Category: Audit

Crowe Horwath Was the Big Audit Client Winner in 2009; E&Y, Deloitte Big Losers

We might be a little late to the party on this but it just recently came across our desk and since trying to get a post up today is akin to turning water into wine, we’re running with it. And, frankly, if a large portion of you regularly read the “Public Accounting Report” we’ll be blown (BLOWN!) away.

The determination of the ranking isn’t entirely clear to us so we’ll just go for some superficial analysis on Crowe Horwath (#1 on the list) and the Big 4:

• Crowe Horwath #1 – Net gain of 24 clients; net gain in audited revenue of approximately $4 billion; net gain in assets audited of $18.4 billion; net revenue to the firm of $11 million.

• PwC #2 – Net loss of 8 clients; net gain in audited revenue of $34.9 billion; net gain in assets audited of $2.68 billion; net revenue to the firm of $8.4 million.

• KPMG #5 – Net loss of 1 client; net gain in audited revenue of over $12.9 billion; net loss in assets audited of $61.4 billion; net loss in revenue to the firm of $19.5 million.

• Ernst & Young #9 – Net loss of 30 clients; net gain in audited revenue of $5.3 billion; net loss in assets audited of $53.8 billion; net loss in revenue to the firm of $36.7 million.

• Deloitte #10 – Net loss of 7 clients; net loss in audited revenue of over $90.5 billion; net loss in assets audited of $718 billion; net loss in revenue to the firm of $74.7 million.


Crowe Horwath’s net gain of 24 clients is easily the highest of the firms presented and they’re the only firm that has increases in all the categories presented. Kinda makes you wonder why they had such a steady stream of layoffs in 2009. We’re open to suggestions and wild-ass theories on this topic.

On the losing end, Deloitte’s loss of huge clients due to the financial apocalypse has been noted by our contributor Francine McKenna and is noted by the PAR:

The firm landed the most wins of any of the Big Four firms for 2009, 46, garnering 3.5% of the overall SEC audit wins for the year. Overall, the Big Four won 7.5% of the auditor changes reported during the first three months of 2005. What relegated the firm to last place in the standings was two huge loses: UAL, to E&Y, and Merril Lynch’s acquisition by Bank of America.

All that added up to nearly $75 million in lost audit fee revenue for Deloitte. In terms of the number clients lost, E&Y managed to cruise to that title with net loss of 30 clients:

E&Y captured some sizable wins for the year, notably UAL/Chicago (Revenue: $20.19 billion) from Deloitte and Apple/Cupertino, Calif. (Revenue $32.48 billion) from KPMG. But its gains couldn’t offset losses for the year of Tyson, Sovereign Bancorp and Nalco Holding, to name a few notable losses.

The end result of this client musical chairs doesn’t really add up to much in terms of revenue for any of the firms. Even the $75 million lost by Deloitte is a drop in the bucket compared to their fiscal year ’09 revenue of $26.1 billion.

Peruse as you numbers see fit and feel free to wave the flag.

SEC Deadline Watch: A Teaching Moment for Young Auditors

With the big SEC deadline on Monday there’s a good chance that some of you might be pulling some weekend hours. These are crucial moments where mistakes are not optional (especially food orders). Your attention to detail is paramount.

Being so close to a deadline can tempt some to cut corners, especially newbies. Things like ghost-ticking (btw, have we mentioned that everyone does this at some point?), plugging numbers and maybe not reading that draft of the 10-K as closely as you should are common shortcuts.


A reader passed along a link to an 8-K (no, not same form but the point is same you dolts) from 2005 for City National Bancshares Corporation of Newark, NJ and despite its age, it serves as an important teaching opportunity (emphasis unnecessary):

RESOLVED, a description of such 6% Non-cumulative Perpetual Preferred Stock, Series E, including the preferences and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions for redemption, all as set by the Board of Direc you fucking new when i asked you liartors of the Corporation, is set forth in the attached Certificate of Designation Establishing the 6% Non-cumulative Perpetual Preferred Stock, Series E and Fixing the Powers, Designations, Preferences and Relative, Participating, Optional and Other Special Rights, and the Qualifications, Limitations and Restrictions, of the 6% Non-cumulative Perpetual Preferred Stock, Series E.

Do you see what happens? Intentional? Accidental? Doesn’t matter now, but somehow this awesome embedded message slipped by someone and now it lives for all eternity at the SEC. The point is, you should probably read every word of the filing to find obvious mistakes like these. Whether you choose to suggest a correction to your client is another matter entirely. Personally, we could handle seeing more of this.

Audit Room Etiquette: Three Faux Pas That Make Your Co-workers Hate You

Since we marked the countdown to the first SEC deadline of busy season yesterday, let’s tackle an important issue.

Sitting in close proximity of the same people day after day, night after night tends to wear on a person (and if you happen to be sleeping with them, it’s worse).

You start noticing the most mundane, yet painfully annoying habits of your fellow auditors and they can drive you up the boringly-beige wall. Pretty soon, assault and battery seems like your only course of action. We ask that you refrain from beat downs (it’s just not considered good professional to batter your co-workers these days), but it is, of course, your God-given right to gripe about it and share your gripes behind the offending co-workers’ back.

But before you get too high and mighty, are you absolutely sure you’re not one of the annoying ones? We consulted another former audit room survivor, DWB, and no one is immune. In order to make you more aware of your personal, er, shortcomings, we’ve assembled this handly list of the most common bad habits that occur in the audit room:

• Eating – You either eat food that makes the entire room reek or you happen to simultaneously masticate and opine on recent accounting developments. Trying to burp quietly is an act in futility and don’t react to your food like it’s sexually stimulating (even if it is). All of these make you terrible to be around.


• Personal phone calls – You know that guy that takes three phone calls from his girlfriend every single day at the exact same time? Or you happen to call your mother every day to shoot the breeze for 45 minutes. Oh, that’s you? Well, not only are you shamefully whipped and/or dependent you’re annoying the hell out of everyone else within earshot.

• Humming, whistling and/or singing – For the love of God, why on Earth is necessary to audibly hum a tune that you’re making up in your head? Furthermore, why would you put words to it? You’re an auditor, not Andrew Lloyd Webber. (And no, it’s not OK if the tune is actually one of Mr Lloyd Webber’s compositions – actually that might be worse.)

Now for those of you that simply think that a set of headphones will solve all these problems, we regret to inform you you’re gravely mistaken. Once these habits have saturated a person’s psyche, any movement, otherwise normal, will amplify the inner wrath to deistic proportions.

The above list is by no means all-inclusive and we’ll admit that our tolerance for bad human behavior is lower than most but the issue is important enough to warrant discussion and possible solutions.

SEC Deadline Watch: One Week to Go For Large Accelerated Filers; Is It Really the End?

Not that we need to tell any of you working on a LAF but marking the occasion seems appropriate. For those of you would like to know just what the hell it is we’re talking about, March 1st is the 10-K deadline for large accelerated filers (market cap of $700 million or more and few other conditions).

The sleepovers and MSG overdoses are almost over! Plus, now you can dump your busy season bitch. Rejoice!


Actually, not so fast. Whether or not next Monday’s deadline brings an end to your busy season is another story. Some of you may be lucky enough to coast for the next month or so but since staffing was an issue for more teams than usual this year, we’re guessing most of you will get to hop on another team to help them cross the finish line.

For those of you not on an LAF, you’re probably relieved if you happen to be getting an extra set of hands in the coming weeks. And then there are those of you that don’t work on public clients at all that probably need the help but won’t be getting it for another two weeks when the next deadline passes. Even then you might not get the extra help you need.

Well, shit. Maybe we shouldn’t have brought it up.

Who’s Doing an Inventory Today?

Thumbnail image for inventory.jpgIt’s a big day of counting items of all sorts: screwdrivers, unsold Pontiacs, Shiri Zinn Minx vibrators. And unless you’re Count von Count, we’re guessing that you’re not too psyched about it.
We’ve touched on inventories a couple of times in 2009 and now that the mother of all count days is here, we’ll open a thread for those of you poor souls that will be spending all day tagging [insert item].
Whatever your responsibilities are, we hope they won’t get in the way of your NYE plans but unfortch, one reader has already told us about the less than thrilling news they got yesterday:

I just found out I have one on new year’s eve that is three hours away from where I live for another of the firm’s offices and I likely won’t be leaving there until 8:00 pm. And this company’s inventories have historically been “messy”. F My Life.

Nothing like last minute. To top it all off they’ll probably end up counting pig carcasses outside a slaughter house.
So let this story be your jumping off point for our inventory thread. Share your nightmare inventory count stories from auditor tales of yore or what the hell you’re up to today. And don’t leave out the details like condom goodie bags. Have a great count and don’t be ashamed to use your fingers.

Will a Boycott of Overstock.com Thwart Patrick Byrne’s Auditor Hunt?

Thumbnail image for patsy_byrne.jpgGuys and gals, we here at GC are concerned about something. Something other than who the next face of Accenture will be (honestly we’re excited about Chuck’s commanding lead).
No, we’re concerned that your humble servant and Farmville enthusiast Patrick Byrne is going to be unable to find an auditor for Overstock.com. The company has until January 18th to pull something together so the NASDAQ doesn’t delist them and if things continue the way they are, it’s going to be hello Pink Sheets.
Maybe things wouldn’t look so grim if PB hadn’t blown off CNN. Or if he hadn’t pissed off every single financial journalist and blogger by getting too friendy.
But now that Barry Ritholtz has called for a boycott, any hope for finding the next auditor to put the stamp of approval on OSTK’s financial statements is fading.
Wait! Gary Weiss has his doubts: “As for that boycott: great idea, except that with Byrne manipulating the financials, how would you know if it is having any impact?”
Whew! There’s still a glimmer.
Boycott Overstock.com [The Big Picture]

Should Auditors be Able to Take Credit for Selling Non-audit Services?

Thumbnail image for integrity.jpgThe partner track is a challenge, as we’ve discussed. The competition in the UK is fierce enough that some directors and manager in the UK have taken it upon themselves to ignore their firm’s policies regarding cross-selling:

Authorities frown upon cross-selling, which involves an auditor selling non-audit services to their audit client. The practice is a potential threat to auditor independence and the Big Four explicitly prohibit the practice from being considered in staff appraisals.
But that didn’t stop Big Four firm Deloitte’s audit directors and managers referring to cross selling when trying to secure a promotion, according to the [Audit Inspection Unit].
“A number of audit directors and managers referred in their performance evaluations to cross selling non audit services to their audit clients,” the report stated.

Maybe this isn’t as much of a problem Stateside, since the SEC has addressed services that are definitely off-limits, and a company’s audit committee has to approve all non-audit work performed by the auditors. If there was a perceived independence issue, one would hope the committee would say no dice and that would be the end of it.
However, if a potential service doesn’t fall into the SEC banned list and the audit committee gives the non-audit service the thumbs up, should a manager be allowed to point to the business that he/she introduced to the firm?
After all that hoop jumping, it would be hard for any manager to resist pointing to business that the firm eventually won. Since the Big 4 have policies against cross-selling coming up in appraisals, it might all be moot but any potential partner still wants to be able to show that they can drum up the business.
If you’ve got feelings or experiences on the matter, discuss in the comments.
Big Four partners seek promotions for cross selling [Accountancy Age]

UK Regulators: Let’s Try and Quantify Audit Quality

RG-1031.jpgOur friends across the pond have put it out there that as it stands, an audit report is an audit report is an audit report. Regardless of the firm doing the work, the end product is the same and the Professional Oversight Board (POB) wants audit firms to produce, “more quantitative data to better equip investors and companies with the tools needed to scrutinise their auditors.”


It’s long been popular to call an auditor’s product a “commodity” and this appears to be the Brits’ attempt to dispel that notion. The talk of asking auditors to somehow quantify quality has already garnered support in the investing community in the UK:

Michael McKersie, assistant director capital markets at the [Association of British Insurers], said he would welcome more comparative information. “The relative lack of hard quantitative reporting data on the audit firms and global networks has been… a concern. Comparability is really important and we have, in the past, seen no n-comparability [sic] here as a problem.”

Fine idea, although there’s not a single indication of how the quality could be measured and the director of auditing at the POB even admits that ‘The challenge is how can auditors demonstrate quality and those that use their services assess it.’
This whole idea of “comparability” came up because of a POB inspection of showed, “some firms were rewarding staff for attracting business at the expense of promoting audit quality.” So the answer to this problem — from the POB’s point of view — is to slap together a “rate this audit from 1 to 10” system and the firm with the highest score has the best audits?
Audit firms will always claim that their work is of the highest quality regardless of the circumstances but now regulators want them to put that in some quantifiable form. And because we like to keep the pace with our friends in the UK, it probably won’t be long before an ambitious bureaucrat Stateside (e.g. new PCAOB Chairman) will insist on a similar approach.
If there’s any wonky auditors out there that have some ideas how this could be done, we’re all ears but for now we’re firmly in the skeptical camp.
Clients blind on audit quality [Accountancy Age]
Also see: You mean the Big 4 aren’t transparent? [Tax Research UK/Richard Murphy]

Overstock.com Receives Delisting Notice, Really, Really, Really Needs an Auditor

patrick_byrne.jpgJust a brief follow-up on the three ring circus known as Overstock.com. After Wednesday’s bizarro conference call, Ringmaster Patrick Byrne and his company filed an 8-K on Friday letting the SEC know that the NASDAQ wasn’t impressed with the unreviewed 10-Q that the company filed last week.
The NASDAQ notice informed OSTK that since the company thought it would be cute to file an unreviewed 10-Q, they will delist the OSTK from the exchange if they are not back in compliance with listing rules by January 18th.
It was an especially nice touch that OSTK filed the 8-K “two minutes after market close today, a day after the letter was received.”
Getting back into compliance will involve finding an auditing firm stupid enough desperate enough willing to be the next humble servant to sign off on the 10-Q.
The issue at hand is worth putting to a vote. For whatever reason you like, choose the firm that should be the next auditor of OSTK. We’re not privy to all the possible independence issues that may exist, so anyone that brings them up to point how one firm would be disqualified can piss off.

Deadline Watch: 3rd Quarter 10-Qs

Thumbnail image for hairy-nascar-fan.jpgNow that you’ve enjoyed the extra hour of tomfoolery thanks to the time machine known as daylight savings time, it’s back to reality.
For auditors working on SEC filers, this means seeing less daylight from now until…well, yeah. The good news is that there’s only one week until the filing deadline for accelerated filers’ 3rd Quarter 10-Qs. For those of you on the non-accelerated types, you’ve got an extra week which could be a lifesaver or just a way to prolong…the…agony.
The bitch of the thing is that for those of you that are/will be going down to the wire, the deadlines fall on Mondays which means your weekend will likely consist of a slumber party at the client’s digs.
So for those of you that live and die by the calendar year SEC deadlines, discuss your Q3 and if it’s business as usual or if your engaging in the standard quarterly rhetoric about how you’re finding a new job right after the Q is filed.

Are Going Concern Opinions the Kiss of Death?

Thumbnail image for Thumbnail image for epic-failure.thumbnail.jpgOne thing is for sure: clients don’t like getting them. Auditors may even go out of their way to not give one in order to maintain “excellent client service” or whatever the latest buzz phrase is.
Many companies risking the dreaded explanatory paragraph arrived there on their own accord but if a company is legitimately trying to recover from their stay in financial intensive care, auditors may be piling on by issuing the GCO.


CFO:

Such a qualification can result in tougher-to-get and more expensive financing deals, just when the company is most in need of a break. Indeed, once hit with a going-concern qualification, companies may succumb to a “self-fulfilling prophecy,” say accounting observers. The pariah status such an opinion confers all but forces investors, suppliers, and lenders to turn away, often driving a company on the brink of bankruptcy into a Chapter 11 filing.

CFO’s piece cites the opinion of Al King, former Chairman of the Institute of Management Accountants, who mentions the guidance of auditing rules “don’t allow auditors a wider range of possible warnings.” The situation comes down to one of options: 1) we’re cool or 2) we’re doomed.
That may be a valid point but the idea of an explanatory paragraph that discusses the alignment of the planets along with management’s brilliant plan to save the sinking ship doesn’t seem like the answer.
Nevermind breaking the bad news to your client, who may be living in denial over the state of their company. Or as the Overland Storage situation demonstrated, clients just get their panties in a bunch and start firing auditors. But you still have to the your jobs, amiright?
The GC opinion. Discuss any experiences you have had in comments. Did it involve grown men sobbing like children? Delusional clients? Maybe just gnashing of teeth? Or did the partner fold like a cheap lawn chair in the name of client service?
Living with a Scarlet Audit Letter [CFO]

Deadline Watch: Employee Benefit Plans

dow10000.jpgDid Dow 10,000 get you excited about your 401k again? No? Just a psychological level? Bah. “We don’t give a damn because we’re still down from the highs you jerk.”
Fine, you kill-joys, regardless if you still consider your nest egg to be in the crapper, there are lots of people out there that ingested inhuman amounts of MSG last night to get employee benefit plan audits completed and submitted with their Form 5500s for today’s deadline. This is our tribute to them*.
Sure, EBP audits are the redheaded step-child of audits but they keep some of you employed, they’re profitable and low risk so everybody a few people win. Good work EBP trolls, finish up and go get your drink on.
*Maybe we were just waiting until the day of the deadline to mention EBPs. Didja ever think of that? Didja?