firms. The Big Four firms typically combine Europe, comprising the developed countries of Western Europe, the up and coming markets of Eastern Europe with Middle Eastern and African nations for a giant EMEA region. Europe represents about 45% of global revenues, and as we see across the years, this total percentage has remained remarkably flat from 2004 to 2009. In 2004, 46% of combined firm revenues were reported from the Europe region, and in 2009, the same percentage 46% of total firm revenues came from Europe.

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As in Americas, each firm has a different percentage of European revenues as a share of the total revenues. KPMG at the high end sources 53% of its revenues from Europe (KPMG Europe being a key contributor) while Deloitte at the low end has only 40% of its revenues from Europe, this situation being a total polar opposite of the Americas. Ernst & Young and PwC each have 45% of their total revenues from Europe, in line with the total firm average.

This diverse European region comprises both of mature markets such as the United Kingdom, France, Italy and Germany, as well as fast growing Eastern European nations – Poland, Russia, Czech Republic, Hungary and Romania. The Big Four firms have had spectacular growth in Eastern Europe as these high growth economies have matured into capitalistic markets, requiring sophisticated audit, tax and transaction services.

The Big Four firms have had tremendous growth in Russia in particular as part of their BRIC initiatives. Europe also comprises the rapidly rising countries of the Middle East – including Dubai, Abu Dhabi, Kuwait, Saudi Arabia and Israel; as also the larger economies of the African continent – South Africa, Egypt and Nigeria for example. In the Middle East and Africa, the Big Four firms have capitalized on their historical small presence and posted very high annual growth numbers for the last few years, albeit from a smaller base.

Asia Pacific

Asia Pacific, while being the smallest region, has posted the highest growth rates of all regions. This diverse region comprises a few mature markets such as Japan and Australia, but mainly covers fast growth emerging markets such as China, India, Vietnam, Korea and Singapore. The Asia Pacific region has been in an economic boom for most of this decade, and their demand for Big Four firm professional services have multiplied. All the firms have grown at exceedingly high rates each year since 2004, with the result that combined revenues have doubled from $7 billion in 2004 to $14 billion in 2009.

Asia represents about 15% of global revenues for all the firms, and as we see across the years, this total percentage has increased steadily from 2004 to 2009. In 2004, 12% of combined firm revenues were reported from Asia, and in 2009, it had sharply increased to 15% of total firm revenues. This share gain came at the expense of the Americas region, which correspondingly lost its share of the pie.

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BRIC

The BRIC countries – Brazil, Russia, India and China – have been unquestionably the shining stars in the growth story in recent years. Though the firms do not report individual country revenues, there is typically some commentary on the annual report on the spectacular increases in these countries.

For example, Ernst & Young reported in 2009 that revenues in India had increased 13% and in Brazil by 8%; and KPMG said that their headcount in the BRIC countries had nearly quadrupled in the past ten years.

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REVENUE BY SERVICE LINE

The Big Four firms offer a wide variety of professional and financial services, with newer Advisory services adding to their more traditional and deep-rooted Audit (Assurance) and Tax Services. Firms vary in their structure and definition of these broad service lines, typically though about half the revenues are sourced from Audit, and the balance is shared between Tax and Advisory Services.

Audit

The audit service line, the largest in all firms, accounts for almost 50% of total revenues and generally holding this percentage level across the years. Typically Audit services is a steady business, as publicly traded clients renew auditor services each year with some increase in annual fees. Most companies prefer to maintain their auditors for a long time, providing stability to the auditors’ top line. The Audit service line experienced sharp growth in total revenues in 2005 to 2007, but this has slowed down sharply in the 2008-2009 years.

From 2008 to 2009, revenue for the Audit service line for the combined firms shrank by 6% in US dollar terms, which was better than the negative 7% in Tax service line and negative 9% in Advisory, which demonstrated the somewhat anti-recessionary nature of this service line. Audit fees came under pressure in 2009, but firms maintained their focus on client service and market share gains to mitigate any losses in revenue.

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Tax

The tax service line, forms about a quarter of the Big Four firm revenue and generally holding this percentage level across the years. Tax revenue are reasonably steady, as they derive revenue from add-on services provided to audit clients, in addition to tax services provided for transactions, complicated tax restructurings and other projects.

Tax had a very strong growth in 2006 to 2008, in line with large scale global merger and acquisition transactions activity, but had a sharp decline in 2009.

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Advisory

The Advisory service line, forms the last quarter of the Big Four firm revenue and includes the broader non-Audit and non-Tax services such as Transaction Advisory, Risk Management, and Business Consulting services; and demarcations generally vary across the firms. Owing to this catch-all nature of this category, there are many drivers of top line results, merger and acquisition activity being a principal factor.

Advisory services have been one of the fastest growers in the Big Four firms as the firms extend their services beyond assurance and taxation through penetration into current clients or through referrals from other firms who may be conflicted out at their clients. Advisory services have generally increased their share of revenues. In 2004, they had 22% of total revenues and this had sharply increased to 28% in 2009. Despite this sharp growth, Advisory services had the sharpest decline of 9% from 2008 to 2009, as clients slowed down transaction and restructuring activities all over the world.

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FIRM EMPLOYMENT ANALYSIS

The Big Four firms cumulatively employ more than 600,000 professionals all over the world, including partners, audit, tax and advisory professionals and administrative staff. This staggering number has been consistently on the rise since 2004, when cumulative employment was around 435,000 professionals.

Thus in six years, the number of people working at just these four firms has been around 175,000. Despite the reduction in revenues, net employment grew by more than 10,000 professionals from 2008 to 2009, with notably Deloitte and PwC adding to their workforce. The growth rate in employment of people dropped sharply to 2% in 2009.

Typical annual attrition rate at Big Four firms was running about 15% prior to 2008, so for example in 2008, the Big Four firms cumulatively would have made about 140,000 new hires to account for the loss of professionals and the additional growth. This works out to about 550 hires for each business day of the year.

Even in 2009, assuming attrition rates had dropped to 10%, new hires in 2009 would be about 70,000 equating to about 275 hires each day. Truly, Big Four firms are huge seekers of talent with correspondingly very busy recruiters even in a period of deep recession.

Elevation to partner at a Big Four firm is a tough and long process as every professional who has ever worked at one knows. Partners form an elite class within these large partnerships, and only one in about 20 people belongs to this exclusive club. In 2009, we estimate there were only about 34,000 partners in all the Big Four firms, overseeing a steep pyramid of about 470,000 professionals, thus the typical partner being responsible for about 14 professionals in 2009.

In 2004, the professional to partner ratio was only 11, thus partners are taking on more responsibilities in terms of professional management and development over the years.

Another metric that is closely watched is revenue per partner, in 2004, each partner was holding up $2.1 million in revenue, and this had crept up to $2.8 million by 2009, after peaking at $3.0 million in 2008. In other words, each partner was expected to bring in and manage client revenues of nearly $3 million in recent years to justify his or her position in the highest levels of the firms. Clearly, making partner is only the beginning of a series of demanding client development and professional responsibilities down the road.

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ERNST & YOUNG RESTATES REVENUE

Ernst & Young changed their revenue reporting methodology in 2009, by reporting “…combined not consolidated revenues, and including expenses billed to clients in line with globalization efforts to harmonize policies across member firms”. Under the prior consolidation method in 2008, Ernst & Young’s global revenues were $24.5 billion which were revised down to $23.0 billion under the new combined method of reporting. Ernst & Young restated only 2008 under this methodology but did not restate prior years, thus our analysis is affected by this reporting constraint.

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CONCLUSION

The 2007 to 2009 recession has been the world’s worst financial crisis for over 70 years, and despite such turbulence, the Big Four firms turned in quite a creditable performance, with revenues falling by single digits in local currency terms from 2008 to 2009. Since March 2009, global financial markets have seen a marked improvement in equity values, and general business conditions are decidedly in much better shape in December 2009 than earlier in the year.

Leading economic indicators in developed nations are on the uptrend and emerging market countries have posted multiple quarters of positive GDP growth. Clearly as we stand at the beginning of 2010, there is an optimistic outlook among leading executives, and all economies are decidedly on a growth pattern in the coming year. All these are positive indicators favor Big Four firm revenue growth, as the firms participate in an increasing level of financial activities pursued by their clients, whether it be tax restructuring or compliance, transfer pricing, mergers and acquisitions, strategic growth, risk management, IFRS conversions or audit compliance.

Having likely captured the worst of 2009’s impact in fiscal year 2009, we believe that fiscal year 2010, staring mid-2009 to mid-2010, will lead to positive revenue growth due to several key factors:

 An inherent improvement in underlying client fundamentals, with greater emphasis on implementing strategies their own top line growth

 Improved equity markets which are potentially poised to do better in 2010

 A low revenue base for easy comparison

 A depreciating US dollar, which has started sliding against major currencies in mid-2009

 More efficient Big Four firms, which have undergone internal restructurings and much better positioned to take advantage of growth prospects

 Higher penetration into emerging markets with better growth profiles

We think KPMG in particular will have the strongest fiscal 2010, since its fiscal 2009 ended in September 2009, and captured much of the crisis; and further its 2010 revenues will be compared to a much lower base.

The Big Four firms dominate their space and are unlikely to face any emerging competitors for a long time, and while regulation and audit litigation do pose operating and financial risks, it is unlikely that any of these single items will be of sufficient magnitude to generally upset the status quo.

For 2010 and beyond, we will likely see a return back to revenue growth, though it is debatable whether a string of double-digit growth over multiple years will be seen for the next few years. The Big Four firms have participated extensively in the explosive growth in the emerging markets, and further it will be harder to grow at high levels from an already huge revenue baseline, now exceeding $20 billion for each firm.

2010 will also be an interesting year to watch for any changes in Big Four rankings, with a close race between Deloitte and PricewaterhouseCoopers for the leadership position.

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About

Big4.com is an exclusive global social network for alumni and professionals of Accenture, Andersen, BearingPoint, Capgemini, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.

Notes

All figures are in United States dollars

Disclaimer

Source of figures for this analysis are publicly available financial statements and / or press releases issued by Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers LLP on their website or on the internet

Big4.com believes in these numbers, but does not guarantee their accuracy

Some numbers and ratios have been estimated due to non-availability of adequate information

This study is for information only and not to be relied upon for investing purposes

Totals may be affected by rounding

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Monday, December 14, 2009

If you want to find a great job upon graduating from college, then starting early appears to be the secret.

Business Week and Bloomberg just released their third annual listing of top undergraduate internship programs in the country based on pay and the percentage of interns who get full-time jobs, and feedback from career services directors.

And the Big Four firms completely dominate this ranking, taking the top four of the five top spots, beating out such well-known companies as Goldman Sachs, General Electric, Microsoft, Boeing, Cisco, and Johnson & Johnson.

The number one spot goes to Deloitte which also placed number 1 in the recent best places to launch your career rankings. Interns pocket a cool $10,000 for the summer, and very likely to go back to Deloitte with a confirmed offer. It must be a worthwhile experience, since 7 of 10 entry level hires were previous interns. However, there are relatively a lot of spots available which seemed to have held steady despite these tough times for hiring,

2009 Rank – 1
2008 Rank – 4
Employer – Deloitte
Interns hired in 2008 – 2,200
Interns hired in 2009 – 2,233
Intern hiring planned for 2010 – N/A
2009 Average hourly wage ($) – $24.50
2009 Average total pay for interns ($) – $10,000
2009 Interns who received full-time job offers (%) – 73
2009 Interns with offers who accepted (%) – 80
2009 Entry-level hires who were former interns (%) – 70
2009 Best Places to Launch a Career Rank – 1

KPMG bags the second spot on this ranking, shooting up 3 places from 2008, it placed number 4 in the recent best places to launch your career rankings. Interns seem to get more pay than even number 1 Deloitte by taking home $10,900 for their efforts. The likelihood of going back to KPMG after the internship is extraordinarily high, 9 of 10 interns get a confirmed offer, and 9 of 10 appear to accept. Also a huge 91% of entry level hires were previous interns. The number of internships seem to be shrinking at KPMG, with 500 less spots next year than in 2008.

2009 Rank – 2
2008 Rank – 5
Employer – KPMG
Interns hired in 2008 – 2,200
Interns hired in 2009 – 1,745
Intern hiring planned for 2010 – 1,700
2009 Average hourly wage ($) – $24.80
2009 Average total pay for interns ($) – $10,900
2009 Interns who received full-time job offers (%) – 90
2009 Interns with offers who accepted (%) – 93
2009 Entry-level hires who were former interns (%) – 91
2009 Best Places to Launch a Career Rank – 4

The third place winner in Ernst & Young, staying flat from its spot in 2008, it was just behind Deloitte in the recent best places to launch your career rankings. Interns make the least dough among Big Four firms for their diligence. The likelihood of going back to the firm is also as high as KPMG, 9 of 10 interns get a confirmed offer, and 9 of 10 appear to accept. But it is interesting to see that 4 of 10 new hires do not actually intern with E&Y, which tells you that if you miss the cut this year, there’s still a good chance of a full time offer. Ernst & Young is actively reducing the number of internships, with 800 less spots next year than in 2008.

2009 Rank – 3
2008 Rank – 3
Employer – Ernst & Young
Interns hired in 2008 – 2,507
Interns hired in 2009 – 1,971
Intern hiring planned for 2010 – 1,800
2009 Average hourly wage ($) – $22.00
2009 Average total pay for interns ($) – $9,585
2009 Interns who received full-time job offers (%) – 92
2009 Interns with offers who accepted (%) – 92
2009 Entry-level hires who were former interns (%) – 60
2009 Best Places to Launch a Career Rank – 2

PricewaterhouseCoopers, the largest Big4 firm on the planet gets fifth place, behind Proctor and Gamble, and falling 3 spots from #2 spot in 2008. PwC was behind Deloitte and E&Y in the recent best places to launch your career rankings. Interns make just a smidgeon less than Deloitte, but have a good shot at going back to the firm, 9 of 10 interns get a confirmed offer, and 9 of 10 appear to accept. As with E&Y 3 of 10 new hires do not actually intern with PwC, so if the intern bus leaves this year, there’s still a good chance of a full time offer. PwC is holding nearly flat its number of open spots.

2009 Rank – 5
2008 Rank – 2
Employer – PricewaterhouseCoopers
Interns hired in 2008 – 2,320
Interns hired in 2009 – 2,278
Intern hiring planned for 2010 – 2,175
2009 Average hourly wage ($) – $23.75
2009 Average total pay for interns ($) – $9,878
2009 Interns who received full-time job offers (%) – 89
2009 Interns with offers who accepted (%) – 93
2009 Entry-level hires who were former interns (%) – 69
2009 Best Places to Launch a Career Rank – 3

Accenture has moved up smartly to number 9 from a #47 spot in 2008. Accenture was 11th place in the recent best places to launch your career rankings. Interns get the lowest rate on a per hour basis, but seem to make it in hours to make almost the same as another Big4 firm. 2 of 10 new hires do not actually intern with Accenture, so looks like the internship program is not the only route to a job at Accenture.

2009 Rank – 9
2008 Rank – 47
Employer – Accenture
Interns hired in 2008 – 198
Interns hired in 2009 – 122
Intern hiring planned for 2010 – 150
2009 Average hourly wage ($) – $21.00
2009 Average total pay for interns ($) – $9,975
2009 Interns who received full-time job offers (%) – 95
2009 Interns with offers who accepted (%) – 85
2009 Entry-level hires who were former interns (%) – 22
2009 Best Places to Launch a Career Rank – 11

There are two clear take-aways from this ranking. First, Big4 firms are a great place to have an internship, and the chosen ones seem to like it well enough to begin their careers there. Second, career planning just got moved a year ahead if we take these high percentages to be true – if you didn’t make the internship list, it’s a tough road to get an entry level job. But let that not dissuade candidates who want to work at a Big Four firm, as many alumni can agree, hiring of experienced level candidates happens all the times and at different points in a career, there’s a lot of depth, breadth and requirements for external professionals in all Big Four firms.

But if you’re a junior at a college though and reading our blog, you’re better off getting serious at those internship campus interviews right away.

Here’s the link to the Business Week Ranking

The post Big Four Firms Dominate Best Places to Intern Rankings appeared first on Big4.com.

We saw this on the Grant Thornton home page, and the title was so tantalizing, it was too good not to dig in and blog about it.

This recently released study by David Weild and Edward Kim indicates that a sharp fall in US publicly listed companies is generally driving a depression in US stock markets and further, that it has inhibited economic recovery, impaired the job market and undermined U.S.competitiveness. The deep underlying cause for this – severe changes to the market structure over the last twenty years.

The effects are well known, and we read the authors’ 44 page report to see if the connection to IPOs is well founded. We’ll quote verbatim from the report to make points and we’ll add our own analysis and observations.

First of all, we must say it is a compelling read with some disturbing trends and conclusions that vividly show that the US has experienced serious decline of leadership in the IPO market, and overseas markets have seen rapid growth in IPO listings, especially in Asia, where listings have more than exceeded their strong GDP performance.

“The Great Depression in Listings,” as Grant Thornton calls it, is the precipitous decline over the last decade in the number of publicly listed companies in the United States. Consider in 2008, there were 6,943 publicly listed companies in the US, a full 38% lower than the previous peak of 8,823 US companies, and this comparison looks even worse at minus 55% if you adjust this number for intervening GDP growth. The authors think that the number of companies in the US should actually double to keep up with “replacement” level of what is needed on a relative basis.

What has led to this significant drop? The authors list three key causes:

1. Problems in market structure are undermining the United States’ global competitiveness. Essentially, US listed markets are in secular decline since 1991

2. The number of new listings needed merely to maintain the United States’ listed markets is much larger than expected. US lags Asia and its capacity to generate new listings is well below replacement needs. The US needs 360 new listings per year merely to maintain a steady number of listed companies in the U.S.

3. The lack of new listings in the United States’ markets is threatening the U.S. job market. This impacts small businesses the most, and the authors calculate that up to 22 million jobs may have been lost because of the broken US IPO market.

Grant Thornton has a strong argument that the underlying reason for “The Great Depression in Listings” is not Sarbanes-Oxley, but what they call “The Great Delisting
Machine,” an array of regulatory changes that were meant to advance low-cost trading, but have had the unintended consequence of stripping economic support for the value
components (quality sell-side research, capital commitment and sales) that are needed to support markets, especially for smaller capitalization companies. GT cautions that today, capital formation in the U.S. is on life support. Within the venture capital universe, the average time from first venture investment to IPO has more than doubled.

The authors content that low cost trading, the advent of the online brokerage (ETrade, Ameritrade etc.), new order handling rules, decimalization (remember the cute fractions for stock prices), Sarbox and the global research settlement has led to a culture of “Casino Capitalism” in the US markets. Black pools of capital, unregulated hedge funds, naked and predatory shorting, high-frequency trading, and credit defaults swaps (the menace which led to this recent recession) are all rampant and rapidly spreading in US markets. The charts show that high frequency trading accounts for 70% of all US equities trading.

Is all lost? The authors point to two solutions which can help, and Grant Thornton urges Congress and the SEC to hold immediate hearings to understand why the U.S. markets have shed listings at a rate faster than any other developed market, and to pursue solutions that, together with thoughtful oversight, will advance the U.S. economy, grow jobs, better protect consumers and reduce the deficit — all without major expenditures by the U.S. government:

1. Alternative public market segment: A public market solution that provides an economic model to support the “value components” (research, sales and capital commitment) in the marketplace. This solution would establish a new, parallel market segment that benefits from a fixed spread and commission structure. It would be subject to traditional SEC registration and reporting oversight (e.g., annual and quarterly reporting, Sarbanes-Oxley compliance).

2. Enhancements to the private market: A private market solution that enables the creation of a qualified investor marketplace — consisting of both institutional investors and large accredited investors — that allows issuers to defer many of the costs associated with becoming a public company before they are ready for an IPO. This market would serve as an important bridge to an IPO.

The first one is almost a throwback to the eighties with fixed commissions to support value-adding trading activites, while the second calls for a shadow market where unregistered securities can be freely transacted by legal investors.

The report is full of charts which support the (rather distressing) conclusions, and Grant Thornton has provided insights and trends not heretofore studied in this manner. The historical facts are clear and point to a crisis in IPO markets in the US.

The authors draw a dramatic conclusion that 22 million jobs have been potentially lost due to the decline of IPO listings since 1997. This is a huge number, and though the presented math seems to support this, it is arguable whether so many jobs have not been created in the US, and conversely if the IPO market were to revive, that we could create equal numbers on the rebound. Clearly, a large number of US jobs have not been created since more companies did list outside the US – but 22 million, that just stretches our envelope. Does going IPO automatically create jobs? And don’t pre-IPO companies hire employees, regardless of whether they list in the US or not?

Doubtless, there is a crisis in the US IPO markets, and this issue is getting compounded each year. If action were not taken now, the US could lose the lead it has held for decades in global capital markets. The situation is dire indeed, and all regulators and lawmakers should react to save the US from certain followership.

This report is a must-read for all players in the capital market space, and we trust you will find the results equally astounding.

Clearly, this is a wake up call for America, and the title does full justice to the seriousness of this problem.

Here’s the report on GT’s website.

The post A Wake-up Call For America appeared first on Big4.com.

Monday, November 09, 2009

Twitter just released its latest exciting functionality – Twitter Lists, and we think it’s awesome and very timely.

It allows us to curate who we think are the most appropriate Tweeters to follow in our niche space of The Big Four Firms, accounting, finance, tax, jobs and related topics.

We have already created some list, which we are calling “The Best Of”. We rather like this name, but we’ll evolve as lists get more ingrained, and may change.

For example after our search, all the Twitterers we think are most relevant to follow for Deloitte happenings in the Twitter universe, we have added to our “The Best of Deloitte” list.

This is our subjective selection, and we think it’s a pretty good one. That’s not to say that we have completely covered all the bases, so if there is someone that just needs to be on or off any of these lists, please DM or shout out to us @big4alum. Thanks in advance.

Also, we’ll continue to refine and add/subtract to this list over time, but our intent is to keep them highly relevant and focused. We see that some of our list already have some followers and no doubt this will pick up as Twitter Lists get more ingrained and Twitter itself allows tweets and Twitter Lists to be retweeted.

So, here are our lists – follow us or follow the lists, and keep that feedback going!!

All The Lists

http://twitter.com/big4alum/lists

Best of Accenture

http://twitter.com/big4alum/best-of-accenture

Best of Capgemini

http://twitter.com/big4alum/best-of-capgemini

Best of Deloitte

http://twitter.com/big4alum/best-of-deloitte

Best of Ernst & Young

http://twitter.com/big4alum/best-of-ernst-young

Best of KPMG

http://twitter.com/big4alum/best-of-kpmg

Best of PricewaterhouseCoopers

http://twitter.com/big4alum/best-of-pwc

Best of Accounting

http://twitter.com/big4alum/best-of-accounting

Best of Finance

http://twitter.com/big4alum/best-of-finance

Best of Tax

http://twitter.com/big4alum/best-of-tax

Again, we’re at http://www.twitter.com/big4alum

The post Checkout Our “The Best Of “Twitter Lists – Love Your DM or RT appeared first on Big4.com.

Thursday, November 05, 2009

Huron Consulting Group Inc. (NASDAQ: HURN) just reported its Q3-2009 results, with revenues of $172.2 million increasing 2.1% from $168.7 million in Q3-2008 and up sequentially from $165.8 million in Q2-2009. However, more importantly, Huron took a $106.0 million non-cash pretax goodwill impairment charge, about 20% of the total goodwill balance of $506.5 million as of June 30, 2009. In addition, there were restructuring and restatement charges of $15.1 million. The GAAP loss per share including the aforementioned charges was $(3.16) in Q3-2009 compared to diluted earnings per share of $0.12 in Q3 2008.

Non-GAAP adjusted diluted earnings per share was $0.59 in Q3 2009 compared to $0.86 for Q3 2008(7). This change is almost entirely due to the increase in the effective tax rate. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which excludes share-based compensation expense, non-cash compensation expense, restructuring charges, non-recurring expenses related to the restatement, goodwill impairment charge, and an other gain, was $38.1 million, or 22.1% of revenues for the third quarter, compared to $40.8 million, or 24.2% of revenues, in the comparable quarter last year.

Average number of full-time billable consultants totaled 1,430 for Q3-2009 compared to 1,488 for Q3-2008. Average number of full-time equivalent professionals totaled 861 for Q3 2009 compared to 947 in the same period last year.

By terms of Operating Segments comparing Q3-2009 versus Q3-2008, Health and Education Consulting revenues increased 30%, Legal Consulting revenues dropped 23%, Accounting & Financial Consulting sales fell 24%, and Corporate Consulting revenues fell 14%. Thus, the 2% increase in sales for the company covered a lot of difference in performance across segments.

Digging below the reported loss, Huron actually had some good financial nuggets in this quarter’s results. Cash from operations did increase from $44 million in Q3-2008 to $52 million in Q3-2009. And cash on the balance sheet increased from $14 million in Q3-2008 to $27 million in Q3-2009.

The accounting restatement of $106 million, from the goodwill impairment, had only a non-cash impact on financial results.

Huron indicated for full year 2009, revenues would be in an updated range of $650 million to $665 million. The Company also anticipated GAAP loss per share in a range of $(2.01) to $(1.80), non-GAAP adjusted diluted earnings per share in a range of $2.85 to $3.05, loss before interest, taxes, depreciation and amortization in a range of $(13) million to $(8) million, and Adjusted EBITDA in a range of $139 million to $144 million.

These were quite good results and investors cheered, pushing the stock up 16% (HURN open $24.57 to $26.99 at 10 am) on the open, and up 10% ($25.90 at 4 pm) at the end of trading today November 5, 2009.

Why? Huron’s operations seemingly are intact. Q3-2009 revenues actually rose and operating income and adjusted EBITDA fell only slightly. The accounting restatement had only a non-cash impact on financials, and more critically, the issue was contained, measured and fully absorbed in just a few months after disclosure. Hopefully it is done.

Clients don’t seem to be abandoning Huron as was widely anticipated, if anything Health and Education clients are giving more business to Huron. Sales in the other segments did decrease, this may be due to general economic slowdown. Huron has fewer consultants than it had a year ago, but utilization has only fallen by a few percentage points. Costs are being managed in line with top line declines.

2009 outlook of revenues of $660-$665 million are almost flat to full year 2008. This is cash coming into the door paid for by clients who are purchasing Huron services. Also, full year 2009 EBITDA of $139-$144 million is higher than $122 million of EBITDA in full year 2008.

The stock is on its climb back, it fell from $45 at end of July 2009 to $12 after the goodwill announcement, but has more than doubled since that time. As we have blogged earlier, this seems to be a cloud rather than a cancer for the company, if new management sets things right for investors and clients stay, HURN could potentially look to regain its erstwhile level of stock price in the medium term.

Here’s some background on the accounting restatement right from their release:

“The Company announced on July 31, 2009 that it would restate its financial statements for the fiscal years 2006, 2007 and 2008 and the first quarter of 2009. On August 17, 2009, Huron completed the restatement. The restatement pertained to the accounting for certain acquisition-related payments received by selling shareholders of four acquired businesses that were subsequently redistributed by such selling shareholders among themselves and to other select client-serving and administrative Company employees based, in part, on continuing employment with the Company or the achievement of personal performance measures.

The selling shareholders were not prohibited from redistributing such acquisition-related payments under the terms of the purchase agreements with the Company for the acquisitions of the acquired businesses. However, under GAAP, such payments were imputed to the Company, and the portion of such payments redistributed based on performance or employment was required to be reflected as non-cash compensation expense of the Company, even though the amounts received by the selling shareholders did not differ significantly from the amounts they would have received if such portion had been distributed solely in accordance with their ownership interests. The restatement was necessary because the Company did not record such portions of the acquisition-related payments as a separate non-cash compensation expense with a corresponding increase in paid-in capital.

Based on the results of the Company’s inquiry into the acquisition-related payments to date and the previously disclosed agreement amendments with the selling shareholders, earn-out payments for periods after August 1, 2009 are accounted for as additional purchase consideration and not also as non-cash compensation expense. The Company recognized $1.2 million of additional non-cash compensation expense during the third quarter of 2009 related to the redistributed acquisition-related payments for the period from July 1 to July 31, 2009.

The restatement resulted in a reduction of approximately $56 million in net income and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for all restated periods. However, the restatement had no effect on Huron’s total assets, total liabilities or total stockholders’ equity on an annual basis. Further, the Company did not expend additional cash with respect to the compensation charge, and the restatement had no effect on Huron’s cash or net cash flows from operations.

As a result of the significant decline in the price of the Company’s common stock following the Company’s July 31, 2009 announcement of its intention to restate its financial statements, the Company engaged in the previously announced impairment analysis with respect to the carrying value of its goodwill in connection with the preparation of the financial statements for the quarter ended September 30, 2009, and recorded a $106.0 million non-cash pretax charge for the impairment of goodwill, which was approximately 20% of the Company’s total goodwill balance of $506.5 million as of June 30, 2009. The impairment charge was recognized to reduce the carrying value of goodwill associated with the Company’s Accounting & Financial Consulting and Corporate Consulting segments. The impairment charge is non-cash in nature and does not affect the Company’s liquidity.”

The post Huron Consulting Group Q3-2009 Operations Strong, Shares Zoom appeared first on Big4.com.

Saturday, October 24, 2009

We were recently, and unexpectedly, surprised by our ranking by the well respected FINS.com as one of the “The Top Five Twitter Feeds for Job Hunters in Accounting”. We are thankful to FINS for recognizing our Twitter and web efforts towards the Big Four firms alumni community.

This is what FINS said about us, and we quote verbatim, “2. @Big4Alum: This juicy feed is run by the alumni group behind Big4.com, a blog that caters to the interests of former employees of Accenture, Andersen, Bearing Point, Deloitte, Ernst & Young, CapGemini, KPMG and PricewaterhouseCoopers. Even for those who haven’t had the privilege of working at one of these accounting giants, it’s well worth reading. Particularly job seekers, who need to be up on the doings of the big boys. Tweets chronicle the latest job appointments, openings and other happenings, such as a discussion on CNBC on accounting’s role in the financial crisis between Jim Turley, global chairman of Ernst & Young, and Bob Moritz, U.S. chairman of PricewaterhouseCoopers.”

Here is the link:

http://www.fins.com/Finance/Articles/SB125605830139196837/The-Top-Five-Twitter-Feeds-for-Job-Hunters-in-Accounting?Type=0&idx=10

The source of this ranking (Dow Jones / WSJ) indeed gives it the most validity. Here is what FINS is:

FINS is a new venture from Dow Jones, publisher of The Wall Street Journal. In other words, we know people who know people – particularly finance insiders, top recruiters and industry experts who have shared their secrets and inside information with us. We understand that it’s about more than just a job; it’s about your career. So we created FINS to help guide you through the finance job market and propel your career

All the jobs posted on our Twitter feed are real jobs that are posted by real recruiters. In other words, there are actual humans coming to our site and posting jobs which show up on Twitter. No bots. We encourage all our Twitter followers to apply to these jobs, or retweet them so other Big four alumni who are looking can benefit.

The post Our Twitter Feed Ranked as Top Five for Accounting Jobs by Dow Jones WSJ appeared first on Big4.com.

The Securities and Exchange Commission just released its 2010-2015 Strategic Plan with some broad objectives to focus on securities compliance fostering and enforcement. The US SEC has been under considerable attack since it missed one of the world’s largest $60 billion Ponzi schemes operated by Bernard Madoff. Apparently, there were five particular instances over the years where the SEC could have caught Madoff had they pursued either their own processes or followed through on tips provided to them. Refocusing on enforcement is clearly goal number one.

In addition, the SEC has a key role to play in the oversight of the Financial Accounting and Standards Board (FASB) and the Public Company Accounting Oversight Board (PCAOB), the SEC’s directions sets the tone for the activities of these two boards which will ultimately have a large impact on US accounting standards and regulations.

Here are their four strategic goals, which look quite on point and much needed for the institution to continue to perform its duty to investors and the American people:

Strategic Goal 1: Foster and enforce compliance with the federal securities laws

Strategic Goal 2: Establish an effective regulatory environment

Strategic Goal 3: Facilitate access to the information investors need to make informed investment decisions

Strategic Goal 4: Enhance the Commission’s performance through effective alignment and management of human, information, and financial capital

In particular, Strategic Goal 2 and outcome 1 have relevance to the Accounting profession and the Big4 firms. In overseeing both the FASB and the PCAOB, the SEC’s conduct has broad implications on accounting standards, disclosures, reporting, firm processes and overall audits.

Outcome 2.1: The SEC establishes and maintains a regulatory environment that promotes high-quality disclosure, financial reporting, and governance, and prevents abusive practices by registrants, financial intermediaries, and other market participants.

Promote high-quality accounting standards: The SEC will continue to promote the establishment of high-quality accounting standards by independent standard setters in order to meet the needs of investors.

For example:

• In overseeing the Financial Accounting Standards Board (FASB), the SEC will strengthen and support the FASB’s independence and maintain the focus of financial reporting on the needs of investors, consistent with the recommendations set forth by the SEC Advisory Committee on Improvements to Financial Reporting;

• The SEC will support FASB’s efforts to improve financial reporting, including recent standard-setting initiatives such as off-balance sheet accounting and accounting for financial instruments; and

• Due to the increasingly global nature of the capital markets, the agency will promote high-quality financial reporting worldwide through, among other things, support for a single set of high-quality global accounting standards and promotion of the ongoing convergence initiatives between the FASB and the International Accounting Standards Board.

Foster high-quality audits through the oversight of the accounting profession: The SEC will continue to oversee the PCAOB and its regulation of the accounting profession through the PCAOB’s inspection and disciplinary programs. The SEC also will work closely with the PCAOB on the promulgation and interpretation of auditing standards to address current issues in the capital markets.

The third point in the FASB says that the SEC supports the IFRS conversion, having recently put the timetable back on its front burner agenda, and agreed to reconsider the timeline and activities for the conversion of US GAAP to the international IFRS. Just today, James Turley said that this standardization was absolutely essential for US capital markets and investment analysis.

The point on PCAOB is also important, in that the SEC will and may need to refocus the PCAOB to “address current issues in the capital markets”, which brings in the need to adapt current circumstances it the global financial systems, where auditing of complex financial products will need to be better scrutinized by public accounting firms and their processes vetted with more rigor.

We believe that while this is only a small part of the SEC’s very broad and extremely crucial role in regulating US capital markets, their direction for accounting standards seems appropriate.

The SEC does welcome comments on its strategic plan and those of our readers who are more involved with how it impacts them can send thoughts to strategicplan@sec.gov

The post SEC Strategic Plan Seen to Support IFRS Transition and PCAOB appeared first on Big4.com.

Sunday, September 28, 2008

The Big Four firm Chairmen are key players in the World Economic Forum Annual Meeting of New Champions in Tianjin, China. Deloitte and Touche, Ernst and Young and PricewaterhouseCoopers are key Mentors of the program, while KPMG was noticeably missing.

Here are some excerpts from their interviews. The key takeaway is that these Chairmen while fully acknowledging the financial crisis threatening the world economic order and its tough consequences on business and growth, seem to have a pragmatic positive attitude on a new world order where the BRICs lead with inordinate growth, creating opportunities for continued expansions in financial and business services.

Deloitte and Touche – Jim Quigley

What do you see as being the most significant growth trends for financial services?

Much of the significant growth trends relate to the emerging markets, particularly the BRIC countries of Brazil, Russia, India and China. As businesses in those markets seek to expand, either domestically or globally, they are increasingly looking for financial due diligence, corporate finance, and capital raising advisory services.

The rapidly growing middle class in these emerging markets is also now demanding a wide range of financial services, including consumer banking, insurance products and various investment and wealth management services.

http://www.weforum.org/en/events/AnnualMeetingoftheNewChampions2008/InterviewJimQuigley/index.htm

Ernst and Young – Jim Turley

Entreprenuers can thrive in this tough environment since they are persistent visionaries since they look at the world around them and fulfill a need that they see with a product or service. There are more needs today than ever before and entrepreneurs can do well to persevere and fulfill the needs. Globalization and efficient capital movement around the world leading to world standards. Reverse coupling between Asia and USA seems to be the new order of the day.

PricewaterhouseCoopers – Samuel DiPiazza

Do you support the thesis that the Asian economies have now ‘decoupled’ from that of the US economy?

It is true that the economic volatility and problems experienced in the United States and other developed markets would have, in the past, spelled a global economic downturn. This time around, however, the economic strength of key Asian and other emerging markets—most notably China and India—could at least partially offset the impact of economic slowdowns in the developed world. These markets have enormously robust domestic economies – they’re growing and that’s good for all of us. The world is however a connected place and I don’t believe a complete decoupling will become a reality.

http://www.weforum.org/en/events/AnnualMeetingoftheNewChampions2008/Interview_samueldipiazza/index.htm

The post Big Four Take Leadership Role in World Economic Forum appeared first on Big4.com.

Wednesday, September 24, 2008

Three of the Big Four firms have made the Top 10 of the latest Working Mother magazine rankings for Best Companies for Working Mothers. Ernst and Young, KPMG and PricewaterhouseCoopers made it into the elite group of 10 best companies which provide mom-friendly part-time career paths for working mothers. Deloitte and Accenture didn’t make the top 10 but surely made in the top 100. BearingPoint was conspicuously missing, and Capgemini didn’t make the list either, more so since it didn’t fall into the covered US company universe.

Here’s the Top 10 URL link:

http://www.workingmother.com/web?service=direct/1/ViewArticlePage/dlinkFullArticle&sp=1658&sp=94

Here’s a synopsis of what’s involved and how companies get into this select list (extracted from the working mother website):

“What’s Measured
Seven areas are measured and scored: workforce profile, compensation, child care, flexibility, time off and leaves, family-friendly programs and company culture.

This Year’s Winners
With the help of an independent survey research company, we validated the applications for completeness and tabulated the scores, which then determined the winners.

For this year’s 100 Best, we gave particular weight to family-friendly programs, flexibility, leave policies and benefits for part-timers. All applicants receive feedback showing how they compare to other applicants; however, the names of applicants that do not make the list are kept confidential. The company profiles, culled from the applications and interviews with company representatives, reflect 2007 data. Fact checkers verify all the information.”

Kudos again to the Big Four firms for actively supporting working mothers, enabling them to balance their busy family lives with their career aspirations, and actively providing creative ways for moms to advance within a framework which often demands full-time attention to career development and firm matters.

The post Big Four Make Working Mothers Magazine Best Companies List appeared first on Big4.com.

Friday, September 19, 2008

The current financial crisis in the US has taken a big toll on some storied companies in the recent few months, with unimaginable consequences for the entire financial sector. Consider this:

FannieMae (NYSE:FNM) and FreddieMac (NYSE:FRE) are now under US government conservatorship
Bear Stearns (NYSE:BSC) was purchased for a pittance by JP Morgan (NYSE:JPM)
Merrill Lynch (NYSE:MER) sold itself to Bank of America (NYSE:BAC)
Lehman Brothers went bankrupt recently (NYSE:LEH)

Till just a while ago, all these were public companies traded on the stock exchange and being regularly audited by none other than the Big Four firms. Now with the loss of these firms, the firms have lost big audit fees (at least as a first order impact), not counting any continuations of audit under US government conservatorship or their buying companies, or eventual work from these events.

From our quick analysis (we believe our numbers are right, but provide no guarantees), Deloitte appears to be the most negatively impacted.

Deloitte loses almost $130 million of audit, tax and advisory fees at 2007 levels due to the change of ownership of:
Merrill Lynch (2007 total fees: $57.1 million, 2006 total fees: $51.9 million)
Bear Stearns (2007 total fees: $20.8 million, 2006 total fees: $18.7 million)
FannieMae (2007 total fees: $49.3 million, 2006 total fees: $42.2 million)

Next comes PricewaterhouseCoopers with a loss of $73 million at 2007 levels due to the change of ownership of:
Freddie Mac (2007 total fees: $73.1 million, 2006 total fees: $46.1 million)

Next comes Ernst and Young with a loss of $30 million at 2007 levels due to the change of ownership of:
Lehman Brothers (2007 total fees: $30.1 million, 2006 total fees: $29.5 million)

Surprisingly, KPMG, which is reputedly strongest in financial services and known to have the largest client roster in this sector has been unaffected as yet.

Total Loss to Big Four Firms: $231 Million Dollars

Though our sympathies are totally with the employees (including likely thousands of Big4 alumni) of the affected firms, who have been affected likely due to no fault of their own, we thought we would point out how deep this crisis has affected the Big Four firms.

The post US Financial Crisis Impacts Big Four Firm Audit Fees appeared first on Big4.com.

Saturday, September 06, 2008

Great news for Big Four Alumni! You made the right choice for your career.

Business Week Magazine just came out with its list of “100 Best Places to Launch A Career in 2008.” And all four of the Big Four firms this year are in the top 5 of that list, the only other is the ultra prestigious investment banking firm of Goldman Sachs.

The top five in descending 2008 ranks are:

1. Ernst and Young, 2007 rank of 3 (http://images.businessweek.com/ss/08/09/0904_first_jobs/2.htm)

2. Deloitte and Touche, 2007 rank of 1 (http://images.businessweek.com/ss/08/09/0904_first_jobs/3.htm)

3. PricewaterhouseCoopers, 2007 of 2 (http://images.businessweek.com/ss/08/09/0904_first_jobs/4.htm)

4. Goldman Sachs, 2007 rank of 13

5. KPMG, 2007 rank of 11 (http://images.businessweek.com/ss/08/09/0904_first_jobs/6.htm)

In 2007, three of the Big Four firms were in the top five, but with KPMG having creditably moved up from 11 to 5, they have essentially shut out the competition. The Big4 firms had a total of 12,000 new hires in 2007, and provide them with a salary of $50,000 to $60,000, and a nice starting bonus of around $3,000.

All these firms even beat hotshot Google, which actually dropped from being rank 5 in 2007 to rank 7 in 2008.

Also in the top 100 list is Accenture with 2008 rank of 47, falling precipitously from 2007 rank of 8.

Here’s what Business Week gushed about Ernst and Young, “No one recognizes the importance of perks more than Ernst & Young, where average salaries haven’t increased substantially in at least three years. The Big Four firm still attracts more than 3,000 highly sought-after accounting students each year with extensive training and mentoring programs, performance bonuses, and the promise of face time with top executives—including an annual trip to Walt Disney World (DIS) for all U.S.-based interns, where they get to mingle with the powers that be. It’s perks like that, along with a recruiting machine in overdrive and near-certain advancement to a supervisor-level position in just two years, that landed Ernst & Young atop BusinessWeek’s third annual Best Places to Launch a Career ranking this year, unseating rival Deloitte.”

And more about E&Y, “To improve retention, Ernst & Young in 1999 began doubling its match after four years of service to 3%. Today, it boasts the best five-year retention among Big Four firms: 34%. Although that still leaves a lot to be desired, the savings in recruiting and training expenses are significant. Explains Mary A. Stringfield, E&Y’s head of Americas benefits: “Retention was a key factor for designing that match formula.””

And BW provided just a backhanded compliment to banks, “While accounting firms again dominate the top of the list, owing to impressive perks and intense demand, one of the most surprising things about this year’s ranking is just how well the investment banks fared.”….and we can only guess what this year’s survey will say about Wall Street.

Congratulations to all the Big Four firms, their efforts to hire, retain and nurture top talent has landed them top slots, making their alumni both proud and pleased to have been part of building such tremendous reputations.

The post Big Four Firm Get Top Spots in Business Week Best Career Companies Ranking appeared first on Big4.com.

Thursday, July 24, 2008

Ernst & Young’s BaroMed survey has recently found that the Euro-Mediterranean zone has good potential for significant growth opportunities for international investors. This zone has 17 countries: France, Portugal, Spain, Italy, Greece, Turkey, Cyprus, Malta, Morocco, Algeria, Tunisia, Libya, Egypt, Jordan, Israel, Lebanon and Syria. This group ranks third among the world’s regions in terms of GDP and among the top three for foreign direct investment (FDI).

“BaroMed 2008″ styles itself as the first international survey of its kind, designed to measure the attractiveness of the Euro-Mediterranean zone. Given the proximity of these countries to developed nations of Europe, it is no surprise that they compete directly with Eastern Europe and Asia. A full-third of decision-makers polled said that they had projects planned for the Euro-Mediterranean zone.

Split geographically, countries on the north (France, Spain and Italy) are perennial favorites evidenced by 923 FDI announcements in 2007. But it is the southern countries (Turkey, Morocco and Tunisia) which are strengthening their competitiveness for industrial and logistics-related activities.

Add closeness to Europe, centralized geographic locations, educated workforce, and low cost labor, not to mention the excellent Mediterranean climate would make these countries favored locations for investments and growth.

Right next to the Euro Med zone is MENA (Middle East North Africa), another booming area flush with oil wealth and ready for taking entrepreneurial investments. That’s not to say the BRICs are far behind. The one thing that investors have to avoid is too much alphabet soup conjured by professional firms and investment banks when they look around the globe!

The post Club Med? No! Euro-Mediterranean . The next investment frontier appeared first on Big4.com.

Thursday, June 19, 2008

The Universum USA survey of most desirable employers from the perspective of over 40,000 US undergraduates conducted from December 2007-April 2008 puts the Big Four Accounting Firms within the top 20.

According to Businessweek.com, “Ernst & Young, which jumped from No. 12 to No. 4 on the list, was aided by its Internet efforts, says Universum USA CEO Claudia Tattanelli. (The firm launched the first company-sponsored group page on Facebook in 2006.) “They’re branding themselves with social networking…trying to communicate to the new generation in a new way,” says Tattanelli.”

Clearly, social networking initiatives for E&Y has yielded benefits.

Here are the ranks for all the featured firms:

Ernst and Young moves up from 12 (in 2007) to 4 (in 2008)
Deloitte moves up from 17 (in 2007) to 7 (in 2008)
KPMG moves up from 27 (in 2007) to 16 (in 2008)
PricewaterhouseCoopers drops from 7 (in 2007) to 10 (in 2008)
Accenture drops from 60 (in 2007) to 71 (in 2008)

The details are at:

http://bwnt.businessweek.com/interactive_reports/idealemployers_2008/index.asp?sortCol=name&sortOrder=ASC&pageNum=1&resultNum=100

On the US graduate side, the recent Universum IDEAL survey of most desirable employers specifically for the category of Business derived from 44,064 respondents from 184 leading universities and conducted December 2007 to March 2008, provided even better rankings for the Big Four firms:

PwC beat out Google, which was the most desirable employer for US MBAs, E&Y beat Goldman Sachs, Deloitte trumped Apple Computer and KPMG placed ahead of JPMorgan.

Company Percent 2007 Ranking 2007

Pricewaterhouse Coopers 13,55% 1
Google 13,41% 2
Ernst & Young 12,56% 3
Walt Disney 11,33% 4
Goldman Sachs 10,42% 5
Deloitte 9,78% 6
Apple Computer 9,37% 7
KPMG 7,89% 8
JPMorgan Investment Bank 7,85% 9
Merrill Lynch 7,6% 10
Nike 6,8% 11
Morgan Stanley 6,22% 12
Coca-Cola 5,82% 13
Procter & Gamble 5,74% 14
Microsoft 5,65% 15

The full details are at:

http://www.universumglobal.com/getdoc/00bca8cc-5f1f-4c01-a474-03b867a3b912/American-Graduate-Survey

The post Big Four Firms Have Top Spots as Desirable Employers appeared first on Big4.com.

Monday, June 16, 2008

After much study, The International Centre for Financial Regulation with a goal to ”
establish a unique centre of excellence…to understand and explore the contribution
that efficient systems of financial regulation make to global growth, including in
developing economies.” is moving fast to be a global influential institution in the city of London, UK.

The ICFR has further aims of “….stimulate debate on these issues (GAAP and IFRS)
and to analyse trends. The ICFR aims to do this by identifying the principles that will
guide the regulatory response to these opportunities and challenges.
aims to promote world class research and education in the field and plans to look at the dynamics of financial stability.”

With this noble intention, the ICFR has gathered GBP 2.5 million from the UK government and additional funds from the City of London.

Importantly, Accountancyage.com reports that each of the Big Four firms, Deloitte and Touche, Ernst and Young, KPMG and PwC are adding £100,000 to fund this organization.

Other contributors include Dresdner Kleinwort, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS; banks such as Barclays, HSBC Citigroup and Standard Chartered; and insurers Prudential and Aviva each contributing £100,000 per year for the first three years.

The ICFR has chosen Barbara Ridpath, managing director of Standard & Poor’s in Europe as their new CEO, starting this September.

From the ICFR initial prospectus, we see two examples of where focus and additional study would lead to better accounting standards. In Islamic Finance, the ICFR intends to play a key role by providing technical support to standard setting institutions, undertaking research and providing advice to regulators, and providing tailored regulatory training. In emerging markets in Asia, the ICFR intends to participate in this evolving landscape to satisfy the highly diversified demands of regulatory authorities on best international practices.

There is obvious growing need for consistent international standards both in developed and developing markets, and a well respected body which examines these issues in detail is required to keep the accounting industry in line.

The post Big Four Firms Contribute GBP 100,000 Each to New Center appeared first on Big4.com.

Thursday, January 10, 2008

The US Government Accountability Office just released a very interesting report on the state of the Audit industry as it relates principally to the Big4 audit firms and their smaller-sized competitors. This is a complex area and the GAO study attempts to address many of the intricate dimensions, including questions such as:

What share do the Big4 firms have of top companies?
How much choice do client companies really have while choosing auditors?
Why do large companies generally select one of the Big 4 firms?
Why don’t the smaller accounting firms step into the big league?
What would happen if a Big4 firm exited the marketplace?
Should a Big4 firm break-up and what will this mean?
Why are audit fees rising?
How does Sarbox play into audit firm performance and concentration?

Now’s here an amazing finding – Big 4 firms (PwC, D&T, E&Y and KPMG) audit an astounding 98% of 1,500 largest public companies with sales over $1 billion. 60% of 6,000 companies surveyed said that there wasn’t enough choice in selecting auditors. The Herfindahl index, which measures concentration in a sector, for the audit market was 2,300 – the Department of Justice indicates that any number over 1,800 is highly concentrated.

Not surprisingly, concentration is high and choices are low – all indicators that things are as tight as they can get and any further concentration will mean structural and regulatory changes in the marketplace. That is to say, that while no one is expecting a reduction to Big 3, it will cause a number of governmental agencies to work in concert to mitigate the situation. Several actions to prevent these are mentioned in the report.

There’s much more in the 120 page report, which we will address in future postings.

The post GAO Finds Big4 Audit Share is a Whopping 98% appeared first on Big4.com.

Thursday, August 13, 2009

The Big Four firms periodically conduct global surveys on economic indicators, trends and specific industries. We have blogged earlier that such surveys have been quite accurate in gauging the advent and the depth of our ongoing economic crisis. Since these cover multiple industries, countries and executive levels and are conducted by independent and reputable firms, we can look to them as good indicators of global economic activity and a worthwhile complement to other well watched indices.

For the longest time, these surveys have been dismal and filled with decreases and negative percentages. However, in the last two months, several Big4 firm surveys are showing a distinct and sharp increase in optimism, enhanced activity and robust executive outlook that speak to a reversal of negative trend and pulling out of the downturn. We are seeing words in these survey results such as rebound, better, bullish, optimism and uptick, which were noticeably absent in previous results, and uniformly point to encouraging signs in all global economies for better future prospects.

Let’s take a look at four recent surveys.

First, KPMG’s August 2009 Business Outlook Survey shows a strong rebound in confidence amongst UK manufacturers following the dramatic deterioration recorded in the preceding two surveys. Activity, new business and profits are all forecast to increase sharply over the next 12 months. Employment prospects are a little better, and have risen steeply since the winter. This survey was quite broad, covering 3,700 manufacturing companies in 11 EU countries. Over 65% of the UK survey panel signal hopes of an improvement in business activity during the next 12 months. July 2009’s reading is the highest in the EU and was the strongest for two years.

The August 2009 PricewaterhouseCoopers LLP Manufacturing Barometer has similar good news. It reports less pessimism among U.S.-based industrial manufacturers over the US and global economies. And while there is expected decline in Q2-009, the overall outlook through the second quarter of 2010 shows improvement. In contrast, over the prior 4 quarters, a large majority of respondents viewed the US and world economies as declining. The outlook began to shift in Q2-2009 with a 30 point drop to 63% of industrial manufacturing executives maintaining that the US economy is in decline. The overall outlook for the next 12 months shows improvement — with the lowest levels of pessimism and the highest levels of optimism seen in the past 5 quarters for both the US and world economies. 43% percent of respondents are optimistic about the US economy, up 27 points from Q1, and only 18% are pessimistic, down 37 points from the prior quarter.

Another recent survey from Deloitte supports the results of the other firms. The Deloitte Consumer Spending Index rose in July 2009, driven by falling unemployment claims and tax burdens, along with a rise in real wages. The Index attempts to track consumer cash flow as an indicator of future consumer spending. The Index, comprising four components ― tax burden, initial unemployment claims, real wages and real home prices ― rose to 2.15 percent, from an upwardly revised gain of 1.85 percent a month ago. The strength in the number was driven by all of the index components with the exception of real home prices.

The tax burden continues to fall with economic weakening, and is at a level rarely seen over the past 50 years except during brief periods following tax rebates. Continued decline is expected.
Initial Unemployment Claims have come down sharply over the past three months which historically has been a reliable signal of economic recovery.
Real Wages growth continues to post solid gains due in large part to falling prices. Real wages are up 4.5% from a year ago as falling prices have given a big boost to consumer purchasing power. And finally, Real Home Prices continue to fall on a year over year basis but at a slower pace.

The final piece of good news comes from Ernst & Young LLP which in July 2009 found signs of new IPO activity, despite fewer deals in the pipeline. The IPO pipeline stood at 28 registrants as of 30 June, 2009, down 36% from the 44 registrants as of Q1- 2009, reflecting both renewed IPO activity and the aging of older registrants. New registrants represent a total of $572 million of capital to raise (an average of $71.4 million per company), up significantly from $162.1 million in Q1 (an average of $54.0 million per company). Deal size has actually increased by about 41% since last year. Technology companies continue to lead the pipeline with five registrants representing $2.05 billion.

The common findings of these four surveys from the four firms support the overall recognition of improving fundamentals and sentiment that is being reflected in higher stock market prices, Federal Bank statements, economists’ pronouncements and Central Bank statements. We’ll continue to monitor such surveys to see if they are in sync or at variance with other broader economic indicators. At this time, the news is certainly good, and upticks in surveys only signal better times ahead.

The post Big4 Surveys: Optimism and Positive Sentiment Are Here Again appeared first on Big4.com.

Wednesday, August 05, 2009

Just after market close on Friday July 31st, 2009, Huron Consulting Group dropped a bombshell on investors by announcing an intention to restate its 2006 to 2009 financial statements due to incorrect accounting of “non-cash charges relating to how payments received by the sellers of certain acquired businesses were subsequently redistributed among themselves and to other select Huron employees”. Shell shocked investors immediately sold HURN stock, causing the stock to fall by an astounding 70% from close of market on Friday at $45 to open at a paltry $12 per share at open of market on Monday August 3rd, 2009, and leading to an instant shareholder value disappearance of almost $700 million.

It is now apparent that Huron had agreements to pay some employees at four of its recent acquisitions “earn-out” compensations based on their unit performance after the transaction was completed. These agreements were on their own quite legal, but their accounting was not quite done right. Instead of charging these compensations to P&L expenses as non-cash charges with negative impact on Huron’s net income, they were booked as purchase price goodwill on the balance sheet, thus with no impact on net income and EPS.

Thus, net income and EPS were overstated for these years, and the restatement has the effect of reducing net income by these incorrectly accounted charges. These restatements are not insignificant, in 2006 net income would have decreased by $4 million from $27 million to $23 million; in 2007, net income would have decreased by $18 million from $42 million to $24 million; in 2008, net income would have decreased by $31 million from $41 million to $10 million; in Q1-2009, net income would have decreased by $4 million from $10 million to $6 million. Cumulatively, the total restated amount was $57 million over these four years.

Upon disclosure, the market reduced Huron’s shareholder value by 12 times the fictitious additional earnings of $57 million. Just before this announcement Huron’s P/E ratio was $44 share price divided by estimated EPS of $3.16 or about 14x. Which kind of makes sense.

Huron started as a spinoff from Andersen in March 2002 with about 25 partners and about 200 consultants, principally from Chicago and some pockets in New York, Houston and other parts of the US. The heart of Huron was the Litigation consulting group from the Midwest offices at 33 West Monroe, Chicago downtown. In a matter of weeks while Andersen was crumbling, Huron was able to pull together its core partners, and with financial backing from Lake Partners and Gary Holdren and Dan Broadhurst in the lead, quickly set up its own operating structure and separate offices. Since the core partners had strong and profitable individual practices, they were able to move their clients and personnel to Huron, and given the imminent collapse of Andersen, this was an appropriate move, though with always the inherent risk of a startup entity. Paul Charnetzki, Jim Rojas, Jim Roth, Lisa Snow, Susan Gallagher, Gerald Richardson, Mukesh Gangwal, Michael O’Connor, Robert Wentland, Timothy Zeldenrust among others formed the core team of Chicago partners who launched Huron. Interestingly, this group was a purely consulting practice and had no connection with the Enron audit which caused the downfall of Andersen.

Even at its inception Huron had strong and profitable practices, and notched up annual revenues of $35 million. It focused on litigation services, forensic accounting, bankruptcy, education and healthcare consulting, all services in good demand. Over the years, it grew with amazing rapidity adding new services, new experts, new consultants and new offices both in the US and abroad. Revenues surged to $100 million in 2003. Huron went public in October 2004 (Nasdaq: HURN) with revenues of $150 million and 600 employees, providing an early and financially rewarding exit for Lake Capital and making the initial core partners quite wealthy independent shareholders. Huron continued to grow to $600 million in revenue in 2008 and with 2,000 employees, bucking the economic downturn with services that were quite recession-proof over the last few years. Huron also made a number of acquisitions during this time extending its service depth and international footprint. In 2009, Huron was expecting revenues of about $700 million and about $65 million in net income.

So what happened?

The media and blogs are conveniently pinning the Huron debacle on its Andersen roots, and hinting that the Enron malfeasance bled into Huron. We don’t fully subscribe to this theory, while Huron’s senior management team certainly was from the core of Andersen Chicago, it was hardly involved with Enron’s audit and was quite angry with the way things turned out for the Andersen firm taking the hit for the bad actions of a few employees.

Rather than jumping on the Andersen bandwagon, we think that what transpired here was the result of simple universal human emotions – fear and greed – playing themselves out. Fear of reporting less than satisfactory results to Wall Street which had very high expectations and the financial greed associated with an increasing stock price were in our opinion the key underlying factors for this debacle.

Put yourself in the shoes of Gary Holdren, Huron’s CEO in 2008. Would you rather report to a tough Wall Street crowd a stupendous 23% increase in sales from 2007 and a nearly flat change in net income OR would you report a robust sales growth and a precipitous decline in net income from 2007 to 2008. While we may never find out if Gary Holdren senior management knew of this accounting treatment, our guess is that they preferred the former position and continued to report false numbers in the fervent hope they never get found out. In the battle of truth versus falsehood, truth unfortunately got trampled by greed.

And ironically it is really not senior management which came out with this revelation. According to Huron’s statement, it came to the attention of the Audit Committee of the Board of Directors that there was something amiss when selling shareholders of an acquisition had an agreement among themselves to reallocate a portion to a Huron employee who was not a shareholder, upon which it launched an inquiry to see if other similar situations existed, and further engaged legal and financial advisors and notified PricewaterhouseCoopers, Huron’s auditors who were apparently unaware of this situation. Reading between the lines, it appears that the Audit Committee stumbled upon something and had the guts to chase it independently, senior management never seemed to be quite ready to disclose its errors.

With all this in the background, we are ready to hand out our kudos and shame awards:

First, kudos to the Audit Committee (John McCartney, Dubose Ausley and James Edwards) for unearthing this issue and pursuing it fearlessly to its terrible end.
Second, shame on senior management to succumb to greed and not complying strictly with accounting standards

Third, shame also on the auditor, PricewaterhouseCoopers for failing to spot this issue, especially in 2008, when the amount of money kept in goodwill was $31 million, three times the true net income of Huron of only $10 million

Fourth, shame on Huron itself for providing accounting, internal audit, internal controls, Sarbanes, and similar advice to its corporate clients, while following shady accounting practices. Physician, heal thyself first.

Finally, our sympathies for all the hard working and honest Huron consultants who had nothing to do with acquisitions or their accounting, and are likely as mad as anyone that this could happen to them.

The Chicago Tribune and Crains Chicago are already asking whether Huron will survive this scandal and continue as a company, given the impacts on its standing and potential large scale departures. We think that while this is a devastating hit on the company’s reputation and stock price, it is not a body blow and (unlike BearingPoint) the business will survive over the long term as its consulting service is quite healthy and utilization % quite reasonable. The first steps to announce the restatement, take the full market hit, fire the CEO and CFO, are all in the right direction. It will be tough going for a while (3 shareholder lawsuits already filed), but mass exodus of consultants seems rather unlikely (really, who’s hiring nowadays), and if the new management team which has already survived the Andersen crisis has the right attitudes and goals, (we hope) will make the move to a reputable consulting firm.

We’ll watch and see how things shape up, but the stock seems to be slightly on the upswing with a 6% move up today, which indicates to us that the market move down was perhaps a touch overdone, considering that core operations are still presumably fine.

It’s not fun to see another offspring of the Big4 firm take a nosedive, but its better to take the hit now and find a road to survival, then continue festering longer and be completely wiped off the map. Having seen what transpired at Andersen in 2002, this seems like déjà vu all over again.

The post Shocking Accounting Scandal at Huron Consulting Group appeared first on Big4.com.

Tuesday, July 07, 2009

Ernst and Young has just released its Q2-2009 global IPO report, and while activity in this quarter was substantially over previous Q1-2009 quarter, it was far below 2008 levels and driven largely by 3 key IPOs in developing countries. We blogged about the dismal conditions in the Q1-2009 report at http://bigfouralumni.blogspot.com/2009/04/ey-report-shows-q1-2009-ipo-activity.html

Global IPO activity was higher in Q2-2009 with 76 IPOs worldwide compared with 52 in Q1-2009; deal value was up seven-fold to US$9.9 billion from just US$1.4 billion. However, Q2-2009 remained far lower than Q2-2008 which saw 269 IPOs raise US$38.2 billion in capital.

Three key IPOs: Brazil’s VisaNet (US$3.7 billion), the largest IPO worldwide so far this year and Brazil’s biggest ever; metals company China Zhongwang Holdings Ltd (US$1.3 billion); and Vodafone Qatar (US$0.95 billion) accounted for 60% global capital raised. Together, Brazil and China were two-thirds of worldwide capital in Q2-2009.

This quarter, the most active country was South Korea with 17 IPOs (8 IPOs in Q1). China and Canada followed, with 13 and 9 IPOs respectively. US also experienced an uptick in activity rising from 1 IPO in Q1-2009 to 8 in Q2-2009. Not surprisingly, emerging markets accounted for 53 of the 76 global IPOs.

Global IPO activity is one measure of how the global economy is performing and recovering from the worst recession since the Great Depression. Activity levels were rock bottom in the first three months of the year, but since March, equity markets all over the world have been on a tear, rising 20%+ from multi-year lows, and this has created a sense of some confidence in investors and promoters. Banks in the US have rushed to the capital market as their stock prices have smartly increased and the bravest of the IPO candidates in the pipeline have ventured out. Rosetta Stone in the US, which markets language learning software, had a nice run on its IPO on opening day.

But it is clear that emerging and developing markets is where the action is, these markets have risen 40% plus in just three months and that two-thirds of IPO activity concentrated in these markets is not surprising.
Q2-2009’s substantial increase over Q1-2009 level is a matter of cheer, and perhaps defines the level of the “new normal”, and the heady days of 2007 seem but a distant memory.

It’s been only a few days since the quarter ended, and thanks to E&Y we have a near-contemporaneous indicator of global equity health. While the firm believes that conditions will remain difficult in the coming months, according to Gil Forer, Global Director of IPO initiatives at Ernst & Young, “However highly successful IPOs tend to emerge from post recession periods. These companies, having survived the ultimate stress test, are often leaner and have demonstrated the resilience of their business model. It’s a good time for dynamic entrepreneurial companies. And the high performance of stock exchanges around the globe in the second quarter has resulted in renewed interest in companies around the world to go public.”

And that comment pretty much sums up the cautious yet resilient sentiment in global equity markets today.

The post Q2-2009 IPO Activity Grows Seven-Fold Over Q1-2009, Signals Some Deal Optimism appeared first on Big4.com.

Monday, June 22, 2009

We recently blogged on the recent ongoing trial on BDO International vs. Banco Espirito Santo in Miami, Florida with a jury in session to decide on the issue whether BDO Seidman, the US country firm, was an agent of BDO International, and whether the global umbrella firm should hold financial responsibility for the liabilities of the US firm.
(http://bigfouralumni.blogspot.com/2009/05/bdo-seidman-vs-banco-espirito-case.html)

There were two separate charges against BDO Seidman which were upheld in another court, one for compensatory damages of $170 million and the other for punitive damages of $351 million for a total of $521 million. Earlier, Judge John Schlesinger had ruled that the BDO International would not be held responsible for the punitive damages of $351 million, leaving only the $170 million to be decided by the jury.

We just listened to the 10 minute verdict delivered by the foreman of the jury (supplied to us courtesy of http://http://www.courtroomview.com/): BDO International is not responsible for the penalties imposed on BDO Seidman and the US firm was not agent of the global umbrella organization.

And the six member jury did not take long (barely an hour) to return an unanimous verdict. To the singular question, “Was BDO Seidman was an actual agent of the BDO International BV?”, the jury simply said “No”.

A clear win for BDO firms and perhaps an ever greater precedent-setting case with far reaching implications for accounting firms and the accounting industry, and in particular global firms such as the Big4 firms which operate as country partnerships under a global management organization. Clearly a guilty verdict would have created a host of troubles for Big4 firms, as this would have set a precedent in conferring liabilities upwards from child firms into the parent organization. A not-guilty verdict is very supportive but perhaps not entirely ruling out similar verdicts in the future.

BDO Seidman has clearly escaped a difficult situation, and while BDO International’s overall financial position may not be impaired, the US firm still has to come up with hundreds of millions of dollars to fulfill earlier damages. The source of this money is not that obvious, BDO Seidman has already said it will need to cut large number of employees to locate the funds. BDO Seidman is already appealing that earlier $521 million verdict. Meanwhile, the firm seems to be operating as usual.

The other case, which is likely to follow is Satyam Computer in India, along with its auditors, PwC India and then correspondingly PwC International. Under Indian rules, local auditors can be immediately charged with criminal cases, and as it happened two PwC India partners were jailed for conspiring in the Satyam scam. There has been no suit as yet against PwC India or PwC Global (most likely in the works), but surely shareholders or other parties will sue PwC local and international firms for auditing and certifying statements when clearly there was fraud going on at Satyam. There must be an audible sigh of relief at PwC on this verdict, and if there are extraordinary financial damages imposed on the Indian firm, the damage is likely to be localized and not travel up into the global organization and deeper pockets for larger sums of moneys to plaintiffs. Obviously, a guilty verdict in the BDO case would have been devastating precedent on the PwC case but a not-guilty verdict is no guarantee that the international PwC firm is shielded watertight from severe financial damage.

Two big verdicts for the defendant’s lawyer Mark Raymond sets him up far above a dual negative punch for plaintiff’s lawyer Steven Thomas. It is not clear at this time how these two lawyers will be involved in the BDO appeals case.

We hear there is another case looming in Florida with Ernst and Young defending its auditing and consulting at the defunct Superior Bank of Chicago (with key involvement by Hyatt’s Pritzker family), which was taken over by the FDIC in 2001, and that calls into question another prickly issue for Big4 firms, conflict of interest when both consulting and auditing are provided by the same firm (eventually which led to sale of E&Y’s consulting unit to CapGemini, sale of PwC’s consulting unit to IBM and spin-off and bankruptcy of KPMG’s consulting unit – BearingPoint)

We’ll be watching both on BDO’s appeal and the E&Y case as they unfold in the future.

The post Miami Jury Finds BDO International Not Guilty – Huge Implications appeared first on Big4.com.

Wednesday, June 10, 2009

A little under a month ago (May 14, 2009) we blogged about a number independently conducted recent surveys by the Big 4 firms as a gauge for the depth and breadth of the global economic crisis and any nascent signs of its ending.

http://bigfouralumni.blogspot.com/2009/05/big4-firm-surveys-uniformly-indicate.html

At that time, surveys were uniformly negative and echoed much pessimism about current conditions and future prospects. There were only a few glimmers of hope among participants for any chance of near-term recovery.

We have been brought back to this topic again by Grant Thorton’s Business Optimism Index, a confidence measure of U.S. business leaders, which jumped sharply to pre-recession levels and offered a case for much optimism.

The index jumped very sharply from a (historic) low of 35.6 in November 2008 to 54.5 in May 2009 just a tad below 54.7 in November 2007 when the US recession just began.

When asked, “Do you feel the U.S. economy will improve/remain the same/get worse in the next six months?”, 45% of participants said improve, 43% said remain the same. Only 13% said it will get worse, down sharply from 63% in November 2008

When asked, “How optimistic are you about the growth of your own business over the next six months?”, 9% respondents are very optimistic, 53% are somewhat optimistic (up from 37% in November 2008), 38% are somewhat or very pessimistic.

Finally, a very interesting question, “Do you expect the number of people you employ will increase/remain the same/decrease in the next six months?”. And surprisingly, the results were:
Increase: 20%, up from 9% in February 2009
Remain the same: 50%, up from 43% in November 2008
Decrease: 30%, down from 45% in February 2009

Grant Thornton also asked another pointed question, “When do you think the economy will come out of recession?” 15% said second half of 2009, 54% respondents said the first half of 2010, 24% said sometime in the second half of 2010 and 6% said not until 2011.

The full survey is available at http://ow.ly/dlIq

We turned to other Big4 surveys and found some support for this optimism.

In KPMG’s March and April 2009 survey of insurance executives, they report, “
The results show that more than half the respondents expect an improvement in organic growth (55 percent) and expect an improvement in growth by acquisition or take-over (53 percent) during the next 12 months. Respondents are also positive about their business prospects as they relate to premium volume (say 53 percent), expense ratio (say 53 percent) and capital reserves (say 47 percent). They are least positive about their share price, with only 40 percent of respondents expecting to see an improvement in this area.” (http://ow.ly/dlIl)

Deloitte looked at UK hotel performance from January to May 2009, and found that, “Whilst revenue per available room (revPAR) is still negative, the pace of decline is reducing and some markets are actually showing gains on 2008 numbers with strong leisure demand driving up weekend occupancies and revenues. There is also a trend of improving performance in the weekday corporate business market in London.” (http://ow.ly/dlId)

Today, June 10, 2009, PricewaterhouseCoopers’ Private Company Trendsetter Barometer shows, “Efforts to succeed in the current climate include both cost-cutting and revenue generating measures. More private companies are focused on cost reduction than on new revenue generation, even though those companies focused on new revenue generation report much stronger projected revenue growth over the next 12 months than their cost-cutting counterparts (7.4 percent and 0.6 percent, respectively). Those planning a combined approach fell to the middle at 2.3 percent.” (http://ow.ly/dlI7)

On 28 May 2009, The Ernst & Young Mining eye index gained 29% over Q1 2009, supported by steady upward momentum in the prices of some key traded metals, a big change for an index that lost 46% during the previous quarter and 75% over 2008. However, the Mining eye still remains some 71% below its 2008 (and record) high and 26% below its 2004 base level. Further, “ Quarter one showed signs of cautious optimism for AIM’s junior miners with secondary fundraising in the sector totalling £239 m, compared with £147 m in the previous quarter, and £295 m in Q1 of 2008, indicating that funding is available for the right projects. However, the full impact of the global economic slowdown has yet to be realised. AIM’s miners continued to warn of critical working capital constraints and some entered into voluntary administration arrangements or defaulted on credit payments. The number of mining companies delisting also rose to nine this quarter” (http://ow.ly/dlHV)

In our previous blog, we said, “These surveys conducted by reputable organizations surveying different group of business leaders and using different methodologies yet arriving at similar results indicates that uniformly economic sentiment remains very weak among company executives, worries about future growth, continued recession and dull employment prospects seem to predominate. The most recent KPMG survey seems to offer some green shoot of promise and we may begin to look at these surveys from all the Big Four firms as another leading indicator of sentiment and action as the world hopefully pulls itself of this economic mess in the short term to everyone’s great relief.”

And Grant Thornton’s larger scale US surveys, supported by unrelated data points from other Big4 surveys, seems to indicate that optimism to a large measure has returned to the executive mindset and managers seem to be positively oriented towards higher growth and better future prospects. Economists all across the world are saying that the worst seems to be over just about now, (and while not fully loosing our skepticism), we may cautiously join in that refrain.

The post Grant Thornton Survey Indicates Optimism Returns to Pre-Recession Levels appeared first on Big4.com.

Monday, May 25, 2009

BDO Seidman Vs Banco Espirito Case – Trial Begins Tomorrow in Florida Court

In August of 2007, we had blogged about a large $521 million financial judgment against BDO Seidman in its audit of Banco Espirito Santo of Portugal. At that time, we said,

“Banco Espirito Santo claimed it partnered with Bankest Capital to form E.S. Bankest in late 1990s relying on (BDO Seidman’s) faulty audits that Bankest Capital’s income had nearly tripled from 1995 to 1996. The bank also relied on later audits from BDO Seidman, which certified audits for E.S. Bankest accounts totaling some $225 million, of which only $5 million represented legitimate income.The bank is understandably happy with this verdict, but BDO Seidman will appeal it vigorously, by posting a $50 million bail. As expected, the firm will argue that senior management at Banco Espirito Santo was aware of this fraud and was also complicit.”

Also, we analyzed the relationship between BDO Seidman, the US firm and its global parent, BDO International, which is about 6 times its size:

“BDO Seidman USA is allied with BDO International, which coordinates companies with about 30,000 partners and staff and reported total fee income of $3.91 billion in 2006. In the US, BDO Seidman had revenues of $589 million in 2006, 3,800 employees,. 250 partners and 34 offices.”

See our entire blog post here:

http://bigfouralumni.blogspot.com/2007/08/bdo-seidman-ordered-to-pay-521-million.html

After much legal wrangling, the case has come to court again for a 10-day trial tomorrow at the 11th Judicial Circuit of Florida, Miami-Dade County, before Honorable John Schlesinger. The court is to establish whether BDO Seidman was an agent of BDO International. An earlier trial court had ruled that Banco Espirito’s evidence presented could not have established agency, but the Florida Court of Appeal ruled that the plaintiff was entitled to a trial on whether BDO Seidman had acted as the international accounting network’s agent.

What’s at stake? Might the international accountancy network be vicariously liable for judgment against its network member BDO Seidman, and in a larger sense potentially liable for the $521 million judgment against BDO Seidman, with consequent financial implications for both plaintiff and defendant?

The question of “agency” and “agent” is a critical issue for all Big Four firms, in that they are in some sense a conglomeration of country partnerships held contractually together under a global firm organization umbrella. Take the case of Satyam Computers, where the Indian government is arguing that PwC India was a unit of PricewaterhouseCoopers global firm and any judgment against the member firm stands against the global firm, which PwC firmly disputes.

More so, if claims against the child firm were transposed to the parent firm, then plaintiffs and juries may well be inclined to levy huge financial penalties which while being considered huge by a child firm, could be small in the scope of the global parent. This could lead to a partial or total rewrite of contractual relationships between parent and child.

If you’re interested in the outcome of this trial, Courtroom View Network’s on-demand offering of the Banco Espirito v BDO International trial is available for purchase on its website, www.courtroomview.com.

We’ll be following as well and report on the proceedings and its ultimate result shortly,

The post BDO Seidman Vs Banco Espirito Case – Trial Begins Tomorrow in Florida Court appeared first on Big4.com.

Thursday, May 14, 2009

We looked at some survey results from independently conducted surveys by the Big 4 firms in recent months as a gauge for the depth and breadth of the global economic crisis and any nascent signs of its ending.

The most encouraging outlook comes from a May 2009 survey of KPMG Business outlook for EU services, which shows that the economic crisis in the region may abate over the next 12 months, though most survey variables remained at historically weak levels. KPMG found that net balances for business volumes, revenues and incoming new business all improved in April compared to those posted six months earlier. Nearly 40% of EU service providers expect volume growth, while only half 21% were expecting declines. Also, inflation fears appear to be receding as commodities decline and payrolls stay flat.

Also in May 2009, Deloitte reported some not so good news on consumer spending. The Deloitte Consumer Spending Index dropped in April as falling housing prices and rising unemployment claims offset gains from real wage growth, reduced tax burden and lower energy prices. The Index, comprising four components ― tax burden, initial unemployment claims, real wages and real home prices ― fell to 1.46% from an upwardly revised gain of 1.95% a month ago. Significantly, initial unemployment claims continue at record pace since the Fall of 2008, and real wage growth posting only small gains due to falling energy prices for energy. The final impact on an already stretched consumer are decreasing home prices, though tax credits help, mortgage financing remains scarce.

On the IPO front, an indicator of confidence in new business and capital markets, sentiment remains dull. In April, Ernst & Young found that global IPO activity continues to stall, There were a miniscule 50 IPOs worldwide in Q1-2009 raising just US$1.4 billion in capital, with only two deals raising over US$100 million. This compares with 78 IPOs worth US$2.6 billion in Q4-2008 and a rousing US$41.2 billion in Q1 2008. There seems to be some hope in the pipeline, with some companies continue to ready themselves to go public while waiting for market conditions to stabilize.

In January 2009, in sync with the World Economic Forum at Davos, PricewaterhouseCoopers revealed its 12th Annual 2008 Global CEO Survey, which painted a gloomy picture in the corner office. CEO confidence plunged to its lowest level since 2003, with only 21% of global CEOs saying they were very confident of revenue growth in the next 12 months, down from 50 per cent in last year’s survey. And more than a quarter of CEOs said they were pessimistic about prospects for the coming year. CEOs worldwide were also gloomier about longer term growth as well, predicting a slow recovery. Only 34% seemed very confident of growth over the next three years, down from 42% last year

In April 2009, Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd, found that 77% of US CFOs and senior comptrollers said the U.S. economy will remain the same or get worse in the next six months, and 39% expecting their company’s headcount to decrease. Only 31% expected their company’s financial prospects to improve. More significantly, 87% thought that the U.S. economy will remain in a recession through the end of 2009.

These surveys conducted by reputable organizations surveying different group of business leaders and using different methodologies yet arriving at similar results indicates that uniformly economic sentiment remains very weak among company executives, worries about future growth, continued recession and dull employment prospects seem to predominate. The most recent KPMG survey seems to offer some green shoot of promise and we may begin to look at these surveys from all the Big Four firms as another leading indicator of sentiment and action as the world hopefully pulls itself of this economic mess in the short term to everyone’s great relief.

The post Big4 Firm Surveys Uniformly Indicate Weak Sentiment, Some Recent Hope appeared first on Big4.com.

Wednesday, April 29, 2009

The National Venture Capital Association (NVCA) has come up with four key recommendations to help US venture-backed companies, to kick start the IPO market, which decreased in 2008 to only 6 IPOs in the United States. Taking recommendations from capital market leaders, the NVCA focuses on the venture capital industry, investment banking, accounting professions, law firms, stock exchanges and the government to to restore a vibrant IPO environment once the economy comes back.

Recognizing that today’s market environment is challenging especially for small cap IPOs, due to the high costs of going public, the constituents involved in the process, and the restrictions placed on potential public companies. To fix these issues, the NVCA has come up its “Four Pillar Plan” to restore the Venture-Backed IPO Market. We want to discuss the first pillar in detail as it deals specifically with the Big4 accounting firms.

But first pillars 2 to 4 in brief:

Pillar II: Enhanced Liquidity Paths
Since the distribution system connecting sellers and buyers of venture-backed company new issues is broken, the NVCA endorses concepts such as Inside Venture, Portal Alliance (NASDAQ), SecondMarket and Xchange., where “cross-over investors” commit to hold stock for the long term. Another point of interest, the NVCA will help raise awareness about proactive M&A roll up strategies of smaller portfolio companies to achieve IPO critical mass and global alternatives to the U.S. public markets.

Pillar III: Tax Incentives
The U.S. government must maintain tax policies to encourage VC investment to stimulate the pipeline of promising IPOs, further, Congress should consider adopting new tax incentives which would stimulate IPOs, at least in the short term.

Pillar IV: Regulatory Review
The NVCA will advocate for a full systematic review by the SEC of recent regulations which impact small cap companies, including interpretations of SOX, pre-IPO financial reporting requirements, the separation of analyst and investment banking functions, and private placement requirements, since recent sweeping financial regulations have created unintended consequences for small pre-public and public companies.

Finally, Pillar I: Ecosystem Partners

Here’s the exact language from the NVCA press release” Within the last decade, venture-backed companies have been faced with fewer choices as it relates to investment banks and accounting firms that will assist in the IPO process. While the major investment banks continue to operate, the “four horsemen” boutique investment banks of the 1990’s (Alex Brown, Hambrecht & Quist, Montgomery Securities, and Robertson Stephens), which specialized in IPOs of venture-backed companies, no longer exist. Further, the fall of Arthur Andersen and the resulting pressure placed on the Big Four accounting firms has, in many markets, left a void in terms of quality auditing services available for these smaller companies.

Against this backdrop, the NVCA believes that the venture capital industry must do more
to promote alternative ecosystem partners while engaging with existing members to
identify ways to better serve the needs of emerging growth companies. The Association
has begun to engage in talks with boutique and major investment banks as well as the Big
Four and other public accounting firms about how they can also better serve the needs of
small cap companies. The NVCA also intends to encourage the use of a broader array of
service providers such as the “Global Six” including Deloitte LLP, Ernst & Young LLP,
Grant Thornton LLP, KPMG LLP, PricewaterhouseCoopers LLP and BDO Seidman LLP.”

Our take on this Pillar:

The fall of Andersen has certainly reduced the choice for all public companies, and much more so for smaller companies. Earlier, companies could choose from one of five global auditing firms, leaving ample choice among the remaining four for tax and advisory consultants. Andersen’s demise and Sarbox has drastically cut down both these avenues for larger companies, and as the Big4 firms have grown dramatically over the past few years, they have gravitated away from smaller companies, not always by choice.

The NVCA points out that out of 21 IPOs from November 2007 to February 2009, Big4 firms were involved in 16 and non-Big4 firms were involved in 5 of these IPOs. So, the
NVCA wants to increase the population of global accounting firms to include Grant Thornton and BDO Seidman and call it the new moniker “The Global Six”. While this does increase the sheer number of providers, the Big4 firms are huge compared to GT and BDO, and there is inherent inertia among VC firms to select name-brand firms to (hopefully) maximize their outcome from the IPO. Despite all good intentions and eventual efficient outcome, we think it will be a while before the Big Four move to the Global Six.

The NVCA “intends to encourage the use of a broader array of service providers” – we applaud this, but is a tough challenge to change public perceptions, and we’ll be watching if they do succeed in this effort.

Of course, there are many views on this, some quite opposite ours, and we welcome comments from our readers – what have you experienced? where do you think this is headed?

The post NVCA Wants to Broaden Big Four to Global Six appeared first on Big4.com.

Monday, April 20, 2009

Fortune Magazine just released its Fortune 500 list of top US companies by revenue for the year 2008. Not surprisingly, the top companies in this list were oil giant Exxon at a staggering $443 billion, followed by ubiquitous Walmart at $406 billion, multinational oil companies Chevron at $263 billion & Chevron Phillips at $231 billion and international conglomerate GE at $183 billion. After the top ten, there is a steep drop with number 11 Bank of America at $113 billion and then down the list, number 50 Safeway with $44 billion, and then number 90 Alcoa with $28 billion.

And where do the giant Big4 accounting and consulting firms stand in this list? Now, given that these are private partnerships (except Accenture and Capgemini) and not the US publicly traded companies which are in the Fortune 500 list, but it is interesting to see that four of the Big4 firms made it to the top 100 and all six made it to the top 250.

Leading the Big4 list, PricewaterhouseCoopers with 2008 revenues of $28.2 billion stands tall between hospital operator number 88 HCA and chicken producer number 89 Tyson Foods. Close on PwC’s heels is Deloitte & Touche with 2008 revenues of $27.4 billion, between oil & gas producer number 93 Murphy Oil and electrical conglomerate number 94 Emerson Electric. Third in line is public company Accenture (which would have made this list, but its HQ is Hamilton, Bermuda, which is outside the USA) with 2008 revenues of $25.3 billion, ranked between electrical conglomerate number 94 Emerson Electric and industrial manufacturer number 95 3M. Just behind Accenture is Ernst & Young with 2008 revenues of $24.5 billion placing between paper giant number 97 International Paper and oil producer number 98 Occidental Petroleum.

Below the top 100 ranks are KPMG and Capgemini. KPMG, the smallest of the Big4 Accounting Firms with 2008 revenues of $22.7 billion stands between pharmaceutical company number 110 Wyeth and US airline number 111 Delta Airlines. Far below, but still in the top 250 rank is Capgemini with 2008 revenue of $11.6 billion between telecom company number 229 ITT and natural gas producer number 230 Chesapeake Energy.

This interesting compilation shows that Big4 firms are truly huge partnerships, perhaps some of the largest in the world, and rank among the largest companies in the US. Not only that, they are also extremely profitable with profits usually increasing proportionately with revenue. Compare this with the Fortune 500 whose total profit actually fell 87% from a whopping $645 billion in 2007 to a puny $99 billion in 2008. The Big4 firms clearly have no such troubling trends, the firms actually grew revenue double digits from 2007 to 2008, and while the growth from 2008 to 2009 may not be that high, there are no drastic falls in profits which may encumber some of their corporate peers.

The mega partnership model obviously works mainly in the low-capital intensive professional service sector, and the Big4 firms over a 100 years seem to have evolved a robust business model, which perhaps keeps them out of the Fortune 500 list but also out of the vagaries of profit fluctuations.

Here are the details:

88. HCA $28.4
PwC $28.2
89. Tyson Foods $28.1

93. Murphy Oil $27.5
Deloitte & Touche $27.4
94. Emerson Electric $25.3

94. Emerson Electric $25.3
Accenture $25.3
95. 3M $25.2

97. International Paper $24.8
Ernst & Young $24.5
98. Occidental Petroleum $24 .4

110. Wyeth $22.8
KPMG $22.7
111. Delta Airline $22.6

229. ITT $11.7
Capgemini $11.6
230. Chesapeake Energy $11.6

The post Big4 Firms Make Top 250 in Latest Fortune 500 List appeared first on Big4.com.

Thursday, April 02, 2009

FAS 157, the FASB rule which determines how financial institutions evaluate the value of their financial assets on their balance sheets has been brewing as a hot topic for a while and today moved to center stage based on a meeting of the Financial Standards Accounting Board which relaxed some of the guidelines on how this rule can be applied in the illiquid credit markets that we are now operating in now.

Essentially, FAS 157 indicates how companies should mark their assets to a fair value based on market conditions, which under normal & deep and liquid markets is based on recent transactions, exit prices, and reasonably known standards.

However, when liquidity dries up, counterparties fail and no recent transactions are available, companies are forced to write these assets down to very low values to comply with the strict guidelines of FAS 157. Banks with complex financial assets have been most affected by this and the enormous billions of dollars of writedowns are largely driven by FAS 157 mark to market accounting.

In fact, some like prior FDIC chairman William Isaac have blamed FAS 157 for incorrectly portraying values of bank balance sheets and asked for a holiday period from mark to market guidelines till credit markets return back to health. Others, such as Arthur Levitt, former SEC Chairman have been in full favor of FAS 157.

Today’s FASB meeting relaxations include allowing entities to determine fair value taking into account circumstances and evidence, especially in distressed situations to provide the best translation to an “orderly process”. In addition, FASB allowed companies to take advantage of this in Q2-2009, with some freedom to start this as early as Q1-2009. Banks stocks, which stand to benefit the most soared today 5%+ on this news.
What is FAS 157? Essentially, it is a set of guidelines which companies have to follow to value their assets at fair value, with fair value being determined by the market, rather than the subjective evaluation of the company. We point you to the following for some excellent explanations on this complex topic:

http://en.wikipedia.org/wiki/Mark-to-market_accounting

http://www.fasb.org/st/summary/stsum157.shtml

http://blogs.wsj.com/marketbeat/2007/11/15/a-fas-157-primer/

When complex accounting becomes the hot topic, Big4 firms would not be far behind, expect to hear more from the Big Four firms as this subject moves ahead.

The post Mark-to-Market Accounting Moves to Center Stage appeared first on Big4.com.

Thursday, March 26, 2009

Yes, our blog has been selected to be featured on the Accounting topic of Alltop, an aggregator of the top blogs on the internet.

We’re excited to be part of Alltop, along with other related leading blogs on this subject, such as CPA Trendlines, Re:The Auditors, Skeptical CPA, Alex Malley, Deloitte and others.

This inclusion will help direct folks who are interested in Accounting, the Big Four firms, and all related topics to our blog, for them to read all the stuff we talk about and provide comments. We look forward to the added traffic on our site.

Check it out, we are on the bottom right corner…

http://accounting.alltop.com/

For those who are not familiar with Alltop, here is a synopsis in their own words:

“We do this by collecting the headlines of the latest stories from the best sites and blogs that cover a topic. You can think of Alltop as the “online magazine rack” of the web. We’ve subscribed to thousands of sources to provide “aggregation without aggravation.” In a nutshell, Alltop is an information filter to help you find your nuggets of gold.
Q. How do the Alltop sites work? A. We import the stories of the top news websites and blogs for any given topic and display the headlines of the five most recent stories”

You can also customize Alltop to create your own page of the all the blogs that you like in one single point at http://my.alltop.com/. It’s fairly simple and very useful to keep up with the blogosphere.

The post The Big Four Blog Is On Alltop appeared first on Big4.com.

We step beyond the Big Four firms for this blog post, going to the home page of Grant Thornton (GT) for an interesting and very relevant study on executive compensation. This is fresh off the press as it captures sentiment as of February 2009. The findings are quite sobering and the ultimate impact of the slowing economy is being felt where it hurts the most – the executive wallet.

Clearly, all companies have re-thought their compensation structure and programs and made some tough choices on where and how to allocate a smaller pool of dollars. GT surveyed 227 top companies all across the US with the following conclusions:

Base Salary
About 50% of companies are freezing executive base salaries in 2009, and 75% are holding or reducing their 2009 salary budget as compared to 2008. 34% of companies are decreasing 2009 salary budgets while 15% are actually reducing salaries, indicating companies will very selective in giving merit increases in 2009.

Bottom Line: Expect the same pay in 2009, likely more work and responsibility.

Bonus Plan
More than two-thirds companies’ 2008 bonuses have been below targeted levels; and 25% did not pay any bonus at all for 2008. And to compound this further, 2009 bonus budgets will be same or lower than 2008 bonus budgets. And the bar is higher in 2009 than in 2008 to get bonuses

Bottom Line: Annual bonuses are no longer a sure thing

Long-term Incentive Plan
Most companies did not adjust long-term incentive (LTI) grant practices in 2008 but about half are downward adjusting grant values and/or the number of underlying shares granted in 2009.

Bottom Line: Long term incentives look unlikely

Underwater Stock Options
Many companies don’t yet have a plan to deal with underwater stock options, a key issue impacting 2009 executive compensation plans. Owing to the huge fall in stock prices, 75% of public companies have more than 75% of their outstanding stock options underwater. But more than 50% of these companies have put in place or are putting in place a re-pricing or exchange program to fix this, and a number of companies are either making supplemental stock grants or are granting equity incentives other than options.

Bottom Line: Some hope that say $60-floor options may reprice to $6-floor options

Special Retention
25% of companies have already implemented or considering a special retention program; and those with a significant percentage of underwater stock options are more likely to consider a special retention program..

Bottom Line: If options are getting repriced, good chance retention schemes may follow

Obviously, this is a sobering commentary on the state of affairs in US companies and the crackdown on salaries has been recent, rapid and drastic. Executives will have to manage on lower incomes during these challenging times and can hope for the economy to improve before more money flows into the personal balance sheet.

The entire study is available on http://tinyurl.com/cnzdum, and is worth reading.

The post Grant Thornton Finds Sobering Outcomes for 2009 Executive Pay appeared first on Big4.com.

March 25, 2009

Three years ago, almost to the day (March 22, 2006), we blogged about True Partners, a a niche tax and advisory consulting firm in Chicago, with 25 Andersen alumni and CEO Cary McMillan, who was head of Andersen’s Chicago office and then CFO of Sara Lee. At that time, the start-up had 25 personnel and offered an alternative to SOX-restricted Big Four firms.

At that time, we also said, “TPC’s performance in the marketplace will bear close watching.”http://bigfouralumni.blogspot.com/2006/03/andersen-alumni-launch-true-partners.html

We were brought again today to True Partners Consulting while researching another completely unrelated topic, and were pleasantly surprised to find terrific growth in personnel, services and recognition over these three years. Clearly, they have established themselves in the marketplace and appear to be doing well despite the current difficult environment in professional services.

Here’s what Crain Chicago says: “With revenue expected to climb as much as 35% this year, to $43 million, Mr. McMillan says the firm will add 50 more professionals to its staff of 225 consultants.”So by the end of 2009, TPC will have 275 professionals, which is a 11x growth from its small beginnings just three years ago, and more than $40 million in sales, up remarkably from a small (but unknown) level in 2006.

TPC was also gained 9th place in Crain’s Chicago’s 20 Best Places to Work, with this testimonial, “…True Partners believes it\’s essential to create opportunities for staffers to interact. So there\’s free beer and wine after 5 p.m. and a big-screen TV, Nintendo Wii game system and pingpong table for quick escapes from the daily grind. True Partners won’t hire anyone who can\’t pass the collegiality test and will not keep anyone on board who doesn’t display respect and selflessness toward peers.”

With an expanded set of services:
Tax and Business Consulting
Federal and State Compliance
Private Equity Services
Tax Risk Management
Unclaimed Property

and now at 9 locations in US and Europe, TPC seems to have had a great start and terrific growth. Kudos to Andersen alumni for this success. We’ll come back to see how TPC is doing, hopefully in less than three years from now.

The post Successful Growth At True Partners Consulting In Just 3 Years appeared first on Big4.com.

Sunday, February 22, 2009

When do the legendary game of golf and great Big Four firms meet on equal ground?

This intersection happens when two of the top players in the world are sponsored by two of the Big Four firms. Add to that background some competitive drama, and you have the makings of a golf thriller.

Tiger Woods recently reported that he will be returning to golf championship play by taking part at the Accenture Match Play 2009 next week, and that caps more than 250 days of Tiger-less and insipid golf watching. Tiger Woods is heavily sponsored by Accenture and features prominently on their website, hoardings and commercials. Accenture’s “High Performance” services are exemplified by Tiger’s relentless pursuit of perfection.

On the other hand, Phil Mickelson, the crowd pleasing leftie has had a choppy record over the last two years, winning brilliantly at some championships and barely making the leaderboard at others. But this week, he has been playing at fabulous levels at the Northern Trust Open, currently at 15 under par and leading on the board on the 10th hole of the last round. Phil Mickelson also proudly sports his black KPMG cap with the distinctive logo, having signed a three year contract with KPMG in February of 2008.

Tiger Woods and Phil Mickelson have very different approaches to the game and to the championships. Tiger’s militaristic attack on the golf course compares with Phil’s strategic play on the course.

All eyes will now be on the Tiger-Phil play off, if that ever happens, on the Accenture Match Play next week, and that is sure to be a nail biting, crowd pulling event.

Be sure to be watching next Saturday and Sunday when two of golf’s best players sponsored by two Big Four firms (right on their caps!) provide excitements and moments that will be remembered for a long time.

The post Golf and Big Four Firms – Drama and Excitement Next Week! appeared first on Big4.com.

Saturday, January 24, 2009

All the Big Four firms have made it in the top 100 of Fortune Magazine’s 100 Best Companies to Work For in 2009. Not only have these firms made the list, they have also each moved up in rankings. Accenture, which did not even make the list last year, debuted at position 97.

Fortune follows a rigorous process to select the 100 Best. In their own words, “…we conduct the most extensive employee survey in corporate America. More than 81,000 employees from 353 companies responded to a 57-question survey created by the Great Place to Work Institute. Two-thirds of a company’s score is based on the survey, which is sent to a minimum of 400 randomly selected employees. The remaining third is based on our Culture Audit, which includes detailed questions about demographics, pay, and benefits, and open-ended questions on philosophy, communication, etc. “

Top of the Big4 list is Ernst and Young at rank 51, moving up 6 ranks from previous rank of 57. What makes it so great? According to Fortune, one-quarter of all manager hires and above are “boomerangs,” ex-employees who get credit for their previous time in computing vacation and retirement. One new benefit: zero costs for hospital stays.

Next in line is KPMG at rank 56, moving up 15 ranks from previous rank of 71. What makes it so great? Employees received wage hikes averaging 6.7% in October, while the accounting firm passed out bonuses totaling $108 million. Year-end gift was shelved in favor of a donation to a food bank.

In third place is PricewaterhouseCoopers at rank of 58, moving up a substantial 32 ranks from a previous rank of 90. What makes it so great? Dennis Nally, the audit firm’s chairman, issued updates to employees, saying, “We have no plans to downsize, rightsize, or reduce our staffing levels.”

Fourth among the Big Four accounting firms is Deloitte at rank of 61, moving up a huge 34 ranks from a previous rank of 95. What makes it so great? Women now hold 22% of top positions at this accounting firm, compared with 6% in 1993. Minorities account for 8% of top positions, vs. 4% in 1998.

Finally, debuting at rank 97 is Accenture, which did not even figure in the previous top 100 ranking. What makes it so great? Every employee of this consulting company is assigned a career counselor — and he or she then has thousands of courses to choose from. Average training is 78 hours a year per person.

Congratulations to each of these firms for this creditable honor, it’s certainly not easy to make this list with tough competition, and moving up in ranks indicates that things are improving from an employee’s perspective, and something to be proud of all Big Four Alumni who have spent part of their careers at the top-notch firms.

The post Big Four Firms Honored by Fortune Magazine in 100 Best Companies List appeared first on Big4.com.

Tuesday, January 06, 2009

With KPMG being the last firm to reports its 2008 performance, we can now complete the full financial picture for all the Big Four firms in 2008. The five years from 2004 to 2008 have been some of the best growth years for these firms. In a strong economic environment, with rapid development in the BRIC nations and solid growth in emerging markets, the Big Four firms capitalized on demand for global financial and accounting services to boost their top line and posting a string of back-to-back record performances. Their worldwide reach and ability to offer complex seamless and multi-country services, coupled with need for name-brand public accountants enabled them to grow all their service lines, especially Audit boosted by Sarbanes Oxley regulations in the United States. Growth in Brazil, Russia, India and China was reported at nearly 30+ % each year, as these economies expressed their latent need for professional services.

In 2008, the combined revenues of the Big4 firms, Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers crossed a major landmark – the $100 billion barrier. 2008 revenues were a solid $103 billion, up 15.4% from 2007, and capping a streak of sequential double digit revenue increases each year since 2004, when the combined revenue was only $60 billion. All firms have enjoyed tremendous growth in emerging markets of China, India, Brazil and Russia, great performance in the Asia Pacific region and high growth in Europe, which have more than offset modest increases in their home country of the United States.

Asia turned out to be the fastest growth region for every Big 4 firm, with a large proportion of emerging markets in the continent. The Asia region for the Big Four firms nearly doubled from 2004 to 2006, and Asia’s share of total revenues increased from 12% to 13% in this period. Surprisingly, the European region continues to be the largest geographic region for the Big Four firms. Europe accounted in 2008 for 48% of total combined revenues, up from 46% in 2004. America’s share slipped considerably, dropping from 42% of combined total revenues in 2004 to 39% of combined total revenues in 2008. Highly-developed countries of US and Canada had more modest needs for professional services provided by the Big Four firms.

The traditional mix of the Big Four firms moved slightly away from pure audit to more tax and advisory services as they increased revenues at a faster clip. By service line, combined Audit revenue for 2008 was $53 billion, 52% of the total combined revenue, slipping 2% from its 54% share in 2006. Combined Tax revenue was $25 billion, 25% of the total in 2008, rising 2% from 23% in 2006. Advisory services accounted for $26 billion, 25% of total in 2008, rising 2% from 23% in 2006.

The Big4 firms employed a staggering 590,000 professionals in 2008, increasing from 435,000 in 2004, providing a net employment increase of 155,000 in just five years. In 2008, of this, there were 33,580 global partners, 443,522 professionals and 112,817 administrative personnel. Partners are placed atop a steep pyramid in these firms, partners comprised only 5.7% of total employees, professionals being the bulk at 76% and support staff comprising the balance at 19%. The Big4 firms continue to push the professionals to partner ratio, which has increased sharply from 11.1 in 2004 to 13.2 in 2008. Not only do partners manage a larger set of professionals, they are also expected to bring in larger chunks of client business, with revenue per partner rising from $2.1 million in 2004 to $3.1 million in 2008.

KPMG’s financial year ended in September 2008, a full one quarter after the other firms, and it felt more the crushing weight of the global financial credit crunch. Despite this, its revenue increased 15.4%, somewhat slower than Ernst & Young and Deloitte & Touche, but creditable nonetheless. PricewaterhouseCoopers continues to be the largest firm by revenue, with Deloitte close behind by only $800 million, conceivably Deloitte could become the top dog in a short while if it keeps up its strong rate of growth. Thus, 2009 promises to be an interesting year both for growth prospects and for gaining the top spot.

Undoubtedly, as a group, the Big Four firms occupy a significant position on the global economic landscape, with $100+ revenues, high profitability, deep global reach and as a large employer of highly talented professionals. This year has provided us with quite unbelievable numbers and the party does not seem to be over yet.

The post Big Four Firms Combined Revenues Top $100B, Employment Nearly 600,000! appeared first on Big4.com.

Thursday, November 01, 2007

Grant Thornton LLP, the U.S. member firm of Grant Thornton International, reported on October 17th, that its revenues increased 17% to break the bilion dollar level for the fiscal year ending July 31, 2007. Revenues was $1.036 billion

Grant Thornton also said that of its 1,896 new client engagements, 1-in-5 were companies with global operations. But it did not provide much more than this high level info.

Last fiscal year, Grant Thornton LLP reported that revenues climbed 22% to $886 million in the fiscal year that ended July 31, 2006.

So this is a 17% growth on the back of another 22% growth last year, showing that not only Big Four firms, but also the Next Six Firms have also have spectacular revenue growth.

The post Grant Thornton Revenue Up 17% appeared first on Big4.com.

Tuesday, August 14, 2007

We have a story about one of the Big Six, and it appears that the risks of doing business as Big Four auditors are not confined to them alone.

BDO Seidman has been ordered to pay $170 million in compensation and $351 million punitive damages. The charges: being negligent to show fraud in Bankest, a financial services company owned by a Portuguese bank, Banco Espirito Santo. A six member jury decided that BDO was guilty in one hour, having found it grossly negligent in June.

Banco Espirito Santo claimed it partnered with Bankest Capital to form E.S. Bankest in late 1990s relying on (BDO Seidman’s) faulty audits that Bankest Capital’s income had nearly tripled from 1995 to 1996. The bank also relied on later audits from BDO Seidman, which certified audits for E.S. Bankest accounts totaling some $225 million, of which only $5 million represented legitimate income.

The bank is understandably happy with this verdict, but BDO Seidman will appeal it vigorously, by posting a $50 million bail. As expected, the firm will argue that senior management at Banco Espirito Santo was aware of this fraud and was also complicit.

And if it happens, the $521 million fine could have serious consequences on the firm, it could lead to large layoffs and it could lose its position as the number 5 accounting firm in the United States. According to the Wall Street Journal, this “casts a shadow over its future financial viability”. Also the WSJ says, “Testimony and evidence presented showed that BDO had profit distributable to partners of more than $170 million for its 2006 fiscal year, which ends in June, and a net worth of about $40.5 million. BDO Chief Executive Jack Weisbaum testified that the firm wouldn’t be able to pay punitive damages.”

Let’ s do some math here, $170 distributable earnings among 250 partners works out to about $700,000 payout per partner. The $521 million damage is equal to three years of current year earnings; and even exceeds the $445 million that KPMG agreed to pay the US government to avoid criminal indictment in its massive tax fraud case.

In a large accounting firm, such a number could be spread over a large number of partners so that the individual impact on each partner is reasonable and can be handled if necessary with lower annual earnings spread over many years.

BDO Seidman USA is allied with BDO International, which coordinates companies with about 30,000 partners and staff and reported total fee income of $3.91 billion in 2006. In the US, BDO Seidman had revenues of $589 million in 2006, 3,800 employees,. 250 partners and 34 offices.

But can BDO Seidman effectively handle such a large amount of payouts, without losing its current structure. This is serious money for a medium sized firm. If the award does go through, we could see the firm essentially unable to handle this financial distress. We have blogged earlier that the finance and investing world could not effectively handle the disappearance of a Big Four firm, but what about such a possibility for a Big Six firm. The debate on caps on auditor liability will again take the forefront on such an eventuality.

We will have to wait on the resolution of BDO’s appeal to see how this lands.

The post BDO Seidman Ordered to Pay $521 Million Fine appeared first on Big4.com.

Wednesday, July 04, 2007

The Big Four Firms – PwC, D&T, E&Y, KPMG and Accenture have taken the top 5 revenue spots in a recent global professional services report released by Managing Partners Forum. BearingPoint is number 24 while we couldn’t quickly spot CapGemini in this list.

Here are some impressive (rounded) numbers

PricewaterhouseCoopers

Rank 1, Revenue $22 B, Employees 142,000

Deloitte and Touche

Rank 2, Revenue $20 B, Employees 132,000

Ernst and Young

Rank 3, Revenue $18 B, Employees 114,000

KPMG

Rank 4, Revenue $17 B, Employees 113,000

Accenture

Rank 5, Revenue $17 B, Employees 146,000

BearingPoint

Rank 24, Revenue $4 B, Employees 18,000

Just the top 5 firms alone account for $84 billion of revenues, a good 16% of the total US$535 billion of all the professional services firms tracked. The Big Four accounting firms (PwC, D&T, E&Y and KPMG) totaled to $77 billion, 70% of the US$115 billion of accounting revenues.

Very impressive figure, and testimony to the enormous clout of these firms in the professional services arena.

The post Big Four Firms Dominate Professional Services Rankings appeared first on Big4.com.

Monday, April 16, 2007

In Canada, we hear of consolidations below the Big Four level. Canada’s Number 5 and 6 accounting firms, Grant Thornton LLP and BDO Dunwoody LLP have recently agreed to discuss a merger. The motive: to become larger and stay competitive with the Big Four firms. Yet the road is long: Grant Thornton audits only 3 of the top 100 TSE companies, while BDO Dunwoody audits none of those companies.

Grant Thornton has 2,900 employees in 99 offices and BDO has 1,900 employees in 95 offices in Canada. The combined firm would have 685 partners and 4,800 employees. The merger is limited only to Canada and no staff reductions are expected. A majority of the partners need to agree and vote on the merger which could happen in January 2008.

According to Gilles Chaput, chief executive of BDO Dunwoody, “A combined firm would have enhanced strength, capacity, depth and market credibility to compete in marketplaces across Canada, while at the same time maintaining a strong position in the local communities throughout Canada,”

The combined firm would lead to Canada’s second largest accounting firm after Deloitte.
The issue with all these mergers of course is the structure and culture differences between the firms. If that is resolved, the Big Four firms need to watch their backs as merger of second tier firms could potentially lead to the combined firms taking top spots in country rankings

The post Number 5 and 6 Audit Firms Merge in Canada appeared first on Big4.com.

Tuesday, March 13, 2007

This was the key topic in front of a star-studded panel called by Treasury Secretary Hank Paulson in Washington DC today. Invitees included Warren Buffet, Jeff Immelt, Alan Greenspan and others. The event was covered in great detail by CNBC business television.

The range of opinions varied from total support of Sarbox to virulent oppositions and panelists had compelling arguments for their respective positions. Proponents said the costs were justifiable and increased investor confidence in audited financials with the signatures of corporate officers signing on the financial results. Opponents said that it was costly, stifling competition and driving new IPO companies to list outside the US.

That Sarbox has reached beyond the accounting profession tells us how significant this issue has become in day to day American corporate life. Over regulation is never welcome but regulation to assure financial sanctity is necessary, but is it necessary to go that far to spend millions of dollars to pay auditors to check internal controls. Are pre-existing laws not enough to ensure this kind of clean corporate behavior. That is the heart of the movement for a roll-back, whether this will happen is of course anybody’s guess at this point and we just have to wait and see.

The post Is Sarbox Hurting American Competitiveness? appeared first on Big4.com.

Thursday, January 18, 2007

We see from the Financial Times that the European Commission is going to publish a policy paper today which suggest that the Big Four audit firms should be provided with protection against enormous lawsuits which could result in their potential collapse. This is the first time that the EC has laid out its plans on how to shield the Big Four firms from increasing number of lawsuits from companies, shareholders and investors.

Andersen collapsed in 2002 due to its entanglement with Enron. The death blow was struck by a criminal indictment from the Department of Justice (which was eventually overturned belatedly by the US Supreme Court). That combined with the unknown settlement which Andersen would have to pay in the Enron shareholder lawsuit made the future of the firm quite uncertain. The plaintiff law firm apparently wanted a huge amount of money and finally ironically settled for a fraction upon the demise of Andersen.

The EC is hoping to prevent such a situation and decrease the firms to the Big 3. They have come up with four way to limit the amount of payments from a sued Big Four firm:

1. A fixed monetary limit for auditor liability at Pan-European level through EU legislation
2. A limit based on the euqity capitalisation of the client company
3. A limit based on a multiple of the auditor’s fees
4. The principle of “proportionate liability”, where auditors are liable for damages which were caused by their own errors, and excluding client errors

The papers will make the rounds with investors, regulators, companies, accounting forums and governments before any of it gets implemented.

We are in murky territory. Regulators setting a cap would take the Big Four off the financial hook in a sense, since their liability would be known and limited to non-ruinous amounts. While the regulators’ concern is perhaps warranted in that nobody now wants to see one firm collapse (we would need to change our name as well!), the chances of that happening are very slim (and we trust we are not proved wrong). There is too much ballast in the system to allow a collapse.

The only sensible suggestion in this is the last one, where auditors pay the price for their mistakes only. Company management in fraudulent situations is quite culpable, often misleading auditors for their own gain. Why should the audit firm suffer for management’s wrongdoing. Thus proportional liability is the best way to go….however, the exact determination of the proportion has to be mandated or determined by an independent third party for this proposal to work.

Clearly the EU is taking the lead to throw light on a tough issue, how this goes will have huge ramifications for the accounting industry. As this makes the rounds, we will see how each constituent reacts and the final outcome should be very interesting.

The post Europe Takes the Lead in Setting Auditor Liability Caps appeared first on Big4.com.

Saturday, December 09, 2006

All the Big Four firms (Deloitte and Touche LLP, Ernst and Young LLP, KPMG LLP and PricewaterhouseCoopers LLP) recently reported their 2006 financial results, which we have compiled for a very interesting analysis.

First the highlights for the combined Big Four firms as a total of their individual results:

The Big Four firms have a combined whopping 2006 annual revenue of $76 billion, up a solid 9% from $70 billion in 2005. The firms employ more than half-a-million combined number of partners, client service professionals and administrative personnel. This figure climbed 8% from 2005. Assuming a modest 10% overall employee turnover in 2005, the firms hired a total of close to 85,000 employees in 2006 or about 400 each business day of the year!

Audit and Assurance services account for 54% of total revenues, Tax Services has 23% share of revenue, and so does Advisory/Consulting Services at 23% share. Advisory Services grew the strongest at 12%, annually while Audit and Tax grew at 8% each. Advisory services are propelled by record global M&A volumes, Audit growth is supported by Sarbox, while Tax is actually lower than historical growth rates.

Americas grew at 11%, Europe grew at 7%, while annual growth was highest in Asia Pacific – at 12%. Surprisingly, Europe had the largest share of total revenues at 44%, followed closely by Americas at 43% while only 12% of total revenues came from the fast-growing regions of Asia Pacific.

The combined firms had 30,300 partners, 380,000 client service personnel and 99,000 administrative support staff. The average revenue per partner was $2.53 million and each partner supervised 12.5 client service professionals and 3.3 administrative professionals.

And now a deeper look at some interesting findings at each of the firms:

PwC remains the largest firm with $20.7 billion in revenues, followed closely by Deloitte at $20.1 billion. KPMG was the smallest firm at $16.9 billion just behind Ernst at $18.4 billion. Deloitte was the only firm posting a 10% double digit growth, others had 8% to 9% growth rates. Deloitte predicts a 12.5% growth from 2006 to 2007, with an expected 2007 revenue of $22.6 billion….And if PwC does not grow by more than 9% next year, Deloitte could quite possibly overtake PwC to become the largest accounting firm on the planet.

At Deloitte, Audit, Tax, Americas and Asia Pacific posted more than 10% revenue growth. Also, Deloitte has the largest share of Advisory/Consulting services at 30% (largely due to Deloitte Consulting), while the other firms average around 16%.
At Ernst, Advisory, Americas and Asia Pacific grew north of 10%. The number of partners grew at a 3% rate, one of the slowest among the Big Four.
At KPMG, only Advisory grew more than 10%. KPMG’s largest region is Europe with about 50% share of its revenues. KPMG also increased its partner count by 10%…appearing to be the best place to get a partnership. KPMG also led the other firms in the Client Services Personnel / Partner ratio.

At PwC, Tax, Advisory, Americas and Asia Pacific all had growth rates exceeding 10%. Europe is also strong at PwC, exceeding Americas revenues by a good billion and accounting for 46% of total revenues.

When we look in a comparative fashion across firms, we find robust growth as a common theme, the increasing share of Asia Pacific as a percentage of total revenues, and Europe dominating the regional breakup. Deloitte overtaking PwC is clearly an unexpected development, and so is the high growth in the KPMG partnership structure.

We end finally on a financial note….the average pay per Big Four Partner…

Revenues of $76 billion less estimated pay for client service & administrative professionals less real estate & leasing costs less taxes leaves $20 billion to share among 30,000 partners or about an annual take-home-pay of about $650,000 per partner.

Not bad eh!

The post Big Four Results: – Huge Size and Interesting Surprises appeared first on Big4.com.

Sunday, November 12, 2006

The Washington Post is reporting that SEC Chairman Christopher Cox and Mark W. Olson, chairman of the Public Company Accounting Oversight Board, met today to discuss their ideas on Sarbanes-Oxley in preparation for the PCAOB public hearings set for December 13th, 2006.

What the SEC wants is to reduce the Sarbox burden for smaller companies, and focus the Sarbox effort on higher risk activities. How this flies with the PCAOB will become clear in a few days as discussions intensify and a position is taken for public comment.

This regulatory issue is now having political overtones, what with Cox being appointed by President Bush and Democrats in recent control of the House and Senate. Clearly, an administrative market-oriented solution is clearly preferable to a politically negotiated position. As we have said in earlier posts, the pendulum has begun to swing as also the timing and confluence of multiple factors indicate (Weekend meetings as a case in point) that some change is likely to happen soon.

The post SEC and PCAOB meet on Sarbox: The Plot Thickens appeared first on Big4.com.

Friday, November 10, 2006

Big Four News on Wall Street Journal Front Page

Today’s WSJ carries two substantive articles on Sarbanes Oxley and PCAOB / Big Four Firms. It is the very first item on the What’s News front page column, indicating the extraordinary importance of these topics to investors and the business community at large. We are pleased to see that the issues we write about in our blog are critical, timely and central to business and capital markets.

The Public Company Accounting Oversight Board article written by David Reilly, titled “Accounting Watchdog Falls Behind: Regulator Has Yet to IssueAnnual Inspection Report” focuses on how the agency has fallen behind in a key task: issuing inspection reports on how well the country’s biggest firms are doing in their work auditing public companies.

Reilly notes that “With the end of the year fast approaching, the Public Company Accounting Oversight Board has yet to issue an annual inspection report for any of the Big Four — PricewaterhouseCoopers LLP, Deloitte & Touche LLP, Ernst & Young LLP and KPMG LLP.”

Yes, there are no due-dates, but the PCAOB is certainly behind its own timetable set last year. It had finished the Big Four by August 2004 and then by November of 2005. Previously, the accounting industry was self regulated – the auditing firms had formal arrangements to look at each others’ auditing processes, public reports came out but were quite skimpy, and for the most part the extended reports stayed within the profession.

Now, we expect to see the official report come out and are conditioned to having it on time, much like earnings which are critical to the accounting industry and to investors. And we start to get ancy if things don’t show up at their appointed time….the large delay in BearingPoint’s 10-K filing is a case in point.The PCAOB reports did their trick when they first came out, audit reports on auditors were issued, auditors responded point by point (see their responses on the PCAOB website) and fixed many of the problems, either by restating the financials of the companies or by providing substantial evidence of why things should remain the same.

But the question is: when will the report be issued, how will the firms react, and when will the public know?We don’t believe that auditors look kindly upon an external agency looking into their practices and pointing out errors. It must take a lot of work to prepare for these exercises and be available for clarifications, comments or evidence. In some way, they are getting a taste of the same medicine when they set out to audit companies.

The point is, that the process is long, cumbersome but unfortunately necessary. Auditors have been voicing similar complaints about the time it takes to fulfill this regulatory responsibility.Moreover, the process of PCAOB’s audit itself is long, what with sending out information requests, going through data, validating errors, giving firms reasonable time to respond and then issuing the public report.

In addition, PCAOB has seen its share of top management turnover, not to mention extended responsibilities in looking at foreign auditors in conjunction with other agencies, dealing with the SEC on Sarbox 404, recruiting forensic accounting staff for its own needs, staving off lawsuits, justifying their existence among a few agenda items occupying their top of mind.

So, while we understand the circumstances behind the delay in getting these reports out, we don’t believe that it is condonable. Audit committees and investors are increasingly relying on these reports, whether to make decisions to change auditors or to make sell decisions on error-prone companies.

Not to say that even with these reports, the data is current, the 2005 reports looked at 2003 audits, and the 2006 reports now-due will look at 2004 audits. That’s two years ago and much has changed in the world since then….audit committees are thinking the same way we would believe….make it current and get it out….a tall order for the PCAOB.

The post PCAOB Behind the Curve on Big Four Audits appeared first on Big4.com.

Today’s WSJ carries two substantive articles on Sarbanes Oxley and PCAOB / Big Four Firms. It is the very first item on the What’s News front page column, indicating the extraordinary importance of these topics to investors and the business community at large. We are pleased to see that the issues we write about in our blog are critical, timely and central to business and capital markets.

The Sarbanes Oxley article written by Kara Scannell and Deborah Solomon, titled “Business Wins Its Battle to Ease A Costly Sarbanes-Oxley Rule” focuses on the infamous Section 404, which requires companies to first review and test their internal systems for accurate financial reporting before it gets validated by external auditors. Audit procedures and access rights among other items needs to be documented.

There are several problems with Section 404:

Too much conservatism on part of companies and auditors: nobody wants to get shown up or get sued, which means a lot of work for company personnel and many internal procedures and hassles

Too literal an interpretation of the section: so everything gets covered regardless of their impact on risk

Too much cost for companies: Studies show that costs for companies have risen substantially since Sarbox 404, S&P 500 audit fees have increased from $2.5 billion in 2002 to $4.0 billion in 2004, largely related to Sarbox. A typical company spends $3.8 million for Sarbox

Too many IPOs outside the US: Newly public companies are shying away from US capital markets. According to the WSJ and Dealogic, of the top 20 IPOs so far in 2006, only 3 are in the U.S. In 2002, before Sarbanes-Oxley went into effect, 9 of the top 20 IPOs were in the U.S., including one company that chose a dual listing.

Too much money for auditors: Clearly accounting firms, other software firms, websites, training programs and internal auditors have financially benefited and getting lots of money during this boom period. No one really discusses this, but the double-digit growth of all accounting firms which we have recently seen, including the Big Four, are full testimony

In October 2006, the SEC said that it will have an open meeting on December 13, 2006 to “making Section 404 of the Sarbanes-Oxley Act cost-effective and risk-based,” according to SEC Chairman Christopher Cox.

Also, according to the WSJ, SEC Chairman Christopher Cox wrote to the oversight board this week, urging it to include in its changes some of the recommendations made by the SEC’s small-business advisory group, including one that the auditing rule be adapted to companies based on their size. In his Nov. 6 letter, Mr. Cox said the SEC agreed that the standard needed to be focused on matters that are material, or relevant, to a company’s financial results.

We have been saying all along that all signs are pointing to a reversal of the Sarbox pendulum, which has swung too far. Now, the confluence of several factors: complaints from companies, SEC getting into the game, PCAOB with a new attitude, Treasury Secretary weighing in, underwriting banks seeing business going away, all mean that something large is likely to get debated and get implemented in the near future.

The post What We Blog About – Now on Wall Street Journal First Page appeared first on Big4.com.

Wednesday, November 08, 2006

That’s what the Big Four Accounting Firms want now! PricewaterhouseCoopers, KPMG, Deloitte & Touche, Ernst & Young, BDO Seidman and Grant Thornton have recently released a joint report.

Together, they are now calling for a complete overhaul and rethink of the way companies are reporting their financial performance to investors. Quarterly earnings are passé and show only a slice of the business story – the financial results. But this is getting less and less relevant in a world that is 24/7 and runs on an excess of non-financial information supplied through the global information pipeline – the internet.

Quarterly and annual reporting of financial results are outdated, claims the joint report published today. The large difference between “accounting book” and “market-based economic value” indicates that current financial standards are not adequate and simply missing out on the intangible nature of today’s organizations.

Accounting is a backward looking discipline, relying on facts and judgments on past events, shying away from any future predictions, based on tangible value and fearful of intangible value of companies. In effect, accounting statements are meant to depict the situation of an enterprise were it to be dissolved tomorrow, not its value as a continuing entity. So accounting misses out on what is important to the market – ongoing economic value. The market is adept at converting accounting statements combined with non-accounting information into efficiently set stock prices.

After all, when you sell a share you get cash which buys you a cup of coffee. When you sell accounting value, all you get is accruals.

“The same forces that are reshaping economies at all levels are driving the need to transform what kind of information various stakeholders want from companies, in what form, and at what frequency,” the joint paper said. “The new model should be driven by the wants of investors and other users of company information, and the information produced should be forward-looking, even though it may be historical in fact.”

It is time for real-time results, for companies to constantly report on metrics on a weekly or even daily basis, measures that investors can take into their modeling to make better judgments on performance and value. Let’s take some examples:

Same store sales are a critical metric in measuring retailers
Average revenue per room is important for hoteliers
Movements in daily traffic levels is crucial for internet companies
Passenger-miles are central to understanding airlines
Employee turnover is a watched number for consulting firms

While the ultimate results of such metrics certainly are, none of these non-financial measures are ever in a 10K or 10Q.

Take just the return on invested capital, probably the most important economic metric of a company, no one reports this since everyone has their own way to measure. Even EBITDA is strictly a non-GAAP measure.

So, the accountants are finally turning the tables on themselves. All the superstructure built for a hundred years is just no good now. In some ways, this admission gives us a sense of relief that they have finally seen the lights. In other, they are opening up a Pandora’s box – the key question being: how does one effectively create global standards for metrics which are measured and reported in a myriad of ways. In a sense, if these new standards are adopted, accountants can be busy for many years with complete job security!

These are our opening comments, we will more to say when we digest the report, and watch actions and reactions

The post A Brave New World: Banish the Static, Welcome the Dynamic appeared first on Big4.com.

Thursday, November 02, 2006

What is the flip side of terrific growth at the Big Four firms? Risk management!

We understand that Big Four firms want to keep the gravy train rolling by avoiding a disaster that hit Andersen a few years ago and led to its dramatic collapse. The method: seek legislation or other guarantees to protect from financially disastrous consequences of an investor or company law suit.

Auditors put themselves at risk when they opine the truthfulness of financial statements. If these numbers are found to be misleading or wrong at any point in time, suffering participants find a easy party to sue the auditors who certified the veracity of the published numbers. The field is open to companies, investors, boards of directors, pension plans, class-action lawyers to point a finger and follow up with a large lawsuit and a huge bill to boot.

The auditors do not necessarily deny that responsibility but claim that any penalties should be in consonance with their participation. In theory, the auditors could be on the hook for the entire market capitalization of the company (potentially billions of dollars), though their audit fees may have been in the hundreds of thousands of dollars. If there is such an eventuality and the prosecutors are successful in winning a case against an audit firm, the firm could potentially be wiped out.

Clearly, most firms are partnerships with large capital bases and a steady stream of incoming revenue that could help against huge claims. Moreover, business and malpractice insurance will cover some portion before the partners themselves have to ante-up. Moreover, there are only four big firms left in the world, and it is unlikely that it will fall any further at this time. The limited choices in a Big 3 scenario are so small that governments and regulators will try their best to precipitate such a situation. Consider that KPMG paid a good half-billion dollars in its tax abuse case but avoided criminal prosecution and perhaps certain dissolution. Other firms have given in to settle cases in the hundreds of millions – for partners, financial bind is better than instant death.

We also hear that E&Y and others are trying to insert clauses in their audit contract which will prevent them from being sued by their clients or at least put a cap on the limit of financial damages. It is early, and appears that some clients have agreed to this language. That is one way out, but a gross cap on auditor liability mandated by the Government or the SEC is going to be met with huge howls from investor advocates. We believe there will some middle ground that the market will eventually find. The compromise between auditor liability and small possibility of a Big 4 dissolution will likely favor the latter, and gross cap on liabilities (which is what the audit firms want), we think, is unlikely to win on the large scale, though the firms may find small victories for their efforts.

The post Auditors Want Blanket Protection: A Tall Order in Current Circumstances appeared first on Big4.com.

Vanderbilt’s Owen Graduate School of Management in Nashville, TN will soon be offering a Master’s degree in accountancy to train graduates and help them specifically enter the Big Four. This appears to be the first program of its kind aimed at careers in the top five global accounting firms – Deloitte & Touche, Ernst & Young, Grant Thornton, KPMG and PricewaterhouseCoopers.

The justification according to Vanderbilt is “We hear a common theme from these industry leaders. They place a very high value on exceptional communications and leadership skills, the ability to work well within a team and great analytical and problem-solving skills. Today’s public accounting firms are large, dynamic organizations that provide a wide array of services designed to help businesses run better. Our graduates need to be prepared to succeed in this environment. In addition, public accounting is a wonderful training ground or gateway for those who want to enter the business world. Our MAcc graduates will be prepared to take their careers as far as they want to go – whether it is a partner in a public accounting firm; a controller, CFO or CEO in a corporation; or an entrepreneur.”

This is an example of how Sarbox and internal audit requirements are seeping into academia, with smart grad schools creating programs to manage the growing gap between increasing demand for accountants coupled with flat supply. What we will be watching for if how this programs fills up and if they all find jobs with the Big 4.

The tuition at $35,000 is steep and clearly the program will enjoy this value if the university is able to get leaders from the Big4 to influence the curriculum, give lectures and be available for networking and finally provide careers to students who have been specifically trained for the Big Four.

http://www.vanderbilt.edu/news/releases/2006/11/1/vanderbilt-university-to-offer-master-of-accountancy-degree

The post Now, a Graduate Program to Launch Careers into the Big Four appeared first on Big4.com.

Saturday, October 28, 2006

Mark Olson, Chairman of the Public Company Accounting Oversight Board (Peekabo) recently made a speech where he laid out four key principles to reduce the burden of Sarbanes Oxley on US public companies.

It should be noted that Andersen, one of the Big 5 at that time had an important part in the saga that eventually led to the Sarbanes-Oxley Act to restore investor confidence and address serious gaps in the U.S. regulatory framework. What this meant was that an increased need to bolster internal controls over financial reporting…essentially ensure that company managers told the truth. Also corporate governance responsibilities for boards of directors, external auditors increased.

Another Sarbanes-Oxley fallout: the end of self-regulation by public auditors and institution of PCAOB as an independent oversight body, which has registered more than 1,700 accounting firms since Jan 2003.

And of course, the infamous Section 404, requires public companies annually to provide investors an assessment of their internal control over financial reporting (or ICFR) with quarterly management certifications, annual management assessments of controls, and independent auditor attestations

Has Section 404 worked? Certainly it has. Very few large corporations have gone bankrupt since Enron for fraudulent financials and fewer CEOs have gone to jail. Bolstered by this set of events, the pendulum seems to be swinging the other way just a little: too much perceived costs (fattening auditors, Sarbox consultants, IT implementers et al) and perhaps less than equivalent benefit.

So the PCAOB decided on May 17, 2006, to amend their standards. According to Olsen, these are the guiding principles:

First, the PCAOB plans to propose changes to make the standard simpler to read, easier to understand and more clearly scalable to companies of any size. At the same time, by emphasizing core principles, the new proposal is expected to focus auditors on the areas of greatest importance.

Second, the PCAOB is critically evaluating every area of the audit to determine whether the existing standard encourages auditors to perform procedures that are not necessary to achieve the intended benefits of the audit.

Third, the PCAOB plans to propose changes that would make explicit in the standard the PCAOB’s past guidance on how to make internal control audits as efficient as possible.

Fourth, the proposal should emphasize the importance of a company’s control environment, and how it can impact the risk of financial reporting fraud or other material failure, in order to focus auditors on what really matters, which is identifying material weaknesses in a company’s system of internal control before those weaknesses result in material misstatements in the company’s published financial statements.

Practicality, simplicity and cost control are becoming the guiding principles for the new standards: companies should focus on the higher-risk elements and need not spend a bundle of cash to be in compliance.

Take for example the increased number of new IPO listings outside the US to avoid Sarbox compliance costs. PCAOB claims that this trends stems from the new listings of state-owned enterprises which are naturally non-US and prefer to list in their home jurisdictions.

We believe that we are now settling into a new, perhaps more relaxed regime of corporate governance since the penalties for malfeasance are extraordinarily high (take a look at the recent option scandal, where many CEOs lost their jobs). Companies take reporting and governance seriously and may need less over-the-top in-my-face standards and likely incorporate the moral code in their DNA and thus need lesser cost-heavy regulation but a softer hand with a heavy stick.

Mr. Mark Olson’s speech is available here http://www.pcaobus.org/News_and_Events/Events/2006/Speech/10-17_Olson.aspx

The post Sarbox Pendulum Starts to Swing the Other Way, Just a Little appeared first on Big4.com.

The wheels of justice grind slowly, but they meted out a just sentence on Jeff Skilling, the former Enron CEO, one of the few people responsible for Andersen’s dramatic collapse and foreever changing the accounting firm landscape by reducing the Big 5 to the Big 4.

Jeff Skilling was sentenced Monday to more than 24 years in prison. The U.S. District Judge Sim Lake, in handing out the harshest sentence yet in the Enron saga, said Skilling’s crimes “have imposed on hundreds if not thousands of people a lifetime of poverty.”

He allowed Skilling to remain out of jail, but mostly confined to his home with an electronic monitor on his ankle. Skilling also has to pay $45 million in restitution to Enron investors. Skilling, was “disappointed” by the verdict but would appeal the 19 criminal counts against him.

In his comments, Skilling was remorseful for what happened at Enron, but maintained he had committed no crime. “The company did not have enough dry powder to deal with it. That, in sum and substance, is what happened in Enron,” he said.

Enron and Andersen employees were severely affected.

So now Skilling can serve the Big 24, and repent his wrondoings.

The post Andersen Nemesis, Jeff Skilling is Served Due Justice appeared first on Big4.com.

Tuesday, October 17, 2006

Grant Thornton LLP (GT), the U.S. member firm of Grant Thornton International, says that its US revenues climbed 22% from $726 million to $886 million in the fiscal year ending July 31, 2006. This follows a 29% increase from $562 million in 2004 to $726 million in 2005.

GT has a full 10% higher than the annual sales increase of Deloitte and Touche LLP (12.5%) and Ernst and Young LLP (10%). In 2005, GT ranked 7 out of 100 in Accounting Today’s list of Top 100 firms.

The firm also landed 3,400 projects and 200 new clients in addition to starting a new Recovery and Reorganization practice, a Healthcare practice and acquiring Stout Risius Ross Inc. of Farmington Hills, MI. The client base grew from 1,800 to 2,000, so the volume contributed by new clients is approximately 11% of the 22% sales growth, the balance 11% is likely additional services provided to existing clients.

Surprisingly, GT provided NO further financial details on its release, but highlighted some qualitative achievements. We understand that accounting partnerships are by nature quite tight lipped and reluctant to provide any information beyond the bare minimum. DT and EY at least told us where the overall growth was along service lines, practices and geographies. But this total lack of detail does not allow for any comparison with other firms on any dimensions.

All we can say is that GT grew much faster than its larger competitors, which indicates that they are getting proportionately a lot more business this year than the Big4. The gap between GT and the smallest of the Big4 is billions of dollars, so there is no impending threat for the mega firms. But, GT is clearly capitalizing on opportunities that the Big 4 are either not seeing or do not prefer to see. Companies are slowly widening their horizons beyond the Big Four and the large number of new clients which GT has acquired is indicative of this trend. Two years of 20% + growth are catapulting this mid-level firm with revenues of ~$500 million very rapidly to a ~$1 billion dollar regional powerhouse in 2007 if current trends continue.

Some notable achievements….

SEC proposed Section 404 changes –GT believes that these provisions should be given a chance to work through collaborative fine-tuning. In the process of “getting it right,” it is vital to make sure that new guidelines protect investors without unduly burdening companies with excessive costs.

Increased transparency in reporting auditor change — GT urged the SEC to revise 8-K rules to require reasons for all company dismissals of auditors, for all auditor resignations and for all instances in which the auditor chooses not to stand for reappointment.

Section 199 — GT submitted comments to the United States Treasury Department and the Internal Revenue Service on the Section 199 Proposed Regulations.

Working Mother 100 Best Company — The 100 Best recognizes Grant Thornton for creating a corporate culture that encourages the retention and advancement of women.

BusinessWeek 50 Best Places to Launch a Career — GT landed the No. 34 spot

IDG’s Computerworld — Named Grant Thornton LLP as the No.5 Best Place to Work in Information Technology.

Etc. Etc.

The post Grant Thornton Revenue Up 22%, Double the Big4 Rate appeared first on Big4.com.

Baker Tilly USA

If you have never heard of this firm, it may begin to crop up shortly in US corporate circles. Baker Tilly is one of the top 10 accounting firms in the UK, and now making news by creating Baker Tilly USA with a new business model.

Baker Tilly USA will be a national network of 22 mid-size accounting firms aiming to act as a single firm and trying to effectively compete with the Big4. The network plans to offer tax, audit and consulting services under one name and 8,000 employees.

Clearly the Big4 firms dominate the accounting space, especially all the top public companies in the US, who have traditionally chosen these firms for their name, capabilities and international scope. Firms like Grant Thornton, McGladrey Pullen and
BDO Seidman make up the rear-guard behind the Big Four, taking mid-size regional clients who are not interested or fall off the Big Four radar screen.

Will Baker Tilly work?

The incumbent Big Four firms have formidable positions having been trusted advisors for years and can win just by sheer size. That’s not to say that companies are not switching audit firms, but typically from one firm to another. These network firms, if they can effectively combine processes, cultures and capabilities can present one single face to the client, they at least have some chance of winning. Even the second-tier firms have had a tough going getting marquee companies to switch away from Big Four.

The proof will of course be in the pudding. If a large public company switches out of the Big Four and goes to a network firm, then that is a clear victory, and if this happens more than often, we could call the networks a good competitor to the Big Four. Or perhaps they will become tough players against the second-tier.

Is there more to come?

According to the Washington Post, three other accounting firm networks are preparing to introduce alternatives: Moores Rowland North America, the Leading Edge Alliance and Moore Stephens North America

New landscape

All said, we think we are seeing the beginnings of a new trend in the accounting industry. Consolidations, mergers and partnership mash-ups are going to show up in larger numbers and accelerate as well. The landscape is going to rapidly change and these will begin to take more mind-share of financial news and the growing attention of media. We will be reporting more of this as it happens and the impacts on the industry

The post New Accounting Networks: Can They Compete with the Big4? appeared first on Big4.com.

nday, October 16, 2006

Accenture (NYSE: ACN) came out 379th in the recent international Fortune 500 2006 ranking. In 2005, Accenture just made the cut with a rank of 455 out of 500.

Accenture’s (NYSE: ACN) revenue of $17.1 billion and profit of $940 million makes it rank 3rd in the Computer Services and Software industry behind Microsoft and Electronic Data Systems.

Accenture (NYSE: ACN) is sandwiched between Hindustan Petroleum (rank 378) and Lear Corporation (rank 380)

Where would the Big Four firms place on the Fortune List based on their revenue? We estimate their ranking as below. PwC would come out in the 300s with over $20 billion, followed by Deloitte and Touche at rank 323 and Ernst and Young at rank 352 and Accenture at 379. The last one making the cut is KPMG at rank 430. The others did not even make the cut…

PricewaterhouseCoopers
2005 revenue: $20.2 billion
Rank: 321

Deloitte and Touche
2006 revenue: $20.0 billion
Rank: 323

Ernst and Young
2006 revenue: $18.4 billion
Rank: 352

Accenture (NYSE: ACN)
2006 revenue: $17.1 billion
Rank: 379

KPMG
2005 revenue: $15.7 billion
Rank: 430

CapGemini
2006 revenue: $9.8 billion estimated
Rank: Not in Fortune 500 Ranking

BearingPoint (NYSE: BE)
2005 revenue: $3.6 billion approx
Rank: Not in Fortune 500 Ranking

The post How do the Big 4 Firms Rank in the Fortune 500? appeared first on Big4.com.

The options scandal has made astonishing inroads into Corporate America affecting tons of executives and toppling CEOs. Companies which have backdated options to benefit senior managers have become investor targets, subject to SEC investigations and generally become poster childs for how hidden white collar crime is rampant in public corporations.

One such company is UnitedHealth Group, Inc. (NYSE: UNH) where Bill McGuire, the CEO resigned today in face of intense criticism and pressure.

Coming to the CEO position is Stephen Hemsley, the current Chief Operating Officer, an Arthur Andersen alum and ex CFO of the accounting firm. Corporate life takes bizzare turns and now a Big 4 alum has become the leader of a Fortune 50 firm, actually 37 in the Fortune 500 with $45 billion in sales.

UnitedHealth Group, Inc. (NYSE: UNH) stock is at the lowest level of the year, and now we have to see what Mr. Helmsley can do with the company…we will be watching!

From the UnitedHealth Group, Inc. website, here is a brief bio of Mr. Helmsley:

Mr. Hemsley previously was managing partner, strategy and planning, for Arthur Andersen and Company and headed the firm’s technology activities and knowledge initiatives. He was a member of the Andersen Worldwide and Arthur Andersen Executive Committee and Executive Council, the Chairman’s Advisory Council and Partner Income Committee. In addition, Mr. Hemsley served as chief financial officer for Arthur Andersen. He had been with that organization for 23 years.

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Wednesday, October 04, 2006

We hear that the Chinese finance ministry wants to develop at least 10 full-fledged accountancy firms in the next ten years. The policy: “bigger, stronger, self-reliant”. The goal: be capable of providing comprehensive audit services of world standards in order to reduce reliance on foreign firms, especially the Big 4. These 10 firms would be able to operate internationally and support local Chinese companies which plan to internationalize. Further, 100 medium-size firms would concentrate on the domestic market…..current firms are actively encouraged to merge to create economies of scale.

All this in a draft policy paper recently released for industry comment by the Chinese Institute of Chartered Accountants (CICPA). Concerns abound that any weakness in domestic accounting infrastructure and issues with reliability of corporate accounts may impede effective formation of deep capital markets. Currently the Big 4 firms dominate the Chinese companies listed overseas, and only about 70 of China’s more than 5,000 accounting firms are even permitted to audit listed companies.

“Any problems encountered . . . must be promptly and effectively resolved,” the policy says. Further, it shows up the lack of experienced accountants and issues a need for for the development of 1,000 “senior professionals able to handle globalised services”.

Another example of how the Chinese government is setting policy, deciding industry structure and dictating how the market should behave. It has been very successful in other sectors, so we would expect full compliance in the accounting area too. If this were to materialize, the Big4 are going to have a tough run for their Remimbi in the future.

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Sunday, September 24, 2006

We hear that The Public Company Accounting Oversight Board (PCAOB or Peekaboo) has started to visit US-headquartered audit firms in London, UK, specifically BDO and Ernst and Young LLP to carry out inspections under Sarbanes-Oxley. Sarbox specifies that US regulators have to report every year on foreign audit firms which have more than 100 clients with U.S. listings. Further a report every three years is needed for those with less than 100 U.S.-listed clients.

BDO Stoy Hayward said that they had received full PCAOB clearance, and KPMG and Deloitte were expecting such visits. No news as yet from PwC.

And boy, are the UK firms upset! At the minimum they feel that these inspections are duplicative of the work carried out by the UK watchdog agency, the Financial Reporting Council, which has its own inspections. Moreover, they must be balking at the internal firm time spent in unearthing documents and answering questions.

Accusations of “regulatory creep” have welled up but denied by Peekaboo. But PCAOB did admit there were “more than a dozen” such international inspections along with their foreign counterparts. So in a sense, there is a good sense of cooperation among the agencies, though it does not take away that the US folks still want to do their own audits and don’t totally rely upon the work done by the local staffs.

So extend this further, and PCAOB can be off visiting every major developing country in the world to examine accounting firms. The EU in return is going to institute an audit directive in 2008, which requires member states to ensure that non-EU companies listed in the region be registered with a European audit regulator and regularly inspected. Thus, EU inspectors could very well arrive on US of A and begin doing their own inspections.

Without international cooperation and trust not only between regulatory bodies but also legislators who pass these governing acts, we will have hordes of inspectors going all over the world examining the books of major accounting firms. Surely, this is a situation which every firm only anticipates with dread, as duplicative audits take away from their prime objective of protecting investors with truthful financial reporting. We just have to see how this UK inspections pan out before making any dire extrapolations.

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Business Week magazine just came out with their inaugural list of “Best Places to Launch a Career”, and it validates something that all Big Four alumni know – starting at the right place makes all the difference. Big Four firms take 4 of the top 20 spots and 5 of the top 50 spots.

Here are the rankings:

At number 3 is Deloitte and Touche
2005 Entry Level Hires: 3,367
Average Pay: $50,000 to $54,999
One out of 4 partners has 20+ years with the firm. One-third of experienced hires are ‘boomerangs’ who have left and returned.

At number 12 is Ernst and Young
2005 Entry Level Hires: 2,800
Average Pay: $50,000 to $54,999
In 2005, E&Y instituted a permanent four-day weekend for Labor Day, July 4th, and Memorial Day.

At number 15 is KPMG
2005 Entry Level Hires: 5,200
Average Pay: $45,000 to $49,999
Its allotment of 25 paid days off for entry level professionals is one of the most generous of all the companies in the ranking.

At number 20 is Accenture
2005 Entry Level Hires: 1,536
Average Pay: $50,000 to $54,999
Tired of the grind? Accenture lets employees take sabbaticals–at half pay–to do consulting work for non-profits.

At number 42 is CapGemini
2005 Entry Level Hires: NA
Average Pay: $55,000 and above
Company is guided by seven core values that include “boldness,” “freedom,” and “fun.”

At number 55 is BearingPoint
2005 Entry Level Hires: 1,811
Average Pay: $45,000 to $49,999
Every new hire gets a mentor who knows his way to the top: a managing director of the firm.

(Italics: Business Week comments, the big take away is that new hires make a lot of money and have a lot of vacation!)

Notwithstanding BW’s dubious commentary, Big Four firms are great places to work, learn and leave for something else with the time is right. Alumni can take great comfort in knowing that their career choice has been formally validated and recognized by one of the country’s leading magazines

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Tuesday, June 13, 2006

It appears that China, Inc. the growing economic juggernaut is turning its focus on the Big Four Accounting firms. The Big Four – Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers have each around 4,500 staff and looking to add an additional 20% .

But the country, which has one of the largest GDP growth rates in the world and fast becoming an economic superpower with a formidable industrial base wants to promote its own local accounting firms to enter an industry hitherto the domain of the Big Four. Chinese companies are now wholly dependent on non-Chinese firms to get audits done so that they can get capital and list abroad.

These so called “national champions” are “encouraged” to gain business from other local businesses but these are not pressured to give business to local firms. The intent is to reduce dependence on foreign accouting firms.

According to a Chinese official, “As Chinese companies list abroad, we also hope the audit firms can go global too.” “After all, the entry of foreign companies into China happened alongside the introduction of foreign audit firms here.”

But this appears to be a long shot, accounting firms and tradition and integrity and investor confidence are built up over decades. Consider that the second-tier firms like Grant Thornton and McGladrey Pullen in the US even have a hard time becoming a Big Four firm. Chinese accounting firms generally have low experience of global accounting rules and audit procedures or disclosure requirements.

But the Chinese government is not to be underestimated. In industry after industry, toys, shoemaking, steel, chemicals, automotive, electronics, software they have determinedly penetrated and gained global prominence. Accounting is a regulated industry and the local business situation has a large impact on Big Four fortunes. With the might of the government and support of local officialdom, Chinese accounting firms can quickly arm up and start getting larger sized accounts. The 5,600 or so accounting firms, which include around 70 that are authorised to audit listed companies, could consolidate to produce some large, deep firms with decent depth to challenge the Big Four.

Recently Bank of China, which was audited by PricewaterhouseCoopers, went public and the IPO was well received globally. Some of the investor confidence is certainly due to a clean audit opinion by the largest accounting firm in the world. Could investors have felt so comfortable with an audit by a not-so-well-known auditing firm. History shows that this is not the case. Brand does add value and comfort.

The Big Four firms are of course highly sensitive to Chinese government needs, consider that
Ernst & Young held back a report on the level of bad debt at China’s top banks, which we covered in a recent blog.

The Big Four need to keep watch in their rear view mirrors for local competitors. Now they all seem far away, but one could sneak into a blind spot close behind and then zoom ahead.

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Sunday, May 28, 2006

The Public Company Accounting Oversight Board is proposing rules,which in a roundabout way, help the Big Four audit firms handle some potentially sticky situations.

Under the Section 102(d) of 2002 Sarbanes-Oxley Act, a registered public accounting firm may be required to report more frequently on company events to the Board.

Now the Board is proposing that audit firms file a report when it withdraws an audit report from previously OKed financial statements for a company. Typically, this is reported by the company on its website or its filings to the SEC. But it does not appear that they are obligated to do so.

And the hapless accounting firm has no avenue to make sure that the public is alerted. Any Big Four alum knows that publicizing such events on the Big Four website (the only other route) is a recipe for disaster.

So now, the audit firms have to report this to the PCAOB on a mandated basis. This is a blessing in disguise for investors, a happy situation for auditors and a tougher spot for companies with restated financials.
We have to see how this gets debated, and accepted into procedure. It is going to be interesting when these reports really start coming out to the public.

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Friday, May 26, 2006
The Enron Saga: Andersen Indicted, Then Acquitted….But Too Late

The Enron saga spans 20 years with Lay becoming Chairman in 1986 and being convicted in 2006. Along the way it became the most-admired and most-debased company in the country. Its bankruptcy shattered the company, destroyed Andersen, bled Wall Street banks, fattened attorneys, brought fame and shame to the DoJ, rewrote security laws and impacted thousands of innocent individuals, their lives and careers.

Much has been written about Enron, but its impact on the erstwhile Big Five space has been immeasurable. 90-year old Andersen was shredded for destroying paper, and hastily criminally indicted as a firm, a shameful episode which was overturned by the Supreme Court in due course. The misdeeds of a few were thrust on several tens of thousands. Now there is a sense of closure in that the true white-collar criminals will serve the time due to them.

1985: Houston Natural Gas merges with InterNorth to form Enron
1986: HNG CEO Kenneth Lay becomes CEO of Enron in 1986.
1989: Enron begins trading of natural gas commodities.
1990: Lay hires Jeffrey Skilling. Skilling hires Andrew S. Fastow
1991: Richard Causey joins Enron as assistant controller from Andersen.
1997: Skilling named Enron president and CEO
1998: Fastow named CFO
1999: Causey named CAO. Fastow creates LJM partnership

August 2000: Enron shares tough $90.
February 2001: Skilling succeeds Lay as CEO, Lay remain Chairman.

August 2001: Skilling resigns. Lay becomes CEO. Sherron Watkins voices concerns to Lay.
October 2001: Enron announces $638 million in Q3 losses and a $1.2 billion reduction in shareholder equity due to writeoffs. SEC launches inquiry. Fastow fired.
November 2001: Treasurer Glisan and Attorney Mordaunt fired. Enron restated with $586 million in losses. Dynegy to buy Enron for $8 billion in stock. Enron restates Q3 earnings and shows $690 million debt. Enron stock goes under $1 as Dynegy withdraws buyout
December 2001: Enron is bankrupt

January 2002: DoJ begins Enron criminal investigation. Andersen admits to destroying Enron documents. Lay resigns as chairman and CEO. Cliff Baxter, head of trading unit found dead of a self-inflicted gunshot wound.
February 2002: Lay resigns from the board.
March 2002: Andersen indicted
June 2002: Andersen convicted.
August 2002: Michael Kopper pleads guilty
October 2002: Andersen sentenced to probation and fined $500,000. Trader Timothy Belden pleads guilty to wire fraud. Fastow indicted

April 2003: Lea Fastow charged
September 2003: Glisan pleads guilty and sentenced to 5 years

January 2004: Fastow pleads guilty to serve 10 years in prison. Causey pleads innocent.
February 2004: Skilling pleads innocent
July 2004: Lay indicted, surrenders to FBI, pleads innocent.
July 2004: Enron reorganization plan confirmed. Broadband CEO Rice pleads guilty
August 2004: Trader John Forney pleads guilty. Broadband COO Hannon pleads guilty
October 2004: Assistant treasurer Despain pleads guilty

May 2005: U.S. Supreme Court overturns Andersen conviction. Court rules that vague jury instructions allowed jurors to convict without finding criminal intent behind mass document destruction. Government says will not retry the firm.
December 2005: A judge approves David Duncan’s withdrawal of his guilty plea. Causey pleads guilty

January 2006: Lay, Skilling trial begins.
May 2006: Lay and Skilling convicted of conspiracy to commit securities and wire fraud

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Thursday, May 25, 2006
Lay and Skilling Indicted

Messers Lay and Skilling were found guilty today by a jury in Houston on several counts of security fraud, misrepresentation to auditors. This is as it should be. It is hard to believe that these executives were unaware of the manipulations within Enron, the machinations with special purpose entities, the spurious deals with banks and financial institutions in order to make the earnings numbers that they themselves were conveying in a sense to Wall Street.

Clearly Enron was a house of cards, but it all began with management who created the show and then ran it with an iron hand. Auditors in the pre-SOX era had little power to stand up to aggressive management and quite believed the numbers represented to them by the company reflected the true state of operations. Andersen happened to be the auditor for this company, turned a blind eye and suffered dire consequences. Could any other Big Four firm have done otherwise under these circumstances – tens of millions of dollars of tax, accounting and consulting services were at stake here.

It is ironic that the DoJ rushed in to criminally indict Andersen, only to have the indictment overturned at the Supreme Court level, the highest court in the land. In the end only a few individuals at Enron, including Lay, Skilling, and Fastow faced sentences, as should have a few complicit individuals at Andersen. Thousands of employees however paid the price of the collapse of these institutions when only a few were at fault.

At least in this case, the DoJ had it right, whether it was totally correct in indicting an entire firm is certainly open to question.

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Friday, April 21, 2006
Fore! Big Four Consulting Firms Go With Top Golfers

Just a few days ago, we were looking through the Wall Street Journal and found two full page advertisements by BearingPoint and Accenture in the same section of the paper. Now, it is not surprising to find big splash ads by the Big Four in the WSJ, but the interesting counterpoint here was that both ads prominently featured two leading golf stars.

BearingPoint was congratulating Phil Mickelson on his decisive victory in the Masters in Augusta and indicating that its IT and consulting staff provide clients such top level of service and expertise.

Accenture continued to feature Tiger Woods in their “Go on. Be a Tiger” series they have been running for a while now, and were promoting their expertise in helping their clients become a High Performance Business.

For 2006 according to PGA.com, Phil Mickelson is the number 1 money leader with total golf earnings with $3,123,827 from 2 wins in 9 events. Tiger Woods is number 2 with earnings of $2,485,083 with 2 wins in 7 events.

It is a moot point whether all Big Four Consulting firm clients actively read the WSJ, play golf or make decisions based on an advertisement. Further it is not very clear why consulting and IT services should be portrayed under an umbrella of golf, though association with top performers in itself is generally a good idea in marketing. The firms appear to have chosen well (in a very fickle game) and positioned themselves with the number 1 and 2 money leaders in golf today.

If earnings were the only comparison, the “longest drive award” goes to BearingPoint at this point in time. We will revisit this end of 2006 and see where the tally stacks up.

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Thursday, April 20, 2006
Oxera Study Validates Big Four Concentration in the UK

Oxera Consulting recently completed a study in the UK on the structure of the Big Four service industry with findings, while not totally surprising, provide a formal validation of views held by many industry participants.

Here are the key findings from the report, which appear equally applicable in the US or any highly-developed capital market:

The Big Four audit firms audit all but one of the FTSE 100 companies, and represent 99% of audit fees in the FTSE 350.

The market concentration has increased after two watershed industry events: the Price Waterhouse/Coopers & Lybrand merger in 1998 (Big6 to Big5) and the demise of Arthur Andersen in 2002 (Big5 to Big4).

Switching rates are only between 2% to 4% and competitive tendering does not occur frequently.

Reputation is an important driver of choice, which favor the Big Four, and this is a big differentiator between them and the mid-tier firms.

Companies perceive that the Big Four have greater capacity and international coverage to deliver the technical audit, and further can better offer value-added services and insurance against catastrophes and reputational risk.

In line with what one would expect, higher concentration has led to higher audit fees, and the audit committee focuses more on quality and reputation than on price.

Quite apart from concentration, audit fees have increased recently due to higher costs and changes in regulation

Oxera’s analysis shows that the current market structure is likely to continue. Substantial entry by mid-tier firms is unlikely to be attractive to them, due to significant barriers, including perception bias, high costs of entry, a long payback period for any potential investment, and significant business risks when competing against the incumbents in the market.

Finally, the loss of another Big Four firm (down to Big3) would substantially increase difficulty on auditor choice, requiring regulators to make exceptions to auditor independence rules.

A Big Four firm exit would be a significant concern for investors, as this could lead to drop in audit quality and an increase in audit market concentration. This situation could be mitigated somewhat by substantial market entry by mid-tier firms.

Oxera has done a tremendous job in detailing, analyzing and codifying these issues and needs to be commended for a frank and unbiased report. We believe that the market has just about digested the reduction of the Big Five to the Big Four. While large-scale changes to the current situation appear unlikely, concern about excessive concentration will slowly begin to emerge and take center stage. Then, while it is by regulation or through market dynamics, the second tier firms will eventually be called to the table whenever audit renewal comes around. Then of course, the question will be whether they have the capabilities, international presence to handle complex and global audits. This will be one of the key factors in determining how fast and in what way the industry structure will change.

We recommend highly reading the report, the executive summary can be downloaded at http://www.oxera.com/main.aspx.

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CRA Survey: SOX Costs Falling from 2004 to 2005

CRA International (previously Charles River Associates) has just released its Spring 2006 survey results for the costs expended by public companies in complying with Section 404 of the Sarbanes-Oxley act. The study was commissioned by the Big Four Accounting Firms. Here are some interesting findings from that report:

Total Section 404 costs (including internal costs, third party costs and 404 audit fees) fell 31% from 2004 to 2005 for Smaller Companies (market capitalization between $75 million and $700 million) and 44% for Larger Companies (market capitalization greater than $700 million). 404 audit fees fell 21% for Smaller Companies and 22% for Larger Companies.

Why this decline? CRA attributes this to “efficiencies as a result of the learning curve
effect, and from first-year documentation efforts that did not need to be repeated in
year two.” The top reasons for cost savings:

Increased efficiencies gained from moving up the learning curve in implementation and the testing of controls from 2004 to 2005

Reduced documentation

A reduction in the use of outside parties in readiness activities

Expected decline in the number of key controls tested, reflecting the benefits of experience, and greater reliance on the work of others

Also the number of material weaknesses and significant deficiencies identified by the issuer or the auditor declined from year one to year two. The Accounting Firms believe this indicates a general improvement in internal controls over financial reporting at the Subject Companies.

In our opinion, this reflects how public companies have quickly learned to adopt and comply with stringent and mandated internal control regulations. As time progresses, we would not be surprised to find that these are absorbed into management routines and processes, further reducing costs and number of material weaknesses.

There is of course, the larger impact that SOX is having on companies and investors. Consider the strong growth in audit fees and practices for the Big Four, which could be impacted by internalization. Also, the London Alternative Investment Market and other European exchanges are attracting more and more newly public companies as they decide to shy away from tough SEC regulations in listing in US exchanges. Finally, there are voices now being strongly heard in the accounting and political community about the costs of compliance and its impact on smaller companies. There is a bill waiting in Congress/Senate which would eliminate the need for SOX for small companies, however the sheer number of small companies more than outweighs the number of larger companies in the US.

With all these competing influences, we will have to watch and see how this all plays out.

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Wednesday, March 22, 2006
Andersen Alumni Launch True Partners Consulting

Just last month, we saw another interesting development in the creation of niche tax and consulting firms.

Andersen alumni launched True Partners Consulting (TPC), a tax and advisory consulting firm in Chicago, headed by Cary McMillan, former head of the Chicago office for Andersen. McMillan had left Andersen a few years ago after a rapid rise through the firm’s audit ranks to become the CFO for Sara Lee, an Andersen audit client, moving offices across downtown Chicago. He then went on to lead one of Sara Lee’s business units before leaving the company.

The firm has 25 other former Andersen partners and personnel, with a stated goal of creating a “new kind of tax and business advisory firm to help public companies and private enterprises navigate the numerous federal and state tax laws and increasingly complex financial regulations”. TPC’s niche will be providing the quality of services that clients receive from the Big Four without any Sarbanes-Oxley-related conflicts, which the Big Four run into when they wish to offer a combination of tax and consulting services to their current audit clients. TPC has six prior Arthur Andersen senior executives who have at at least one time in their careers been associated with the firm.

Why the name? According to the firm, this embodies a philosophy based on the types of relationships it forges with its clients and its people. Moreover, TPC does away with the hierarchy from partner down to associate, normally associated with the larger Big4 firms. MDs are shareowners and actively involved with associates to create customized client solutions.

The firm plans to offer five different kinds of services, with a strategy of offering niche advisory where the Big Four may not have strong presence or have not paid adequate attention:

Consulting: helping with filing practices, business restructuring or bankruptcy for potential tax consequences
Compliance: helping comply with federal, state and local laws and regulations requiring reporting and payment of taxes and fees
Unclaimed Property: helping address all aspects of unclaimed property including compliance, planning and audit defense
Refund Reviews: helping clients identify tax refunds, effectively reduce tax exposures, penalties and interest.
Audit Defense and Support: helping clients analyze potential tax exposure, recommend appropriate audit strategies and review or prepare responses to tax audit inquiries

Clearly, operating in a post-SOX world for the Big Four firms has created a drastic change in the way non-audit practices find their clients. The audit channel was always a reliable way to meet key client decision makers and sell tax, consulting, IT and legal advisory services. With clear demarcations needed between auditors and advisory service providers, non-audit services have to find other ways to obtain clients. This can be a challenge when there are no prior and established relationships to lean upon.

Independent firms such as Huron Consulting and Protiviti, also started by Andersen alumni, have taken advantage of this situation and carved out a niche for themselves. One of their main selling points is the absence of a conflict, combined with the technical pedigree of a true Big Four firm. An appealing combination indeed.

Obviously, this must have made sense to more than one professional service firm. True Partners is supported by $20 million of venture financing from private equity firm Waud Capital Partners. True Partners also received a $900,000 grant from the Illinois Government. Silver Lake supported Huron Consulting and was able to find a good exit when Huron went public.

TPC’s performance in the marketplace will bear close watching.

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