Hello and welcome to the last Monday Morning news brief of July. [Insert generic comment about “wow the year is just flying by” here] Let’s get right to it, shall we?
PwC, Deloitte, KPMG and EY headed for a break up, says “one of Australia’s most esteemed public servants” in The West Australian:
Allan Fels, who served an eight-year term as the inaugural chair of the Australian Competition and Consumer Commission, told The West Australian the recent PwC tax leak scandal — coupled with opaque evidence offered by the likes of Deloitte and EY at a recent Senate hearing — was increasing the likelihood the big four consultancy firms would need to demerge their audit responsibilities.
Currently KPMG, Deloitte and EY provide both consulting and audit to both the public and private sector.
Mr Fels, who has provided evidence to the committee looking into the ethical behaviour the major consultancy firms, said conflict-of-interest concerns about the big four were “a problem of their own making”.
“Originally they were just audit firms,” he said.
“Then the audit firms decided to create this problem by going off and doing their own consulting and the whole thing’s got out of hand.”
Market concentration in the consultancy industry came to a head this year after it was revealed PwC partners had misused information by passing on confidential Federal Government information to clients, sparking the sale of its consulting business to Allegro Funds to $1.
Mr Fels said the fallout had battered the reputation and integrity of independent auditing in Australia and suggested new transparency regulation was needed to cover work conducted by consulting firms for Federal and State governments.
“It’s very important for our economy that we have proper audit,” he said.
Related: PwC settled ‘false LPP’ penalties days before bid to suppress emails [Australian Financial Review]:
The Tax Office signed a confidential settlement with PwC in March involving the firm’s false claims for legal professional privilege over 150 documents related to tax advice to a multinational client.
The deal, which halved the firm’s penalties for breaching legal privilege rules, was signed just before the Senate made public thousands of emails about PwC’s tax leaks scandal – a move that was opposed by the Tax Office.
Former partner Wayne Plummer told PwC partners in December that the firm had made an in-principle agreement with the Tax Office to settle on a no-admissions basis in return for a 50 per cent reduction in penalties that totalled several hundred thousand dollars.
r/accounting reacts to KPMG’s summer internship for high schoolers:
The world’s largest accounting firms are fighting to block new rules in the US that would force them to take more responsibility for rooting out fraud at the companies they audit.
With days to go before the end of a consultation period on the proposal from the Public Company Accounting Oversight Board, (PCAOB) they are trying to sign up their clients to oppose the plan, saying that audit fees will soar if the changes go through.
The PCAOB’s new rules would widen auditors’ responsibility to scrutinise whether a company is complying with laws and regulations, and to communicate more of their concerns to a company’s board of directors. The proposal comes amid frustration in Washington that audit firms are not living up to their duty to protect investors from wrongdoing by their clients.
The Center for Audit Quality (CAQ), a group representing audit firms led by the Big Four of Deloitte, PwC, EY and KPMG, is asking corporate directors to sign on to a letter attacking the plan.
“Auditors are not lawyers and as a result the proposed amendments would expand the auditor’s role to include knowledge and expertise outside their core competencies,” according to the letter. “The proposal will substantially increase the cost of the audit without a commensurate benefit.”
We’ll share the full letter later, it deserves its own post.
This came up in my Google News results for EY, I’m including it because reasons. Reasons being there’s nothing interesting going on with EY this week except a bunch of reports on research we don’t care about.
On July 27 the SEC published “The Potential Pitfalls of Purported Crypto “Assurance” Work,” a statement by resident chief accountant Paul Munter on crypto auditing that’s littered with scare quotes to imply there is no “assurance” in most crypto work the way there is on traditional financial statements (um that’s not foolproof either, my guy). It said:
Following the recent waves of scandal and insolvency in the crypto industry, there has been a renewed focus on the firms, including accounting firms, that have been retained by companies in the crypto-asset space—in particular, crypto asset trading platforms. Certain crypto asset trading platforms, with others in the crypto industry, have marketed to investors their retention of third parties, sometimes accounting firms, to perform some sort of review of certain parts of their business, often presented as a purported “audit.” As accounting firms increasingly engage in this sort of non-audit work, their clients’ marketing and terminology risks misleadingly suggesting that these alternative, non-audit arrangements are at parity with, or even more “precise” than, a financial statement audit. Such suggestions are false. Non-audit arrangements are neither as rigorous nor as comprehensive as a financial statement audit, and may not provide any reasonable assurance to investors.
In response, commissioner Hester Peirce tweeted (X’d?) this:
Crypto platforms & their accountants should be clear about what proof of reserves is and isn’t & customers should understand the limitations, but why would we want to discourage good-faith efforts to provide more transparency? https://t.co/fsuxUGPrrb
— Hester Peirce (@HesterPeirce) July 27, 2023
Pick your sides, people.
On Friday, the PCAOB
pushed some paper sanctioned five firms for violating PCAOB rules and standards related to audit committee communications. The fines add up to $195,000.
Specifically, three firms failed to obtain audit committee pre-approval in connection with providing audit and/or non-audit services to issuer audit clients, in violation of PCAOB Rule 3520, Auditor Independence, and (for two of the three firms) PCAOB Rule 3524, Audit Committee Pre-Approval of Certain Tax Services. The firms are the following:
- BPM LLP – $50,000 civil money penalty and censure
- Plante & Moran, PLLC – $40,000 civil money penalty and censure
- S. R. Snodgrass, P.C. – $35,000 civil money penalty and censure
In addition, two firms failed to make and/or document certain communications with audit committees related to the planned participation of other firms and auditors in the audit, as required by AS 1301, Communications with Audit Committees. The firms are the following:
- Mancera, S.C. – $40,000 civil money penalty and censure
- MSPC, Certified Public Accountants and Advisors, A Professional Corporation – $30,000 civil money penalty and censure
Congressman David Schweikert, R-Ariz., and Congressman Jason Smith, R-Mo., of the House Ways and Means Committee, wrote a letter to IRS commissioner Daniel Werfel on Tuesday asking for the memorandum that explained the recommendation for the “unprocessed, paper-filed informational returns.”
“Let’s say, you know, it’s a couple years from now and you need to go back and say, ‘I need to get copies of what I filed.’ It doesn’t exist anymore,” Schweikert told The Center Square. “I need to make sure that we want to do an amended form or we want, you know, all sorts of things that these tax records are used for and they don’t exist anymore. And we’ve never been able to get a satisfactory answer from the IRS of why this was done was done, and is that policy that allowed it to happen? Is there a way to make sure this never happens again?”
When asked if the documents were primarily from individuals or from companies, the congressman said that it is likely ones impacting individuals.
“We’ve been told that was mostly sort of residential, but that when you’re talking, you know, that many potentially millions of individual documents, we’re trying to get a much better understanding of what is it,” he said.
The accountant shortage is solved in South Korea (cheek firmly in tongue here, folks):
South Korea’s top four accounting firms — Samil PwC, Samjong KPMG, Deloitte Anjin and EY Hanyoung — are expected to cut hiring this year more than 30% from last year. For the first time after 2020, the number of recruits by the Big 4 is expected to fall short of that of those passing the certified public accountant (CPA) exam.
Accounting industry sources on Sunday said the four this year are expected to hire around 800 staff combined, a far cry from 1,275 last year. Samjong KPMG, which hired the most among the four last year with 390, plans to add some 350 this year.
“There is talk of the combined number of recruits at the four major accounting firms being in the upper 700 level,” a source at an accounting firm said. “This year, the atmosphere of each company is ‘not bulging in size.”
The Big 4 have increased their number of new accountants over the past three years. The figure jumped 70% from 752 in 2020 to 1,275 last year during a period in which the number of hires by the four was greater than that of who passed the CPA exam each year. Under the new External Audit Act and all amendments to it in 2019, the number of auditing days surged.
He is based in the firm’s Chicago headquarters. In the newly created role, Costello will report to the firm’s COO and lead strategic initiatives to enhance operational efficiency and streamline business processes. He joined Baker Tilly last year when it acquired True Partners Consulting, a Chicago-based tax specialist where he served as CEO for two years and CFO for 15 years.
That’s all I’ve got. Have a wonderful week and don’t work too hard.