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Accounting News Roundup: Bad Auditing and China’s Big 4 (or 10) | 11.10.16

Bad auditing

Maybe you've noticed, but when big audit firms settle charges with the SEC or other regulatory body, they never strike a conciliatory tone. For starters, they rarely admit any wrongdoing and any statement they do put out is along the lines of, "We're committed to performing high quality audits and look forward to putting this matter behind us." I know expecting an apology is unreasonable, but the slightest sign of remorse or, say RESPONSIBILITY would be very refreshing.

Firms take quite a different approach in the UK, which was on display for Deloitte's settlement with the Financial Reporting Council that was announced today:

The Financial Reporting Council fined Deloitte 4 million pounds ($5 million) and Clennett 150,000 pounds for their work on the aircraft parts supplier’s 2006, 2007 and 2008 fiscal year accounts, the regulator said Thursday. The fine is the highest imposed by the FRC for misconduct.

“We accept the findings of the tribunal and regret that in this instance our audit did not meet professional standards," a Deloitte spokeswoman said.

Yeah, some regret would be nice. You know, admit the occasional shortcoming. Acknowledging some fallibility won't kill you.

Elsewhere in auditing regulation: the PCAOB dumped 33 inspection reports yesterday including EY (16 deficient audits out of 55 inspected), Baker Tilly (3 deficient audits out of 10) and RSM (5 deficient audits out of 15)

China's Big 4 (or 10)

Paul Gillis has tracked the size of China's largest accounting firms (based on revenue) for the past five years and it's quite a horse race:

Revenue growth for China's top 100 CPA firms slowed in 2015 to 17.2% down from the blistering growth of 32.8% in 2014. Nonetheless, the growth in accounting firm revenue far outpaced the growth in GDP, indicating that China continues to invest in accounting. The international Big Four firms grew at 7.5% in 2015, significantly down from 18.2% in 2014. Local firms continued to outpace the Big Four in revenue growth, logging a 21.5% increase compared to a 39.5% increase in 2014. That has led to a decline in the Big Four's share of the Top 100 market to 28% from 31%, continuing a steady slide over the last few years.

There was a shakeup in the Top 10 firms. PwC remains #1, but is likely to fall to #2 (Ruihua) in 2016. Ruihua is a member firm of both RSM and Crowe Horwath. Deloitte slipped from #2 to #4, falling behind both Ruihua and BDO. Grant Thornton replaced UHY Vocation in the #10 slot with remarkable growth of 32.5%.

Ruihua's revenue growth in 2015 was 31.6%, while PwC only managed 10.6% and the rest of the Big 4 — who are actually 4th, 5th and 6th largest — were in the single digits. The difference between PwC (#1) and Grant Thornton (#10) is less than $3 billion RMB. So this is what a competitive accounting profession looks like.

Has Donald Trump released his tax returns?

Nope! And lots of people are still asking when or if he'll do that. The Smoking Gun's count is up to 512 days. Fun fact: It's law for sitting presidents to be audited by the IRS and customary for them to release their tax returns:

Howard Gleckman, senior fellow at the Tax Policy Center in Washington, D.C., said Internal Revenue rules require the annual audit of the president and vice president's tax returns.

He'll be under audit. As were his predecessors, dating back to Nixon.

However, while the IRS must conduct the audit, there is no rule to mandate that the nation's top elected officials release to the public.

"That's custom," said Gleckman. "And that's where Trump will have some explaining to do. He won't be able to use the audit excuse in the same way he has been using it."

Right! I mean eventually Trump will have a recent tax return that's not currently being audited. The excuses to come will be entertaining, believe me.

University partner viewpoint: What's a specialization worth?

The University of Scranton has a handy infographic that shows what you can earn after studying a specialized or highly specialized areas in an MBA program. They range from accounting to international business to enterprise resource planning with average salaries that start at $61k and reach $182k.

Previously, on Going Concern…

In Open Items, someone wondered about the possibility of tax reform in a Trump administration.

In other news:

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