Please ensure Javascript is enabled for purposes of website accessibility

Friday Footnotes: PwC Slashes Partner Class; Accounting Firm Rescues Dog; Do We Still Need CPAs? | 4.19.24

fluffy golden retriever getting pet
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: Here are the top stories on Going Concern this week. PwC obviously dominated the headlines and not necessarily for good reasons.

PwC Partners Will Be Getting Dirty Looks at the Country Club for the Foreseeable Future
PwC Announces It’s ‘Aligning Its Organizational Structure’ and Using Fewer BS Words in Job Titles
PwC Is the Best, Prestige-iest Accounting Firm on the Vault Accounting 25
We Forgot to Mention Deloitte Got in Trouble For Cheating This Week, Too
BDO to Undergo Major Office Space Shrinkage in Pittsburgh

Even More PwC

PwC Looks to Shrink New U.S. Consulting Partner Class by More Than 50% [Wall Street Journal]
PricewaterhouseCoopers is looking to shrink its new class of U.S. consulting partners by more than 50% compared with last year as demand for advisory services continues to slow and the firm reorganizes its business lines. The Big Four accounting firm is considering adding about 85 U.S. consulting partners effective July 1, down from 174 a year earlier and more than 200 two years earlier, people familiar with the matter said. The figures include both partners and principals, which are partners who aren’t certified public accountants. That number could change as the figure for the coming fiscal year is finalized, likely in the coming weeks, the people said.

PwC Pushes Back at Evergrande Letter [Wall Street Journal]
One PwC story we didn’t cover this week was the Evergrande letter. We can’t seem to find an English copy of the letter, titled “Who dragged PwC into the fire pit of Evergrande?,” so if anyone has it get in touch.
PricewaterhouseCoopers has responded to a public letter that blamed some of its executives for the global accounting firm’s exposure to China Evergrande, the fallen property giant. PwC issued a statement on Tuesday after a letter circulated on Chinese social media over the weekend, which claimed to be written by some of the firm’s partners. The letter alleged, among other things, that a former partner had raised concerns about Evergrande and suggested dropping it as a client, but a senior executive intervened. PwC said “the letter contains inaccurate statements and false allegations concerning PwC and certain of our partners.” The firm said it has reported the matter “to the relevant authorities” and reserves the right to take further action. Evergrande, once one of China’s biggest property developers, ran up more than $300 billion of liabilities before it defaulted in 2021.

Hong Kong Regulator to Probe PwC Auditing Role Over Evergrande [Bloomberg]
The Accounting and Financial Reporting Council (AFRC) said in a statement Friday the report that has been circulating “expressed significant concerns” regarding potential alleged deficiencies in PwC’s systems of quality management and the quality of its audits of Evergrande. “Given the gravity of these allegations,” the AFRC is “obliged to initiate an investigation,” it said.

Talent Shortage

Viewpoint: How accounting firms can help fix the accounting talent shortage [Boston Business Journal]
Robert Miller, managing partner of Stone & Company, offers ideas to address the accountant shortage. For example:
Change the mindset towards the entry level and intern roles. We need to begin making our entry level staff and interns feel like they are a part of the conversation and stop viewing them as the person who only does scanning, shredding, matching or similar tasks. Gen Z wants to let you know their perspective on things. Ask them what they think. At my firm, we engage our intern in the team lunch conversations, making it clear that we consider him a contributor and part of the official team.

CPAs Have a Branding Problem for the Younger Generation [CPA Journal]
By Jason L. Ackerman, CPA, CFP, CGMA
Probably the hottest topic in the profession over the past few years has been the pipeline problem: Firms can’t find qualified individuals to handle the increasingly complex world that CPAs deal with on an ongoing basis. The problem has become so serious that the AICPA summoned a task force that came up with 12 root causes of the current pipeline crisis (“AICPA Publishes Detailed Plan to Boost Pool of Prospective CPA Candidates“). I think to understand the root cause of our pipeline issue, we have to first wrestle with the fundamental question—do we still need CPAs? And if the answer is yes, how can we market and convey the appeal of being a CPA to a new generation and create a designation that people, both young and old, will continue to strive to achieve its credentialing?

While you’re here, check out Accountingfly’s top remote accounting candidates of the week. Accountant shortage? Never heard of her. Sign up for Always-On Recruiting to get great candidates like these sent to your inbox every week with no cost and no obligation to hire.

Audit

Audit Board Urged to Rein In Plan to Curb Misleading Marketing [Bloomberg Tax]
CPAs pressed the US audit board to scale back a proposal meant to prevent firms from falsely marketing their registration with the regulator as an endorsement of their work. The bar for possible enforcement actions is set too low under draft rules the Public Company Accounting Oversight Board released in February, exposing firms to greater legal liability, auditors and accounting groups told the regulator in feedback submitted through April 15. The rules should instead focus on clear cases where a firm promotes registration with PCAOB as a seal of approval, some comment letters said. “The rule should not apply to unintentional conduct when a registered accounting firm or an associated person is making a statement of fact,” PwC LLP, also known as PricewaterhouseCoopers, said in a letter to the audit board. The letter was one of 18 submissions on the marketing proposal.

See: Docket 054: Proposals Regarding False or Misleading Statements Concerning PCAOB Registration and Oversight and Constructive Requests to Withdraw from Registration

Earlier:

Tether CEO Says An Audit By A Big Four Giant Is Our Top Priority [CoinGape]
Tether is currently working with BDO.
According to Tether CEO Paolo Ardoino, the major accounting firms, including Deloitte, PwC, EY, and KPMG, are hesitant to engage with Tether due to concerns about potential reputational damage. Ardoino stated, “None of the Big Four firms are willing to audit us.” However, he emphasized that securing one of them as Tether’s auditor is a high priority for the company. Currently, with a market cap of over $109.5 billion, Tether’s USDT is the third-largest cryptocurrency currently in the market. Thus, an audit of all the USDT reserves would bring more confidence among investors about the stablecoin issuer. This is especially true when recent reports suggest that Tether is the most-used stablecoin for criminal activity.

Technology

75% of Mid-Market Companies to Invest in AI Over Next Five Years, According to Wipfli Survey [PR Newswire]
Wipfli announced the release of a survey conducted of 256 c-suite, founders, and board of directors at mid-market companies. The survey sheds light on the evolving landscape of technology investments and workforce dynamics among these businesses, providing valuable insights into their strategies and challenges. The survey revealed that over the past five years, these savvy enterprises have been investing in the digital infrastructure of tomorrow. Among these investments, cloud computing emerged as a top priority, with 83% of respondents reporting investments in this area. Additionally, 66% have embraced the transformative potential of AI, while 81% have realized the necessity of increased cybersecurity measures. Furthermore, 72% have invested in data analytics and business intelligence, recognizing the value of actionable insights derived from data.

Don’t Believe The Negative ‘Hype’—New Jobs Will Be Created With AI, EY Vice Chair Says [Forbes]
Raj Sharma, EY Americas vice chair of consulting, who oversees more than 25,000 consulting professionals across the Americas, is highly optimistic about the potential for AI. As a self-described technologist, Sharma is advising corporate clients to adapt and embrace the fast-growing technology, despite the higher costs of capital to higher rates, and a trend toward cost cutting among many companies, particularly in the tech space. In a Zoom video interview with the vice chair, he estimates that 50% to 60% of the world’s jobs will be impacted in the next five or six years. However, Sharma said it will not create mass unemployment “as some people are hyping.” Instead he stated, “It will just create different types of employment altogether.” Humans are still going to be at the center of any business.

‘Big Four’ accounting firm EY to use Polygon PoS for business contracts [Blockworks]
Ernst & Young revealed an enterprise contract management service that would let clients put contracts on a public blockchain while keeping business information private through zero-knowledge circuits. The firm markets its OpsChain Contract Manager as running on Ethereum, although it currently runs on Polygon proof-of-stake (PoS). In a press release, EY said the service would bring business agreements to Ethereum, but this isn’t exactly the case. Nightfall, the zero-knowledge rollup EY developed to do things like manage business contracts, actually runs on Polygon PoS, an independent blockchain.

Animals? In Footnotes?

Missing Dog Found with His Face ‘Wrapped in Duct Tape’ Recovers as Shelter Searches for Answers [People]
The Nebraska Humane Society is asking for help finding out who covered a missing dog’s face in duct tape and then left the pet in a dumpster. According to an April 15 Facebook post from the shelter, employees at an Omaha accounting firm found the canine in a dumpster behind the office’s building. An employee at the firm heard sounds coming from the dumpster on April 14, but they weren’t comfortable investigating the commotion, per the shelter’s post. The next day, the firm’s staff opened the dumpster expecting to find a raccoon but found a small dog whose “entire head was wrapped in duct tape” instead.

Bunnies hop their way into the hearts of a Medicine Hat accounting firm [CHAT News (Canada)]
Hippity-hop the stress away. Every year after a stressful tax season, Medicine Hat accounting firm MNP Accounting does a “stress buster” event. Normally, it would include a nice dinner and maybe some drinks to blow off steam. This year, they took a different approach. With the help of Bunny Run Rabbit Rescue, the firm brought bunnies into the office for staff to enjoy and to even consider adoption. MNP partner Delayne Sackman said the new approach was well received. “I think the mood has definitely been uplifted,” Sackman said. “Everybody came in with a case of the Mondays and they’re all leaving happy and smiling and hopefully, maybe adopting some of these bunnies.”

Government

Deloitte Secures Potential $100M Navy OTA for Digital Manufacturing Data Vault [GovCon Wire]
Deloitte Consulting will provide advanced manufacturing support and enterprisewide digital manufacturing data vault capabilities and services under a potential seven-year, $99.8 million other transaction production agreement with the U.S. Navy. The majority of the contract work will occur in Arlington, Virginia, through April 2031, the Department of Defense said Thursday.

Deloitte backs off SHARKCAGE protest [Washington Technology]
Deloitte Consulting has backed away from its protest of a potential $789 million Navy contract won by Accenture’s U.S. federal subsidiary. The SHARKCAGE contract is part of a Navy effort to build a new IT environment for sensing, detecting and analyzing activity across its networks. Accenture Federal Services won the contract in February and Deloitte followed with a protest against how the Navy evaluated proposals. More specifically, Deloitte didn’t like how its proposal for a prospective task order was evaluated. Deloitte also criticized how the Navy evaluated its technical and management approaches, and the firm’s plan for supply chain risk management.

EY’s Wirecard audits marred by ‘repeated grave’ violations of duties, says watchdog [Financial Times]
EY made “grave” and “repeated” violations of professional duties in its audits of defunct payments firm Wirecard, Germany’s audit watchdog Apas concluded on Friday. Apas criticised the Big Four firm’s “deficient execution” of its Wirecard audits as well as its “insufficient audit reporting” that resulted in the issuing of “objectively inaccurate audit opinions”. The watchdog also rebuked EY over the “grave failure” of its internal quality controls, adding that “several key executives” of the firm conducted “multiple violations of professional duties” during the quality control process.

People

Michael Plowgian rejoins KPMG as tax principal [Consulting.us]
He rejoins KPMG’s national tax practice in Washington from the US treasury department, where he spent two years and was deputy assistant secretary for international tax affairs. Plowgian also served as top US negotiator at the OECD, where he worked on advancing the two-pillar tax reform plan – which reallocates taxing rights for the largest multinationals and institutes a global minimum tax.

RubinBrown’s new KC office leader points to one factor driving her promotion [Kansas City Business Journal]
Megan Knoblauch has worked at RubinBrown LLP since she was fresh out of college, but she’s a much different person now as she becomes the Kansas City office’s managing partner on June 1. “I started as a staff person who was single, and now I’m married and have three kids,” Knoblauch said. “It’s just a completely different life than where I was when I started at RubinBrown. They’ve just been so supportive, enabling me to have the career I’ve always wanted.”

Paul Knopp: Scaling The Ranks And Defending Audit Quality [Forbes]
Defying the odds defines Paul Knopp—and has molded him into the CPA he is today. Starting out in the late seventies as a first-generation college student from Austin, he earned a bachelor’s in business and then an MBA from the University of Texas. Knopp considered the CPA profession a “surefire way for a person with zero money to come out the other side of college and have a successful career.” In 1983, he joined KPMG US as an audit associate in San Antonio; four decades later, he has scaled the ranks at the only company he’s ever known to become CEO of one of the nation’s four largest accounting firms.

Tax

Tax audits cast a lingering chill over targeted firms, study suggests [Bayes Business School]
Tax audits improve companies’ compliance but hit their investment plans and trigger volatility in their share price, new research from a Bayes academic suggests. The study concludes that the uncertainty associated with intense and prolonged scrutiny by the tax authorities probably increases companies’ tax payments for up to three years – but that the economic downside also lingers after the auditors have moved on. Researchers at Bayes Business School (formerly Cass), City, University of London and Booth School of Business, University of Chicago, used generative AI tools to assess the impact of Internal Revenue Service (IRS) audits on 3,284 American companies.

IRS commissioner indicates AI will play growing role in future tax collection [Government Executive]
IRS commissioner Danny Werfel, in remarks made April 17 at UiPath on Tour: Public Sector Event in Washington, D.C., outlined two kinds AI uses the IRS is exploring: virtual chatbots that assist and benefit tax-paying citizens and AI tools IRS agents can use to identify potential tax cheats. “Right now, I believe that there are AI solutions that we have not yet leveraged that exist today that can help with some of these basic questions to the benefit of taxpayers,” Werfel said. “And on the other side of the equation, we are using AI today to do even more to unlock and spot this complexity.” Werfel likened advanced AI tools to “night vision goggles” the IRS needs to “unlock and see and spot the issues” in potential cases involving the “most complicated, largest taxpayers” in the country.

The President’s Fiscal Year 2025 IRS Budget and the IRS 2024 Filing Season [Senate Finance Committee]

News

Virginia Beach accountant pleads guilty to stealing from client, using pandemic funds on house down payment [The Virginian-Pilot]
A Virginia Beach accountant pleaded guilty April 12 to stealing more than $1 million from a client and using an additional $250,000 in COVID-19 small business relief money for personal bills. Maria Reich, 45, former president of On Call Accountants, pleaded guilty in U.S. District Court in Norfolk to eight counts of wire fraud as part of a plea agreement with prosecutors. The crime carries a maximum penalty of 20 years in prison and a fine of the greater of $250,000 or twice the gross gain or loss, full restitution, forfeiture of fraud-related assets and a special assessment. She used one of her client’s money for a host of personal bills and the pandemic relief money for a down payment on a house, according to a statement of facts submitted in the case.

GAO Seeks New Members for Tribal and Indigenous Advisory Council [US Government Accountability Office]
The U.S. Government Accountability Office (GAO) is seeking nominations for five positions on its Tribal and Indigenous Advisory Council. The Council was formed in 2022 to provide insights and recommendations and help guide GAO’s future work on critical issues affecting Tribal Nations and their citizens. “Since its inception, the Tribal and Indigenous Advisory Council has provided valuable input and insight into the persistent challenges facing tribal communities,” said Gene L. Dodaro, Comptroller General of the United States and head of the GAO. “We look forward to welcoming new members of the Council to ensure GAO’s work includes a diverse range of tribal and indigenous perspectives.”