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. See ya.
Law & Order
‘Avatar: The Way of Water’ financier accuses Disney of self-dealing in new lawsuit [Los Angeles Times]
Walt Disney Co. is facing labor agitation on two fronts. It’s posting big losses from its streaming businesses. And now the Burbank-based behemoth is getting sued by one of its major financial partners. TSG Entertainment, a film-financing firm, has accused Disney and its subsidiary 20th Century Studios (formerly 20th Century Fox) of breach of contract and self-dealing in a lawsuit filed Tuesday in Los Angeles County Superior Court. The financier had a revenue participation agreement with 20th Century, the lawsuit says, laying out how TSG would get a portion of certain films’ revenue in exchange for co-financing production and marketing-related expenditures. But after TSG noticed a declining return on its investments, the firm hired an independent auditor to look into how 20th Century was calculating its share, the suit says — and “what the auditors found in sampling just three of the 140+ films at issue was clear evidence of Hollywood Accounting.” In total, the audit reportedly suggested that 20th Century underpaid TSG “by at least $40 million.”
Big 4
There’s a lot of KPMG news this week, sorry.
Australian Signals Directorate caught up in KPMG consulting scandal [ABC News Australia]
Australia’s cyber spy agency has been drawn into the widening KPMG scandal after awarding a $46 million contract to the consulting giant despite knowing it had inside information it could exploit from an earlier stage of the project. The lucrative work for the Australian Signals Directorate on the multi-billion-dollar REDSPICE program was won following a competitive tender, with the contract details quietly published on Friday. Last week the firm was awarded a total of 18 federal government contracts worth almost $70 million, including $21 million in work with the Department of Defence. KPMG is under pressure after the ABC’s Four Corners program revealed whistleblower claims that it had ripped off taxpayers by submitting inflated invoices and billed Defence for work never done. Over recent years, KPMG has dominated the defence and national security space in Canberra, but its latest contract win has been controversial as the firm helped design the ASD project and was then allowed to bid for its implementation. This is known in consulting circles as “marking your own homework”, as KPMG would have gained intimate knowledge of what the ASD upgrade required, having spent the previous two years helping the agency design the project.
‘Never been a clock-watcher:’ How KPMG’s Atlanta lead keeps thousands of employees winning [Atlanta Business Chronicle]
As managing partner of KPMG’s Atlanta office and MidSouth hub – including Nashville, Memphis and Knoxville in Tennessee; Birmingham, Alabama and Jackson, Mississippi – David Leiter reminds employees of the company’s well-known acronym ICE T For Better. It does not stand for a drink but rather integrity, courage, excellence, together for better. “If you keep those [elements] top of mind,” he said, “everything will generally work out.” This is a strategy Leiter uses as a leader of the audit, tax and advisory services firm, which he joined from Ernst & Young over 20 years ago. “I don’t focus on the short-term. It’s always a long-term strategic focus,” he said. “If you have the right priorities for the long-term benefit of clients and your people, then the short-term metrics just work out. That’s been proven in my career, which is why the firm has asked me to move around in different roles.”
PwC Will Appeal $65.5 Million Verdict Over Negligent Tax Advice [Bloomberg Tax]
PricewaterhouseCoopers LLP intends to appeal an Oregon state jury finding that the Big Four accounting firm owes more than $65 million to the former shareholders of a construction company for providing negligent tax advice. The Aug. 14 ruling found that PwC owed the former owners of Marshall Associated Contractor Inc. about $65.5 million for being negligent in giving advice over a stock-sale transaction. The accounting firm said it will challenge the finding. “We stand behind the work we did and strongly disagree with the jury’s decision,” PwC told Bloomberg Law on Thursday.
KPMG boss takes a pay hit as deal flow slows [Brisbane Times]
Consulting giant KPMG Australia boss Andrew Yates has taken a hit to his pay packet in the past financial year, with his remuneration cut by $600,000 as a softer local economy took its toll on available consulting work. In its annual release on Wednesday, KPMG reported that its revenue for the year rose more than 9 per cent to $2.55 billion.
PwC Australia Chases ‘Unprofessional’ Partner Despite Court Loss [Bloomberg]
PwC Australia said Monday it remains determined to take action against partners and other staff who failed to meet professional standards in connection with the tax document leaking scandal, despite losing a court action to force a partner into retirement. The Big Four firm said in an emailed statement that it was “considering our next steps” in relation to research and development partner Richard Gregg after a court decided Aug. 11 that PwC had failed to follow due process when trying to remove him. “We remain committed to taking the appropriate action against those we believe have failed to live up to the firm’s professional, ethical or leadership standards,” PwC, also known as PricewaterhouseCoopers LLP, said in a statement.
ICYMI: Big Four accounting firm EY rebuffs TPG deal proposal [Financial Times]
EY has rejected a proposal from US private equity group TPG to break up the Big Four firm and take a stake in its consulting business, according to a statement sent to partners yesterday. TPG wrote to EY in late July outlining its plan for a debt-and-equity deal to separate its consulting arm from the audit business. The pitch came just months after the collapse of EY’s own attempt to spin off the consulting business — codenamed Project Everest — and seek a $100bn enterprise value for it in a stock market listing.
AI
Accounting are more into AI than most [Accounting Today]
The accounting profession has a higher-than-average enthusiasm for artificial intelligence compared to other sectors, based on average investments. This is according to a recent survey conducted by accounting firm network Moore Global. The data showed that, on average, midsized accounting firms spent $1.6 million on AI investments over the past year, slightly more than the total average of $1.5 million — and almost four times the figure for law and professional services, which stands at $480,000. Similarly, accountants see more of a future for AI in their profession than in others. The poll found that 72% of accountants and finance experts believe the use of AI within their organizations will grow over the next three years and beyond, compared to 65% overall and 43% for law and other professional services.
Accounting Thought Leaders Discuss the Real Impact of AI on Accounting Firms [CPA Practice Advisor]
In a KPMG study in spring 2023, the Big 4 firm found that 77% of its business client respondents expected generative AI to have the largest impact on their businesses of all emerging technologies. However, 92% of them believe that implementing AI will introduce moderate to high-risk concerns. For a profession as risk averse as accounting, what can we gather from this? To start, Blake Oliver, who recently presented on AI and the Profession during the Expensicon conference in Italy, noted that a paper produced by ChatGPT parent company Open AI [PDF] suggests that the accounting profession is one of the most exposed to generative AI. “This means that the time it takes to do 100% of our tasks could be reduced by 50% or more,” via use of generative AI, he said. “That’s a pretty bold statement of productivity savings.” Oliver also noted, however, that there are many areas where ChatGPT is not that adept, particularly focused on human interaction and areas of subjectivity. Whereas it excels at data-driven and analytical functions.
Deloitte Announces Strategic Co-Innovation Initiative with Google Cloud to Help Consumer Businesses Transform with Generative AI [PR Newswire]
Deloitte today (August 16) announced a new co-innovation initiative with Google Cloud that helps consumer businesses transform how they operate to create more relevant, engaging and effective customer experiences. Deloitte’s ConvergeCONSUMER portfolio of solutions is now available on Google Cloud and integrates Google Cloud’s leading data analytics, artificial intelligence (AI) and Generative AI (Gen AI) capabilities. The solutions enable consumer organizations to rapidly deploy AI-powered tools that help them more accurately forecast demand, personalize marketing campaigns and optimize product pricing, which can increase brand loyalty and extend competitive advantage.
Office Space
Wolstein family faces potential loss of Ernst & Young Tower at Flats East Bank [Crain’s Cleveland Business]
The Wolstein family, which dreamed up and developed the Flats East Bank district in downtown Cleveland, is facing the loss of a key piece of that project: The Ernst & Young Tower. Control of the 18-story office building is up for grabs at a Sept. 7 auction, a public sale initiated by a mezzanine lender with $25 million at stake. Court filings show that the landlord is in default on two loans. And public records indicate that the tower’s value has plunged sharply, due in large part to the looming exit of its namesake tenant. Though remote work and interest-rate hikes are lashing the office market, the situation in the Flats is unique. Developer Scott Wolstein died in May 2022, at age 69, after a short battle with aggressive cancer. The Flats East Bank project was inextricably tied to Wolstein — to his net worth, his personal guarantees on debt and his hands-on management approach.
Feil Signs Lease with Accounting and Advisory Firm at Lakeway [Biz New Orleans]
The Feil Organization, a national real estate investment firm, announced that it has signed a 15,508-square-foot lease with Carr, Riggs and Ingram CPAs and Advisors, an accounting and advisory services firm, at Two Lakeway, a 19-story Class A tower within the Lakeway Complex in Metairie, La. The firm will occupy the 14th floor for 10 years. “We’re proud to welcome Carr, Riggs and Ingram CPAs and Advisors to Lakeway,” said Colette Wharton, regional director at the Feil Organization.
Talent
‘No One Wants to Work’ Is a Bad Excuse [Wealthmanagement.com]
By Mark Tibergien, Advisor in Residence for Ernst & Young’s Wealth & Asset Management Group and formerly a principal at Moss Adams.
Most growth-oriented firms are experiencing capacity constraints, a talent shortage, and a smaller labor pool of qualified candidates. Plus, the founders of firms are closer to the end than the beginning which presents stress on their continuity plan. While selling their advisory businesses to a consolidator relieves owners of the pressure to hire and develop their successors, it does not yet address the leadership gaps that exist in most practices. Advisory businesses with the healthiest approach to human capital are able to define the nature of the work, the nature of the worker and the nature of the workplace. The most dynamic of these firms recognize that it is the job of its leaders to create an environment in which motivated people can flourish.
New Hires Get Trapped in an Unplanned Gap Year [Wall Street Journal]
Steven Jiang had a clear road map after landing a consulting job offer last year: He’d graduate the following May, move to New York, then start work at KPMG by the fall. His plans have since evaporated as the consulting industry confronts slower business while trying to absorb the thousands of college graduates it recruits every year. This spring, KPMG told Jiang he wouldn’t start until December, later than he’d anticipated, he said. Then in July, his start date was pushed to June 2024—more than a year after graduation. “That’s when I started freaking out,” said Jiang. Welcome to the gap year that no one planned—or particularly wanted. Many recent consulting hires got lucrative offers during last fall’s college-recruiting season and were eager to start this summer. Now with too little work to spread around, firms are delaying start dates to an extent not seen in years. Firms including Deloitte, KPMG, Boston Consulting Group and McKinsey aren’t bringing on some recent recruits until 2024. Some are even paying new graduate-hires thousands of dollars to spend during their unanticipated gap year.
News
Medical illustrations have a representation problem—it can be fatal [Fast Company]
Have you ever seen a medical illustration of a Black fetus? Given that fewer than 5% of medical images feature dark skin, there’s a good chance the answer is no. If you have, it was likely when Chidiebere Ibe posted one on Nov. 24, 2021—an image that quickly went viral, eliciting around 2,700 comments that range from immense gratitude for the representation to bafflement about having never seen such a basic, essential illustration before. “The image was more of a voice to people than just a medical illustration,” Ibe says. “The comments are still coming in, because it’s just really, really affirming.” Most viral moments are but a fleeting pixel in the digital ether. But Ibe was on a quest to change the medical illustration field, and soon partnered with Deloitte and Johnson & Johnson to create Illustrate Change—a free, open-source stockpile of images designed to build BIPOC representation into a critical area of the medical community.
Grant Thornton names new industry and market leaders [Grant Thornton]
The firm has appointed Andrea Schulz to lead its Technology industry practice and Russell Norris to lead its Transportation Industry practice. It has also named new market managing partners and principals for seven of its almost 50 national market areas.
Education
We Are All Marquette: A Q&A with accounting professor Wioleta Olczak [Marquette Today]
With the specter of a changing climate looming over humanity’s future, businesses have started to expand their definition of core concepts like “profit” and “losses” to include impact on the environment. Wioleta Olczak has spent her career trying to better understand what this new world will look like. “I remember being at a conference hosted by one of the big four accounting firms, and they were saying ‘this is a jungle,’” Olczak says. “Even auditing firms were struggling in how to quantitatively evaluate this stuff.”
ICYMI: Why the CPA qualification’s 150-hour college credit rule is outdated–and inequitable [Fortune]
This article by the fabulously named Guylaine Saint Juste — published by Fortune in July — popped up on the radar this week. In case we didn’t share it then, here it is.
AICPA leaders have described the rule as a “purposeful hurdle” intended to elevate the profession. Instead, it has become a structural barrier that many believe, and recent research supports, makes it difficult to attract skilled talent. It is important to recognize that the rule was implemented in a period that lacked a comprehensive equity perspective or adequate consideration for the probable unintended consequences of higher educational expenses and time commitments on communities facing disproportionate student loan burdens and an increased urgency to earn.
There Is No One Path To Accounting and My Journey Proves It [HipLatina]
By Stephanie Nuesi, a first-gen Latina who came to the United States eight years ago without knowing how to speak English.
I didn’t know what success looked like, but I knew becoming an accountant was part of it. I came to the US in 2015 with two luggages and a big dream: Make my parents’ sacrifice worth it. As a first-gen Latina, I knew I had the opportunity to open doors for others, and that was part of my motivation to enroll in college and get a degree in accounting. What many don’t know is that I was rejected from all the colleges I applied to — mostly due to my lack of ability to speak English. Not speaking the language made it difficult for me to get the opportunities I had in mind. But I remembered something my mother told me in our hometown: “Sin importar los tropiezos, sigue para adelante mija. Las cosas funcionaran tarde o temprano” – No matter how many obstacles you face, keep going. Things will eventually work out.
