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Friday Footnotes: CPA Says Stop ERC Fearmongering; Deloitte Cussed Out For ‘Grueling Culture’; Worst Books Ever | 2.23.24

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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.

ICYMI

These are the most-read stories on Going Concern this week in ascending order:

The Twits

Survey Says

Deloitte: Concern Around Rising Prices is not Fading and Likely Weighs on Americans’ Sense of Financial Well-being [PR Newswire]
Unlike consumer confidence indices, which often focus on consumer opinion about business or labor market conditions, financial well-being focuses on the consumer’s own financial situation, security and future expectations. Deloitte’s Financial Well-being Index (FWBI) captures change across six dimensions of financial health: 1) ability to make upcoming payments, 2) comfort with level of savings, 3) income relative to spending, 4) delays in making large purchases, 5) assessment of current financial situation relative to the prior year, and 6) financial expectations for the year ahead.

FORVIS Nonprofit Study Reveals Strong Demand for Services Alongside Ongoing Workforce Shortages, Inflation [Business Wire]
FORVIS published its annual national nonprofit study on February 22, revealing that 71% of nonprofits had increased demands for their programs and services in 2023, resulting in waitlist increases and delays. Additionally, to mitigate operational expenses, more than two-thirds of organizations are planning to cut programs and services over the next two years. Furthermore, more than half of nonprofits saw an increase in net income in 2023 as leaders dealt with workforce shortages, the rising demand for assistance, and growing operational costs. While a significant reversal from last year is seen in income increases (48% noted decreases in 2022), the report reveals a decline in individual contributions. This type of year-over-year decrease has occurred only four times in the last 40 years.

Businesses favor gradual adoption of GenAI as they look to address knowledge gaps [EY]
The latest EY Reimagining Industry Futures Study confirms generative AI’s (GenAI) status as a breakthrough technology, with 43% of the 1,405 enterprises surveyed investing in it. Overall, GenAI ranks third among the nine emerging technologies tracked in the study, with “Automation and AI” ranking first. Of those currently investing in GenAI, 80% are working on proof-of-concept for applications, while 20% have pilot projects underway. Despite GenAI’s rising prominence, 38% of respondents favor a measured, incremental approach to adoption – indicating sensitivity to issues around ethics and accountability. Relatedly, 73% seek a greater understanding of GenAI concepts and use cases; 69% say they need to learn more about the risks; and 52% have concerns around potential job displacement.

Practice Management

How KPMG in Canada is keeping DEI at the forefront of the return-to-office experiment [Benefits Canada]
The shift to remote working during the coronavirus pandemic presented employers an opportunity to reassess what, where and how work gets done, says Stephanie Braid, the director of inclusion, diversity and equity at KPMG in Canada, noting it’s important that employers don’t discard those lessons in the push to return to in-person work. The return process will require employers to continue meeting people where they’re at in terms of providing safety and enabling productivity in the workplace. “We have employees at the firm who are neurodivergent, who are more productive when they’re in the office every day, [while others find] being in the office really challenging in terms of focus. So there’s no one-size-fits-all solution. At the end of the day, I think it’s really an invitation for employers to go back to focus on the individual, create those relationships and just give them the space and the opportunity to get the work arrangement that they need to be most productive.”

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Law & Order

Co-Owner of Media Brokerage Firm Sentenced for Filing False Tax Returns [Department of Justice]
According to court documents and statements made in court, Susan K. Patrick, now a resident of Cody, Wyoming, co-owned a media brokerage firm with her husband and hired an accounting firm to prepare business and personal tax returns for 2012 through 2014. Despite receiving the completed and accurate tax returns from the accounting firm, Patrick did not file them with the IRS. After the IRS contacted Patrick and requested that she file the unfiled returns, Patrick lied to the IRS, claiming that her accounting firm had timely filed the returns and that she would provide copies of those returns. Patrick, however, did not provide copies of the accurate returns that had been prepared by her accounting firm. Instead, Patrick doctored the business returns, removing $10 million in gross receipts received by her brokerage firm, and altered the personal returns by removing over $9.5 million in related income that she and her husband had earned from 2012 through 2014.

Scarsdale CPA accused in $2M check cashing scheme [Westfair Business Journal] A Scarsdale accountant has been charged with conspiracy to defraud the IRS for allegedly misrepresenting more than $2 million in income for nine construction companies. From 2012 to April 2018, according to the criminal information document signed by U.S. Attorney Damian Williams, George Sanossian agreed to conceal clients’ personal incomes and the wages they paid their employees, to reduce federal income taxes and payroll taxes. Sanossian, and other members of the firm who are not identified in the charging papers, allegedly advised clients to make checks payable to a shell company. Members of the firm then cashed the checks, kept some of the money as fees and returned the rest to the clients.

Advice

What I did next [Deloitte]
Deloitte alumnus Aaron Westgate talks about teaching accounting.
Q: What advice would you give your student working on their first project as qualified auditor?
A: If you’re uncomfortable about how a manager communicated or delegated, change it for the better so that others don’t have the same experience. Too many times, I have seen people treat others ‘because that’s the way I was treated’. Find an email management system that won’t stress you out. Prioritize the important messages by dealing with urgent requests and important quick actions first. Having a ‘to do’ folder is OK, and I like to manage other people’s expectations with a quick holding email saying when I’ll respond in more detail. I also tell people when I need something by, so they don’t feel they need to respond immediately, and I only use Teams when an immediate response is required.

What TF Is Up With Australian Big 4 Firms

ASIC polices only a ‘sliver’ of big four firm activities [Financial Review]
Australian Securities and Investments Commission chairman Joe Longo says the corporate regulator can only police a “sliver” of services provided by the big four accounting firms because they operate in a grey legal area where they are neither “true partnerships” nor covered by federal corporate laws. Mr Longo said last week the big four firms – Deloitte, EY, KPMG and PwC – were “very hard to regulate” due to the “extraordinary range” of services they offer and because they are governed by state-based partnership rules not designed for firms of their size. A senior ASIC officer also told the hearing the governance structures put in place by the firms – such as PwC promising to apply ASX corporate governance principles to its operations – were unenforceable by the regulator.

‘Incredible failure’: KPMG rejects claims it assessed ‘the wrong company’ before $423m payment to Paladin [The Guardian]
Consultancy firm KPMG Australia has rejected claims it conducted due diligence on “the wrong company” before the federal government gave nearly half a billion dollars to a controversial company with no track record. The firm’s objection to comments by a member of a Senate inquiry examining its conduct come after weeks of intense criticism and accusations it repeatedly misled parliament over its use of so-called power maps, which identify influential decision makers within departments. “An EY audit shows that KPMG investigated the wrong Paladin entity,” O’Neill told officials from Chartered Accountants Australia and New Zealand, an oversight body. “I’m watching jaws proverbially hit the floor as you hear me tell you this, because that is an incredible failure.”

Releasing international tax leak report unfair, dangerous: PwC [Financial Review]
PwC Australia believes authorities have the evidence they need to investigate overseas partners involved in the firm’s tax leaks scandal, supporting a decision by its international arm to withhold a legal report into the matter. The report by international law firm Linklaters was paid for by PwC International and cleared overseas partners of using confidential information related to the leaks scandal “for commercial gain”. PwC global is resisting the document’s release in part because it does not want the tax leaks scandal to extend beyond Australia, and trigger scrutiny from US and British regulators. PwC Australia’s view is that its global investigation concluded that none of the overseas partners “engaged in wrongdoing”, and to release information on them would violate their privacy and could endanger their safety. A local spokesman said the six overseas PwC operatives “were not found to have engaged in wrongdoing, and in consideration of relevant privacy laws and the individuals’ safety, it would not be appropriate to disclose their names”.

Office Space

Big Four accounting firm moves office from Norfolk to Virginia Beach Town Center [The Virginian-Pilot]
KPMG, the U.S. audit, tax and advisory firm, began leasing office space at Armada Hoffler Tower in Town Center of Virginia Beach in December. KPMG occupies 13,044 square feet in the 23-story building where Town Center developer Armada Hoffler maintains its headquarters. The modern and flexible office hosts more than 160 professionals as a work and collaboration space in the heart of the energetic business district, said Jason Kies, managing partner of KPMG’s Virginia Beach office. “We have a longstanding commitment to the Hampton Roads region, and this is the exciting next phase,” Kies said.

KPMG could shrink footprint in namesake downtown Dallas office tower [Dallas Business Journal]
One of North Texas’ largest accounting firms is trying to shed a chunk of office space in its namesake Arts District tower in downtown Dallas. Up to about 63,000 square feet of KPMG LLP’s space is up for sublease at 2323 Ross Ave., according to marketing materials provided to Dallas Business Journal. That is in the 19-story KPMG Plaza.

Bowers CPAs & Advisors Makes a Pair of Rochester Moves [Central New York Business Journal] Syracuse–based Bowers CPAs & Advisors says it has acquired a Rochester accounting firm and has also relocated its Rochester office. Not long after Bowers announced the acquisition of Kasperski Dinan & Rink CPAs, the firm also revealed the relocation of its Rochester office to 200 Meridian Centre Blvd.

Audit

‘Audits matter.’ AmTrust shareholders get US SEC backing in bid for appellate redo on BDO claim [Reuters]
The U.S. Securities and Exchange Commission told an appeals court last week that investors place significant faith in auditors’ certifications of corporate financials, calling on the court to reconsider the dismissal of securities fraud claims against auditor BDO USA by shareholders of the insurer AmTrust Financial Services. The SEC laid out its views in an amicus brief, opens new tab that was requested, opens new tab by the 2nd U.S. Circuit Court of Appeals as the court weighs a shareholder petition, opens new tab to revive a class action claim against BDO for allegedly making false statements in the auditor’s 2013 certification of AmTrust’s financials.

Earlier:

Rob Sand says GOP bill to let state agencies bypass auditor’s office could lead to corruption [Iowa Starting Line]
Iowa State Auditor Rob Sand doesn’t want Iowa to be like Illinois when it comes to anti-corruption work, and he doesn’t think anyone else should want that either. At a Thursday press conference, Sand went into detail about his opposition to a proposed bill—Senate File 2311, authored by Republican State Sen. Mike Bousselot of Ankeny—which would allow state agencies to hire a private certified public accountant (CPA) for their annual audits, rather than use the state auditor’s office, as is currently required. The results of the audit would still be submitted to Sand’s office, but he warned the chance for corruption would increase. “[Republican legislators] are so desperate to explain away the obvious purpose of this new legislation that they held up Illinois as an example for government accountability,” Sand said. “Illinois, where four of the last ten governors have gone to prison. Illinois, where even a study funded by the state of Illinois universities found that they were second in the country for public corruption.”

Auditor: Worst bookkeeping ‘I’ve ever seen’ leaves North Jersey town in financial pain [Morristown Daily Record]
The Dover council absorbed a sobering report last week from an auditor who said the 2022 financial reports he reviewed from the Morris County town are in “by far the worst condition of any records I’ve ever seen in 27 years.” The council will have “difficult choices” when it comes to its budget, he said. “I don’t want to be a bad guy, but I’m being as blunt as possible because I think you need to understand where Dover was so I can see a path forward,” said John Mooney of Nisivoccia, the Mount Arlington-based auditing firm that provides similar services to more than 200 municipalities. It had handled Dover’s books for more than a half-century until a previous administration chose to instead contract with the town of West Orange for record-keeping, officials said.

Private Equity

Private Equity is Here [The CPA Journal]
Like it or not, private equity is quickly changing the landscape of the public accounting profession. Some observers estimate that in five years, 20% of CPA firms will be private equity–sponsored. That number is likely to increase quickly in a short amount of time, especially as private equity firms target CPA firms from $10 to $50 million in size. Private equity sponsors expect lofty growth, so they will be fueling firms with cash to spend zealously on marketing, sales, and mergers and acquisitions (M&A). Therefore, even firms that don’t go the way of private equity will be impacted by its presence in the marketplace as competition for ideal clients becomes even greater.

Sick Burns

Interview: Laura Clarkson, office managing partner in Scotland at accountancy firm Mazars [The Scotsman]
Clarkson flags a sector-wide move away from the Big Four (PwC, Deloitte, EY and KPMG). “We focus on doing what we’re good at doing, and staying close to our clients,” she says. And the Big Four have seen some tarnishing of reputations in recent years. “We are careful in terms of the work that we will pitch for – we’re certainly not going after all the work that is coming our way,” she replies. “We’re fortunate that we can be selective.”