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February 2, 2023

Friday Footnotes: EY Can’t Hire Tech; John Doe Sues the PCAOB; Auditors Can’t Find Torpedoes and Missiles | 1.20.03

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Practice Management

How firms use stay interviews to boost retention [Journal of Accountancy]
Job interviews have long been an essential part of the hiring process. But now, some public accounting firms are turning the lens on themselves. They’re conducting “stay” or “retention” interviews with existing employees. The goal is to understand how they can be a more attractive workplace and reduce employee turnover — a top issue for many public accounting firms. “There’s a war for talent,” said Phil Whitman, CPA, CEO and president of Whitman Transition Advisors LLC, a consultancy that provides recruiting, M&A advising, and other services for accounting firms. Anything firms can do to retain employees is typically less expensive and less disruptive than hiring someone new, he said.

Big 4

EY says it hasn’t seen ‘a rash of talent that’s all of a sudden available’ despite huge tech layoffs [Insider]
Tech companies may be laying off staff left, right and center — but it doesn’t mean there’s an abundance of talent readily available in the market, the CEO of accounting giant EY told Bloomberg on Wednesday. “If you just read the headlines around what’s going on, you might think, there’s all kinds of people who know technology out there,” Carmine Di Sibio told Bloomberg in an interview at the World Economic Forum in Davos. But that doesn’t appear to be the case. “We’re not struggling to source talent, but it’s not like we’re seeing a rash of talent that’s all of a sudden available,” Di Sibio said, adding that the firm’s hiring is “business as usual” — which EY reiterated to Insider.

PwC sees off Deloitte to retain HSBC audit worth up to $1bn [Financial Times]
PwC has retained the most valuable audit contract on the London Stock Exchange after overcoming a challenge from Deloitte to sign off the accounts of HSBC until 2034. HSBC announced on Friday that it had decided to reappoint PwC following a tender process that was required because the Big Four firm will have served for 10 years by the time it signs the 2024 accounts. PwC and Deloitte were the final two firms in HSBC’s marathon tendering process that effectively began when the bank informally contacted accounting firms in 2021, according to people familiar with the process. The HSBC audit is by a distance the most expensive on the London Stock Exchange ahead of those at Barclays and Shell. The bank paid PwC $130mn for audit and related assurance services in each of 2020 and 2021, meaning the appointment could be worth about $1.3bn over the next decade. PwC took over from KPMG in 2015 and was eligible to serve until 2034 subject to a competitive tender at the 10-year mark. Under rules introduced in 2016, large UK-listed companies are required to change auditor at least every 20 years and to run a competitive tender once a decade.

Germany’s Commerzbank sues EY for Wirecard losses [Reuters]
The German lender Commerzbank (CBKG.DE) is suing accounting firm EY over the 200 million euros ($216.12 million) in losses that it incurred in the collapse of Wirecard, a bank spokesperson said on Thursday. Wirecard’s downfall two years ago shook the German business establishment, putting politicians who had backed it under intense scrutiny, along with regulators that took years to investigate allegations against the payments company. EY was for years the firm that audited and certified Wirecard’s books even as journalists and investors raised questions about its finances. The Commerzbank spokesperson said the case had been filed in Frankfurt court in recent weeks. An EY spokesperson said “claims against EY for damages do not hold up”. EY assumes that the courts will also uphold this position, the person added.

ESG

Companies parachute accountants in to fix flawed ESG data [Financial Times]
Accountants and auditors are muscling in on the preparation of climate data amid concern that companies are still far from ready for disclosure rules being drawn up by regulators around the world. The US Securities and Exchange Commission is finalising a rule to require audited emissions data be included in corporate financial reports, while accounting standards setters in Europe are close to publishing new climate reporting guidelines. The developments raise the stakes for companies that until now have been reporting environmental, social and governance data on a largely voluntary basis. In response, companies are pulling staff from their finance departments into work on emissions data and other ESG metrics that are currently pulled together by specialists in sustainability reporting. Some are appointing “ESG controllers” with accounting backgrounds to impose the kinds of internal systems used to produce financial statements.

Audit

Circle Taps Deloitte as New Auditor, Doubles Down on Proof of Reserves [Blockworks]
Circle, who for years partnered with firm Grant Thornton for its audits, makes the switch to Deloitte as various accounting firms express concern over working with crypto companies.

Pentagon Can’t Account for $220 Billion of Gear Given to Contractors [Reason]
Auditors say the Pentagon cannot account for $220 billion worth of government-owned gear provided to military contractors—and the actual total is likely much higher. In a report released Tuesday, the Government Accountability Office (GAO) slammed the Pentagon’s handling of so-called “government-furnished property” (GFP) that has been passed off to contractors with little oversight. The GAO notes that auditors have asked for decades that the Pentagon develop a plan to account for that gear and equipment—which can include “ammunition, missiles, torpedoes,” and component parts for those items—to little avail. In 2001, the Pentagon said it would address the issue by 2005. In 2020, it said the process would be complete by 2026.

Auditing best practices: What academic fraud research reveals [Journal of Accountancy]
Auditors are expected to comply with the requirements in AU-C Section 240, Consideration of Fraud in a Financial Statement Audit, in conducting financial statement audits. Academics who perform fraud research were recently asked by the AICPA’s Auditing Standards Board (ASB) to synthesize contemporary auditing research related to the auditor’s identification, assessment, and response to fraud risks, and to communicate any revealed best practices. They identified 40 fraud-related studies published in highly regarded accounting journals between 2016 and 2022, along with several unpublished studies available on the Social Science Research Network. Below are some best practices based on those studies, organized according to select requirements in AU-C Section 240.

Law & Order

PCAOB sued by advocacy group on behalf of accountant [Accounting Today]
The Public Company Accounting Oversight Board is on the receiving end of a lawsuit filed by a civil liberties group for penalizing an unidentified accountant. The New Civil Liberties Alliance filed a complaint Thursday in the U.S. District Court for the Northern District of Texas seeking declaratory and injunctive relief from the PCAOB, claiming the audit overseer used “secret disciplinary proceedings” to unconstitutionally prosecute the unnamed accountant. The plaintiff is referred to only as “John Doe” and is described as an accountant who previously worked as an auditor at an accounting firm in the South American country of Colombia that is a member of a larger international network of accounting firms. In 2015, the accountant worked on a team that performed “component audit procedures” relating to a publicly traded audit client to help a different member firm within the network, which was the principal auditor of the client’s financial statements.

NJ Accountant Pleads Guilty in $1.3 Billion Green Tax Fraud Case [Bloomberg]
A New Jersey accountant pleaded guilty to participating in a scheme to sell $1.3 billion in fraudulent tax deductions supposedly aimed at preserving green space. The accountant, Ralph Anderson, sold partnerships in deals known as syndicated conservation easements, which the Internal Revenue Service says are often fraudulent tax shelters. The IRS has audited at least 28,000 taxpayers who claimed $21 billion in deductions through those kinds of deals. Anderson, 64, pleaded guilty to conspiracy to defraud the US, saying he marketed the deals to wealthy clients by guaranteeing tax deductions worth at least four times their investments, which he knew was “too good to be true.” He also admitted that some partnership agreements were backdated to falsely show they closed in the previous tax year, which is a key allegation in the case against Fisher and other defendants.

Bergen Accountant Defrauds Insurance Fund Of $7M In Workers’ Comp: DA [Patch]
A Bergen County accountant stands accused of defrauding a public insurance carrier of more than $7 million in workers’ compensation premiums by filing doctored payroll records that greatly reduced the size of a client’s workforce, authorities said. Steven Lyon, an Edgewater accountant, was hired by New York specialty contractor Oneteam to prepare and file its quarterly payroll reports with the state Department of Labor, and its yearly state and federal tax returns. Lyon also acted as Oneteam’s representative during annual audits conducted by the New York State Insurance Fund, Manhattan District Attorney Alvin Bragg, Jr., said. As alleged, from Jan. 1, 2019, to May 15, 2021, Lyon used separate email accounts to file payroll-related documents with the labor department and insurance fund, Bragg said. While filings submitted to the labor department were accurate, those submitted to the insurance fund were doctored to “drastically reduce” the size of Oneteam’s workforce, the district attorney said.

Former accountant for troubled Williamsburg Hotel held in contempt [The Real Deal]
Days after a trustee approved the $96 million sale of Michael Lichtenstein and Toby Moskovits’ Williamsburg Hotel [in NYC], the property’s former accountant is in hot water. A federal judge is holding Daniel Norensberg and his Long Island-based accounting firm in contempt for failing to comply with subpoenas to produce information about the bankrupt hotel’s affairs. Norensberg has been ordered to pay $500 per day until he complies. A court-appointed trustee is seeking the information as he investigates Lichtenstein and Moskovits’ financial maneuvers at the posh hotel at 96 Wythe Avenue, which the developers put into bankruptcy in 2021 to fend off a foreclosure attempt by lender Benefit Street Partners. The bankruptcy proceedings have certainly been contemptuous.

Int’l

Shortage of accountants ‘to worsen’ in 2023 [RTÉ]
Chartered Accountants Ireland is warning that an acute shortage of qualified accountants will worsen in 2023, as Irish businesses struggle to access talent. The institute is highlighting the problem ahead of its annual dinner in Dublin tonight. President of Chartered Accountants Ireland Pat O’Neill said that the shortage is driven by a huge increase in competition for talent from non-accounting roles but also a gap in perception of what accountants actually do. “Anecdotally, the talent pipeline problem is clear right across the profession, from practices of all size to industry, resulting in attraction and retention challenges, not just in Ireland, but around the world, and we are working with global partners to tackle it,” Mr O’Neill said.

We spoke with a recent grad about what it’s like to become a CPA [DailyHive]
After immigrating to Canada, Syrian refugee and 2SLGBTQ+ activist Anas Qartoumeh used his previous experience to secure his first jobs with KPMG and the University of British Columbia (UBC). But, feeling limited by his options, he decided to pursue getting a CPA designation. “I was born in Damascus, one of the oldest continually inhabited cities in the world,” Qartoumeh tells Daily Hive. “Before the war, Damascus was full of life and culture and had a lot to offer. A mix of history and modern life. People used to visit Damascus from all around the world to enjoy the scenery, local food and warm weather.” Since the conflict started in Syria in 2011, the country changed and its rich history was replaced by negative images of death and tragedy. In 2015, he fled his home to escape mandatory military service and the civil war, and crossed the border into Lebanon, which had been overrun with refugees. He shortly moved to Kurdistan, Iraq, to work at Deloitte and Touche. He came to Canada in 2017 through the Vancouver Rainbow Refugee program and the Central Okanagan Refugee Committee, landing in Kelowna.

New standard “a revolution” in public co auditing [Globes]
Israel: The company reporting season for the final quarter of 2022 will shortly begin. In company financials as currently presented, important matters that cast light on the behavior of senior company managers and their considerations in significant decisions are often obscured by professional jargon and a welter of numbers, and not every investor understands them completely. Such matters can be lost among the hundreds of detail-laden pages. Under a new auditing standard, they will come under the spotlight. Starting from financial statements for periods ending on December 31, 2022, public company auditors will have to apply standard 701, which requires them to communicate “key matters in the audit” in the auditor’s report. “Up to now, auditors would express an opinion on financial statements in uniform wording, The new standard means that in addition to the usual formula, an opinion must be recorded pointing out all the most significant matters that the auditor has encountered,” explains Hofit Gotesdyner, a partner at accountants and consultants BDO Ziv Haft. “The additional new reporting will have a considerable effect on the companies being audited and on the way audits are conducted,” she says.

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