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Friday Footnotes: Accounting’s Big Lie; BDO Poaching; EY Partners Get Whipped | 10.07.22

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Must Read

Accounting’s Big Lie — and How to Fix It [Project on Government Oversight] A colossal conflict of interest compromises the auditing of public companies and the financial security of everyone who depends on them. The Project On Government Oversight is planning a conference on what to do about it. The following is meant to serve as a starting point for discussion. It provides background on the issue and options for potential reform.

Big 4

EY launches ‘whipping operation’ to push through vote on splitting firm [Financial News]
EY has been holding focus groups to gauge partner sentiment as part of a “whipping operation” before an upcoming vote on its proposed break-up, insiders say. “Partner listening forums” have been taking place for the 700 partners in EY’s UK firm in recent weeks, according to two partners at the firm. The focus groups are part of a “whipping operation” aimed at establishing support for the break-up within the partnership, identifying partners who may vote against the proposals so that they can be persuaded to change their minds, according to one person familiar with the firm’s strategy.

Big 4 accounting firms reap record-high revenues [The Korea Times]
The big four accounting firms in Korea posted all-time-high annual revenues last year, due mainly to double-digit year-on-year growth rates recorded in M&As and consulting services. According to data available from the electronic disclosure system operated by the Financial Supervisory Service (FSS), the aggregated annual revenues of the four largest accounting firms ― Samil PwC, Samjong KPMG, EY Korea and Deloitte Korea ― stood at 3.18 trillion won ($2.24 billion) in 2021, a 21.8 percent increase from the previous year’s 2.61 trillion won. It is the first time that the total amount of the firms’ annual revenues exceeded the 3 trillion won mark.

Global CEOs see a ‘mild and short’ recession, yet optimistic about global economy over 3-year horizon [KPMG]
The KPMG 2022 CEO Outlook, which asked more than 1,300 CEOs at the world’s largest businesses about their strategies and outlook, reveals that 58 percent of leaders expect a recession to be mild and short. Fourteen percent of senior executives identify a recession among the most pressing concerns today — up slightly from early 2022 (9 percent), while pandemic fatigue tops the list (15 percent).

Firm Watch

​FRC probing Mazars audit of Studio Retail Group [Compliance Week] The U.K. Financial Reporting Council (FRC) on Thursday announced it opened an investigation into accounting firm Mazars regarding its audit of financial statements at Studio Retail Group. The probe will focus on the Mazars audit for the period ended March 26, 2021, and is only related to the firm at this time, the FRC acknowledged in a press release. The decision to launch an investigation was made at a September meeting of the regulator’s conduct committee.

Accounting Firm’s Counterfeit Claim Fails in Similar Name Suit [Bloomberg Law]
An accounting firm lost its counterfeit claim against a rival with a nearly identical name by failing to show the other firm intended to trade on its goodwill, a federal court ruled. Cohen & Cohen Ltd.’s failed to adequately allege that Cohen & Cohen Inc. copied and used its mark with the intent to trick consumers into buying a knockoff services, the US District Court for the Eastern District of Pennsylvania said. The plaintiff’s interpretation of the definition of counterfeit conflated it with infringement by saying it only required use of another’s trademark without authorization, the court said.

Accounting Firm Expands HQ in Palm Beach Gardens [Commercial Observer]
Accounting firm Ellrich, Neal, Smith & Stohlman is relocating and expanding its headquarters in Palm Beach Gardens, Fla. The company signed a 10-year lease for 10,500 square feet at 3300 PGA Boulevard, according to CBRE, which represented the property owners.

BDO recruits three partners away from rivals [Accountants Daily] Melbourne and Sydney newcomers bring experience at EY, KPMG and Pitcher Partners.


What CFOs Should Consider Concerning ESG Reporting [The CPA Journal]
Chief Financial Officers have seen their job description expand over the years to include broader responsibilities and more reporting requirements, such as those mandated under the Sarbanes-Oxley (SOX) and Dodd-Frank Acts. There is no question that CFOs play the integral role in financial reporting and other disclosures made to the investment community on behalf of the company. Today, most CFOs have also been given the task of reporting on ESG metrics. Just as is the case with any other disclosure information, CFOs must rely on other functional leaders in the company for information and data. And that data needs to be clear, dependable, and verifiable.

Private company CFOs grapple with new lease accounting [CFO Dive]
At its core, under the new standards the Financial Accounting Standards Board (FASB) wants all companies to record operating leases longer than one year on their balance sheet, both as an asset and a liability, in the same way as capital leases have always been recorded. It is no longer permissible to only record operating lease expenses on the income statement and disclose future operating lease obligations in the notes to the financial statements. Financial statement users have long considered operating leases to give rise to assets and liabilities for lessees, so the logic goes that actually recording them on a companies’ balance sheet is a good thing for some stakeholders. A complicating factor is that the Financial Accounting Standards Board (FASB) is poised to take another crack at updating a narrow part of the existing lease guidance related to lease accounting that would clarify how a parent and a subsidiary should determine whether a lease even exists that needs to be accounted for.

A Few More Things

Minority Accounting Students Sought for Internship Preparation Program [Illinois CPA Society]
Illinois-based racial and ethnic minority college students who are interested in pursuing careers in accounting and finance are encouraged to apply.

‘As CPAs we need to think past the numbers in decision making’ [CPA Canada]
While big data is changing the face of many industries, there is one asset that cannot be replaced by technology: human skills. In fact, human-centric values are becoming increasingly valuable in the accounting profession as the social pillar of environmental, social and governance (ESG) becomes an ever more powerful force in the way business is managed. “The ability to think critically, approach problem solving holistically and connect personally with clients is becoming essential for CPAs in all fields,” says FCPA Tim Jackson, chair of the Competency Map Task Force, and president and CEO of SHAD Canada. “When we’re making decisions today, people expect us to be thinking about more than just numbers.”

A pioneering CPA reflects on a 50-year journey [Journal of Accountancy podcast]
Gil Vasquez, CPA, the founder of the Association of Latino Professionals for America (ALPFA), joins the Journal of Accountancy podcast to discuss the history of ALPFA and how it has evolved over the years.

City Accountants Are Trying to Clean Up Their Books So Now San Francisco Is Sending People 30-Year-Old Tax Bills [SFist]
In an effort to resolve tens of thousands of outstanding tax bills, some dating back to 1993, the city of San Francisco has recently sent out a round of notices to people who owe some long-overdue taxes — and some of these bills may seem ridiculous.

Graham, Washington, man pleads guilty to tax fraud and aiding and assisting with false tax returns [Department of Justice]
A 53-year-old resident of Graham, Washington, pleaded guilty yesterday in U.S. District Court in Tacoma to tax fraud and aiding and assisting with false tax returns, announced U.S. Attorney Nick Brown. According to the plea agreement, between 2012 and 2019, Mbowamba operated a tax preparation business. An analysis of the returns Mbowamba filed revealed that he had falsely claimed deductions and tax credits on behalf of many of his clients. Most of the clients were immigrants from Africa who were referred to Mbowamba by other members of the immigrant community.