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What If 20 Percent of Audit Work Was Performed Offshore?

You may have heard that accounting firms – primarily Big 4 firms – have been slowly transitioning work to countries like India and Sri Lanka. This particular topic of discussion typically results in a heated/subtly racist conversations about “foreigners taking American jobs” which eventually evolves into a more overtly racist conversation, not unlike what happens on some Deloitte forums.

ANYWAY, just how much work is being sent offshore? The FT reported some recent projections that the UK’s Financial Reporting Council (“FRC”) found for PwC in the UK:

In an annual inspection report, the FRC said the UK arm of PwC might move as much as 20 per cent of its core audit work to Calcutta by 2014. Less than 2 per cent of its work was offshored in its last financial year.

“On the face of it, 20 per cent of an audit being done without any face-to-face contact with the client seems high,” [FRC Director of Audit Paul] George said. He added that all the large UK audit firms were considering offshoring to cut costs but had so far only shifted a tiny fraction of work overseas.

That “20 percent” has a few people concerned and the FRC is looking into it. Granted, this is just an isolated example to audits at PwC, so obviously your offwhoring experience would vary from audit to audit and also for tax and advisory services. And lest you think this is all about money, the article quotes a flak from P. Dubs as saying, “The driver for us was not a reduction in costs. It is an improvement in quality.” O RLY?

Since many of you have worked directly with this process, you may have a difference opinion with this statement and one tipster – who is interested in hearing other people’s offshoring tales – details his:

My experience with this process has been horrendous. Don’t let comments in the article fool you, we are required to send a set amount of hours overseas to be performed by our shared service center. A process that would originally take 1 hour to start and complete (think bank reconciliations) now takes 6 hours. Nothing like writing instructions on how to perform a simple process and receiving a phone call from someone who barely speaks English to ask you how to perform the test. Or receiving a bunch of garbage and re-doing the work yourself.

Teaching someone how to do something, who has presumably never done it before, is difficult. Teaching someone how to do something, who has presumably never done it before, over the phone is worse. Teaching someone how to do something, who has presumably never done it before, over the phone, whose first language is something other than English is maddening.

Arguably, offshoring has benefits but if this trading 1 hour for 6 hours is fairly standard, then quality certainly isn’t one of them. Of course for a firm flak to say otherwise is grounds for a severe beating from his/her superior. The mere idea of trading 1 hour of work for 6 hours is enough to make a manager lose their shit unless the 6 hours are significantly cheaper. Then there’s the whole “client service” thing which is tricky from the get-go. How do you best explain the increased hours and/or the fact that you’re waiting on something from “the offshore team” that’s ordinarily slapped together in a few minutes?

Clearly, this “20 percent” is a shot in the dark but it’s definitely enough to make someone say, “OH HELL NO. NOT ON MY ENGAGEMENT.” But it’s not impossible that some of you have a grand time with the offshoring, so either way, you should let us know.

Watchdogs probe ‘offshoring’ of audit work [FT]

Accounting News Roundup: Debt Ceiling Deal Delay; IRS Rings Up Bell; IASB Mooving on to Post-Convergence Projects | 07.27.11

Vote on Boehner Plan Delayed Amid Opposition [NYT]
House Republican leaders were forced on Tuesday night to delay a vote scheduled on their plan to raise the nation’s debt ceiling, as conservative lawmakers expressed skepticism and Congressional budget officials said the plan did not deliver the promised savings.

What’s Wrong With America’s Job Engine? [WSJ]
Between the end of 2007 (when American employment peaked) and the end of 2009 (when it touched bottom), the U.S. economy’s output of goods and services fenumber of workers fell by a much sharper 8.3%. Today’s puzzle: How and why employers managed to boost productivity, or output per hour of work, like never before during the worst recession in decades?

Americans ‘Disgusted’ as Politicians Fail to Compromise on Debt [Bloomberg]
“They’re not in touch with reality,” said Cheryl Carroll, 51, who lives in Tinton Falls, New Jersey, with her two daughters. She has been applying for jobs in retail and subsisting off her family’s investments since her husband died last year. “They should really get an average American in Congress who knows how to balance their checkbook,” Carroll said. “It would be fixed in a week.”

Obama’s ‘70 million checks’ per month: Actually, it’s even more than that. [WaPo]
The mind-boggling number challenges a common critique of the federal government as a creaky apparatus where tax dollars are lost in the bureaucratic cracks. From the vantage point of the 70 million or 80 million checks, the government is a finely tuned machine that brings in revenue and disperses it back out across the country.

IRS is investigating Bell finances [LAT]
The Internal Revenue Service has opened an investigation into the handling of bonds and employee compensation packages in the financially struggling city of Bell, according to sources familiar with the ongoing probe. At least two IRS agents have been assigned to the investigation and have been in and out of Bell’s red-brick city hall since February, one source said. “They’re sifting and combing through everything,” the source said. The sources requested anonymity because they were not authorized to talk about the investigation.

CPA: Can’t Prepare Anymore [Tax Update]
Definitely not “Current Power of Attorney.”

Employees Can’t Use IRS Computers for Craigslist, eHarmony, Facebook, Foursquare, Gmail, TaxProf, Twitter, Yelp [TaxProf]
Or simply, “Any use that reduces productivity or interferes with the performance of official duties.”

Next Accounting Standard Project: Dairy Cows? [CFOJ]
Bovines at fair value?

ICAEW helps US focus on global standards [Accountancy Age]
International financial reporting standards are in focus at the ICAEW, which is to chair an American Accounting Association debate on the future of the global standards in the US. The panel will include former chairman of US regulator the FASB, Robert Herz, and forms part of the AAA’s annual conference from 6 – 10 August.

Cops: Calif. man tries to fix hernia with butter knife [MSNBC]
The man’s wife called police to say her husband was sick and tired of waiting to get surgery for his rupture and decided to take matters into his own hands on Sunday evening, Glendale Police Sgt. Tom Lorenz told msnbc.com. When officers arrived at the couple’s apartment, they discovered the man, naked and sprawled out on a lawnchair, with a butter knife protruding from his abdomen, Lorenz said. The man was cooperative and even pulled out the knife when asked, he said.

The TaxMasters Guy Has Some Sage Advice on IRS Correspondence Audits

The advice was so good he had to send out a press release:

On the heels of a record reporting year for taxes, taxpayers should be wary – or at a minimum more informed – about audits from the IRS, according to Patrick Cox, CEO of TaxMasters (TAXS), the leading tax compliance and repayment services provider in the nation. According to Cox, the IRS will send out a record number of audits which can be misleading and even wrong.

“Over the past few years the IRS has been shifting gears to use correspondence audits – notices mailed to taxpayers usually showing an alleged discrepancy in a tax filing and asking for a manageable amount of extra money that is owed,” Cox said. “From my experience, most taxpayers – who did their taxes online or had an accountant or friend do them – are scared of the IRS and don’t know enough about their tax filings to argue the audit. Instead of making sure the IRS assessment is accurate, I think most taxpayers just cut a check.”

The latest Taxpayer Advocate Report showed that of the more than 1.6 million Americans who were audited last year, 78 percent received a correspondence audit, while only 22 percent were selected for an in-person examination. A large majority of the correspondence audits are sent due to unqualified or overstated tax deductions.

“Returns claiming tax deductions are the lowest hanging fruit for the IRS in a correspondence audit,” says Cox. “Unfortunately, there are an alarming number of taxpayers that make simple mistakes on the amount of deductions and types of deductions they make and wind up being easy targets for the IRS. A few examples of typically-encountered discrepancies include unreported pension income, home mortgage interest, and cash charitable contributions.”

Conveniently, the Journal of Accountancy also covered the increase in IRS correspondence audits in its August 2011 issue and offers tips on how to manage them for CPA tax practioners.

According to a 2006 report by the Treasury Inspector General for Tax Administration (TIGTA), there has been a 170% increase in correspondence examinations for individual taxpayers with gross incomes or business receipts of at least $100,000 in fiscal years 2002 through 2005, while face-to-face examinations increased by 25%. Since that report, TIGTA has claimed improvements in this area but identifies work yet to be done.

Comp Watch ’11: Rumors of Imminent Exodus at Ernst & Young Has Some Perplexed

This just in:

I have been talking to a variety of people at E&Y from several offices in Ohio and Michigan. The word from them is that there is going to be a significant movement of people once compensation info is passed out. It’s kinda conflicting since the rumor is that raises should be around what they were last year. Not sure what to make about it.

As you recall, last year’s raises and bonuses at Ernst & Young were competitive with PwC, which came as a pleasant surprise to everyone at Black and Yellow but understandably this rumor has our tipster in a flummox. Of course, this could be limited to the Ohio/Michigan area but it’s worth seeing what the Turley’s Troops in other areas are hearing. Share below.

First World Problem: When Does a Big 4 Tax Accountant Jump Ship for a Job at a Hedge Fund?

Ed. note: Do you have a question for the career advice brain trust? Email us at advice@goingconcern.com.

Dear Going Concern,

I have been in Big 4 FS Tax for the past two years and recently was promoted to Senior. Headhunters have been calling me with great opportunities in the tax departments of Hedge Fund/PE firms. The pay increase is significant and the hours will undoubtedly be better. However, I’m worried about leaving Public Accounting too early in my career. My eventual career goal is to become a Controller or CFO at a Hedge Fund. The headhunters I’ve spoken with insist that HF/PE firms prefer candidates with a mix of Public and Private experience for those positions. I’m wondering if I should stick around until making manager at Big 4 or if, as the headhunters recommend, leaving now as a Senior is the right move for me.

Thanks,
First world problem

Dear First World Problem,


Alright, listen up. The most important thing to do when you want to start looking for a role is to find a headhunter or two that you trust (and hopefully can trust you to not tattle on them for $5 worth of Starbucks). Yes, we all loathe headhunters. They call, they email; some pester more than others. Sure, most are in the same pool with real estate brokers (an evil means to an end), but there are some that see you as more than a pay-day and will serve as excellent resources throughout your career. A good recruiter will send you a select handful of opportunities that fit exactly what you’re looking for, not a blast email with 17 write-ups all containing the same five bullet points.

That said, with two years into your career you’re just starting to see the wave of job opportunities. Two to four years is the window that many most staff roles fall into at hedge/PE firms, both on the fund accounting and tax side. This is because most asset management firms consider the Big 4 (and regional firms that have an alternatives focus) to be training grounds for their back office hires. Why hire an accountant off of a college campus to do fund accounting work when you can have the Big 4 train ‘em up and toughen ‘em, up for you?

However, the difference is that the number of tax staff positions in-house at a hedge/PE firm are limited. Example: a hedge fund running $5bil in assets under management through six separate funds needs a tax director (typically 7+ years of public/private) and a staff member to assist with work. The same firm would have Sr. Controller/CFO, 1-3 fund controllers and a small staff of accountants running the day-to-day. Because of this prime example in supply and demand, I’d encourage you to interview for any and all roles that interest you, but more important than when you leave is what you leave for. In your case, being a CFO is your ultimate goal – you should be looking at opportunities that are a blend of tax and fund accounting. These roles typically exist at less institutionalized funds, so do your due diligence on opportunities at the likes of Och-Ziff, Blackstone, Fortress, etc. Talk to your recruiter about your long term goals and the need to better position yourself by diversifying your professional experiences. Right now you know K1’s, wash sales and partner allocations; a good recruiter knows what it takes to get you on the Controller/CFO track. It might be the first firm you interview with, or the tenth. When you find it, you’ll know.

Court Tosses Lawsuit Filed by Fired Tyco Accountant Who Wasn’t Interested in Being Responsible for Signing Off on a Party Featuring Mermaid Greeters, Wenches

Last summer we told you about a lawsuit that was filed by a fired Tyco accounting manager who claimed that he was let go after he refused to sign off on expenses related to an epic party in the Bahamas that had “Mermaid Greeters,” “Costumed Pirates/Wenches” a tatth “Limbo” and “fire” dancers and other, what some might call, “fun” or “awesome” things. The whole bash was going to run around $350,000 but Jeffrey Wiest wasn’t interested in being connected to another lavish party thrown by Tyco.

This is understandable because, as you well know, the AWESOME party in Tyco’s past was taped and it eventually wound up as evidence in a trial against Tyco Execs Dennis Kozlowski and Mark Swartz. Those two men are currently wards of the state and Tyco is, for AWESOME or worse, simply known as the company that threw the Roman Orgy Party:

Investors footed about half the bill for that affair, which was disguised as a shareholder meeting and is now widely known as the Tyco Roman Orgy.

The party featured such indulgences as an ice sculpture modeled after Michelangelo’s David urinating top-shelf vodka. Against this backdrop in 2008, Jeffrey Wiest said he “refused to process a payment [for] and sent a note to his management questioning the legitimacy of a $350,000 event being held at the Atlantis Resort in the Bahamas.”

“Wiest, as was virtually everyone else at Tyco and in the world, was cognizant of a similar party under Dennis Kozlowski’s management,” according to the manager’s July 2010 suit, first reported by Courthouse News. “He did not want to be any part of a repeat occurrence.”

As we mentioned, Wiest obviously had the foresight to conclude that news of a “Mermaid/Pirate/Wench Rape and Pillage Party” would not go over so well with anyone not in attendance and accordingly, refused to sign off on the expenses. Considering that there was “only one 1.5-hour business meeting during the entire five-day event,” it appears that Wiest made the right choice. However, Wiest claimed that the company started “investigating” him and shortly thereafter was told that his services were no longer needed.

Wiest took his story to the masses with an appearance on Fox Business where he showed how accountant-y (and unconvincing) he could be. The court that was hearing his lawsuit agreed:

“Mr. Wiest’s communications simply provided information and suggestions to ensure proper tax and accounting treatment of the Atlantis event expenses. As such, then, they did not rise to the level of ‘definitively and specifically’ conveying a reasonable belief that [a Sarbanes-Oxley crime] was taking place, notwithstanding Mr. Wiest’s conclusory assertion in the complaint that he had made ‘protected disclosures relating to fraudulent accounting practice, attempted shareholder fraud, and lack of compliance with United States Generally Accepted Accounting Principles.'”

Definitely a setback for Wiest who, it appears, won’t be recouping any lost income here and will forever have the reputation as a party pooper. And the latter could be a far worse fate.

Tyco Accountant Loses Retaliation Suit [CNS]

Apparently This Debt Ceiling Thing Is Important

I’m intentionally avoiding the news – partially due to the fact that Lawrence O’Donnell looks like a melting wax statue in HD and also that it got old a long time ago.

The Guardian catches everyone up by declaring the battle between Obama and the Republicans over the national debt has reached a new level and claimed that both sides were kind of pushing each other out of the spotlight.

At least that’s how the media played it yesterday. Chris Matthews called it a “slingshot operation by Republicans” on Lawrence O’Donnell (don’t ask why I watch MSNBC), more specifically implying that it was staged by Boehner & Co. to look like a knock off of Obama’s Prime Time address. Matthews also got pissed at Obama for going on national TV to do this; as if an address to the American people had anything to do with the American people.

What I took away from Obama’s speech was that he wanted our current and future creditors to know that he would get a debt ceiling increase, just let me pretend I’m going to cut some spending so we can get more money. It had very little to do with Americans or our perception of what debt means to our day-to-day lives, except for the part where he declared we’d have higher interest rates, more trouble securing loans and huge unemployment numbers.

Obama also got really dirty and quoted Ronald Reagan.

Apparently, at the end of this America banded together and crashed a bunch of Congressional websites. Not quite sure what that was supposed to accomplish but I guess it’s cute to see us working together for a change to accomplish something.

Just what I thought I saw.

Accounting News Roundup: More on the News Corp. Audit Committee; UK Comes Down on Auditors; Veggie Subsidies | 07.26.11

Obama Warns of Default Risk [WSJ]
With Congress deadlocked a week before the government runs out of cash to pay its bills, President Barack Obama warned Monday in his starkest terms yet that the U.S. is on the brink of a default that could trigger an economic upheaval. Mr. Obama made his comments in a prime-time national address followed immediately by a response from House Speaker John Boehner (R., Ohio), who dismissed not only the president’s approach, but virtually his entire record in office. Both men spoke just hours after the top Republican and Democratic leaders in Congress unveiled competing debt plans. Thely faced opposition that could make it hard to pass their respective chambers.

More U.S. lawsuits target Chinese reverse mergers [Reuters]
Accounting debacles at U.S.-listed Chinese companies have prompted a surge of securities fraud lawsuits, but investors might have trouble recouping their losses even if they win. More than one-fourth of the 94 U.S. securities fraud lawsuits seeking class-action status and filed from January to June related to so-called Chinese reverse mergers, according to a study released on Tuesday by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research in Boston.

News Corp. Board Challenged [WSJ]
The Journal [!] reports that the audit committee is even less independent than we thought.

IRS Change Helps ‘Innocent Spouse’ [WSJ]
The Internal Revenue Service is giving some relief to “innocent spouses” who otherwise may have been liable for a partner’s tax debt. Effective immediately, the agency has eliminated a rule that disqualifies taxpayers from innocent-spouse status if they fail to file for relief within two years—a provision that snagged people who otherwise qualified, including abused women.

UK company auditors told to stand up to banks [Reuters]
“We find too many audits that require significant improvement. Scepticism is a key factor in those audits that do need an improvement,” said Paul George, director of auditing at the Professional Oversight Board (POB). The POB’s annual survey of audits found that the UK operations of the “Big Four” — KPMG, PwC, Deloitte and Ernst & Young — along with two smaller firms Grant Thornton and BDO, all failed to be sceptical enough. PwC was told to pay more attention to how impairment of goodwill is calculated, while Ernst & Young should make sure there is enough evidence to back growth rates. Grant Thornton, KPMG, BDO and Deloitte were told to apply appropriate challenges to company bosses.

Bad Food? Tax It, and Subsidize Vegetables [NYT]
Simply put: taxes would reduce consumption of unhealthful foods and generate billions of dollars annually. That money could be used to subsidize the purchase of staple foods like seasonal greens, vegetables, whole grains, dried legumes and fruit.

Men use ‘sniff test’ to tell clothes’ cleanliness, survey shows [MSNBC]
For some reason, this required a survey.

Auditors’ Somewhat Raised Confidence [CFO]
First the good news: fewer companies are carrying around the burden of a going-concern qualification. […] Now the bad news: the numbers are still high. And the drop in qualifications has more to do with companies dropping out of the public-company sector, getting acquired, or — confirming their auditors’ predictions — going bankrupt.

Americans For Tax Reform Back to Work After Bomb Scare

Safe to say that Elmo isn’t a suspect.

The staff of Americans For Tax Reform were briefly evacuated from their DC headquarters this morning as police responded to a bomb threat against the building. No explosives were found and the staff has returned to work.

The call came in around 9:10 Monday morning, according to a police spokesperson contacted by TPM. The officer could not say how long the staff was evacuated but said police had allowed them to return to work by the time we called at around 11:00 AM.

Also, no word if this is the Bizarro Grover at work.

Bomb Threat Briefly Evacuates Headquarters Of Grover Norquist Group [TPM via Gawker]

Ex-Ernst & Young Partner Trades Tech Companies for Cuddlesome Creatures

The Oakland Tribune shares this charming story of an accountant who discovered her talents would be more appreciated in helping animals:

Like many people who love animals, Sue James dreamed of becoming a veterinarian when she was a child.

“I looked into going to vet school but my parents, they wanted me to pursue a more traditional career,” said James, a Danville resident who grew up in a house in New York state where the family pets included dogs, rabbits — even a monkey.

After a long stint in the corporate world, James found an outlet for her lifelong love of animals at Tri-Valley Animal Rescue, an all-volunteer group founded in 1992 with a mission to prevent the unnecessary euthanasia of shelter animals.

Uncle Ernie gets a badass plug in the next bit:

She started volunteering in 2005 as she was winding down a long and successful career at Ernst & Young. There, she was a partner who oversaw audit work for some of Silicon Valley’s leading high-tech companies. Today, she serves on the boards of Yahoo, Applied Materials and Coherent.

Working at Ernst & Young, she learned the importance of teamwork to meet the needs of clients. That focus also carries over to her volunteer work. “It’s about the cats and dogs,” she said. “But also, for me, it’s how can we work effectively as a team.”

It makes sense that she’d end up at the shelter; from what I hear, actual auditing isn’t much different.

By the way, she’s 65. She holds a bachelor’s in math from Hunter College, New York (1967) and bachelor’s in accounting from San Jose State (1975). She taught math and science in junior high and high school in New York state from 1967-69, worked in San Jose office of Ernst & Young starting in 1975, was named partner in 1987, retired in 2006, then consulted for the company through 2009.

So You Want to Work for the PCAOB…

You could have a worse career path… like this lady.

Currently, the PCAOB is seeking the following professionals:

* Accountants and Auditors, especially those with extensive auditing experience in:

* International Financial Reporting Standards
* Industry expertise (banking, insurance, oil and gas pharmaceuticals)
* Fair value measurements
* IT auditing
* Forensic Accountants
* Enforcement Attorneys and Accountants

Their own employees say great things about their employer, like Greg, an Associate Director out of Atlanta who gushes “the most exciting part of working here is that we are still a fairly new organization. My experiences with the PCAOB have enabled me to utilize and expand on the skills I acquired both in industry and public accounting and still make it home in time for dinner.”

Or Todd, an Inspections Specialist out of Denver who says “When I was recruited and interviewed, they talked about work-life balance. Everybody talks about having work-life balance, and I think as auditors, we all took that talk with a grain of salt. But then to come here and see it’s actually true, well, that was a nice surprise. At the same time, I continue growing here and developing my career. It really is a nice balance.”

Well then, sounds like a sweet gig.

The PCAOB offers all kinds of benefits such as tuition assistance, 401(k) and retirement, a PPO health plan and a metric shit ton of paid time off.

You’ll probably have to actually apply with them to get any real salary info, so if big-time bureaucracy and work-life balance are what you’re after, get on that.