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Monday Morning Accounting News Brief: Messing with Texas Costs EY $3 Million; CPA Says Blame Yourself, Not Your CPA | 11.13.23

dog in bed with laptop

Good morning and ____ Monday. Fill in the blank however you like. It’s early so I haven’t picked an adjective yet.

In case you missed it and weren’t reading accounting news on the weekend which I sincerely hope you weren’t because that makes me sad for you if you were: FORVIS may be announcing a big merger soon. We were told partners were to be briefed on the merger today, guess we’ll see if a Sunday article from the profession’s resident tabloid had any effect on such an announcement.

Some EY news from FT over the past few days. EY’s forthcoming PCAOB deficiency rate sucks harder than its competitors:

EY aims to shake up US audit business after ‘unacceptable’ number of flaws

The PCAOB had examined 54 audits carried out by EY US in 2022 for its latest round of inspections and found flaws in 46 per cent of them, the firm said.

That represented a significant deterioration from the previous year, when deficiencies were found in 21 per cent of inspected audits, and the poor performance had continued into the current year, the firm indicated.

Disclosing aggregate numbers in July, the PCAOB said it found flaws in 30 per cent of the audits carried out by the US arms of the Big Four. These latest figures suggest EY’s performance is significantly worse than its rivals.

And some drama surrounding mandatory retirement age as old dudes vie for Carmine’s spot:

EY executives clash over mandatory retirement age in leadership race

EY executives have clashed over whether age should be a factor in appointing a new global leader, as the Big Four firm’s mandatory retirement rules complicate the race to succeed Carmine Di Sibio.

One of the leading contenders, 57-year-old British partner Andy Baldwin, warned other executives that they risked breaching UK age discrimination laws as they sounded out senior partners on his candidacy, according to people familiar with the conversations.

Some members of EY’s global executive committee, which is due to choose Di Sibio’s successor this month, argued against Baldwin’s candidacy on the grounds that he is close to the retirement age of 60. He would not be able to serve a full four-year term unless he is given an exemption, these people said.

And EY news from elsewhere: the Texas Board of Accountancy has fined EY $3 million for cheating.

EY was the subject of a Securities and Exchange Commission (SEC) order that included a number of professionals licensed as Texas CPAs who were found to have cheated on ethics exams and on a variety of other examinations required to maintain their Texas CPA licenses. The SEC had further determined that EY had withheld this misconduct from the SEC staff who were involved in the investigation.

“The action represents the Board’s message to all Texas licensees that the Board will not tolerate any form of professional misconduct,” said TSBPA Executive Director William Treacy.

This is on top of the $100 million the SEC fined them when the cheating was first uncovered:

EY Auditors Cheated on Ethics Exams and Tried to Cover It Up, Will Pay a Record Fine for Naughtiness

I’m tempted to turn comments on for this (comments are off on the Monday news brief and Friday Footnotes by default) just for this CFO Magazine article on what CFOs think about the accountant shortage:

According to those who are hiring accountants and teaching them, the problem began with a major change to the process of earning a CPA.

“One of the worst things the American Institute of Certified Public Accountants (AICPA) did was change the CPA exam from a two-day to a one-year test,” said Dr. Tim Naddy, vice president of finance at the Savannah Bananas and a professor at Savannah College of Art and Design. “They forced the Big Four firms, who were once hiring master’s degree level accountants with a CPA license on day one, to hire bachelor’s degree level accountants who had a year or two to finish their exam.”

Although Naddy realizes that having a master’s degree in an entry-level accounting role doesn’t guarantee expertise, he said it allowed young CPAs to start a job with the knowledge they needed to succeed. “The person with the master’s and the person with the bachelor’s are now being viewed as the same person from a company’s perspective,” Naddy said.

“If you’re the face of a Big Four accounting firm to a client, they all think you’re a partner, they think you know tax law and all the rest of it. So with this move, they’ve watered down the applicant pool of future accountants,” he continued.

Profession veteran Gene Marks, who has been a licensed CPA for more than 30 years, writes about Trump and SBF blaming the accountants for The Guardian:

Every year, millions of individuals and small business owners have their tax returns prepared by outside accountants. It makes sense. Taxes can be complicated so it’s a good idea to have someone who knows this stuff well – a professional – to do your year-end reporting, and do it right.

But let’s say there’s a problem with your tax return. Maybe your tax professional made a mistake. Or was negligent. Or wasn’t up to date on the rules. And let’s say this problem resulted in you owing more money to the IRS. Or even – if serious enough – it results in the IRS taking you to court. Who’s ultimately responsible for this problem? Is it your accountant?

Nope. It’s you.

Another example: you run a business, and every year your bank requires that you receive an audit from an approved outside accounting firm. The auditor’s opinion is clean. But then it’s determined that some of the numbers provided to the auditors weren’t correct. Or that the auditors failed to fully verify other amounts. Or even that the auditors didn’t follow proper auditing procedures. Let’s say this problem resulted in the bank pulling back your loan. It’s the auditor’s fault, right?

Nope. It’s you again.

Crain’s Chicago Business says Chicago’s 25 largest accounting firms are doing quite well these days:

Chicago’s top accounting firms see an average 7% uptick in headcount

Forvis (No. 17) saw the greatest increase in headcount, a 37.5% uptick from June 2022. The firm now has 220 local professionals and 85 certified public accountants. Baker Tilly (No. 10) and Porte Brown (No. 24) likewise each reported significant boosts in professional staff of nearly 31%.

Only four firms on the list saw drops in headcount. All reported under a 5% decrease, and three of these firms maintained their same rankings from last year. BDO USA held its No. 7 spot despite a 4.8% dip in professionals. Deloitte and PwC also kept their No. 1 and No. 3 places, with Deloitte seeing nearly a 3% decrease and PwC a 3.4% drop.

In never-ending scandal news, The Mandarin reports PwC paid quite handsomely for someone at the Australian Taxation Office to visit Paris:

Accounting firm PwC forked out approximately $12,000 to get the Australian Taxation Office’s Jeremy Hirschhorn over to Paris to address its 2019 global tax conference.

The firm revealed the spend on the travel and accommodation for Hirschhorn, the ATO’s second commissioner, in its response to questions on notice from Australian Greens’ senator Barbara Pocock.

Former PwC chief executive officer Tom Seymour invited Hirschhorn to present at the event in the former’s capacity as the firm’s financial advisory leader.

Seymour was the head of the tax division at the firm at the time the confidentiality breaches that have been the subject of regulatory, political and media discussion since the disciplinary penalties against PwC and its former partner, Peter Collins, were released by the Tax Practitioners Board.

PwC told the senate that the firm paid airfares, airport transfers, and hotel accommodation for Hirschhorn and that he was not paid a speakers’ fee for appearing at the event.

Reuters said today that China’s finance ministry has proposed auditors undergo or conduct additional cybersecurity checks when their work involves national security.

A draft of the new measures, made public on Friday, also lays out how accounting firms should manage data that relates to Chinese firms.

The new measures apply specifically to auditors that have been hired by domestic firms or are conducting cross-border work. The chief partner of an auditing firm is the person responsible for data security, the draft rules say.

The draft is open for public consultation until Dec. 11.

Also from that part of the world: Korea, US regulators jointly inspect big 4 accounting firms

The Financial Supervisory Service (FSS) and the U.S.-based Public Company Accounting Oversight Board (PCAOB) are currently conducting a weeks-long inspection of Samil PwC, one of the big four accounting firms in Korea, along with Samjong KPMG, Deloitte Anjin and EY Hanyoung Korea. The inspection comes as part of the two financial watchdogs’ regular inspection schedule.

According to industry sources, Samjong KMPG and Deloitte Anjin underwent joint inspections two years ago. This year, it is the turn for Samil PwC and EY Hanyoung Korea. EY has already undergone its inspection earlier in the summer, an official from EY Hanyoung said.

I don’t think we linked this Journal of Accountancy podcast episode yet. “How to invest in staff and keep staff invested” with guest Barry Payne, director—External Relations, Management Accounting at AICPA & CIMA.

That’s plenty of news for now. Lots going on lately so yay us because this job really sucks when things are boring (as do the incessant “slow news day huh??” comments). If you see something interesting or have some scoop to share with the class, reach out by email or text us at 202-505-8885. Have a great week, everyone.