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Monday Morning Accounting News Brief: Consulting Pay Freezes; AI, Audit, and You | 11.6.23 (UPDATE)

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Ed. note: An earlier version of this article had “KPMG Mega Merger?” in the headline. We removed it based on information received after publication, explained below. The question has been answered with a resounding NO.

Good morning and happy Monday! Or whatever kind of Monday you choose to have. Here’s some news.

So this dropped on Sunday, a possible merger of KPMG India, US, and UK advisory practices? Just a rumor for now. [Ed. note: the merger rumor described by Economic Times has been debunked by a source close to KPMG. Said a firm spokesperson in a statement to GC: “KPMG is a network of member firms, which are independent of each other. We are, as always, focused on opportunities for greater collaboration within our existing India-based client delivery network.” We’ll give you more details if we get them.]

Economic Times:

KPMG India, KPMG US, and KPMG UK are exploring a merger of their advisory practices, a move aimed at multiplying their consulting business in India, said multiple people with knowledge of the matter.

The industry-first exercise will combine the consulting, risk, tech consulting, and deal advisory practices of the three regions of the consulting giant into KPMG India, the people said.

The combined entity will invest aggressively in scaling up the India advisory practice and growing client servicing capabilities in India.

The tax and audit practice, through affiliate BSR & Co, will be excluded from the merged entity and could be made into a separate entity, though that is still under discussion, the people said requesting anonymity. The ‘Project Himalaya’, as it is being called inside KPMG, has been underway for a few months and is being driven by KPMG India CEO Yezdi Nagporewalla, along with a few select partners. The new entity, when formed, is expected to soon grow to 50,000 people, with combined revenue of more than $1 billion just from the India platforms, the people said.

It was only a week ago KPMG UK merged its deals and advisory businesses into one advisory-y business, and a few weeks before that the UK firm laid off six percent of its deals people. Hmm. Let’s keep an eye on this. Nothing to see here. “The people” need to work on their rumor spreading skills.

Another story that dropped on Sunday when no one’s paying attention to the news: WSJ reported they were told Bain would buy Guidehouse, the story has since been updated to turn a maybe into a definitely.

Bain Capital said it would acquire Guidehouse, a consulting firm that advises government organizations and businesses, in a deal valuing it at $5.3 billion including debt.

The firms announced the agreement on Monday. The move is the latest by private-equity firms to scoop up professional-services providers as consulting growth in certain areas slows. It is also a rare deal for an asset class that is struggling to find exits and to return capital to awaiting limited partners.

In 2018, Veritas Capital, which invests in businesses at the intersection of government and technology, acquired the U.S. public-sector consulting business of Big Four accounting firm PricewaterhouseCoopers for an undisclosed price and rebranded it as Guidehouse.

Guidehouse provides management and technology consulting and other services to federal-government agencies including the Departments of Defense, Homeland Security and Veterans Affairs, and to state and local governments, as well as businesses.

Last year Guidehouse bought Grant Thornton’s public sector practice so anyone who gets to stick around has just made the big time. Big ‘grats to them.

An another exclusive from WSJ: EY Lays Out U.S. Governance Overhauls After Failed Split

Ernst & Young is stepping up its U.S. governance overhaul efforts, a bid to give partners there a greater voice in firm strategy, following the failed separation of its audit and advisory businesses earlier this year.

The proposal comes as the Big Four accounting firm continues to work to untangle the mess left by its decision in April to scrap plans to split auditing and consulting into two different firms. EY spent $600 million and more than a year working on the split.

The firm outlined a proposal to set up a U.S. independent committee of five elected partners that would nominate a slate of candidates for a future governing board, which would be tasked with oversight of U.S. firm strategy, risk management and other areas, according to materials from a webcast held for U.S. partners Thursday.

All U.S. partners would vote to choose the members of the nominating committee. The committee would identify three candidates for every open vacancy, on which all U.S. partners would then vote.

The proposed governance framework was presented to U.S. partners as an opportunity to give them more of a say in the firm. It would take “a more inclusive approach to voting, reflecting the voice of all partners,” according to the materials.

FT says consulting firms are freezing starting salaries “in bid to shore up profit”

The world’s most prestigious consulting firms have frozen US starting salaries for new graduates, as a war for talent that sent pay soaring after the pandemic gives way to tougher competition for jobs.

McKinsey and BCG are among the firms holding salaries at 2023 levels for undergraduate and MBA students taking up positions next year, according to people familiar with the matter.

That stands in stark contrast with the situation a year ago, when firms raised salaries by the largest amount in more than two decades. The persistence of historically high inflation means the real-terms value of a new consulting job will be sharply lower next year.

“It is the hangover after the party,” said Fiona Czerniawska, chief executive of Source Global Research, a consulting sector analyst. Faced with declining customer demand in some areas of their business, and pricing pressure across the board, consulting firms are trying to shore up profits by curtailing hiring and holding down pay, she said.

CFO Dive wrote about the results of KPMG’s AI in Audit Survey [survey PDF] Survey says:

While recent breakthroughs in generative AI have sparked renewed workplace worries about jobs being replaced by technology, just over half (55%) of senior financial leaders surveyed do not think AI will shrink financial reporting teams. However, 39% think AI-related efficiencies will cut team size and 21% expect team size will grow because its value will be enhanced, according to a recent survey from the Big Four accounting firm KPMG.

Given the current mixed perceptions about AI, KPMG National Managing Partner-Audit Operations Tim Walsh said he was “pleasantly surprised” by the share of respondents who did not believe AI will cut their staffing and by “the optimism financial reporting leaders showed for the value of AI to their functions. That is similar to how we view the value of AI to our own workforce — that it will free up our people to focus on areas of higher risk and not supersede the kind of professional judgment that really only humans can provide,” he said in an emailed response to questions from CFO Dive.

We might dig deeper into that survey, we’ll see.

NYT Magazine talks about Deloitte’s creepy monetization of the final frontier:

Befouling the Final Frontier

When its time comes, in 2030 — unlike Mir before it, which was de-orbited so it would burn up in the atmosphere — the I.S.S. will fall into the sea.

The I.S.S. will depart an orbital environment significantly different from the one in which it was built, between 1998 and 2011. The number of satellites in orbit has multiplied more than tenfold since ’98, to approximately 8,500, and those accumulating orbiters traverse a sky littered with a tremendously large number of bits of human-made space debris, many too small to be tracked. The difference isn’t just the crowding, though. How we use, and think about, orbital space has been transformed.

A promotional video made by Deloitte puts it concisely and directly: ‘‘Have you ever looked up at the night sky with curiosity, wondering what’s out there? Here’s an answer that might surprise you: Business opportunities.’’

Idealists may cringe, and not only because the video begins with ‘‘Space, the final frontier,’’ a phrase that already belongs to someone. But Deloitte is right when it says, ‘‘Space has never been more accessible or rife with potential.’’ In terms of accessibility, technological and financial barriers to getting a satellite into orbit have plummeted. NASA outsources its resupply missions to commercial operators; the I.S.S. will soon sport a commercial module; and the seeds of space tourism seem finally ready to sprout. And in terms of potential? The potential for wonder and scientific discovery in space is there as it ever was, if you seek it. But there is a new potential, rising as the star of the I.S.S. sets. As the Deloitte video puts it: ‘‘We are at the dawn of a new era, where exploration gives rise to economics, and possibility turns the corner toward profitability.’’

Here’s another creepy video of theirs on the subject.

CPA Journal takes on FASB taking on crypto:

Accountants, corporate management, and investors would likely all agree that better guidance is needed for the accounting, valuation, disclosure, and reporting of crypto assets. FASB has recognized the growing prevalence and importance of crypto assets and released an exposure draft on the subject earlier this year. But while businesses wait for finalized guidance, entities that rely upon crypto must still issue audited financial statements. This article reviews the potential implications of the exposure draft and examines the existing reporting from three entities materially exposed to the crypto market.

Grant Thornton has new digs in one of my favorite cities, Minneapolis. This glowing report is from the folks who built it:

Grant Thornton new Minneapolis office space

Kraus-Anderson (KA) has completed construction of a new office for Grant Thornton LLP — one of America’s largest audit, tax and advisory firms — at the Steelman Exchange building in Minneapolis’ North Loop.

The Steelman Exchange building, which is located at 241 5th Avenue North, taps into the city’s deep industrial roots and vibrancy of the North Loop neighborhood, which serves as a homebase for professional creators, tradespeople, and changemakers.

Not naming and shaming isn’t working out well in Australia according to a report released by the Financial Reporting Council. Well, it’s working out well for the firms that aren’t being named nor shamed. Check out Oversight of Audit Quality in Australia–A Review [PDF] or this Australian Financial Review article about it instead:

The corporate watchdog’s decision to abandon naming and shaming poor audit quality among the big four consulting firms removed a key deterrent of poor behaviour, a review has concluded.

The Financial Reporting Council, which oversees Australia’s financial reporting framework including accounting and auditing standards, also criticised the Australian Securities and Investments Commission’s decision to slash annual audit quality checks, which were already “very low”.

The FPR report noted the public reporting of poor audit quality among Australia’s six largest accounting firms provided an important deterrent to poor behaviour, including media and parliamentary attention on negative findings. Now axed naming and shaming of firms was one of a few completed recommendations of the 2020 Senate report into audit quality.

Alright, that’s enough news for now. Saw a lot of tips coming in this weekend so will get to those, thanks to everyone who sent things over. If you’ve got something you think we should discuss, be it news or happenings at your firm not yet in the public sphere, do reach out. We do also welcome letters to the editor if that’s more your speed, by all means feel free to let those thoughts rip. Later.