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.
Talent
How Can the Accounting Profession Attract a Diverse Generation Z? [The CPA Journal]
Generation Z is beginning to enter the workforce, bringing with it a demographic shift that will affect every facet of American society, including the accounting profession. Attracting and retaining these diverse young workers thus represents the next great challenge for firms. The authors discuss the intersection of diversity efforts with outreach to Generation Z, present the results of a survey of minority high school students’ attitudes toward the profession, and describe strategies for attracting and retaining this next generation of workers.
LGBTQ+ Workers Poised To Quit Companies That Don’t Feel Inclusive, Research Shows [Forbes]
Over a quarter of employees who identify as LGBTQ+ are considering quitting their job and moving to a more inclusive company, according to new research conducted by Deloitte. Drawing on the experiences of almost 5,500 workers across thirteen countries, the research found that the proportion of people considering moving to a different employer is even higher among those who identify as LGBTQ+ and as ethnic minorities. In that demographic, some 52% of respondents said that they were thinking about changing employers. Consistent with these findings, the research also established that only 43% of respondents said that they felt comfortable being out about their sexual orientation at work, and only 47% said the same for gender identity.
Office Hours: CPA Firms Shift Toward More In-Person Collaboration and More Square Footage [INSIDE Public Accounting]
Three years after accounting professionals were forced home by COVID and then back to the office, at least part of the time, firms are beginning to settle into a new normal. Whatever the case, it’s widely believed that for many firms the days of all-in, all-the-time office work are over. Forever. “That train departed the station in March of 2020,” says Brandon Smith, chief human resources officer at LMC in New York City. Indeed, average occupancy of offices in the U.S. today is still less than half of March 2020 levels, according to data from security provider Kastle. In interviews with three firms, two in New York and one in Great Bend, Kan., leaders say that fully remote positions are destined to stay in place, as will hybrid models. Even so, they say more people in the office is better than less, and firms are taking different approaches to get there.
Audit
“When you are a hammer, the world is a nail” – SEC and PCAOB Senior Staff Signal Increased SEC and PCAOB Gatekeeper Enforcement [Lexology]
SEC Enforcement and PCAOB Enforcement both are pursuing more significant sanctions against auditors, particularly with respect to civil money penalties. Expect 2023 enforcement against auditors to focus on quality control, culture, ethics and integrity. SEC and PCAOB coordination on enforcement matters will continue, and there are hints that the coordination will result in more joint enforcement actions, which is a significant departure from the historical approach by the SEC and PCAOB.
KPMG’s Big Four Dominance on Bank Audits Shaken by Failures [Bloomberg Tax]
Big Four accounting firm KPMG has been buffetted by one of the biggest economic stories of the year—and has been pilloried for giving clean audit opinions for three banks that collapsed amid the interest rate crisis that’s threatened the regional banking sector. The immediate risks to those mid-tier lenders might have subsided, but that doesn’t put KPMG in the clear. The firm faces congressional scrutiny over its relationships with the banks, while shareholders have sued KPMG over its audits of at least one of the banks that collapsed into FDIC receivership. “I want to believe that that you can issue an audit opinion and that company is going to be in business for at least another month,” said Tony Menendez, assistant professor of accounting at Loyola Marymount University. “My concern is that it goes beyond KPMG.”
Deloitte quits as auditor of Indian start-up Byju’s [Financial Times]
The 12-month audit has been “long delayed”, said the accountancy firm on Thursday in a letter to the Bengaluru-based company’s board. The results from the company had been due in September. The auditor said it had “not received any communication” from Byju’s on the “status of audit readiness of the financial statements and the underlying books and records for the year ended March 31 2022”, and had therefore been unable to start its work.
SPAC Auditor Crackdown Puts Pressure on Second Biggest Player [Bloomberg Law]
Hefty regulatory sanctions against Marcum LLP for its audits of blank-check companies is putting an uncomfortable spotlight on its SPAC auditor rival, New Jersey-based Withum Smith+Brown PC. Like Marcum, Withum rode the special purpose acquisition company audit boom, becoming the top SPAC auditor by volume in 2020 and the second in the following years until the SPAC market crashed. Withum’s SPAC clients, like Marcum’s, also stumbled over the same tricky warrant accounting issue in the first half of 2021, leading to an unprecedented round of financial statement re-dos.
Stamford’s Accounting Department Isn’t Doing the Basics, According to Outside Auditor [Connecticut Examiner]
Elected members of the Board of Finance seemed taken aback when the city’s contracted auditor explained why the annual financial report due to the state on Dec. 31 is still not finished. Scott Bassett, a partner with the U.S. arm of RSM, one of the largest accounting firms in the world, told the members of the board’s Audit Committee at their June meeting that the city’s accounting department isn’t doing the basics. Bassett provided examples for finance board members, who have been asking for months why the city is not meeting the deadline for filing the audit to the Connecticut Office of Policy & Management, especially since the city was significantly late last year, too. Bassett explained what he says happened when RSM auditors requested information on accounts receivable. “It’s a question of, who owes you money? That’s it. But what we get is a line that says ‘auditor adjustment.’ How do you audit that?” Bassett said. “So we send it back. Then we might get something, and it might not be correct. So that happens.”
Technology
Women executives are more stressed than ever. KPMG thinks AI will fix that. [Insider]
More than 90% of female execs feel a surge of stress in the workplace compared with three years ago. This is according to KPMG’s 2023 Women’s Leadership Summit report. “We truly believe that AI has a role to play in de-stressing the workplace,” a KPMG exec said.
What Roles Could Generative AI Play on Your Team? [Harvard Business Review]
The recent advances in ChatGPT are merely the first application of new AI technologies. As such, companies and leaders need to think about the various applications outlined here and use the framework described in the article to develop applications for your own company or organization. In the process, they will discover new types of GPTs. By classifying these different GPTs in terms of potential value to businesses and the cost of developing them, applications that begin with a single human initiating or participating in the interaction (GroupGPT, CoachGPT) will probably be the easiest to build and should generate substantial business value, making them the perfect initial candidates. In contrast, applications with interactions involving multiple entities or those initiated by machines (AutoGPT, BossGPT, and ImperialGPT) may be harder to implement, with trickier ethical and legal implications.
PwC Probes Security Incident Tied to Russian-Speaking Clop Cyber Gang [Bloomberg]
A criminal hacking gang has added more names to its lists of alleged victims from a recent campaign that exploited a vulnerability in a popular file-transfer product. The group, known as Clop, threatened to post internal data from professional services firms Pricewaterhousecoopers LLP and Ernst & Young LLP unless they pay a ransom fee. The scope of the incidents weren’t immediately clear.
The Russian-speaking gang has in recent weeks launched scores of attacks after discovering a vulnerability in MOVEit, a file-sharing software from Progress Software Corp. Pricewaterhousecoopers in a statement confirmed it used MOVEit software, and that the hack had a “limited impact” on PwC. The firm stopped using the MOVEit platform upon learning of the incident, it said. “We have reached out to the small number of clients whose files were impacted to discuss the incident,” a company spokesperson said. “Data security is a key priority for PwC and we continue to put the right resources and safeguards in place to protect our network.”
That PwC Thing
PwC tax scandal: firm engaged in a ‘calculated’ breach of trust, Senate committee finds [The Guardian]
Consulting firm PwC engaged in a “calculated” breach of trust by using confidential information to help its clients avoid tax and engaged in a “deliberate cover-up” over many years, a Senate committee has found. PwC should be “open and honest” by promptly publishing the names and details of its partners and staff involved, the finance and public administration committee has recommended. In a unanimous report, tabled on Wednesday, the committee also recommended that PwC cooperate with investigations by the Australian federal police and Tax Practitioner Board, which deregistered its former head of international tax, Peter Collins. The Greens will continue to push for harsher punishments, including calling on the Albanese government to cancel all PwC’s contracts and for the cancellation of PwC’s registration as a tax agent for two years. The committee chair, Liberal senator Richard Colbeck, told the Senate PwC had engaged in an “egregious” breach of trust after Collins “was given the privilege of being part of a consultation process on new legislation being proposed to deal with multinational tax avoidance”.
Practice
Why accounting firms need a strong strategic plan [Journal of Accountancy]
Failure to plan is planning for failure. That adage rings especially true for accounting firms in these modern times. Buffeted by hurricane force winds of change, firms must ponder how to proceed through uncharted, unsettled waters. Faced with such uncertainty, some firms have chosen to stay in place while they weather the storm. Their strategy, it seems, is to hope that what has gotten them this far will carry them safely into the future. “Hope is not a strategy,” said Kassi Rushing, an organizational development consultant who specializes in accounting and financial services firms. “We’re in a time of such exponential shifts affecting the profession that standing still, maintaining the status quo, waiting to see what’s going happen, is really the most dangerous course of action.”
News
Ontario, Quebec accounting bodies announce planned split from CPA Canada [Canadian Accountant]
The provincial accounting bodies regulating chartered professional accountants in Ontario and Quebec have split with CPA Canada over the future governance of the Canadian accounting profession. Both organizations, CPA Ontario and CPA Quebec, say their provincial economies are “unique” and their decision to sever ties with Chartered Professional Accountants of Canada is in the public interest. The change will take effect in 18 months when the current collaborative agreement ends between the provincial and national bodies. The announcements have exposed a rift between the governing bodies of chartered professional accountants. Governance of the profession is circumscribed in the Collaboration Accord, which outlines the roles, standards and cost-sharing structures. It was created during unification of the profession in 2013 and includes a five-year review built into its terms.
North Carolina CFO Sentenced to 18 Months in Prison in Multi-Million Tax Fraud Case [U.S. Attorney’s Office, Eastern District of North Carolina]
Christopher Scott Harrison, 56, of Fayetteville, N.C., was sentenced today to 18 months in prison, followed by one year of supervised release to include home confinement, for tax fraud. On January 24, Harrison pled guilty willfully filing a false tax return with respect to nearly $25 million in unreported income he paid to himself from his company. In addition to his prison sentence, Harrison was ordered to pay more than $4.6 million in additional restitution. “As noted by the judge at sentencing, this businessman used a sophisticated scheme over many years to knowingly divert corporate proceeds to support his lifestyle by claiming fancy jewelry, such as a Rolex watch, a Cartier diamond necklace and a Tiffany bracelet were business expenses,” said U.S. Attorney Michael Easley. “We will not allow wealthy tax cheats to line their pockets at the expense of hardworking American taxpayers.”
Marcum Earns Top 10 Spot as Best Employer in Ohio [Marcum]
“Marcum works hard to demonstrate our commitment to team members every day, so being named among Cleveland’s elite employers for the third time since 2021 is an enormous honor. This accolade is a testament to our commitment to fostering an environment that promotes professional growth, a culture of entrepreneurship, and values diversity, equity, and inclusion. At Marcum, we believe everyone with skill and talent should have an equal chance to progress their career, and we’re committed to creating clear pathways to leadership for all our associates,” said Dani Gisondo, Regional Managing Partner-Ohio and member of Marcum’s Executive Committee.
Troubles Mount for Thai Firm Hit by Accounting Scandal, Default [Bloomberg]
Bondholders of Stark Corp. Pcl called for immediate payment of about $200 million after a special audit revealed accounting irregularities, the latest trouble for the Thai electrical components maker that’s defaulted on debt and seen its shares plummet to near-zero. “It’s uncertain how much bondholders and other creditors of Stark can reclaim as the company doesn’t have many remaining assets,” said Somjin Sornpaisarn, president of the Thai Bond Market Association.
