How tf is it June already!? I haven’t looked but I assume firms slapped up their rainbow logos over the weekend. Guess I should take a peek. Huh, PwC is the only one of the Big 4 rocking a rainbow logo on this fine Monday. Interrrresting…
EY US did post an ad though.
A career in accounting is about more than just numbers. Learn more about working at EY. https://t.co/yTsnZ3gzQ7 pic.twitter.com/mjSi1sBVQ2
— EY US (@EY_US) June 3, 2024
Hmm. Well, here’s some real news.
WSJ’s CFO Journal wrote about Forvis and Mazars making it official over the weekend:
Accounting firm Forvis acquired the U.S. unit of Mazars as part of a new international partnership, marking another unique structural shake-up in the industry as peers carve out divergent paths to boost their market share.
The firms finalized the arrangements on Saturday following an agreement signed last November. The deal creates a combined global audit and advisory network with nearly $5 billion in annual revenue.
The partnership will allow Mazars to build on its existing U.S. presence and Forvis to plant its flag internationally. Forvis currently has limited consulting operations in the U.K. The firms’ executives agreed to an acquisition in the U.S. because they both operated there, and they agreed they would only maintain one operation in each country in which they were located.
Neither Forvis nor Mazars, which is based in Paris, took on debt as part of the transaction.
Next stop, Africa! Keep your eyes peeled for some deals and remember that we called it.
We didn’t have a weekend discussion last weekend because I’m sick and typing 250 words on a Saturday or Sunday was just too much to ask. You’re welcome to weigh in on the previous discussion from May 26: So What’s Next For the AICPA?
South China Morning Post says PwC has taken another L due to Evergrande:
State-owned China Cinda Asset Management has become the latest major company to terminate its contract with PwC, after at least five big firms recently cut ties with the auditor amid growing concerns about alleged financial fraud tied to embattled developer China Evergrande.
China Cinda has replaced PwC’s services with those of fellow “big four” accounting firm Ernst & Young (EY) for 2024, the asset manager said in a stock exchange filing on Monday.
The decision was made to “practice sound corporate governance and further improve the quality of external audit work,” and in accordance with “relevant requirements of the selection and engagement of accounting firms by state-owned enterprises,” China Cinda said, adding that details of EY’s appointment will be published to shareholders in due course.
Certain members of the Australian government want the “high priests of commerce” (a.k.a. Big 4 firms) to pay more taxes:
After a year of scandals, bad publicity and a carousel of parliamentary inquiries shining a light on the shadowy world of the big four global accounting firms, it’s time for reform.
State and federal governments fork out more than $1 billion a year on auditing and consulting services delivered by the big four — EY, KPMG, Deloitte and PwC.
Yet the structure of these high priests of commerce enables them to shirk more than $100 million a year in tax.
A NSW parliamentary report tabled on Wednesday described the big four as “pseudo-corporations” that should be taxed accordingly.
The NSW inquiry, chaired by Greens MP Abigail Boyd, released a series of hard-hitting recommendations that included requiring the large consulting firms to pay payroll tax on partnership earnings.
Boyd, who chaired the inquiry, estimates that if adopted the recommendations would add between $50 million and $60 million per year in payroll tax to NSW coffers alone — equivalent to more than $200 million over four years. She told parliament the figures had been validated by external accountants.
GOOD JOB, PWC. See what you’ve done?
Do Chinese investors trust expanded audit reports? A Phys.org article about academic research:
The global financial crisis of 2007–2009 prompted calls for greater transparency in auditing processes, and since 2013, the auditors of UK-listed companies have been required to highlight key audit matters or KAMs. However, according to a paper by SMU researchers, there has been ‘mixed evidence’ regarding the impact of the regulation and whether investors find such disclosures useful.
SMU Associate Professors of Accounting, Goh Beng Wee and Jimmy Lee, along with co-researchers from Tsinghua University and the Central University of Finance and Economics in China, consequently decided to examine the impact of expanded audit reports on investors in a ‘large and important emerging economy’, namely China.
The study, titled “Informativeness of Key Audit Matters: Evidence from China,” states that while additional auditing information could mitigate investors’ concerns, especially as there is ‘limited firm-level reporting and lack of alternative sources of information’ in China where the media are state controlled and censored, investors ‘could become more suspicious about the quality of a firm’s financial reporting.’
“That’s the tension we introduce in the paper,” Professor Goh said. “Information is not so readily available, but auditors are not as credible in the Chinese market, so this could lead investors to wonder whether they can be trusted.”
ICAEW has a retort to the research covered in a recent FT article (“Auditors failed to raise alarm before 75% of UK corporate collapses“):
ICAEW hits back at claims of declining audit quality
Audit quality has increased since the 2018 collapse of Carillion, despite a recent report criticising audit performance, ICAEW has said.
New research claimed that audit firms failed to issue warnings before three out of four major UK corporate collapses since 2010. However, it didn’t acknowledge the government’s decision to halt urgent reforms to audit and corporate governance, or the role of company directors in corporate failures.
The Audit Reform Lab, part of the University of Sheffield, didn’t sufficiently highlight the role of government, which – after years of consultation and a series of in-depth reports by respected business experts – unceremoniously withdrew proposed corporate governance reforms late last year, citing companies’ concerns about extra reporting requirements.
The Audit Reform Lab’s research found that of the Big Four auditors, EY performed worst – warning of going concern risks for just 20% of collapsed firms. PwC provided warnings in 23% of cases, Deloitte 36% and KPMG 38%. Auditors outside the Big Four performed even worse – providing warnings for just 17% of collapsed firms.
It’s not really hitting back though.
Since the 2018 collapse of Carillion, however, the accountancy profession has acknowledged past failings, with regulators and firms alike working to tighten processes and rules. Some firms have already separated audit services from consulting to avoid criticisms of auditors cosying up to clients.
Furthermore, the Financial Reporting Council (FRC) has increased its fines on firms for audit failures. But little more can be done unless the government acts on the reforms urgently needed to hold company directors to account for corporate failures.
ICAEW CEO Alan Vallance said: “The FRC’s audit quality reports show the proportion of good audits increasing over the inspection cycles from 2018 to now. This contrasts with the conclusion of researchers at Sheffield University that there is an ‘appearance of declining quality’.
OR it could mean that firms are getting better at navigating the obstacle course of oversight inspections.
A couple of Canadian Deloitte partners are accused of not doing their one job:
Two partners of Deloitte LLP face professional misconduct charges for their audit work at Bondfield Construction Co. Ltd., which sought insolvency protection in 2019 amid allegations of fraud by past management.
Chartered Professional Accountants of Ontario, the regulatory body for the province’s accountants, alleges that Felice “Phil” Iorio and Steve Kostich failed to obtain sufficient evidence to support Bondfield’s audits, failed to adequately query company management and failed to maintain “sufficient and appropriate professional skepticism,” among multiple claims.
The two men are currently contesting the claims by CPA Ontario’s professional conduct committee at a hearing before the organization’s tribunal. Attempts to reach the two men via LinkedIn were unsuccessful. John Finnigan, a lawyer representing Deloitte and the two men, declined to comment.
Interestingly, CPA Ontario hasn’t dragged Deloitte into this drama, just the two partners.
CPA Ontario spokesperson Kathryn Hanley said in an e-mail that the regulator is not pursuing Deloitte because “an individual faces discipline in these instances based on the Canadian Audit Standards which state that the engagement partner themselves shall be responsible for the direction, supervision, and performance of the audit engagement and compliance with professional standards for the audit.”
Some bad news from across the pond:
Britain’s gender pay gap may not close for another 45 years, fresh research from accountancy giant PwC revealed.
A typical male worker in the UK earned 11.8% more than the average female in 2023, the data revealed.
It represents a 40-basis point improvement from the 12.2% gap recorded in 2022 and more than a 1% tightening compared to 12.9% in 2021.
Despite the reduction in the gap, PwC said the “rate of change remains modest”, adding that based on its calculations it will be another 45 years until both genders’ pay is the same.
A bit of CFO drama in Detroit:
The Detroit Riverfront Conservancy board voted to fire Chief Financial Officer William Smith and is replacing CEO Mark Wallace, who resigned amid alleged financial wrongdoing by Smith, the organization said Friday.
The group announced the leadership changes two days after The Detroit News reported the amount feared missing from the conservancy could reach $40 million. On Friday, the conservancy said investigations by auditing firm PwC and another by the Honigman Law Firm found the loss to the organization is more than $40 million.
The late Friday announcement is the latest unprecedented turn for the nonprofit that previously had a sterling reputation and whose goal of transforming the downtown riverfront is often hailed as playing a key role in downtown’s revival. The conservancy oversees the popular RiverWalk bike-pedestrian path and much of the adjoining public spaces. The group’s board is chock-full of influential Metro Detroiters and has an A-list group of funders.
The conservancy previously placed Smith on unpaid leave after disclosing earlier in May an investigation into potential financial mismanagement that has since been turned over to the FBI.
There was a ribbon cutting for BDO in San Antonio:
The North San Antonio Chamber of Commerce recently held a ribbon cutting ceremony to mark the opening of a new San Antonio office for BDO, an alliance of accounting and professional service firms.
BDO representatives said their organization serves as a global accounting network, offering resources and opportunities to hundreds of member firms.
According to BDO officials, the alliance has offices in more than 30 states, including Texas offices in Austin, Houston, Dallas and Fort Worth.
Looks like that’s all that’s worth talking about this morning. I’m sure there will be more as the week grinds on. Reach out via email or text if you see something you think we should be talking about, my inbox is always open. Have a good one!
