Author: Caleb Newquist

Founding editor, Going Concern.

Why Is Utilization Such a Big Deal at Public Accounting Firms?

As it’s only been a few days since we learned about the death of Pan Jie, the PwC auditor who died in Shanghai, many people are questioning everything, from high pressure culture within the Big 4 to this most recent contribution from the mail bag wanting to know why utilization is such a BFD:

Hey Caleb,

Been reading all the comments on the Shanghai PDub girl perhaps overworking to death, and everyone seem to have the same opinion on the same thing: overworking, but undercharging. And, this topic of utilization has really been troubling me since the first day I joined public accounting. So can someone care to explain why utilization is such big deal at the Big 4s??

I really don’t get it. Because ultimately, in my opinion it is purely a [key performance indicator] that is on paper, and is not a real depicting of a company’s financial performance. From when I last checked, the concept of OT pay is no longer applicable. So it’s not like by charging more hours, the firms are not paying me more and thus impacting their bottom line. Of course, if I need to bring on more people to the team to complete the audit, it may impact the bottom line for that engagement. And, also maybe there are the out-of-pocket expenses that you need to consider for employees beyond 8 hours. But I am sure [out-of-pocket expenses] during busy season will not break for audit budget. But besides that, everything is pretty much fixed, from the audit fee, staff’s salaries, expenses, etc. So I really don’t get this utilization game that management is playing.

Is my mind too simple, or can someone explain it to me?

Here’s my take on utilization – it partially factors into how firms determine if they’re getting their money’s worth out of employees. Say you’ve got two employees that are effectively the same (hours, performance, etc.) except one takes all five weeks of their PTO while the other doesn’t take any PTO. The difference of two hundred hours – on paper – shows that one employee is one creating 200 additional hours of value for the firm versus their co-worker who does not. If both of these individuals met their utilization goals for the year, then there’s really no issue. But if the five weeks of PTO taken by the first employee causes them to fall short, a friendly HR professional or performance counselor will have an easy decision as who should be crowned a top performer at evaluation time. Regardless of firms saying “we want you to take vacation” they want you to meet utilization goals first.

As for budgeting, depending on the engagement you may have wiggle room and you may not. If you’re serving a small client, regular late-night dinners could easily blow the budget and zap the realization, especially if you’re billing all the hours you’re working. So if you’re trying to make utilization goals but have a tight budget, you may have to cave on either charging all the hours or starving to death. Not an easy choice and is one reason why serving small clients can be a double-edged sword.

So essentially I agree with you, utilization is primarily a performance indicator and not much else. It simplifies the ability to determine someone’s value on paper. Low utilization indicates that you suck at your job or no one likes you. High utilization means you’re a workhorse and a team player. When it comes to cutting the weakest link, the decision is pretty easy. I admit that I’m far removed from the latest trends in determine valuable employees so veterans of the utilization game and people in the know are invited to chime in with theories on utilization and its usefulness (or lack thereof).

Accounting News Roundup: Obamas Earned $1.7 Million in 2010; 9th Circuit Hears Boeing Whistleblower Case; Tax Advisor for the Desperate Endorses Trump | 04.19.11

Alterra Investors Should Oppose KPMG Reappointment, ISS Says [Bloomberg]
Alterra Capital Holdings Ltd. (ALTE) investors should reject the insurer’s plan to reappoint KPMG- Bermuda after a government accounting board faulted the auditor’s work, said Institutional Shareholder Services Inc. The proxy-advisory service joins Glass Lewis & Co. in advising shareholders next month to vote against a proposal by Alterra’s management to keep the Bermuda affiliate of the Big Four accounting firm as the company’s auditor.

Obamas Earned $1.7 Million, Paid $453,770 in Taxes; Bidens Made $379,178 [Bloomberg]
President Barack Obama and his wife, Michelle, reported $1.7 million in adjusted gross income last year and paid $453,770 in federal income taxes, according to tax returns released yesterday by the White House. The Obamas’ adjusted gross income for 2010 dropped about 69 percent from the previous year, when it was $5.5 million, and 2010 was the couple’s lowest-earning year since 2006, before Obama’s presidential campaign generated interest in books he wrote. Their total federal income tax liability for 2010 dropped about 75 percent from 2009, when it was $1.8 million.

ASU 2011-2: The Accounting for Troubled Debt Restructurings Still Leaks Oil [Accounting Onion]
How accounting standards and Hondas are not alike.

Testy 9th Circuit Hears Whistleblower Case [CNS]
Two Boeing employees who were fired after providing a newspaper reporter information about alleged ethics violations asked the 9th Circuit to reconsider a federal judge’s ruling that the Sarbanes-Oxley Act does not prohibit termination for disclosures to the media. No court has yet addressed whether employees can be fired under federal whistleblower laws for providing non-confidential information about potential fraud to the press.


Arguments Have Loopholes, Too [CFO]
The debate over GE’s taxes has as many holes as the IRC.

Gary Busey Endorses Donald Trump for President in 2012 [YouTube]

What Do We Make of All These Non-Accountant CFOs?

John Carney points out that Bank of America, JP Morgan and Wells Fargo have all appointed new CFOs recently that are not accountants. It harkens him back to a time when another bank made a similar change.

Of course Carney is talking Lehman Brothers and Erin Callan. Oh and Ian Lowitt too. Both served as Lehman’s CFO prior to the bankruptcy. Funny thing – Francine McKenna wrote a post about the problematic situation of having a CFO with no accounting experience three months before Lehman went bankrupt. But BofA, JPM and Wells aren’t Lehman are they? GAAP is really NBD, right? [CNBC]

Glass Lewis Recommends That Alterra Shareholders Drop KPMG-Bermuda as Auditor

Remember Alterra Capital Holdings Ltd? They’re were exposed by Bloomberg’s Jonathan Weil last month as the KPMG-Bermuda audit client that was selected by the PCAOB for inspection. The audit didn’t go so hot as the inspectors found “the firm did not obtain sufficient competent evidential matter to support its opinion on the issuer’s financial statements.” To put this in context, Weil explained that available-for-sale securities were the largest asset on Alterra’s balance sheet and it accounted for “half of the company’s $7.3 billion of total assets as of Dec. 31, 2008, and a little more than half of its $9.9 billion of total assets at the end of last year.”


In wake of this little revelation, research firm Glass Lewis & Co. has recommended to Alterra Capital Holdings that they kick KPMG-Bermuda to curb (after nine glorious years), according to a copy of the “Proxy Paper” sent to Going Concern. The report rehashes the whole story and then concludes with this:

Despite the lack of any restatements of previous financial statements, we believe that shareholders should be concerned about the reappointment of KPMG following the lapses uncovered by the PCAOB. Therefore, we believe that shareholders should hold the audit committee responsible for reappointing the same audit firm.

Glass Lewis also wanted to make shareholders “aware” of the fact that Alterra’s Audit Committee Chair, CFO and CAO are all KPMG alumni but stopped short of citing it as a reason to oppose KPMG at the meeting on May 2. According to the report, Glass Lewis had recommended that Alterra retain KPMG as auditor prior to the last shareholder’s meeting which the shareholders did by an overwhelming margin with nearly 91 million votes voting “For,” 182k voting “Against” and 32k abstained.

‘Satisfied,’ Possibly Deranged PwC Employee Describes Unfamiliar Work Environment

From the mailbag:

Hi Caleb,

I’ve been perusing your website for about 5 months now and I cannot believe the amount of complaining people do and still stick it out in public accounting. If it is that awful, why are you trading away your life for this job? I’m in assurance in New York Metro with PwC and everyone that I work with is pretty pleased with their jobs.

Yeah we work a lot and probably could get paid more working in industry, but for whatever reason public accounting is the career we choose. All my teams have a pretty good time even during busy season. I have yet to work for a manager or partner that I didn’t like, and interestingly enough I’ve had multiple interactions with managers where eriods of time out of their day to chat with me about things unrelated to our current work. I’ve referred a number of college prospective auditors to your website and their response as always been to the effect of, “the articles are interesting, but the comments people leave make this sound like a horrible career choice.” Just wondering if we could get some positive articles and comments going about the good things that come out of working in public accounting!

Sincerely,

A satisfied PwC employee

Okay, so it sounds like a few people are happy with their careers – thankyouverymuch – and are a little put off by the loud bellyaching and articles that aren’t “positive.” I’ll address the latter concern first by simply pointing everyone to a post from February where I presented my answers on the “Career Value of the Big 4 Experience” and wrote the following:

I’m very grateful for my Big 4 experience. It was unimaginably valuable, I met a lot of great people and have no regrets (except for a few brutal hangovers at national training). So, I’ll give it a 5 [that means super-duper satisfied!].

Not to the mention the two to three posts that we dish out a week (despite complaints from some that they’re all the same) giving career advice, that often highlight the benefits of the public accounting path, frequently featuring Big 4 firms. If you find these articles to be “negative” or displeasurable in tone, I can’t help you. Adrienne and I both believe in presenting a straight, no-bullshit style. If you want something that resembles a town hall meeting, then I suggest you go read the latest list from Fortune, Forbes or just look around your office for all the benefits to working at your firm. The marketing people certainly aren’t shy about plastering them everywhere.

As for “getting […] positive comments,” you’ll have to call on your equally satisfied Big 4 brethren to speak a little louder in the comments section. If you and others find the comments on a particular post offensive or misleading, TRY RESPONDING. It’s not our responsibility to convince the happy people to speak up and we’re not going to tell haters to calm down. Everyone has a voice here and if some are louder than others, so be it. There are plenty of constructive discussions happening all over the site so go find those and ignore the noise if it bothers you. If snark and bad words offend you, then perhaps you should avoid the comments altogether. We’re not going to create a “Family Section” of GC just because some people’s ears are burning.

I think it’s great that you enjoy your career at PwC (“deranged” is simply a joke, in case you need briefed). It’s a great firm with plenty of great people and kudos to you for doing what you enjoy. You’re lucky to have figured out what’s important and write, “I cannot believe the amount of complaining people do and still stick it out in public accounting. If it is that awful, why are you trading away your life for this job?” which is the same question I ask of people on a regular basis. Regardless of where people fall on the satisfied scale (I’m a “5,” don’t forget) we’re going to continue covering the industry and the firms like we always have. When a firm does something worthwhile, we will call attention to it, Tweet it or link to it. When something gossipy or juicy comes our way, we’ll do the same. If you don’t like it, you’re free to express your opinion as much and as loudly as you like.

Teens Volunteering for VITA Wise Beyond Their Years

As you’re all aware, the teen years are a confusing time. Trying to fit in, keeping the parents off your back and trying to determine what exactly is going with your body is enough to drive you to underage drinking.

Some junior and seniors at a high school in Monticello, New York have been brave enough to add tax preparation to the mix volunteering for the IRS’s VITA program. “It’s a little confusing, but you get the hang of it,” said Marcus Daniels-Penn, told the Journal. Of course not everyone participating has such a optimistic view of the experience as Adam Kaiser, who was struggling with determining who can be claimed as a dependents, noticed something most people don’t realize until long after they leave the quad, “The government can’t do anything simple,” he said.

Tax Preparers Straight Out of ‘Glee’ [WSJ]

Tax Day Rally Photos (2011)

Editor Note: Last Friday students from my Internet Media class (What? You think I just surf the web all day?) took to the streets of the Mile High City to cover the Tax Day Rally at the Colorado State Capitol as part of an extra credit opportunity. Their photos appear on the following pages as well as a brief commentary presented here by Nikita Blue.

Friday’s Tax Day Tea Party Protest at the Denver Capitol Building seemed more like crossword puzzle hour at Golden Meadows than a politically-charged rally to action. There was even a row of lawn chairs up front near the steps for the severely fatigued. Many a lackluster punch-line received half-hearted titters of laughter, and the crowd had already thinned significantly afMaher, conservative blogger for WhoSaidYouSaid.com, opened with, “Tax the Rich! Tax the Rich! Oh, wait… wrong rally.” Onlookers were momentarily confused; possibly thinking, “Wait… does that mean she goes to Obama rallies, too?”


Then Michelle Morin, a Mom for freedom, warned her audience that there was a “long, black train coming.” (That is, a Marxist, Obamacare train.) She managed to pry a few vacillating yeah’s and whoo’s from the group with her passionate anti-Marxism sentiments. And let’s face it; trains are scary. Especially black ones.

Unfortunately, the awkward moments just kept coming. One speaker suggested that one of the Tea Party mottos should be, “Get your hands off my lollipop!” The confused hush and mumbled responses reinforced the impropriety of hands, suckables and unwanted advances.
Denver’s Tea Party was once a fiery bunch of outraged, impassioned citizens demanding acknowledgement and consideration. Sadly, this get-together packed little of the previous fiscally-conservative punch found in rallies past.

Although this humble protest began with all the necessary elements of a minority uprising, its moxie was deflated prematurely. At one point, we were encouraged to “party like it’s 1773.” (Get it? The Tea Party?) Upon examination, it seemed that we were indeed partying with all of the puritanical, long-faced sobriety of the 1700’s. All we needed now was a crumpet.

Atlas Shrugged also opened on Friday.

The rally was a formal occasion for some.

[caption id="attachment_28849" align="aligncenter" width="261" caption="Photo: Anna Shethar"][/caption]

[caption id="attachment_28855" align="aligncenter" width="560" caption="Photo: Anna Shethar"][/caption]

Some people got a jump start on the early spring lawn chair sales.

[caption id="attachment_28856" align="aligncenter" width="560" caption="Photo: Nikita Blue"][/caption]

Somewhere in Denver, someone needs an editor.

[caption id="attachment_28857" align="aligncenter" width="560" caption="Photo: Nikita Blue"][/caption]

Either someone is ready to go home or doesn’t know which direction east is.

[caption id="attachment_28858" align="aligncenter" width="525" caption="Photo: Nikita Blue"][/caption]

Accounting News Roundup: Tax Cut Debate Revisited; PwC London Staff to Pilot Electric Cars; Short Lifespan for Bank CFOs | 04.18.11

Greenspan Says U.S. Should Let Bush-Era Tax Cuts Expire [Bloomberg]
Former Federal Reserve Chairman Alan Greenspan said tax cuts put in place by former U.S. President George W. Bush should be allowed to expire and the U.S. should return to tax rates that were in effect under former President Bill Clinton to help address the budget deficit. We should “allow the Bush tax cuts to expire,” Greenspan said on NBC’s “Meet the Press” today, calling the economic crisis “imminent and dire.” We should “put the rates back to where they were during the Clinton administration,” he said.

$1.1 Billion Error in Australian MNC? Yes, Says Mum PwC Partner [inAudit]
In the latest development concerning the debt classification error in Australian MNC Centro Properties Group, a PricewaterhouseCoopers partner admitted he was silent on the matter on the belief that he needed not to say again what the firm’s accounting manager has already raised at a “high level.”

Pricewaterhouse-Coopers (PWC) to pilot electric cars with London-based staff [EB]
PricewaterhouseCoopers (PWC) will pilot electric cars with London-based employees as part of its sustainable travel strategy. The electric cars, which will be made available at the firm’s locations in Southwark and Westminster, can be charged onsite and through the Hertz and Source London charging network.

Prom Night Tax Tip [Tax Update Blog]
“Textbooks” has a funny definition in Iowa.

Top 10 tax tips from CPAs, also known as Letterman’s annual spoofing of taxes [DMWT]
6. H. Block, good guy. R.Block, complete greaseball.

PwC: U.S. Companies Pay World’s 6th-Highest Effective Tax Rate [TaxProf Blog]
However some people are calling this study “extraordinarily disingenuous.”


ANOTHER ONE: Chili’s Serves Alcoholic Mudslide To A Four-Year-Old [BI]
Maybe these casual dining restaurants are too casual.

Where Have All the Bank C.F.O.’s Gone? [DealBook]
CFOs seems to be a bit of a rest stop at some of the world’s largest banks.

Rep. Jesse Jackson Jr. Blames iPad For American Unemployment [HuffPo]
On Friday, Congressman Jesse Jackson Jr. (D-IL) addressed the United States’s current unemployment crisis and claimed the iPad was “probably responsible for eliminating thousands of American jobs.” Jackson, himself an iPad owner, expanded on his statement by pointing to the recent bankruptcy of Borders Books. “Why do you need to go to Borders anymore? Why do you need to go to Barnes and Noble? Just buy an iPad and download your book, download your newspaper, download your magazine,” the Congressman said.

Last Minute Tax Help Ideas: Advice From Gary Busey

With just over 24 hours until the tax filing deadline, some taxpayers may be getting desperate and many CPAs are too swamped to take any last minute clients. Faced with such a dilemma, some people are freaking out since it’s rumored that any non-compliance with the IRS will inevitably lead to interrogation techniques approved by the Bush Administration. To avoid this, you’ll need someone that is impervious to physical pain, high stress and has a smile that will frighten yet calm the most anxious of procrastinating taxpayers.


To wit:

Of Course There’s a Nicolas Cage Tax Story on April 15th

It wouldn’t be tax day (in form, if not necessarily in substance) if the Raisin Bran™ of celebrity tax delinquents, Robert Snell, didn’t have a scoop today.

To make it even better, today’s edition is none other than perpetually tax-plagued Nicolas Cage.

In a storage locker last month, cops found Nicolas Cage’s rare $1.5 million, Superman comic book, which was stolen from the actor a decade ago. About the same time, the Oscar winner found kryptonite in his mailbox.

The IRS just sent the financially strapped screen star a $624,934 bill for delinquent federal taxes, according to public records.

If this level of irony doesn’t cause you to believe in some kind of benevolent god, then I feel sorry for you.

IRS hands Nicolas Cage pocket full of kryptonite [Tax Watchdog]

Blind Item: Which Big 4 CEO Sent This Poorly Timed Email About Working in the Wee Hours of the Morning?

In light of recent events, the following email was forwarded to us with our tipster admitting that intentions were good while the timing was not.

I recently met with a [BIG executive] who formerly served as a Former Big Four partner and [some hotshot internal group (I think)]. Most of the discussion was focused on how we might help [BIG executive’s company] with their global HR transformation. Quite unexpectedly, he began our meeting with a story about a senior manager on our team, [Sally Worksherassoff].

Just a day earlier, he had asked [Sally Worksherassoff] if she could find any information explaining the relevance of Dodd-Frank legislation to Human Resource leaders. When he woke up the next morning, he noticed that [Sally Worksherassoff] had emailed a whitepaper outlining exactly what he needed…at 2:00 am. The timing was critical, as he needed to deliver a presentation to [BIG executive’s company] leaders later in the day. After I left [BIG executive]’s offices, he sent an unprompted note to our project team recounting this story and remarking that “seemingly small things like this can add significant value to [BIG executive’s company].” The subject header of his note: How to “wow” a client.

My takeaway: small things, big difference. It can be easy to get lulled into reserving our extra energy and special effort for those situations, requests, and issues that seem like “big deals”. But as our client pointed out, there are no small things when it comes to delivering an exceptional client experience.

— [Big 4 CEO]

Can a KPMG Audit Intern Pull the Switch to Advisory?

Welcome to the tax-day-tease edition of Accounting Career Emergencies. In today’s edition, a young Brit has an audit internship with KPMG but would wants to pull The Switch and work in the advisory practice. Proposing a ménage à trois probably isn’t going to work so what’s the alternative?

Are you tired of being tired? Trying to build a celebrity client practice? Need some gift idea for your new overlords? Email us at advice@goingconcern.com and can recommend something other than a fondue set.

Back across the pond:

Dear GoingConcern Team,

Firstly I have really enjoyed reading your articles and as a budding/ aspiring accountant I was hoping you could help me. I got a internship offer for KPMG in audit which is great, but I think its likely I would feel more comfortable going into Advisory, probably Transactions and Restructuring branch of the Firm. Obviously I have to stick it out in audit for the internship, but is it possible to switch between service lines after, and probably location too?

I know that in the KPMG selection process I still need to go through the Partner Interview, so would you say I am potentially blowing my chances if I switch from Audit to Advisory, or should I play it safe, stick it out with Audit, and the ACA, and then transfer, assuming I passed and survived?

Thank you!

Dear Flip the Switch,

In the words of another, “Well, if I hear you correctly–and I think that I do–my advice to you is to finish your meal, pay your check, leave here, and never mention this to anyone again.”

Now maybe things are a little different in the UK but what you’re proposing is almost impossible to pull off and I’m not sure how you got in this situation in the first place. If the revelation that you’re more interested in advisory just came to you recently, that’s one thing. Your desire to pull a switch may be understandable but that doesn’t make it any more feasible. If, on the other hand, you accepted an audit internship with the knowledge that in reality you wanted an advisory internship, why didn’t you apply for an advisory internship?

On top of that you are also wanting to inquire about a moving to another office before you start full time? Let me see if I understand this correctly: you took an internship in a service area where you have no interest, in a location where you don’t want to live. Do you see why I’m confused? I’m not suggesting that you can’t ask but expect some side-eyed looks after you broach the subject. In other words, you could be “blowing your chances” because you sound like a person who doesn’t know what they want. These firms want people who are ready to hit the ground running, not someone who can’t seem to choose a path. If you can sit still for a year or three, then maybe you can start to inquire about a transfer of service line or location but as an intern-about-to-become-first-year, you’ll just sound like a lost puppy.