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Friday Footnotes: A Billion Dollar AI Audit Startup; Oops, All Independence Violations!; Bipartisan Tax Vote | 2.2.23

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Footnotes is a collection of stories from around the accounting profession curated by actual humans and published every Friday at 5pm Eastern. While you’re here, subscribe to our newsletter to get the week’s top stories in your inbox every Tuesday and Friday. Comments are closed on Friday Footnotes and the Monday Morning Accounting News Brief by default. If you have something to say about any stories linked here you are welcome to contact the editor or hit us up on Twitter @going_concern. See ya.

Big 4

Top accounting firms admit breaking rules safeguarding audit independence [Financial Times]
The admissions come as the Public Company Accounting Oversight Board urges companies and investors to pay greater attention to the findings of its annual inspections of audit firms, the latest round of which are expected to be released in the coming weeks. PwC said on Monday that it had identified 129 breaches of independence rules affecting 74 clients and PCAOB inspectors had found a further one themselves while inspecting audit work in 2022. The figures were included in an update to PwC’s audit quality report, published on its website. Deloitte said in its audit quality report last month that it had told PCAOB inspectors of 129 breaches across 78 clients in 2022 — affecting approximately 3 per cent of its US audits — and 107 across 53 clients in the 2023 inspection cycle. EY also said it had found independence violations affecting 3 per cent of its audits in 2022.

On the heels of the post published yesterday about KPMG UK partner pay increasing despite the firm freezing pay and cutting bonuses for 12,000 employees, this seems timely.

All Law, No Order

Ex-PwC partner sues firm over retirement payments [Australian Financial Review]
A former PwC partner is suing the consulting giant in the NSW Supreme Court demanding the restoration of retirement payments lost during the tax leaks scandal in a case that could open the way for other partners to pursue lucrative pension rights. Paul McNab, formerly tax partner for 22 years, is challenging a key clause in the firm’s retirement plan that denies pension payments to partners – which are worth around $140,000 a year – if they leave to work for a “major competitor”.

Deloitte consultant says she faced discrimination after colleague ‘compared her to Pocahontas’ [Telegraph]
A management consultant said she was discriminated against after claiming that a colleague compared her to Pocahontas, a tribunal heard. Shivali Patel told an employment judge that Ben Combes made the “uncomfortable” remark while talking about his wife during a Deloitte work drinks event. Ms Patel said she felt that there was a “sexual tone” to his comment which insinuated that her “similarities to his wife” and the “Disneyfied” character meant he found her attractive. But, Mr Combes denied the allegation and told the tribunal that the conversation instead related to a discussion over the BBC show Who Do You Think You Are? and his wife’s family believing they are descendants of Pocahontas. Now, an employment judge has dismissed Ms Patel’s claims of discrimination and harassment and suggested she had “unconsciously embroidered the discussion”.

Advocates file FTC complaint against Deloitte over Medicaid eligibility software errors [Texas Standard]
At least 90,000 Texans were wrongfully removed from Medicaid coverage because of unidentified system glitches last year, though the state was able to restore their care when the problem was identified. This week, a group of privacy, technology and health care advocates filed a complaint with the Federal Trade Commission asking for an investigation into Deloitte Consulting. Deloitte Consulting provides software that determines an applicant’s Medicaid eligibility in some 20 states, including Texas. According to the complaint, errors in the consulting firm’s Medicaid eligibility software caused the removal errors in the Texas Medicaid program.


Business owners claim Martin ‘Viper’ Foley hired by accountant to collect debt []
Well that’s certainly one way to get a client to pay up.
The directors of an auto parts business have claimed before the High Court that an accountant has allegedly hired convicted criminal Martin ‘the Viper’ Foley to collect a disputed debt of approximately €19,000 from them. Maynooth-based NCS Autoparts Limited, its director Paul and his wife Brenda Lanigan have brought proceedings against chartered accountant Gerard Young trading as Mara Young & Company who they allege is “wrongfully and unprofessionally” trying to “intimidate and harass” them over the alleged debt for works done. The plaintiffs allege the hiring of Foley, who they claim arrived in a large van at their home and gave them his business card, was an attempt of “strong-arm intimidation” by the defendant.


New NJCPA CEO Tackling Accountant Shortages [Commerce Magazine NJ]
Aiysha “AJ” Johnson, the new CEO and executive director of the NJ Society of Certified Public Accountants (NJCPA) gives a simple definition of her role – advocate and voice of the membership. But the challenges she is facing defy simplicity. Since taking the helm of the 13,000-member organization six months ago she has waded into one of the profession’s most complex issues – the dwindling numbers of accountants.

MassCPAs new CEO takes on accounting industry’s pipeline challenge [Boston Business Journal]
In his first few weeks as the CEO and president of the Massachusetts Society of Certified Public Accountants, Zach Donah has laid out his plans as the leader of the state’s largest society of accountants. Donah joined MassCPAs as a government affairs specialist in 2013 and served in a variety of roles over the last 11 years, most recently as vice president of advocacy. When it was announced in May that Donah would succeed Amy Pitter, the organization’s CEO for eight years, issues of workforce retention, advocacy, inclusivity and belonging were highlighted as areas that need to be addressed in the accounting profession. For the 19,000 accountants in Massachusetts, and the 11,500 that are members of MassCPAs, Donah said that those issues remain at the forefront of his objectives.


Why ‘numbers people’ need better people skills [AccountancyAge]
While expertise in accounting, analytics, regulatory compliance and other hard skills will always remain essential, the differentiator for next generation finance professionals will be soft skills like presentation delivery, email writing, meeting facilitation and active listening. Firms are emphasising communication abilities more than ever in recruiting and training because they understand advisory capabilities directly impact an accountant’s worth. In effect, modern accountants must speak the languages not only of business, but their clients and colleagues. Numbers may be the nouns, but words are increasingly the verbs that build impactful analysis sentences and client recommendation paragraphs.


FRC takes systemic look at barriers to competition in UK audit market [Financial Reporting Council]
The Financial Reporting Council (FRC) has today published a summary of key findings and potential actions from research it commissioned into barriers to entry and growth faced by audit firms in the UK. The report highlighted capacity constraints, recruitment and retention challenges, alongside regulatory requirements, as the main obstacles for smaller firms looking to expand their presence – especially in audits of public interest entities (PIEs).

A refresher on fraud and the responsibility for its detection [Journal of Accountancy]
Reviewing the accountant’s responsibilities for fraud when performing an assurance engagement. Fraud is a serious concern that can have devastating consequences. With that in mind, there may be no better time than now for a quick refresher on the practitioner’s responsibilities relating to fraud in an assurance engagement. Remember: there is no substitute for the AICPA Professional Standards; this discussion is not intended to cover all the requirements contained in the relevant sections of that authoritative guidance.

Updating Government Auditing Standards—The 2024 Yellow Book [Government Accountability Office] The 2024 Yellow Book’s section on quality requirements includes several major changes from the 2018 version. In particular, the revision reflects a change in approach from quality control to quality management. The standard has been influenced by the audit community’s concerns about audit quality and the scalability of quality management standards for audit organizations that vary in size, number of offices, and in the nature and complexity of work. The standards reflect a more modern approach with an emphasis on identifying and managing risks to quality and promoting scalability of the standard for use by all organizations.

Additional key updates for 2024 include:

  • a risk-based process for achieving the objectives of quality management
  • provisions for optional engagement quality reviews of generally accepted government auditing standards (GAGAS) engagements
  • application guidance on key audit matters for financial audits

All of these updates and more can be found in the 2024 Yellow Book.


How One Small Click Led To Big Headaches For A Tax And Accounting Firm [Forbes]
It started with an email. A part-time employee at Salling Madeley, PLLC, a full-service accounting firm serving clients throughout the Austin area, received a reminder to renew her password. In the middle of a busy tax season, it would only take a few seconds—and just one click. The email looked legitimate and hit all the right notes. So, she clicked. Shortly after, leaders in the firm received a notification that certain documents had been uploaded and downloaded. That set off alarms for Catharine Drake Madeley, who immediately recognized that the part-time employee did not work on those files.

House passes $78B tax bill in rare bipartisan vote [POLITICO]
The House passed bipartisan tax legislation Wednesday evening that would expand the Child Tax Credit and restore several business tax breaks — a rare feat in an otherwise bitterly divided Congress that has frequently suffered crippling dysfunction. The $78 billion tax package was sent to the Senate on a vote of 357 to 70, with strong support from both Republicans and Democrats. It awaits an uncertain future in the upper chamber, with some Senate Republicans calling for hearings and others eager to make changes in the bill. Some House progressives voted against the package, saying it wouldn’t do enough to slash child poverty. They were joined by Republicans on the right who grumbled that it’s an expansion of the welfare state in disguise. But moderates from both parties provided the tax deal with the two-thirds majority it needed to get through the House under an expedited procedure known as suspension of the rules.


$1B Valuation for AI Auditing Company DataSnipper [Bloomberg]
Says DataSnipper CEO Vidya Peters:
“Every day you and I wake up and we operate on trust for the products and services we use. We buy the stocks, we invest it. And yet there are armies of people behind the scenes making that possible that are essentially an thankless job, or it has been under tremendous pressure. And this is an industry that has seen unprecedented attrition. There are fewer people joining the industry and there are more people leaving it. And there are the same number of hours to do the work that they have been doing. And yet the auditing standards have been going up and there have been very few software solutions and tools built for auditors. And that’s what DataSnipper looks to solve.”

AI Will Be Doing More Accounting If Startup Investors Have Their Way [Crunchbase]
While funding to the sector was down year-over-year, companies in the Crunchbase accounting category still closed on more than $700 million in 2023. And it looks like 2024 is off to a pretty good start. Startups have been pitching tools to help for a long time. Tax prep software pioneer Intuit turned 40 last year. Over intervening decades, investors have pumped billions into startups developing software to automate bookkeeping, auditing, compliance and tax filing. Now, increasingly, they’re turning AI to the task.


NDH acquires Houston-based Jain & Jain []
NDH Advisors LLC, a private equity-backed accounting and consulting firm, has acquired Jain & Jain P.C., a Houston-based tax and accounting firm. The Jain & Jain deal is the second bolt-on since NDH was acquired by Unity Partners in March 2023. NDH in November added Stratus Group, a Kansas-based accountancy. Mike and Rajni Jain, along with all their team members, will join NDH’s employee ownership program – which was formed as part of Unity Partners’ investment. The Houston-based private equity firm institutes employee ownership plans as an essential part of its transactions.

Prosecutor Alvin Bragg can now keep Trump’s top accountant ‘off the witness stand’: expert [Raw Story]
Manhattan District Attorney Alvin Bragg has a new weapon in his fight to prosecute former President Donald Trump for business fraud, said former U.S. Attorney Joyce Vance on MSNBC Thursday: keep his former top accountant off the witness stand for the defense. This comes amid reporting that prosecutors in his office are trying to work out a perjury plea deal for former Trump Organization CFO Allen Weisselberg, a witness in past Trump litigation who has largely remained loyal to the Trump family

Epstein’s Longtime Accountant Sheds Light on Disgraced Financier’s Businesses [New York Times]
In unreleased testimony, Richard Kahn said that he had not been aware that Jeffrey Epstein was abusing women, and that none had asked for his help. The two people briefed on Mr. Kahn’s testimony, who requested anonymity because the deposition has not been made public, said he had been questioned about topics including cash paid to women associated with Mr. Epstein and allegations that the financier coerced some into same-sex marriages.

AICPA & CIMA® Receives Brandon Hall Group Award for Excellence in Technology [AICPA & CIMA]
AICPA® & CIMA® has received the Brandon Hall Group Gold award for Excellence in Technology. The award was in the Best Advance of Learning Management for External Training category. The 2023 Brandon Hall Group Excellence in Awards™ are presented annually for work in the categories of Learning and Development, Talent Management, Talent Acquisition, Human Resources, Sales Enablement, Future of Work, and Education Technology. The Gold award for Excellence in Technology recognizes AICPA® & CIMA®’s SMART Learning Transformation framework.

Lawmakers Move to Overturn SEC Accounting Standards for Crypto Custodians [Unchained] Lawmakers lashed out at the Securities and Exchange Commission’s accounting standards for crypto custodians Thursday, in the form of a joint resolution hoping to overturn it. “SAB 121 has massive implications, and the SEC should have received feedback on it from the federal banking regulators and the public before implementing this legally binding directive,” said Sen. Cynthia Lummis in a statement. “I have serious concerns over the impact of this bulletin on consumer protection and ensuring well-regulated financial institutions are able to provide safe custody for Americans’ hard-earned financial assets.”