Big 4

BT Chairman Would Probably Prefer if He Could Just Get Rid of PwC Altogether

Sir Michael Rake, the Chairman of BT Group plc (also the former Chairman of KPMG International) presumably wasn’t happy that the $2.4 billion writedown the British telecom giant had to take this past year. No one likes surprises, especially red, multi-billion dollar ones, and after some careful consideration, Rake asked PwC to clean house:

Sir Michael Rake said that PwC changed its personnel after BT expressed its concerns.

He said: “We have reviewed and strengthened our internal audit [function]. We have had discussions with our external auditors and we asked for changes in their team.

“We did a complete review as to what went wrong and why we took longer than we should have to pick up on this issue.”

There is typically some rotation in audit teams working on big accounts but for the client to demand wholesale change is rare. BT had also considered dropping the firm.

SO! Rather than give PwC the heave-ho, cooler heads seem to have prevailed. Since Rake is is a former Klynveldian, that option is out (he left in ’07) and since the FTSE 100 loves the Big 4, that only leaves two options.

Rather than go slumming with E&Y, Deloitte or – God forbid – Grant Thornton or BDO, BT will stick it out with P. Dubs. BUT a knight doesn’t have to like it.

BT sought auditor changes after £1.6bn writedown [FT]

Which Big 4 Firm Is Getting Extra Anxious to Sign Off on Audit Reports?

In this morning’s roundup we linked to the Accountancy Age story that reported the Audit Inspection Unit in the UK found that “Auditors have also been accused of altering documents before handing them to regulators and putting cost savings ahead of quality,” but also “The report also found some cases where partners signed audit reports before the audit was complete.”

Obviously this is no good but since the report was relevant to the FTSE 100 (and the report doesn’t name names), we just figured that this was just a blanket statement about the Big 4. However, over at FT Alphaville, Tracy Alloway shared a clipping from the report that got a little more specific:


“This issue appeared to be more prevalent at one major firm.” Okay! So one firm has a few extra partners that have itchy trigger fingers. This obviously begs the question of “which firm?” If you prefer to play the numbers, here’s the latest breakdown of the FTSE 100 we can find: PwC – 41; KPMG – 24; Deloitte – 20; E&Y – 17 (we realize the numbers don’t add up to 100, take it up with Accountancy Age).

But this is America, so we’ll put it to a vote:

Accounting News Roundup: BP in Talks to Sell Assets, Including Alaska Ops; Koss Lawsuit Details Embezzlement ‘Spurts’; The Estate Planing Debacle | 07.12.10

BP Mulls Selling Off Billions in Assets [WSJ]
“BP PLC is in talks with U.S. independent oil and gas pron a deal worth as much as $10 billion that could include stakes in BP’s vast Alaska operations, according to people familiar with the matter.

A deal, which would go a long way to helping BP cope with the financial stress of paying for the clean-up of the Gulf oil spill, could be reached in the coming weeks, though there is no guarantee it will succeed, one of these people said.”

Bank Profits Depend on Debt-Writedown `Abomination’ [Bloomberg]
This abomination has an official name, SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities

“Bank of America Corp. and Wall Street firms that notched perfect trading records in the first quarter are now depending on an accounting benefit last used in the depths of the credit crisis to prop up their results.

Bank of America, the biggest U.S. bank by assets, may record a $1 billion second-quarter gain from writing down its debts to their market value, Citigroup Inc. analyst Keith Horowitz estimated in a June 23 report. The boost to earnings, stemming from an accounting rule that allows banks to book profits when the value of their own bonds falls, probably represented a fifth of pretax income, Horowitz wrote.”

Koss embezzlement ran in spurts, lawsuit says [Milwaukee Journal-Sentinel]
The most impressive “spurt?” $478,375 over three days in 2006. According to Koss’ lawsuit against S-squared and Grant Thornton, $145,000 also disappeared from the petty cash fund over the years, amongst other “unauthorized transactions.”


Bias At Work: To Sue or Not to Sue? [FINS]
Harassed? Discriminated against based on age, sexual orientation, race et al.? Of course suing your employer is an option. This is America after all, where the opportunity to slap someone with a lawsuit is your god-given right. But is it always the right move?

Bolt running from the taxman – Usain snub for British meeting [Daily Mail]
The fastest man in the world would prefer to keep a little money for himself, “Under present tax rules, if Bolt competes once in Britain and only five races elsewhere, the British taxman will demand one-sixth of everything he earns, whether in Britain or not. His taxable earnings would not only include his considerable appearance fees but also his hefty endorsement contracts.”

The Big Four’s UK Firms Pick Up Non-Executive Directors — And Then …? [Re:Balance]
Jim Peterson expands on his thoughts about the Big 4 non-executive directors in the UK, “Not only can good governance not be inflicted or imposed, in other words, because resistant leaders will find ways to disturb or subvert the purpose, but a virtuous culture will display its legitimacy without the need for pietistic overlays.”

Too Rich to Live? [WSJ]
The estate tax debate has gotten even more morbid than it would ordinarily be, ” ‘You don’t know whether to commit suicide or just go on living and working,’ says Eugene Sukup, an outspoken critic of the estate tax and the founder of Sukup Manufacturing, a maker of grain bins that employs 450 people in Sheffield, Iowa. Born in Nebraska during the Dust Bowl, the 81-year-old Mr. Sukup is a National Guard veteran and high school graduate who founded his firm, which now owns more than 70 patents, with $15,000 in 1963. He says his estate taxes, which would be zero this year, could be more that $15 million if he were to die next year.”

Five Major Differences Between Small Accounting Firms and the Big 4

Ed. note: The following was submitted by a reader of Going Concern who wished to remain nameless.

As a casual fan of Going Concern, and a senior auditor of a small to mid size local firm, I feel the site is quite comical and a vast insight into the world of “bigger and better” feelings. I read the site for humor, comparison, and overall knowledge on the country’s accounting bureaucracy. I would like to dive into some of the obvious�������������������� the big boys and us local mid-market droids.

Busy season – For most, January 5th is the start date and lets up by April 1st. Busy season is usually the hours of eight-thirty to seven-thirty. The midnight coffee runs are infrequent and somewhat discouraged. (That might be just our firm, so if yours is different, chime in). Busy season does not end with a celebration, spot bonus, or dinner; we get an e-mail saying thank you for making us (the Partners) rich.


The Rank and File – The caliber of employees is different. We get a few people that could of have gone Big 4 but primarily our employees are the ones who worked through college, made mostly B’s drizzled with some C’s, or they went to Big 4 and then realized it wasn’t a good fit. A fair amount of the staff obtain the CPA license but hardly ever do they walk in with it. With that, some might think the staff is seen as not equivalent. I differ from that viewpoint. This leads me to the next difference.

Responsibilites – The degree of responsibility of a Big 4 staff auditor and a mid-size staff auditor are drastically different. It appears the people we hire from the Big 4 know a specific section of the audit to a tee but when it comes to another section they are a lost puppy. For example, the small time auditor has to draft the engagement, complete ninety five percent of the fieldwork and finish with all the management representation letters, disclosure checklist, etc. It’s a complete engagement overview, not just the cash section. This might be because of the size of the engagements but regardless, when it comes to closing the deal, the small time auditor seems to perform like Jeter in October. You might argue this is because our niche is smaller but on the SEC engagements we tackle, the same criteria takes effect. Staff do the work, manager reviews, and partner signs. No middle ground to speak of.

Money – I constantly look at GC to see what the salaries in the rest of the country appear to be and honestly, we don’t come close. It’s very much a disappointment. We probably all start off close to the same (50k plus or minus 5k), but in all actuality, the bigger accounting firms bump people up a lot faster than us local guys. Again, this might parallel to the caliber of employees we hire, or it might not. I tend to think we follow a very specific old fashion business model. We pay our staff just enough so they are complacent, and the partners bring the money home to afford the private schools, three plus luxury cars, the farms, and the multi million dollars home. If someone doesn’t want to put in the fifteen to twenty plus years it takes to get there, then tough, we will find someone else. The door is a constant revolving machine. No emotion goes into it what so ever.

Pick up a tax return! – The last item is the close ties between audit and tax. It is very common for someone in my shoes to finish all my audit responsibilities by mid-March, and then pick up the married couple with two kids tax return. It’s merely done for enjoyment and to help out the overall firm. This also helps with keeping on your toes when talking to clients about what your firm can offer. We get an incentive for bringing in clients and since our niches are smaller, it’s easier than bringing in a 100k plus job.

Bottom line is that it’s a different culture. I guess it’s always up to the staff if they like the eleven o’clock coffee run, sleep deprivation, 65k salary, or if they like the 58k salary, have a life, and come home at seven-thirty careers. It really just depends on the person. Some people strive either way but nothing should be taken away or discouraged because of the decision. I would just know what you’re getting into when you walk in the door. If you go to a smaller firm out of college, don’t expect the huge pay increases, or the spot bonuses, just expect to work and not get much for it.

How the Big 4 Are Helping Career Moms Have It All

The Harvard Business Review’s blog (Harvard blogs?) ran a piece earlier today about a recent Pew Research study that claims more women are not having children.

The HBR brushes over the whole birth control thing and serves its best interest by focusing on what they consider having it all (an advanced degree and at least one child), picking the following statistic out of the hay stack, “in 2008, 24% of women ages 40-44 with a master’s, doctoral or professional degree had not had children, a decline from 31% in 1994.”


This had me thinking about the benefits that the Big 4 provide to their employees going through early parenthood. What might surprise you (or might not) is how similar the firms’ services are.

From PwC.

From Deloitte.

From KPMG.

From E&Y.

Parental leave of absence: “Eligible primary care parents with three months of service can use six weeks of paid parental leave during the year following birth or adoption placement (three weeks for non-primary care parents). This is in addition to maternity disability benefits, if applicable, of 60% to 100% for approximately 8 weeks. Paid parental leave runs concurrently with any job-protected time under family and medical leave.”

Provided by every Big 4 firm:

Adoption assistance – Per EY’s site: “Pays expenses up to $5,000 per child (with an additional $1,000 for special needs children), with paid leave available for the caregivers, along with resource and referral services.”

Lactation program – PwC’s program, explained: “Access to educational materials, unlimited pre/post-birth counseling from nationally recognized lactation specialists and breast pump discounts are available through this program. Private mother’s rooms are also available in many of our offices.” Do conference frooms count as “mothers’ rooms?”

Parental paid leave of absence

Deloitte – 2 weeks (this is all I could find – can anyone prove differently?)

PwC – up to 6 weeks

KPMG – 8 weeks “Professionals who plan to return to work after the birth or adoption, are eligible for two weeks (10 days) of paid child care leave.”

E&Y – 6 weeks

Unique programs:

Family time off – The Family and Medical Leave Act of 1993 promises 12 weeks of unpaid leave for those employees who need to take care of a sick family member. E&Y extends this service to 16 weeks.

Back up Child and Elder Care – many of the firms provide some kind of support for employees when family care emergencies occur. KPMG takes things one step further by allowing employees to share their unused resources with colleagues that have depleted their resources.

Note – I used external websites when reviewing the different options – these might outdated from what you have internally. Does your local office offer something unique that is not listed here? Share details in the comments.

More Women Manage to Have It All [HBR]

Big 4 Rotations: Great Career Opportunity or Recruiting Gimmick?

We touched on international rotations yesterday, albeit one that probably would be provide more risk than most accountants are comfortable taking.

That being said, rotations – either to another practice, office or international – can be a way to re-energize your career if you’re feeling stagnant or a simple distraction from the distinct possibility that you don’t like your job. We’ll discuss all three of these possibilities and then open it up for discussion:

International Rotations – Offering international rotations is an excellent recruiting tools for the firms that offer them (primarily Big 4) and most people that work in firms that offer them would state that they are “an extremely rewarding experience,” whether or not they’ve actually experienced one. It’s one of the cliché message that firms put out without mentioning the fact that the politics of negotiating one can be tricky. All that being said, those lucky few that do experience them rave about their experiences (for the most part, there are some that just can’t be pleased) on both a personal and professional level.


Domestic Rotations – Again, firms market these as opportunities for those that are interested in them. There are less politics involved in the domestic versions although a particular office may have to demonstrate a need before it would be approved. A slight twist on these the domestic “rotation” is an unsolicited one, where one office has a desperate need for warm bodies and your firm offers you up to spend a significant length of time (e.g. two to three months up to a year or more) working in a different office.

Practice Rotations – You’re sick of auditing/tax/advisory. One day the idea of a rotation to a new service line or to a support department (e.g. HR) comes along and you jump at it because, well, you’re bored out of your mind. This can be a great opportunity to do something completely different which could be the start of a new career path. Or it could be your firm filling its need for grunts in a practice that is short-handed.

From a recent thread on staying or leaving public accounting, commenter Guest had this to say regarding internal rotations.

Internal rotations are also BS. They are generally looking for cheap labor to bridge them in times of need. Most people don’t get asked to stay on, in which case your peers that stayed in audit may have a leg up. If you do get asked to stay, you will be behind your advisory/tax peers since you didn’t start with them.

So it’s a bit of a mixed bag out there. On the one hand, landing one of these rotations is the first step and then you have to consider the repercussions of leaving an office/practice for a length of time. If you’ve got personal experience with any of these, discuss below for the wishers and dreamers out there mulling rotations.

Dog Days: How Are Accounting Firms Helping You Enjoy Summer?

A fellow Big 4 expat once told us that Tuesday was the worst day of the week. The logic was essentially that Tuesday was no man’s land – you weren’t catching up on your weekend with your co-workers like on a Monday, Friday is an eternity away and plus Tuesday has no feel.

And since the summer months tend to be slower, the days can drag.

With that in mind, a current Big 4 soldier wanted to find out what firms were doing to help pass some of the hours either through internal initiatives or on individual teams. She was kind enough to share with us her team’s Friday ritual:

Every Friday we head out early to get manicures. Just wanted to know how/if other teams or firms were letting people blow off some steam this summer.

For the gents that aren’t so in touch with their delicate sensibilities, this probably sounds awful. Regardless, it beats the hell out of being the office, yeah? And spending over half of your day on Deloitte’s Fantasy Football doesn’t qualify as a substitute.

You may remember that KPMG is letting the troops don their best denim – baggy, skinny, nut huggers – whatever and they also shipped out some sweet flesh that Klynveldians may have burned on over Memorial Day.

So whether your summer consists of extra-casual dress, afternoons at the $5.99 buffet strip club or double-duty on your office’s landscaping, discuss how your firm is helping you enjoy (or not) months 6 through 8.

Big 4 Refugees: Where Are They Now? Are They Still Miserable?

Unless you’re completely illiterate, you’re aware that we cover lots of news on layoffs and exoduses here at GC. Layoffs seem to be more of ’08-’09 trend while this year the exodus seems to be en vogue.

That being the case, some of the people that you knew while they were in public accounting have completely disappeared never to heard from again. Those of you still at the mercy of the billable hour might assume that these refugees are loving life in their new jobs – working 40 hours a week, making far more money and seeing more than an hour or two of sunlight on a regular basis.

But do these ex-Big 4 and public accountants really have it better? One reader wonders aloud:

Something came to mind recently when talking to my ex-Big 4 friends, who were laid off in the mass curling about a year ago. Being someone who was laid off by a Big 4, I somewhat have to agree and feel the same way. That is, I have heard from so many of these friends who hate their current jobs, and considering quitting. Even more are thinking about going back to school. So I wasn’t sure if this only applied to my friends, or is a general trend among those laid-off from Big 4s.

So I thought it would be interesting in the thought of other people who were laid off by the Big 4s. Where are they now? Do they like their jobs? Or do they feel the same way? If they don’t like their current jobs, what are their intentions? And maybe even the question of whether they would consider going back to a Big 4?

Lots of questions in there, so it’s really a grab bag. Jump in on whatever applies to you – headed back a life or Ramen and frozen pizza to get at Masters or PhD? Still glad you escaped public accounting with your sanity intact? Thinking of – gasp – going back?

Firms are definitely looking for help as evidenced by the pleas by PwC and Ernst & Young to their current employees to refer everyone and their dog for possible employment, so hey, it’s an option for those that feel that the non-Big 4 grass is faux-green. Discuss.

Accounting News Roundup: UBS Clients Have ‘Mere Hours’ to Come Clean; Dixon Hughes Sued for ‘Comfort Report’; “Big 4 Only” Bank Covenants – Revealed! | 06.18.10

UBS Customers May Have `Mere Hours’ to Report to IRS [Bloomberg]
Since the Swiss Parliament were finally able to give the OK on the agreement to disclose UBS client names to the U.S., it’s only a matter of time until the IRS starts kicking down doors in the middle of the night.

“For UBS account holders, they have mere hours to run to the IRS and hope they can disclose the account before the Swiss hand the data over,” said Asher Rubinstein, a partner at Rubinstein & Rubinstein LLP in New York who said he’s been “getting panicked calls all week.”

The lesson to be learned here, it appears, is that he IRS on a bluff, you are likely to be wrong, wrong, wrong. Doug Shulman doesn’t like to be take for a fool, “We will immediately follow up on the information we receive from the Swiss and we will vigorously enforce the laws against those who have attempted to evade their tax responsibilities by hiding their assets offshore.”


KPMG chief calls for audit reform [Accountancy Age]
John Griffith-Jones, who wishes everyone would get comfortable with the idea of the Big 4, does admit that the question about the purpose of audit is a legit one that should not be ignored, “What is the point, they and others ask, of doing extensive and increasingly elaborate audits of the financial accounts of our banks, when audits failed to identify the huge and systemic risks which led to the near collapse of the Global banking system in the Autumn of 2008?”

Campbell Recalls SpaghettiOs [WSJ]
UH OH…

600 Parish investors sue accounting firm [Charleston Post Courier]
Dixon Hughes is being sued by 600 investors of convicted mini-Madoff Al Parish for their “Comfort Report.” “The lawsuit alleges that the firm claimed to compile the report from brokerage statements, when it received statements generated only by Parish that ‘summarized imaginary account balances.’ ” Oops.

Oh, You Mean Like the Same Fed Audits We Already Have? Way to Go, Congress! [JDA]
“As any accountant will tell you, we perform audits each year to ensure the comparability of financial statements for the sake of investors. Since there is no comparing Fed statements and there are no investors (excluding the banks with mandated stock holdings in the Fed banks they are regulated by), basically all we’re doing is jerking off with our left hands pretending it is someone else doing the jerking.”

Firing squad execution sobering, but dramatic [AP]
And who doesn’t like drama?

Restrictive bank covenants keep the Big Four on top [Accountancy Age]
“Big 4 only covenants” in lending agreements are blackballing smaller firms according to BDO International CEO Jeremy Newman and others. Nonsense, you say? AA presented an example:

Buried in the 81-page credit agreement for US-based healthcare provider Amedisys is a 22-word stipulation that highlights a problem some fear is threatening the stability of the global economic system.

“Audited consolidated balance sheets of the group members… [must be] reported on by and accompanied by an unqualified report from a Big Four accounting firm,” the phrase reads.

There’s no telling how many loan agreements have this exact language but “Big Four” is often replaced by “reputable” so it’s not if the “Big 4 covenant” is cooked right into the template. That being said, AA reports that the Big 4 + GT and BDO admitted last month that the covenants do exist in the UK.

Strangely enough, Amedisys is currently in the cross-hairs of Crooked CFO-turned-Forensic sleuth Sam Antar.

CFOs on vacation: Fewer call office [San Francisco Business Times]
God forbid.

Three Things Public Accounting Can Learn From the World Cup

World Cup fever is sweeping the world, if not your office. Sure it’s not March Madness and a much needed relief from busy season but it is the world’s biggest athletic event. And regardless of whether you are wearing your country’s colors to the office or still confused as to what FIFA even stands for, your friendly employer should be paying attention; there’s plenty to learn from these games.


Loud noise is a powerful distraction – It’s rumored that Human Resources departments around the country are placing obscene orders for vuvuzelas, the long plastic horns that are causing a stir at the opening round games (and being banned at practically all future sporting events). Their hopes are for all Big 4 partners to use them when year 2010 bonuses and raises are announced. The news is expected to be rather bleak and disappointing, but the hope is that the horns make everything seem so much more FUN!

Seriously though – those horns sound like a swarm of drunk, football loving bees.

Timing is everything – The worst part about the World Cup games for football fans in America has been the timing of games. The first round games have been beginning at 7:30 am on the east coast and a bright 4:30 am in sunny California. Satyam hopes no one is watching their recent restatement troubles, much like West Coasters likely snoozed through Argentina/South Korea this morning.

Moral victories are still acceptable – In fact – if you spin things well enough – a moral victory is a real victory. (See Example A here) So what moral victories have we had recently?

E&Y is hiring…sorta. We still don’t know what that’s all about.

KPMG is making the suburbia-to-city commute just a thing of the past. How nice of them!

PwC raises might be decent after all. Or at least less awful than EY’s.

Deloitte made impacting the community a requirement.

McGladrey is on fire. Everybody out!

Hmm. Suddenly that 1-1 tie with the Brits doesn’t seem so mediocre, does it?

Memo to the World: You’ll Just Have to Live with the Big 4 Whether You Like It or Not

“[T]here are plenty of industries where there are four big players. The world just has to get on with it.”

~ John Griffith-Jones, chairman of KPMG in the UK and co-chairman in Europe on the concern that four accounting major accounting firms are not enough.

Three Things Accounting Firms Can Learn from Jim Joyce

Chances are good that at this time yesterday you didn’t know anything about James Joyce III. Today, America can’t stop talking about the poor sap. His Wikipedia page has been frozen and he’s a trending topic on Twitter.


BP sent Joyce a bottle of tequila this morning, the card reading, “Thank you for taking the heat off of us. Enjoy the spotlight. Remember to wear sunscreen. XOXO – BP”

Experts have varying opinions on what this means for baseball and the implementation of instant replay. What is easier to agree on is that Joyce deserves respect not for his poor call but for the fact that he was humble enough to admit that he was wrong, saying, “I just cost that kid a perfect game. I thought he beat the throw. I was convinced he beat the throw, until I saw the replay. Biggest call of my career, and I kicked the shit out of it.”

If nothing else, Little Leaguers everywhere can learn from this moment. But the lesson doesn’t need to end there. What can every accounting firm take away from this situation in hopes of never pulling a JimJoyce* themselves?

Admit when you are wrong – Listen to your mother, George Washington, or whatever truth-telling role model you have in your life and fess up when you are wrong. Deloitte did just that back in April when they admitted to handling the “headcount adjustment” in poor fashion.

Don’t point fingers – I don’t know if you’ve noticed the bickering going on between E&Y and PwC recently, but it’s kind of…what’s the word for it…pathetic? First there was the “our raises are bigger than yours” spout from E&Y leadership. Boys, boys, keep it in your pants. Size doesn’t mat…oh wait, what? It does in this case? Well then. Brag away. Then PDubs’ London arm decided to pull a Joe McGinniss and set up camp a mere 10 meters from E&Y’s fish ‘n chips office. Awkward love affair or uber-competitive personalities? Either way it’s immature to act like this. Grow up.

Hide – Joyce is probably in the process of doing this (don’t expect him to return to the field anytime soon). But the newly branded McGladrey is leadership’s efforts to mask the fact that cuts are affecting morale and staff ranks. Perhaps no one commented on Caleb’s putting green post because no one is left. Just sayin’.

What else can your firm learn from Jimbo? Comment below.

*you heard that phrase here first.

Layoff Watch ’10: McGladrey Makes Nationwide Cuts

Over the past month, we have heard lots about layoffs at RSM McGladrey/McGladrey & Pullen but we didn’t have much for details.

Frankly, we still don’t know a lot but we’ll go with what we’ve got. So far we know about reductions in the New York, Chicago, Quad Cities, Florida and Seattle offices and everything we’ve been told indicates that they are occurring elsewhere.


First the Emerald City:

I was ample. There is a new geographic restructuring going on. Instead of multiple “economic units” there will be only three regions. Many HRs and CFOs from different offices are losing their jobs. Consulting people talk about 100 positions that will be eliminated across the country. 10 people were let go from Seattle Economic Unit which includes Seattle, Tacoma, and Olympia offices. We were informed about the reorganization somewhere around 04/12 and laid off at the end of the month. I think everybody received severance.

We’re not that familiar with past cuts in the RSM/M&P world but the big cuts in consulting seem to trail the Big 4’s by a year or two, although if some of these smaller clients are giving into the Big 4 lowballing then perhaps this is the natural progression.

Meanwhile:

Their Florida Private Club operations group closed the Club IT Consulting Group and layed off the staff. Some of the staff have been part of the firm for more than 20 years and were profitable.

Chicago just layed off the Operations Consulting Staff yesterday, [approximately] 10 people. This group was left to dangle in the wind, sink or swim on their own without marketing or sales assistance or access to the firm’s client-base Naturally it failed.

This firm’s actual layoff numbers are always reported low because they chase people out prior to layoffs in an attempt to camouflage the numbers. Their tactics to accomplish this include poor performance evaluations for staff, unreasonable margin requirements, constant peer pressure meetings regarding performance and head to head comparisons. This creates a dysfunctional relationship between groups and actually motivates groups within their own company to compete with one and other. Only so much people can take and then they leave. Just what the firm wanted.

Considering the economy in Florida, the demise of RSM’s private club operations in that corner of the over-leveraged world wouldn’t come as much of surprise. That being said, you might expect that veterans of the firm would be accommodated somehow with other internal opportunities.

As far as the “chasing” this is Jack Welch’s magical forced ranking method that the Big 4 has accepted like its own creation.

We reached out to both RSM’s corporate spokeswoman and their general counsel, both of whom have not responded to our request for comment. We also contacted an H&R Block spokesman to see if they could elaborate on these layoffs from the parent company level but again, our requests have gone unanswered. H&RB had their own layoffs last month however, there is no indication at this point whether cuts at H&RB would have anything to do with those at RSM/M&P.

We’re still accumulating details on these cuts, so get in touch with us about details on your office or discuss below. And don’t be shy, we know you McGladrey types been hesitant to call on us in the past.

The Big 4 vs. Private Sector – Shoulda, Coulda, Woulda?

Happy MoanDay Tuesday, everyone.

Last week’s post about Big 4 firms lowering the bar on starting salaries in order to project artificial pay raises was well discussed in the comments section. Thank you to everyone who commented, as that’s what makes this online community vocally vibrant and a joy to be a part of.

Part of the conversation included a debate about whether it is better to begin a career in accounting with a Big 4 firm or in the private sector; two very different career paths. The question is a legitimate case of shoulda coulda woulda. The following are a few comments from the peanut gallery:


Guest said, “Even though I was offered $55k + $5k bonus out of college for a Big 4, I was VERY close to not accepting the offer and instead going with a private firm that was $60k starting and normal hours. The only reason I went to the Big 4 was because I fell for the trap of ‘the name recognition.’ If I could go back in time, I would have chosen the private firm.”

• Another Guest crunched the numbers, “In a Big 4, you’re overworked about 20-25% more than the private sector (if not, then more). Say a Big 4 offers you $55k starting. Your “REAL” salary relative to your peers would in fact be $55,000 / 1.25 = $44k. If you lower it to $50k for a first year, that equates to a real salary of $40k.”

• Finally, 2nd Year Associate chimed in with, “Plenty of my college pals are making upwards of $10k more than I am a year and they don’t even have their CPAs. I joined public accounting to get ahead over the next 5 to 10 years but if my pay was any less I’d have skipped this route completely.”

I think it all depends on where your career is at. If you graduated in 2007 or 2008, you might be less thrilled to be on the public accounting career. The double digit percentage raises for everyone on the team that were fiercely promoted by the Big 4 campus recruiting machines have yet to materialize for you, and now you find yourself lumped into the “just happy to have a job” group. Your classmates that went the private route have been cruising on decent pay and 45 hour work weeks. Nothing good to see here; move along.

If you’re 4-8 years into your career, you’re obviously in a different place. You’ve experienced the 15% raise, climbed the corporate shuffleboard to senior staff or manager, and utilize the phrase, “when I first started here…” all too often. You’ve earned your stripes after a number of busy seasons; your desire for a new job is to be better respected by your superiors. Pay isn’t everything, but it’s important.

Throughout all of this, you’ve benefited from the resources of working at a large firm (no, I’m not talking about free dinners). The training programs have been extensive, your CPA license is paid for, and you’ve been enjoying as much of your five weeks of vacation as the firm allowed you to take. And what about having the name on your resume? Having a pedigree firm on your resume can oftentimes land you the interview; earning the pay day is up to you.

So why did you enter into public accounting? Was it because the Big 4 had a strong presence on your campus? Were private companies not offering enough? Would you change anything about your career path to this point? Leave your thoughts below.

Lowering the Bar – How the Big 4 Can Raise Morale by Reducing Starting Salaries

Last Friday’s post by Caleb surrounding the Bonus Watch at Deloitte sparked a handful of intuitive comments from GC readers.

In case you didn’t read the post and subsequent commentary, Commenter Anon51 responded to the question “what do readers suggest firms do to retain practitioners” with the following:

1. treat every team member with respect

2. you can’t just force your team to work harder year after year with fewer people and a smaller budget

3. pay 4-7 year people more, pay new hires less, so it seems there is an incentive to working harder

4. reward your people with an extra day off without having to utilize vacation time, especially after a really busy month/audit

Point 3 is bolded because it resulted in the following comment from Guest:

“That’s a really good idea, and I’m not being sarcastic. There is no reason why new hires fresh out of college need to make $59k ($55k + $4k sign-on bonus), when they would happily work for $50k. Then, a $5k bump every year would be a reward, with maybe a higher bump during promotion years…Pay disparity is a bigger issue than actual pay.”

Well said, Guest and Anon51.

I’ve said it before and I’ll say it again – the Big 4 are constantly in cahoots with one another with regards to hiring benchmarks. So I propose that TBig4PTB get together and reassess their starting salaries. Behold, a template for all Big Wigs to follow:

1. Decrease starting total packages (salary + sign on) by seven percent. Lower the bar from the get-go.

2. Now is the time – blame the decrease on “a firm wide strategic response to the economic risks of being a major player in the professional services industry. Unofficial response – did you see the DOW sink like the Titanic the other day?!”

3. Spread gap created by initial decrease in salary over the next two years. This will create an artificial sense of accomplishment and praise.

4. Send internal emails stressing the “increase in raises for well deserving employees.” Everyone cheers.

5. In three years college graduates will not know the difference; this “decrease” becomes a non-issue.

Guest’s comment that “pay disparity is a bigger issue than actual pay” can become a non-issue with very little effort. Is this fair or ethical? Mehhhhh. I personally think it would be a slap in the face to those of you who have busted your humps and sacrificed career and personal opportunities all in the name of KPDeloitterhouseErnstMG. But it certainly wouldn’t be the most desperate attempt made by one of the firms in recent memory.

Raising morale – hardly. What are your thoughts?

Does It Matter That Deloitte Left the Rest of the Big 4 in the Dust on CNN Money’s MBA List?

Can we have a show of hands who takes a list of employers published by Time Warner seriously? Fine. To hell with you; for this particular exercise we’ll assume that the list is 100% accurate.

Here’s the breakdown for the Big 4 on the CNNMoney’s 100 Top MBA Employers, Where MBA students say they’d most like to work:

#12 – Deloitte
#44 – PricewaterhouseCoopers
#45 – Ernst & Young
#75 – KPMG


So Deloitte dominates when you look at the Big 4’s performance. To put it in a little bit of perspective, Deloitte ranks ahead of The Blackstone Group and Morgan Stanley while the rest of the Big 4 rank behind the State Department.

Is this possibly due to the fact that they are the only firm to keep their consulting (not Advisory) practice in-house? Do they simply do a better job of selling their firm? Or is it possibly because male-patterned baldness is not discriminated against in leadership positions?

Or maybe we’re making too much of this. All the firms have a spot on the list and Google beats everybody’s ass with extreme prejudice, so is this one of those “it’s just a thrill to be on the list” moments, which results in the fliers all over your office and in the halls of Career Services at B-schools?

But forget all that for a minute. What’s really surprising (or perhaps not) is that the expectation of MBA graduates whose preferred field is public accounting are expecting an average salary of $59,176 for their first job after graduation. That amount is less than those for academic research ($79,590), education/teaching ($76,138), government/public service ($77,943) and “Other” ($92,110). Oh, and it’s behind “Auditing/accounting/taxation (corporate)” at $64,841. The average salary for preferred fields is $90,990.

Five years after graduation, those same graduates expect to make $92,075. Again, dead last. The average salary being $157,324.

Whether this says more about the state of the accounting profession or the firms that court those seeking accounting focused MBAs, we’re not really sure.

But in the grand scheme of things, it might just say that Deloitte’s position on the list may be – gasp – meaningless.

100 Top MBA Employers [CNNMoney]

Survey: CFOs Don’t Think You Should Start Your Career at a Big 4 Firm

Accountemps released the results of a survey today that shows many Chief Financial Officers think that the best place for accounting graduates to start their careers is in a “small to midsize company.” The surprising thing about this particular survey is that the numbers aren’t even close.

When CFOs were asked, “In which one of the following employment environments would you recommend today’s accounting graduates begin their careers?” Their responses were:

Small to midsize company 56%
Small to midsize public accounting firm 16%
Large corporation 14%
Large public accounting firm 8%
Other/don’t know 6%


“Small to midsize public accounting firm” dropped 14% from 2005.

Oh right. And “large public accounting firm” came in dead last. So, for the CFOs surveyed, they’re not really hot on public accounting like they were five years ago and they’re really not crazy about the Big 4 and next tier firms.

Accountemps Chairman Max Messmer says, “At smaller companies, employees often must wear many hats because workloads are spread between fewer workers. Having a wider range of duties enables new hires to quickly build skills, gain exposure to diverse areas of the business and assume strategic roles earlier in their careers.”

From a personal standpoint, we’ve seen both the small and the freakishly large so we’ll try to provide some perspective here.

Maximilian’s thoughts are accurate as it relates to smaller companies. They do have more of a sink or you’re out on your ass approach that will help you grow up quick in that company. Additionally, small businesses have the tendency to be a little more flexible when it comes to your work/life balance. There aren’t any fancy initiatives or bombardments of emails; it’s more of the behavior of those around you. In small companies, you see people taking vacation for days and weeks at at time. That should encourage you to do the same.

At large companies, you hear about people that are losing their accrued vacation, mostly because they are lunatics, but also because it’s likely a widespread occurrence at the company. People in large firms have the asinine notion that somehow the wheels would fall off if they were to disappear for two days, forget about a week. This sounds ridiculous but it’s true.

However, large firms and companies do have resources and opportunities that smaller shops simply cannot provide. Want to move to San Francisco? Your large firm has an office there. Think you might want to spend two years in Australia? Your large company can make that happen. Small shops? Not so much.

What the press release doesn’t say is why the CFOs think you should start at a small/midsize company. Max’s opinion is fine but did he conduct all 1,400 of those phone interviews himself? Of course not. The survey was “a random sample of [CFOs at] U.S. companies with 20 or more employees.” Chances are, most of those CFOs have never worked at a big company so their perspective is likely skewed.

The other thing is – trying not to overstate this – you’ve got to make up your own damn mind about what you want to do with yourself. Do you want Big 4 experience? Then go for it. Do you want a flexible schedule that doesn’t involve a multi-level bureaucracy? Then a small company is probably more your speed.

No survey can answer those questions for you.

THINK SMALL: CFOs Recommend Accounting Grads Start Their Careers at Smaller Companies [Accountemps PR]

(UPDATE) Accounting News Roundup: Europe’s $1 Trillion Deal; PwC Gets Some Action in Dubai; The Longest Auditor-Client Relationships | 05.10.10

EU Crafts $962 Billion Show of Force to Halt Euro Crisis [Bloomberg]
With the Euro under pressure, the European Central Bank has hatched a plan to “offer financial assistance worth as much as 750 billion euros ($962 billion) to countries under attack from speculators.” EU countries are chipping in 440 billion in loans, the EU’s budget throws in 60 billion, and 250 billion from the International Monetary Fund.

The funds will be available to those countries that experience a financial crisis similar to Greece. Portugal and Spain have debt to GDP ratios of 8.5% and 9.8% respectively, exceeding the EU’s mandated limit of 3%. package approved last week, receiving 110 billion euros “after agreeing to unprecedented austerity measures,” triggering riots in the country.


Dubai Holding Hires Debt Advisers [WSJ]
Dubai Holding Commercial Operations Group, a part of Dubai Holding (not to be confused with fellow Dubai conglomerate Dubai World) has hired PricewaterhouseCoopers to help them with a teenie debt restructuring project. DH’s debt issues come about after Dubai World is still working to restructure the $14 billion in outstanding debt that it has with its creditors after a slight panic late last year.

UPDATE: KPMG and Deloitte are getting in on the fun as well, as the Financial Times reports that they have been engaged to advise Dubai Group and Dubai International Capital, respectively.

You Complete My Audit [CFO]
Had your auditor for awhile? If you want to crack the top 100 of longest auditor-client relationship, you’d have to be putting up with the same firm for over 50 years. According to the CFO’s analysis of Audit Analytics data, the longest auditor-client relationship belongs to Deloitte and Proctor & Gamble who have been together since 1890. PricewaterhouseCoopers’ longest relationship is with Goodyear Tire & Rubber, starting in 1898; Ernst & Young with Manulife Financial, 1905; KPMG and General Electric go back to 1909.

Of the 100 companies that have stuck with their auditors the longest, 97 of those companies were with Big 4 firms:
• PricewaterhouseCoopers – 34
• E&Y – 25
• Deloitte – 24
• KPMG – 14

Straight Talk about Brutality of White Collar Crime from a Convicted Felon [White Collar Fraud]
GC friend and forensic sleuth Sam Antar recently had some a two part interview produced that from his recent speaking presentations at Stanford Law and Business Schools. Part one is below and you can see part two over at WCF.

The Big 4 Continue to Impress College Students, Dominate Latest Universum List

It’s been far too long since we had a Big 4 dominated list to share with you. The last that we can dig up was PwC’s three-peat for Training 125. We were starting to get the shakes…

Thankfully the drought has ended with the latest list from Universum, who we last hear from in the fall with their 50 Most Attractive Employers.

This time around, it’s the Top 100 IDEAL Employers, that is described as “annual employer image survey…based on more than 163,246 employer evaluations, reflecting the opinions of approximately 56,900 Undergraduate students.” In the “Business” field of study, the Big 4 have, once again, landed high on the list:


Ernst & Young – #2
PricewaterhouseCoopers – #3
Deloitte – #4
KPMG – #6

Big 4 domination on a college student list is nothing new. Their recruiting strategy is aggressive and any company getting bested by Google in anything is exactly a surprise. Some other notables:

FBI – #11
IRS – #23 (IRS 2, Sarah Palin 0)
Grant Thornton – #30
Accenture – #66

Frankly, the number beside the firm name is irrelevant. The firms will boast the latest ranking in press releases and on campus visits per standard operating procedure. This continues to demonstrate that the firms are impressing college recruits effectively. They are presenting the image they want to present and they are doing so with an ever increasing online presence. We will continue to see them high on these lists.

The Universum American Student Survey [Universum]
Universum USA Presents the 2010 Top IDEAL Employers [Press Release]

Any Attempts by Accounting Firms to Boost Morale May Be Too Late

From an accountant familiar with E&Y:

We got two voicemails today, one from head of Banking and one from the Vice-Chair of people, both talking about compensation. I think the underlying fear is that we don’t have enough people anymore in our practice because they keep stressing all the things that the partners are going to do besides compensation to boost morale (like have a lunch with staff sometime around cinco de Mayo).


The last month and a half has been a bit, shall we say, tough on the E&Y and the troops. That being said, the news that Ernie would beat P. Dubs raises may or may not have got some people to relax but it appears that the firm’s leadership is still on the offensive to keep spirits high.

After discussing it with our resident HR expert, the problem with these little wine & dine events is that at this point they are too little, too late. People don’t want they faces fed. They want answers. They are crawling the walls with anxiety about three things:

1. What raises will be.
2. If there will be a bonus pool.
3. Who is getting promoted.

And they want to know the answers ASAP. Raises have been triple-reassured at all the firms and people want to know that number; they want to know if there’s a bonus pool.

Everyone at the point of promotion has made up their minds about what they will do if they get promoted or not. Plus everyone who is not up for promotion is talking about who will get promoted, who won’t and the reactions that will result (e.g. storming out of the office or a nervous breakdown).

The reality is that these things take time. The fact that PwC put a number out there was impressive (and some have said, desperate) shows that partners are aware of the anxiety and they’re trying to get people to relax.

Deloitte is up first, as their fiscal ends 5/31 and we’ve heard that there has been generosity passed around there but it will ultimately depend on the the merit increases. We hear their all hands webcast is coming up soon and that discussions are occurring this month so it won’t be long.

No amount of margaritas, $100 bonuses or NHL playoff hockey tickets will change the fact that people have worked it out in their heads about what they will do when they get the news. And once that news is known, people will act fast. We would encourage everyone to be patient, try and be rational etc. etc. but we also know that’s an futile request.

Compensation Watch ’10: PwC Puts a Number Out There

Multiple sources have told us that Bob Moritz has put a number out there for comp adjustments during the firm’s webcast today :

Sitting in the Bobby Mo Firmwide Townhall Webcast. Raises: 5% to 8%.

But don’t start high-fiving just yet:

PwC expected to be 5% to 8% raises this year, but still a “quarter to go” per Moritz on today’s townhall webcast.

Early reports also are that internal firm services (IFS) will be getting 3-5%.

Thoughts? Your move, KPErnstDeloitteMG.

What Will the Aftermath of the Next Big 4 Failure Look Like?

In part one of our discussion, we discussed audit firm failure and why the business model is not sustainable in the current form. We will now look at questions about what the aftermath of a Big 4 firm failure could look like and what some various paths could be:


Why isn’t a “Big 3” audit firm situation sustainable?

Jim Peterson: The industry has gone from 8 firms to 6, to 4. We’ve reached a tipping point where if one more firm fails, the rest of them will get out of the business. The firms have all but admitted that the business model will not survive another failure.

Francine McKenna: The failure of a firm will also have global repercussion in various countries that are dominated by that firm (e.g. PwC in the UK). The remaining firms simply do not have the resources to pick up where the dominating firm left off.

Is government intervention a possibility and is it a reasonable solution?

FM: Personally, I’m in favor of at least a portion of public company audits being performed by the federal government, especially those public companies with a substantial investment by the U.S. Government. I wrote in a post from January 2009, “Let’s tear down the walls and rethink how we should protect the investor, who in many cases is now the taxpayer.” We should get rid of the for-profit audit firms’ involvement in the nationalized entities, except perhaps indirectly as contractors paid by the government but not controlling the client relationship. Those receiving government bailout funds could be “audited” by a team drafted from all able bodied audit and accounting professionals. I call it the National Service Corp for Accountability and Transparency™.”

JP: This is a possible scenario that may be imposed upon the world if proactive solutions are not formulated. Unfortunately, this will be imposed directly upon the U.S. Taxpayer. The product will have virtually no value and the efficiency and trust that would result could be likened it to any other service provided by the Federal Government.

You have both said that “no one would miss the auditors’ opinion.” When did the auditors’ report become such a commodity and is there any way for it to recapture any value?

JP: The auditor’s report as known and essentially unchanged since the 1930’s — an obsolete document. It has been a long time since someone asked sophisticated financial statement users, “What do you want?” and “What are you willing to pay for?” New ideas for assurance services are needed that will allow firms to provide a valuable product without submitting themselves to such huge liability.

FM: A completely different approach is needed, in my opinion, to protect shareholders and investors in public companies than the current product, especially when the shareholder/investor is the taxpayer as has occurred in the recent investments in AIG, Fannie Mae, Freddie Mac, Citigroup, GM, etc”

There are very few sophisticated investors – hedge funds, other large public companies, private equity or sophisticated creditors – who do not perform their own due diligence, using publicly available information or additional access prior to a merger or acquisition. They would be considered irresponsible if they only used the basic financial statements, assuming only the auditors opinion and required footnotes, as a basis for major investment decisons. So why do we expect the retail investor, the employee with their retirement savings in the company stock or a vendor or customer to count on the audited financial statements as the last word? Audited financial statements have certainly not provided any “assurance” that companies would not go bankrupt, that banks were solvent, that global financial institutions would not need hundreds of billions of dollars in taxpayer money to remain viable.

In the wake of the Andersen collapse, what hasn’t the leadership of large firms, primarily Big 4, done to mitigate risk to their firms?

JP: The leadership at the top has a lot at stake financially. They are focused on short-term integrity. The young partners will inherit this problem. The current leadership lacks both the vision to come up with solutions and the fortitude to make the decisions.

FM: I agree. The model needs re-invention. Most professionals that see the problems wake-up and get out or are forced out and their careers and lives are better for it. They don’t have to deal with the problem anymore. People that remain do so because they lose any idea of what else to do. They develop “Stockholm Syndrome” and some eventually become the leaders of these firms.

In an email, Jim Peterson wrote to us, “there is no silver bullet” that will fix this problem. It will take a “a holistic approach and an opportunity for “blank page” re-engineering can hope to address the relationship among all these elements.”

The idea of a wiping the slate clean and starting completely over is difficult for anyone to get his or her head around. Explaining the situation to a multi-billion dollar industry that has been doing “business as usual” for decades is even harder.

But what is clear is that the situation must change in order for the profession to become relevant and valuable again. Eventually, whether by way of the current litigation or other unforeseen events, the failure of the audit firm business model is unavoidable. With some many people calling the profession into question now again, the best thing that young leaders can do is start thinking about solutions now. The profession must re-invent itself in order to serve stakeholders as intended.

Why A Big 4 Failure Is Imminent–and What It Will Mean

In the wake of the Lehman Bankruptcy Examiner’s report, speculation about the future of Ernst & Young is rampant, as is the future of the audit profession as another colossal failure raises questions about the relevancy of Big 4 firms’ audits of public companies.

While many are focusing on the “who” and the “how”, there is a small band of experts that are focusing on a bigger issue. (Yes, there’s a bigger issue.) That is, what happens in the aftermath of the next Big 4 failure?

To put it more clearly, what will another firm failure mean for the audit practice business model? How will the markets react? Will the government attempt to intervene in some
These are questions that will have to be addressed in the post-failure environment, despite the desire of the Big 4 for the problem to magically resolve itself.


In order to try and give you an idea of the possible fallout from the next Big 4 firm demise we asked two experts to expand on their past writings, discuss the current environment, and to speculate a little about the future. We discussed this topic with our own Francine McKenna and Jim Peterson after poring over a dozen or so of their past posts, exchanging a multitude of emails and one very spirited conference call.

Francine’s recent post, “Ernst & Young Looking at More Civil and Criminal Liability for Lehman Failure” examined E&Y’s civil and criminal vulnerability as a result of the Bankruptcy Examiner’s report. She is a skeptic of audit firm relevancy and never put it more poignantly to her readers than in January 2009, “So, you may finally be saying to yourself: What’s the point of audits and auditors?”

Jim Peterson’s blog Re: Balance is dedicated entirely to the subject of the next Big 4 failure and what it means for the financial world. From the “Why this site” section:

A basic re-ordering of the relationship between large global companies and their accounting firms is inevitable — evolution can be postponed, but it cannot be stopped. But the need is neither well recognized nor openly discussed — the very reason for this site.

While the question of the possibility of a firm failure is moot when you seriously consider the items outlined below, the question of “which firm?” is also of little consequence. And to take it one step further, the timing of a large-scale failure is a pointless discussion, as Jim emphasized, “The axe that could fall on any of the firms, depending only on the pace of litigation management by the judges over-seeing their dockets.”

Jim presented us with five reasons that the audit franchise’s very existence is ineffective:

Accounting rules are politicized – The FASB and IASB have been belly aching for awhile now that political influence needs to be left out of accounting rules. The reality is – a reality that both the FASB and the IASB have not yet accepted – this is a fruitless exercise, “Accounting principles are not in the profession’s influence, much less their control, but are politicized and complex, and are subject to manipulation by issuers,” says Jim.

Users’ expectations are not achievable – Somehow everyone in the world – and audit firms are partly culpable here — got the idea that financial statement audits guarantee good information. Jim says, “Users’ expectations are set at zero defects – partly the fault of the profession for over-selling its capability and contributing to the so-called ‘expectations gap’ — a level that is not achievable in any system designed and run by human beings.” In other words, to remain competitive, audit firms gave the impression that they could deliver highly effective results with their audits. By their own inability to effectively explain the purpose and the pitfalls of financial statement audits (until they are on the defensive for failures) the profession has sealed its fate.

Hindsight puts the firms in a bad position when liability is determined – When a firm makes a mistake, the media, politicians and “experts” are shocked — SHOCKED! — that auditors could have missed these errors. This makes for an easy argument before jurors that typically do not have a good understanding of the risks involved prior to an audit occurring. “The legal standards for liability in the major countries, especially in the US, are elusive and subjective; they expose the firms to second-guessing by juries – when ‘after the fact’ means after events that are ugly and there have been visible eruptions of misbehavior. That means ‘bet the firm’ cases cannot be [effectively] tried.”

The liability is, simply put, HUGE – Jim sums it up: “The Big Four firms lack the financial capacity to answer multi-billion dollar exposures…and so they are forced either to pay settlements that are ultimately crippling to their business model, or to go to trial in ‘bet the firm’ environment.”

The vicious circle self-perpetuates – There will continue to be huge audit failures. The firms have not identified a solution, largely because they have not addressed past mistakes with substantive solutions. “The large firms continue to fall into claims of deficient performance — examples of which have continued to arise with depressing regularity despite protestations of improved regulation and performance — in no small part because the profession lacks a forum for real ability to learn, or to avoid repeating the same old mistakes of the past,” says Jim.

Francine also mentioned something many people in the profession forget or don’t realize at all, and that is that a failure could arise unexpectedly from a non-U.S. jurisdiction, “a regulatory action in another country that no one in the U.S. is expecting could be just as crippling to one of the firms as any of the problems in the United States,” she told us. The most imminent risk comes from the Satyam scandal that occurred in India on the watch of PricewaterhouseCoopers.

The problem that the entire financial community in the U.S. finds itself in — not just the Big 4 – is that they are “locked into this arcane method of assurance,” according to Jim. The text of the auditors’ opinion has been essentially unchanged since the 1940s while the rest of the business world constantly evolves.

Stay tuned for part two of our discussion with Jim and Francine that will try to paint a picture of what the post-failure environment could look like.

Read This Before Getting Excited About the Big 4 Announcing Raises Early

What was first a bold move by PricewaterhouseCoopers has now become a pattern for the Big 4 – announcing raises early!!! Woooo-hoooooo!

Or will it be more of a boo-hoo?

Never to be really subtle about anything, news of these promotions and raises is a clear indicator that the firms are trying to lock down their talent and keep the masses happy, and by happy, I mean remaining on the boat. Avoiding an exodus now is absolutely critical; too many people leave and the already short-staffed will be painfully crushed come fall interim work. But where is the balance between raises, bonuses, and promotions?


Early Promotions! – Ahh, the double-edged sword that cuts deep. Years of relentless work, 100 hour weeks, and passionate ass-kissing finally paid off and you’re bumped up ahead of schedule. Welcome to hell. Take the expectations dial and crank it to max; your boss just got free reign to play the, “Well you got skip promoted, no way you can handle this” card. And your peers? They’re no longer your peers because money and job titles make people finicky. Better focus on befriending the first year hires.

And speaking of money – because promotional raises are typically a smaller percentage for early promotes, there’s no tangible financial gain to being bumped up a year early. Why is this? Because you should be happy to be get promoted early. Last time I checked, warm and fuzzy feelings can’t be put towards the mortgage.

Don’t waste time printing new business cards. – Some of you will soon be inheriting a new job title to slap on top of your newly polished resume. The firms run the risk of those moving up to manager might jump ship completely. Don’t be surprised if the senior-to-manager class is larger than expected. Because eenie meenie minie moe – you’re moving on. Remember, it’s expected.

“That’s it?!” – Unless you were part of the 0.043% of those who received raises since 2008, you’ve been living in monetary stagnation for quite some time; many of you even complained about receiving the “you’re lucky to have a job” speech from your superiors. When you have the raise conversation this summer, keep in mind that it is a raise for two years of work. Two years; two busy seasons; two increases in monthly rent. Don’t let yourself get all giddy over seven percent.

Walking the Opportunistic Line – What Should the Big 4 Do About India?

The developing issues in India have been covered by Going Concern on a fairly regular basis, so I suppose I should take a crack at the subject as well.

It can be very easy scroll past the articles on India, but I advise you not to; after all, as one of the BRIC countries (do your homework), there is an absolute necessity for the Big 4 to position their resources here. And no, I’m not referring to outsourcing.


Based on February research, the Gold Men are bold to state the following:

While it’s clear that BRICs nations tightened their financial conditions when the financial crisis hit at the end of 2008, they rapidly eased back afterwards. Chinese and Indian financial conditions have eased substantially post-crisis, they’re now looser than pre-crisis even. Brazilian conditions also remain very stimulative compared to its past decade. Only Russia looks tight and unstimulative historically.

Sounds like a cash cow, doesn’t it? The BRIC development has long been looked at as the next fat cow for accounting firms to feed off of; closing the gap between the SOX hey days and the inevitable eventual IFRS transition. A fundamental issue is how the firms chase after business in these emerging markets. Push too hard and get burned. Tip toe through the daises and be passed by your three bullish cousins. Either way, on the table at all times is the branding image of each firm.

No one wants a Satyam situation on their hands, because even though no one knows what Satyam actually does, PwC’s global image is at stake because of this situation. Think about ripple effects. The potential client that is ignorant of the situation and whose thought process is “I think PwC is in some kind of trouble in India” is a more volatile problem than a client that, you know, reads the paper every day. Protecting the welfare of client relationships, but seeds and established, is absolute priority in situations like this.

With the exception of those few public sponsorships, the Big 4 don’t spend much time in the presses. And you know what? The big wigs like it that way. After all, we’re all accountants, forced to work in broom closets and wet basements for long hours and GREAT financial gain.

So the quieter the better, because we all know how it turned out for the last one to steal the spotlight.

Will CFO’s Audit Fee Benchmark Tool Help Keep the Big 4 Honest on Fees?

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

There’s a bit of a tiff going on over at my former place of employment as a result of the cover story in the latest issue of CFO Magazine on the recent fall in auditor’s fees.

Some critics seem to fear that the phenomenon will be encouraged by a new benchmarking tool the website unveiled on April 1.

For a fee of $1,200, the tool allows companies to compare the fees that their peers pay for auditors. The process should be both quicker and more comprehensive than the requests for proposals now put out by many companies trying to figure out what they should be paying.


Accounting mavens David Albrecht and Lynn Turner, however, seem to worry that such an exercise will lead to the further commoditization of audits, and so to lower quality financial reporting, even though there’s no evidence the increased fees we saw in the wake of the Sarbanes Oxley Act did anything to improve its quality. Lehman Brothers, anyone?

Yet after the article appeared, Turner sent around comments on his list serve saying it contained several “factual inaccuracies” and that “a firm cannot do the same amount of work with these lower fees without seeing a huge reduction in profits.”

One problem here, it seems to me, is that we’re talking about an oligopoly, which invariably skews the normal effects of supply and demand. Albrecht concedes that the industry is an oligopoly but doesn’t make a cogent point about the significance of that. And he misses the other complication, which is that SarBox not only required auditors to review a company’s internal financial controls as well as its financial results, but also prevented auditors from offering audits as loss leaders for their more profitable consulting services. Now auditors can’t offer both services to the same clients. So audits have to stand on their own two feet.

Turner gets this point, though he confuses the chronology of the regulatory events involved. And he seems to suggest the article is flawed in the conclusion it draws about it, without saying how.

Here’s the point. If, in fact, the extra work SarBox required inflated auditors’ profits, why shouldn’t CFOs be able to make sure they’re getting what they pay for?

And the apparent assumption that benchmarking will inevitably lead companies to push for lower fees seems a bit shaky to me. As CFO.com’s editorial director Tim Reason points out, the process may instead merely keep auditors on their toes. Are Albrecht and Turner arguing that opacity is necessary for the public good, so auditors can pad their fees with impunity? Sorry, but that just doesn’t compute.

In an email to me this morning, Tim wrote: “We think finance executives and audit committees will benefit from having an independent, trusted editorial source provide them with a quick way to benchmark their fees-and make sure they are neither too high nor too low.”

Too low? Sure. You get what you pay for.

Tim also points out that there are no advertisers or sponsors for the tool. “It is a pure editorial offering being made directly to our readers, giving them information they’ve been asking us for years.”

Now there’s a radical idea.

Accounting News Roundup: ICAI Claims Big 4 Is ‘Bending Laws’; There Is No FASB, IRS Conspiracy; Aggressive IRS Blamed for More Americans Severing Ties | 04.06.10

‘Big four audit firms bending laws in India’ [Times of India]
A committee of the Institute of Chartered Accountants in India that is investigating the Satyam fraud is claiming that the Big 4 is “circumventing laws while providing auditing services in the country.” According to the Times of India, the committee has claimed that the firms have been granted permission to provide consulting services but not “taxation services, auditing, accounting and book keeping services and legal services.” The firms are able to provide these services through affiliate firms like Price Waterhouse Bangalore vis-à-vis Lovelock & Lewes who were responsible for the Satyam audit.

The committee states that “Indian firms and [multi-national accounting firms] are defacto the same entities providing the assurance, management and related services and as such their operations are designed to circumvent the provisions of the Chartered Accountants Act, 1949,” and that information sought from some local firms has not been provided to determine if they have partnered with the Big 4.


Debunking the FIN 48 Conspiracy Theory [CFO Blog]
When the IRS proposed its latest rule for disclosing uncertain tax provisions it debunked a theory concocted by some that the FASB was in cahoots with the Service to provide treasure maps for companies that take aggressive tax positions. It was thought that when the FASB was developing FIN 48 (aka Topic 740) in 2006 that they were siding with the IRS in requesting companies to report specific information about those positions.

Not the most interesting conspiracy theory we’ve ever heard but a conspiracy theory nonetheless. Anyhoo, FIN 48 requires less detail about the uncertain positions than the new IRS proposal, thus, debunking the conspiracy, at least in former FASB member Edward Trott, “I think FIN 48 accomplished exactly what was intended…The IRS’s proposed rule makes it clear that [FASB] was able to provide information to investors without providing a gold mine of information to the IRS.” You can go back to your illuminati theories now.

More Americans Give Up Citizenship As IRS Gets Aggressive Overseas [Dow Jones via TaxProf Blog]
Just over 500 people renounced their citizenship or permanent status in the fourth quarter of 2009. The report, citing public records, states the figure is more than all of 2007 and double of 2008. Mostly people are creeped out by future tax increases and more regulation, including the requirements to report details of foreign bank accounts.

While that does drive some people out of the US of A, the IRS claims that there has been a push to get some out who have already surrendered their passports, “The IRS says some of the swelling of numbers of expatriations towards the end of 2009 occurred because the agency made a push to notify people that had already surrendered their passport, but had not completed the process by submitting the IRS form. Until that form is received by the IRS, these people are still subject to U.S. tax.” Or in other words, “GTFO and stay out.”

Accounting News Roundup: Accounting for Healthcare Reform Begins; Should Small CPA Firms Partner with Large Firms on Projects?; Lawsuits Against Accounting Firms Rising Fast in UK | 03.28.10

The healthcare party is over – now comes the (accounting) hangover [FT Alphaville]
Now that healthcare reform is behind us, the matter of sorting out the impact on corporations now falls to the accounting professionals in those companies as the first quarter winds down this week.

FT Alphaville notes that AT&T, for one, has already filed an 8-K that states that it will “take a non-cash charge of approximately $1 billion in the first quarter of 2010 to reflect the impact of this change.” The change that the company is referring to is the “Medicare Part D subsidy” which, under the new law, is no longer eligible for a write-off against a company’s taxes. The subsidy is given to companies to help to pay prescription drug benefits to its employees.


FTA cites a report by Credit Suisse that shows many companies’ (including Goodyear Tire, International Paper and The New York Times) first quarter earnings will be impacted significantly by new healthcare legislation. And it also appears that it will cause companies to take a second look at the benefits they currently provide to employees, as Ma Bell stated in its filing that it “will be evaluating prospective changes to the active and retiree health care benefits offered by the company,” as a result of the legislation.

Why solos and small firms shouldn’t “partner” with larger CPA firms on projects [Fraud Files Blog]
Tracy Coenen recently had a large firm approach her to see if she’d be interested in helping them out with some “Fraud Risk Assessment services.”

The larger firm asked her if she would be interested in “a partner/subconsultant” arrangement. Tracy explains why this isn’t a good situation for solo practitioners like herself, “[T]he consulting firm doesn’t have the know-how necessary to provide their client with the services they need. But they’re not about to let something silly like competence stand in the way of collecting fees! They will find a way to do it.”

Tracy says that the larger firm will ask you to discount your billing rate, train their staff, and ultimately, give them the secrets to your practice, “Don’t lose money by discounting rates, training someone else’s staff for those discounted rates, and creating a competitor for yourself who uses your proprietary methodology.”

U.K. Accounting Suits Reached 5-Year High Last Year, Study Says [Bloomberg BusinessWeek]
The number of lawsuits filed in the UK against accounting firms in the past year is greater than the last five years combined according to Bloomberg. The thirteen suits filed in 2009 is more triple than the four suits filed in the previous five years. Although the number of suits is considerably smaller than the 61 suits filed after the collapse of Enron, et al. in the 2002-2003 time period, Jane Howard, a partner at Reynolds Porter Chamberlain LLP, is quoted that it’s not clear whether things are just getting started, “What is still hard to tell is whether this sudden rise in claims will subside quickly or whether accountants will face a higher number of claims over the coming years.”

The Recession Taught Some CFOs That They Need to Pay Closer Attention to Miserable Employees

Plenty of lessons came out of the financial crisis. For some it was that Big 4 auditors are irrelevant. For others it was that we need one set of high quality accounting standards ASAP. Aaaannnd for others, it was that the SEC needs to get better at pretty much everything.


For CFOs, it appears that at least some of them learned that miserable employees are a drag. Robert Half Management Resources surveyed 1,400 CFOs and 27% of them said “they learned to place greater focus on maintaining employee morale.”

It’s likely that this isn’t a lesson learned by just CFOs. Plenty of CPA firms have probably realized that a bunch of morose auditors and tax pros hanging around doesn’t make for a happy shop and are looking to improve their cheerleading skills going forward. KPMG has already brought back the Standing O, PwC, Ernst & Young, and Grant Thornton have all guaranteed merit increases for this year so there are signs that your happiness is no longer an afterthought.

CFOs Advise Keeping Employees Happy [Web CPA]

Big 4 Firms Are Planning for Your Exodus

For some time now, Caleb has been touching on the upcoming/ongoing/always-occurring exodus from Big 4 into the private sector. The obvious reasons for the change from public to private are obvious, but here’s a few for kicks:

• Bigger pay day (and potential growth)

• CPA requirements completed

• Actual work/life balance

&ill set transition to a new career

There are other reasons of course, but it is the ferocious combination of these that leads to the breaking point – low morale.


Going Concern received an email from a distraught and burnt out Big 4 auditor from the Southeast region:

The level of morale in the [XYZ] office is at an all time low. Discussion with low level staff, through managers, have yielded the same opinion of overwhelming expectations without the needed support from the firm. They want us to draw blood from a turnip, and they want it done better, faster, and with less resources than last year. This has caused everyone to start exploring options in the market. A vast majority have started fielding resumes and contacting recruiting firms. The select few who have made it past that hurdle are interviewing with no looking back.

Not to downplay what this auditor is saying (and I’m not), but this sounds like the unfortunate reality of many auditors working on smaller, non-public clients. You know, the not-as-sexy-as-ABC Bank but just as important to the firm’s bottom line. You won’t get tickets to the pro sport’s game, but thankyouverymuch for your efforts.

The reader goes on:

Primarily, people have expressed their interest in holding out any real intentions of leaving until promotions roll around in the later part of the summer. They’re hoping that maybe there will be some juicy 20% raise waiting for them, but the stark reality of a measly 5% raise is what they know is coming. Any fifth year Seniors who are waiting for the promotion to manager are just using it for resume purposes.

Our offices are already using under qualified second year staff at the Senior level, as well as retaining new managers in the Senior position because they are extremely understaffed at that level. This, in turn, is causing all of those people to take measures to leave perhaps after busy season and certainly after the insulting promotions come through in August.

It’s a matter of time before this individual (and half of their respective office) becomes another statistic that the Big 4 HR guru’s term “natural attrition.” From an HR perspective, here’s a loose idea of the attrition formula:

Fall 2010: 100 new hires

Fall ’11: 95 new hires become “2nd years”

Summer/Fall ’12: 88 2nd years promoted to senior staff, 70 seniors remain

Summer/Fall ’12: 2 years of public experience reached, 55 seniors remain

Summer/Fall ’13: 45 seniors remain

Summer/Fall ’14: 35 seniors remain

Summer/Fall ’15: 25 seniors remain; 15 promoted to manager, 10 remain on as seniors

Summer/Fall ‘XX: 10 senior managers are eligible for partner

The recession stunted this formula for every firm, as they were forced to make cuts, not only for cost cutting purposes, but also to keep their staffing formulas close to being in-check. But think about it – your firm expects this kind of turnover. They know it’s a matter of time before their hiring class is whittled down to 10% of its original size.

And in the case of the reader, their firm dropped the analytic ball 3-5 years ago. Had they better estimated the percentage of projected losses, there would be more seniors to handle the work.

Remember that time you felt bad about leaving? They’re waiting for you to do so.

Most Top Ten Accounting Firms Saw Lower Revenues, Headcount for 2009

Accounting Today put out their annual Top 100 Firms list late last week and while it focuses on the practices in United States it give us a little bit of room to speculate about who the real contenders are for the Global Six whathaveyou.

The ranking is based on net revenues from U.S. operations but it includes a lot data on each firm including # of offices, partners, total employees, and fee split.

Deloitte runs away with this list in three of the major categories – revenues, number of partners and total employees. The Casa de Salzberg had U.S. revenue of over $10.7 billion which was greater than #2 E&Y by over $3 billion.


Here are the top 10 firms along with their revenues, number of offices, number of partners and total employees

1. Deloitte – $10.7 billion; 102; 2,968; 42,367

2. Ernst & Young – $7.6 billion; 80; 2,500; 25,600

3. PricewaterhouseCoopers – $7.4 billion; 76; 2,235; 31,681

4. KPMG – $5 billion; 88; 1,847; 22,960

5. RSM McGladrey/McGladrey & Pullen – $1.5 billion; 93; 751; 7,755

6. Grant Thornton – $1.1 billion; 37; 535; 5,414

7. BDO – $620 million; 37; 273; 2,712

8. CBIZ/Mayer Hoffman McCann – $601 million; 180; 465; 4,580

9. Crowe Horwath – $508 million; 25; 240; 2,428

10. BKD – $393 million; 31; 258; 1,891

Some other interesting information from the list includes:

Declining Revenues – Revenues for all firms dropped with the exception of CBIZ/Mayer Hoffman McCann, Crowe Horwath and BKD. KPMG had the largest drop of nearly 11%.

Big 4 Dominate – The non-Big 4 firms’ combined revenue (approx. $4.7 billion) is still less than KPMG (smallest of the Big 4).

Personnel Changes – E&Y had a percentage increase in partners of 8.7% while total employees dropped nearly 6%. CBIZ/MHM saw a 32% increase in partners while total employees decreased over 12%. Only PwC and Crowe Horwath saw net increases in the number of partners and total employees.

Audit Heavy Firms – According to the list, PwC (52%), BDO (60%), Crowe Horwath (65%), and BKD (52%) all receive at least 50% of their revenues from audit fees.

So the whole Global Six thing, as much as we like to making a BFD out of it, is a non-issue. All the firms have global connections whether it’s through their own cooperative or through an international network so to cut it off at six seems a little clique-y. We’ll flip through the AT100 for any more interesting factoids but in the meantime feel to embellish any of the information presented here.

Top 100 Firms 2010 digital edition [Free registration for Digital Edition]

Has the Post-Busy Season Big 4 Exodus Already Started?

Seems a tad early but with two major deadlines passed, it’s possible that the Spring 2010 exodus may have started.

From one Big 4 auditor, “[A]pparently the DC and/or Philly office just underwent some serious turnover – my [schedule] just got all kinds of fucked up and my performance manager’s explanation was that “we’ve had some turnover and you have been shifted around as a solution.” So that’s cool. And by cool, I mean WTF because there was no warning, and it seems to be changing every few hours now.”


Our source continues:

Not a clue just how much turnover or if it was limited only to the audit practice, and how the turnover took place (I’m assuming people are quitting, as that is what pretty much all anyone at my level can talk about lately), but it was enough that I just went from two normal-hours clients to five “plan on overtime” clients. (It was six clients last night, but it looks like it got switched up again this morning.)

If there’s one thing that may cause violence more than someone quitting in the middle of busy season, it’s getting assigned to a “plan on overtime” client in the second half of March.

It’s likely that the timing of people leaving is an office by office phenomenon as one of our New York sources said that people aren’t leaving but “everyone wants to, but that’s nothing new.”

So if people are heading for the exits in your office, forced or otherwise, let us know.

Quote of the Day: Five Words on Big 4 Audits | 03.15.10

“Our whole industry is useless.”

~ Unnamed Big 4 Auditor and GC reader

Auditor

Are Big 4 Auditors Irrelevant?

Okay people, the calls for the complete obliteration of the accounting world have begun. Check that. It’s more or less the accounting world as it relates to auditors of public companies (i.e. Big 4 auditors).

Steve Goldstein at MarketWatch, for one, is NOT A FAN, “What precise purpose does it serve to have a supposedly independent auditor (paid for by the company) sign off on accounts? From Enron to Lehman to Satyam to Parmalat, it’s clear that the major accountants lack either the skill or the determination (or both) to ferret out fraud.”


So in case you didn’t catch it, he’s calling into question the Big 4’s (our assumption) integrity, competence and fortitude. Oh and before you start huffing about “it’s not the job of the auditor to detect fraud,” we’d argue that’s not even the point any more. Lehman was engaging in what a former CFO calls “shenanigans” that E&Y knew about for years and went along with it. Why? Because Lehman said everything was kosh.

Goldstein goes on:

Company executives already are forced to sign off on their accounts. When they are caught lying, companies face liability over disclosure.

So the threats that keep (some) companies honest are there regardless of whether the reports are audited. The outside auditors themselves are assigned a negligible value by the market.

A solution? Here’s two admittedly out-there solutions that the Securities and Exchange Commission probably won’t adopt.

One is quite simple: get rid of accountants. Who cares? They add no value, and their expenses weigh on the bottom line.

The other would be for someone else to hire the accountant. How about the company’s top five shareholders? While the likes of Fidelity would grumble about the added costs and the free-rider benefit for smaller shareholders, they would certainly have an interest in securing a far tougher audit.

Okay, Big 4 auditors, here’s your homework: explain why auditing for public companies isn’t irrelevant. We’ll listen, we swear. Or just start shooting off at the mouth if you feel it necessary. Goldstein isn’t the first to make this determination. Francine McKenna and Jim Peterson have argued that the value of an auditor’s opinion has been nil for quite some time and they’re both Big 876454 alums. It’s okay if you admit it. Acceptance is the first step.

What exactly is the point of having accountants? [MarketWatch]

Why Isn’t Deloitte Ranked Higher on DiversityInc’s Top 50 List?

What a relief. We were really concerned that we would get half way through March without hearing about a list of companies being good at something that included the Big 4. Fortunately, DiversityInc comes to our rescue today with their list of Top 50 Companies for Diversity for 2010.

Aaaand as you might exall present and accounted for, although some firms may wish to be higher(?). How does one determine success on these lists? Just being on it? Making the top ten? Is it an honor just to participate in the survey?

Speaking of the survey, the website describes the methodology so you can get an idea of how this particular jumble falls together. The survey is broken down into four areas:


CEO Commitment

Human Capital

Corporate and Organizational Communications

Supplier Diversity

Digging further, we found more details:

The survey consists of more than 200 empirical questions (no subjective or qualitative information), which have predetermined weightings. Ratios between key factors, such as demographics of managers compared with managers who received promotions, play a significant factor in determining point scores. Companies must score above average in all four areas to earn a spot on the list. CEO Commitment is the most heavily weighted area because if a company lacks visible leadership, its diversity-management efforts will fail to be a priority.

SO! While this explains some things, it certainly brings up more questions. Since we spend the majority of our day perusing the web for every instance of Big 4 CEOs simply breaking wind, we’d like to think that any “CEO Commitment” as it relates to diversity would be noticed by us or our team of monkeys that work around the clock.

That being said, we’d be hard pressed to find a bigger diversity go-getter than Deloitte’s CEO Barry Salzberg. The man is tirelessly pursuing diversity at every waking moment. Even after Deloitte announced its freshly minted Chief Diversity Officer, Bar gave a speech earlier this week on as part of the DiversityInc festivities demonstrating that he’s still on this.

So then, our question is, how does Ernst & Young rank 5th, PwC 6th, KPMG 15th and Deloitte bring up the rear at 25th?

Perhaps the other firms display diversity fliers with their CEOs mugs on them to serve as constant reminder to all employees of the diversity in their firm but if CEO commitment is measured by MSM talking points, how does anyone beat Barry Salzberg? The only thing we can think of is there is some sort of secret anti-male pattern baldness bias at DiversityInc that quietly knocks Deloitte down the list. Sure Dennis Nally is slowly going Costanza there but Moritz in the tighty-whities probably made up for it.

So the efforts of Deloitte’s diversity commitment are rewarded but did they get the recognition they deserved?

The Unveiling of the 2010 DiversityInc Top 50 [DiversityInc]
The DiversityInc Top 50 Companies for Diversity [Full List]

Accounting News Roundup: CFOs, Staff Are Getting Worn Down by Guidance; Miami Forensic Accountant to Plead Guilty; Big 4 In Pari Delicto Defense Strategy | 03.10.10

A Growing Contagion: Accounting Fatigue Syndrome [CFO Blog]
Anyone getting worn out from all the guidance that is coming from the alphabet soup of regulators? You’re not alone and there appears to be an epidemic, something that CFO Blog has deemed “Accounting Fatigue Syndrome.” The long/short of it is that things are only going to get more complex as FASB and IASB continue to converge their rules and guidance continues to come out of both rule making bodies.

“Like many finance executives, Terry Lillis, CFO of Principal Financial Group, is tired. The constant stream of guidance from regulators and accounting standard-setters — plus the expected inflow of more to come over the next few years — has created “huge accounting fatigue” among his finance staff”


What’s the solution to AFS? How about just getting out of the biz altogether? “While the panelists gave no hope to CFOs who wish the standard-setters would either slow down or cut back on their agenda, they did offer one tip for ending accounting fatigue. ‘If I were a CFO, the first thing I would do is look at my early-retirement provisions,’ quipped J. Edward Grossman, a Crowe Horwath partner.”

High-profile Miami accountant Lew Freeman to plead guilty to fraud [Miami Herald]
A couple of weeks ago we told you about “go-to” forensic accountant turned swindler Lewis Freeman and his legal trouble.

Today he is expected to plead guilty in Miami to embezzling $2.6 million from his clients. Prosecutors have alleged that Freeman, “wrote 162 unauthorized checks to himself totaling about $6 million from the accounts of five failed businesses once under his company’s control, but put back about half of the money.” Freeman has been cooperating with investigators since his arrest but still may face 10 – 20 years in prison.

In Pari Delicto: Are Auditors Equally At Fault In The Big Fraud Cases? [Re: the Auditors]
Francine tackles PwC and KPMG’s defense strategy involving in pari delicto to avoid their roles in fraud cases.

The way I see it, the in pari delicto doctrine is being used like a pair of needle nosed pliers by audit firm defense lawyers to diffuse a bomb – huge liability for some of the biggest frauds in history. The in pari delicto doctrine attempts to pull the auditors’ tails from the fire by excusing any of their guilty acts due to the approval of those acts by potentially equally guilty executives.

Are the Big 4 Desperate for Audit Work?

In the latest predatory tactic from our friends at the Big 87654, we see that the recession may not be treating them so badly. Sure, non-profit busywork isn’t exactly a good time to be had by all but it pays the bills and for the Big 4, there is no such thing as bottom of the barrel.

Take what you can get, right?


Crain’s:

The financial crisis blew up many big-name clients, leaving audit firms with excess capacity. Bear Stearns Cos., Merrill Lynch & Co., Washington Mutual Inc. and Fannie Mae disappeared from Deloitte LLP. Ernst & Young saw Lehman Bros. Holdings Inc. implode, while KPMG lost Countrywide Financial Corp. and PricewaterhouseCoopers lost Freddie Mac.

Gary Boomer, a Kansas-based accounting industry consultant, says Big Four firms sometimes are bidding less than $100 an hour for non-profit and public-sector work, down from $175 to $250 for junior auditors. “What they’re doing is buying some work to keep the staff busy,” he says.

That’s hilarious, shouldn’t we stop and think about why they allowed “the financial crisis” (you mean the unstable positions of those financial firms lost in the bloody battle?) to blow up so many of their big-name clients before we let them scavenge the scrapings for a tasty morsel of audit work?

I guess it works, it’s not like you’ve got guys in the cathedral on December 31st counting saint candles.

It could be worse. Here are some really nasty audits that the Big 4 could be doing in lieu of cheap non-profit and public sector work:

Joe Stack – Think about it, KPMG, you have some awfully tall buildings, be grateful.

Blackwater expenses – They really deserve their own audit team. It’ll keep those juniors busy, ifyaknowwhatImean.

C Street – Bonus side work helping Mark Sanford convert his dollars into Argentine pesos.

Whore yourselves out however you have to, guys, even if it means a door-to-door campaign for whatever audit work you can find.

Quote of the Day: Big 4 Lowball | 03.02.10

“What they’re doing is buying some work to keep the staff busy.”

~ Gary Boomer, on the Big 4 low bidding smaller clients.

Crowe Horwath Was the Big Audit Client Winner in 2009; E&Y, Deloitte Big Losers

We might be a little late to the party on this but it just recently came across our desk and since trying to get a post up today is akin to turning water into wine, we’re running with it. And, frankly, if a large portion of you regularly read the “Public Accounting Report” we’ll be blown (BLOWN!) away.

The determination of the ranking isn’t entirely clear to us so we’ll just go for some superficial analysis on Crowe Horwath (#1 on the list) and the Big 4:

Crowe Horwath #1 – Net gain of 24 clients; net gain in audited revenue of approximately $4 billion; net gain in assets audited of $18.4 billion; net revenue to the firm of $11 million.

PwC #2 – Net loss of 8 clients; net gain in audited revenue of $34.9 billion; net gain in assets audited of $2.68 billion; net revenue to the firm of $8.4 million.

KPMG #5 – Net loss of 1 client; net gain in audited revenue of over $12.9 billion; net loss in assets audited of $61.4 billion; net loss in revenue to the firm of $19.5 million.

Ernst & Young #9 – Net loss of 30 clients; net gain in audited revenue of $5.3 billion; net loss in assets audited of $53.8 billion; net loss in revenue to the firm of $36.7 million.

Deloitte #10 – Net loss of 7 clients; net loss in audited revenue of over $90.5 billion; net loss in assets audited of $718 billion; net loss in revenue to the firm of $74.7 million.


Crowe Horwath’s net gain of 24 clients is easily the highest of the firms presented and they’re the only firm that has increases in all the categories presented. Kinda makes you wonder why they had such a steady stream of layoffs in 2009. We’re open to suggestions and wild-ass theories on this topic.

On the losing end, Deloitte’s loss of huge clients due to the financial apocalypse has been noted by our contributor Francine McKenna and is noted by the PAR:

The firm landed the most wins of any of the Big Four firms for 2009, 46, garnering 3.5% of the overall SEC audit wins for the year. Overall, the Big Four won 7.5% of the auditor changes reported during the first three months of 2005. What relegated the firm to last place in the standings was two huge loses: UAL, to E&Y, and Merril Lynch’s acquisition by Bank of America.

All that added up to nearly $75 million in lost audit fee revenue for Deloitte. In terms of the number clients lost, E&Y managed to cruise to that title with net loss of 30 clients:

E&Y captured some sizable wins for the year, notably UAL/Chicago (Revenue: $20.19 billion) from Deloitte and Apple/Cupertino, Calif. (Revenue $32.48 billion) from KPMG. But its gains couldn’t offset losses for the year of Tyson, Sovereign Bancorp and Nalco Holding, to name a few notable losses.

The end result of this client musical chairs doesn’t really add up to much in terms of revenue for any of the firms. Even the $75 million lost by Deloitte is a drop in the bucket compared to their fiscal year ’09 revenue of $26.1 billion.

Peruse as you numbers see fit and feel free to wave the flag.

Thinking Career Change? Big 4 Probably Isn’t for You

A reader posed a question to one of Caleb’s posts last week with regards to, “how to get into one of the big four accounting firms as an entry-level auditor when you are a laid off baby boomer with many other experiences?”

My short answer — in so many polite words — is why would anyone want to do that? Even as a recently laid off baby boomer, I can only hope that your career, up until its unexpected termination, was fulfilling. Contacts, networks, referrals, and references; all of these resources should be tapped out before considering a complete career change.


On a more basic level of necessity, I doubt that an entry-level career (well below the average Big 4 salaries earlier discussed) starting between $48,000 and $60,000 is ideal for a baby boomer. This is before the return on investment is even discussed. If I was a recruiter and had to choose between hiring a green recent graduate with minimal zero family obligations versus a baby boomer, parent of three, coming off of a recent firing, the answer is simple. The young buck will complain less, cost less in insurance terms, and has a recent education that can be molded to fit the firm’s methodology.

The typical public accounting career path is set: graduate from school, start career with a Big 4, take your punches and roll up the ranks. Those still standing in 10-12 years make partner. Burnt out souls need not apply; there’s always the private sector.

There are a few exceptions to this rule of thumb. The experienced hiring departments of the Big 4 are consistently recruiting specialized talent from the private sector. Ten years ago this centered heavily around the IT departments, as firm security practices grew exponentially (gotta love those SAS 70’s). Tax specialists are always in need. Many of the firms poach experience from government work, which is about as plug-and-play of a situation as you could hope for.

More on the volatility side of things are the firms’ advisory practices. Through 2005-2008, experienced hiring for the forensic, corporate finance and M&A practices tried desperately to keep up with growth opportunities. Turn the page to 2009 and where do you think the axe fell the most? No question it was the advisory lines. But even now as the markets shed thousands of jobs, a supply of raw talent appeared on the horizon for the Big 4 to gobble up. It can oftentimes be a rollercoaster of both potential and risk, but generally the best opportunities for experienced employment can be found here.

Accounting News Roundup: SEC Delay on IFRS Irks Some; Client Opinions of Big 4 Audits Not So Hot in UK; IRS Asks for $21M to Answer More Phones | 02.25.10

U.S. delay on global accounting leaves world waiting [Reuters]
The head of financial reporting at the ICAEW is not impressed with the SEC’s plan to string everyone along on IFRS. Although we’re sure Dr. Nigel Sleigh-Johnson is bright guy, we’re not sure what the good doctor was expecting from, you know, the SEC.

Dr. Johnson complains that ‘the world [has] been awaiting clear signals from the Securities and Exchange Commission as to how and when it is going to start the process of completing the convergence to International Financial Reporting Standards,’ which is probably true. Think about it. If 110 countries have jumped on the IFRS ship, they sure as hell would want the US of A on that ship too because that way, if this turns out to be the worst idea in the history of double-entry accounting, then at least the U.S. went along with it too.


Big Four audits are off the pace [Accountancy Age]
As a group, the Big 4 didn’t fare to well in the inaugural “Accountancy Age Finance 360 survey of client opinions” which asked participants to give their “views on the service they received from their last audit provider”.

Out of twelve firms, PricewaterhouseCoopers ranked the highest at #5, KPMG #9, Deloitte #10, and Ernst & Young brought up the rear at #12. The Age reports that “[E&Y] Staff were described as ‘pretty dire’, short on technical knowledge, confidence and even decent written English. Negative comments outnumbered the positive two to one.” Comments on KPMG and Deloitte were a little better:

While KPMG won plaudits for technical skills, it was let down by perception of its added value, with one FD claiming “very little feedback on potential improvements” their money.

Deloitte also struggled to prove it added value, while clients felt the firm’s audits were “mechanical” and an exercise in “box-ticking”.

One FD felt Deloitte was “more concerned with gathering enough evidence to stand up in court with a defence if there were ever a negligence case”.

All the firms not happy with their ranking essentially said that they were “committed to the highest standards of work” or something like that. You know the drill.

The tops firms in the survey were all included two Global 6 candidates: Mazars at #1 and Grant Thornton at #3 with Horwath Clark Whitehill taking the silver.

IRS Commissioner Requests Additional $21m So IRS Will Not Answer Taxpayer Phone Calls 25% of the Time [TaxProf Blog]
Doug Shulman asked the House Appropriations Subcommittee on Financial Services and General Government for $21 million to improve the customer service. Apparently this would result in a 4% jump in calls answered. That sounds like magical government math if we have ever heard it.

When Will Accounting Firms Fully Embrace Social Media?

Accounting firms seem to be on the fence when it comes to social media. While the Big 4 recruiting teams (and non-Big 4 for that matter) are into it full force, we’re skeptical about the enthusiasm of the firms’ leadership, especially the operational leaders.

To them blogs, Facebook, Twitter et al. is a way to waste time and has nothing to do with producing results. But now that Microsoft has announced that it will be including plug-ins for Outlook (sorry, firms on Lotus Notes), we wonder if the momentum behind social media will prove too much to ignore forever.


There are some signs of acceptance including Stephen Chipman (still needs to make it public)and Jeremy Newman communicating through the blogosphere, the growth of social networking and, as we mentioned, recruiting. Eventually the firms will come around, but when?

Our friendly HR expert, Dan Braddock thinks it won’t be long, “Facebook’s privacy settings are getting sophisticated quickly; someone can make their Facebook page look as professional as a LinkedIn profile.”

And what about friending clients, co-workers and potential recruits? “People are getting more and more comfortable with the idea, so it won’t happen right away but in 3 to 5 years, you’re going to start seeing more of it,” DWB said.

Microsoft’s director of technical accounting called out financial reporting as being pretty much irrelevant. It remains to be seen if firms continue to resist social media while the rest of the world continues to find ways to innovate by utilizing it.

Most Aren’t Ready for IFRS on the CPA Exam

Last year, the AICPA Board of Examiners made it clear that though a roadmap for IFRS adoption in US financial reporting might be a ways off, it intended to start testing IFRS in Financial Accounting and Reporting (mostly, we’ll get to that in a second) in the first window of 2011. Just a friendly reminder, that’s only three testing windows away.

But what gives? According to the 2009 KPMG-AAA Faculty Survey, only 8% of respondents felt as though at least half of their accounting faculty were qualified to teach IFRS. Meanwhile, 70% of professors said their most significant challenge to teaching IFRS was finding room for it in the curriculum.

As far as I am aware, State Boards of Accountancy have not shown a desire to require IFRS coursework to be eligible to sit for the CPA exam at this time.

The Big 87654 committed to pushing IFRS in college classrooms as early as May of 2008 (months before the SEC announced an IFRS adoption roadmap) and they are still tossing millions at the initiative.


In December of 2008, The Summa’s Professor Albrecht insisted that the Big 87654 had certainly chosen the right candidate, lobbying Obama to accomplish their IFRS goals. Why? “Obscene profits,” he says, pointing to campaign contributions and Obama’s subsequent pro-IFRS SEC Chair pick as signs that IFRS doomsday is upon us. A little over a year later, the SEC appears too busy chasing “crime” and playing catch up to issue a clear directive on IFRS in the US.

So? How can the AICPA BoE insist on testing information that A) accounting students still aren’t being taught and B) isn’t widely understood or practiced by most CPAs in the US?

I certainly get what the AICPA is trying to do and if nothing else, they probably want to show off that their awesome psychometric CPA exam technology is OMGamazing! and ready to adapt in a timely and efficient manner. But pushing IFRS on unsuspecting CPA exam candidates isn’t really the way to demonstrate that.

Is it just a coincidence that now the AICPA is prepared to reevaluate their scoring process after the first two testing windows of 2011? Even they know this is an awful idea.

UK Code Requires ‘Independent Non-Executives’ for Big 4

demand.jpgIn a development that will destroy the secret society of Big 4 management in the UK, a “radical” governance code has been implemented that will require the Big 4 to appoint outside “independent non-executives” that will oversee “public interest matters; and/or be members of other relevant governance structures within the firm.”
According to the code, these new independent non-executives will make us all feel way better about what audit firms by “enhanc[ing] shareholder confidence in the public interest aspects of the firm’s decision making, stakeholder dialogue and management of reputational risks including those in the firm’s businesses that are not otherwise effectively addressed by regulation.”
But that’s not all! According to the introduction, “It should also benefit capital markets by enhancing choice and helping to reduce the risk of a firm exiting the market for large audits because it has lost public trust.” In other words, everyone still is freaking out about who the next Andersen will be. Apparently this “should” help your concerns by encouraging companies to consider other audit firms.
What a coinky-dink, Grant Thornton was just asking for help on this last week! Not really sure if this what they had in mind for but hey, beggars can’t be choosers, right?


The Financial Times claims that “Accountants broadly welcomed the move, although some in the firms’ international networks were unhappy about the possibility the UK code might pave the way for ‘creeping regulation’ worldwide.” In other words, people in the U.S. don’t like it one bit.
Plus, the FT didn’t quote any accountants that “welcomed the move”. The exception, of course, is the chair of the group, Norman Murray, who said that the new code was “‘as user-friendly as possible but seen to have some teeth.'” Not sure what that means but it sounds like he’s a believer.
Another member of the board, John Griffith-Jones, co-head of KPMG Europe, was less enthused. All he could manage was that he hoped that the move would put the “‘Enron query to bed.'”
Something tells us your hopes will be dashed, JGJ. Enron is the story that never ends. Especially in the MSM. Plus it’s on the stage now. Those tunes will be in your nightmares.
Auditors required to adopt UK code [FT]
audit firm governance code.pdf

UK Financial Reporting Watchdog: ‘We don’t need no Big 5’

Solutions.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
Once upon a time, there were 8. And then 7. And then 6. And then 5. And now 4. I’ve thrown out the idea of a large audit failure sending one of the Big 4 tumbling but the idea has been met with resistance; and naturally so, they’ve survived this long, right?


Accountancy Age:

Stephen Haddrill, the new Financial Reporting Council chief executive, in his first interview since taking the post, said there was little chance a global challenge to the Big Four – PricewaterhouseCoopers, Ernst & Young, Deloitte and KPMG – would emerge in the near future.
“I don’t think it is achievable in the near term and the priority for us has to be that we are prepared for the worst and that is where I will put my focus,” he said.

To read the rest of Haddrill’s interview with Accountacy Age, one might be inclined to point out that the guy is only a little bit pessimistic and for good reason. The Big 4 cannot exist indefinitely as they have, deflecting fines each time they bumble a big audit. It isn’t a problem exclusive to the UK and in fact, the Big 4 might not realize it but they are fighting the battle to save American capitalism. To that end, sacrifices may be required in the name of “competition”, whether or not the Big 4 are ready to embrace the idea.
They call them the Final Four because it is widely believed that the large accounting firms cannot lose another player but what’s to stop regulators — either Internationally or here at home — from busting down the joint and shutting one down? Anyone forgotten Satyam?
The firms — clever Trevors that they are — already know regulators are on their asses and behave accordingly. Crossing their Ts and dotting their Is, it was incredibly easy for PwC to say “Satyam wasn’t our problem” here in the states just as they’d have done if it had gone down in the UK, Dubai, China… it doesn’t matter, that’s what the lawyers get paid for.
Anyone get the feeling we’ve got a problem on our hands or is that just me? “Preparing for the worst” eh? Sounds like a plan.

Jeremy Newman: See? I Told You That There Were ‘Big 4 Only’ Clauses

BDO Global CEO — and infrequent blogger — Jeremy Newman would like everyone to know that he wasn’t dreaming when he stated that some financing agreements included “Big 4 only” clauses.

Apparently Newman was thought to be a little Patrick Byrne-ish on this particular point:

These are views that I have been expressing for some years, although many have questioned the prevalence of such clauses and indeed some have sought to deny their existence.

It was comforting therefore for me to read in the report published by the UK’s Financial Reporting Council in October 2009 entitled ‘Choice in the UK Audit Market’ that reference was made to restrictions in loan covenants. The report from the FRC noted:

‘..it is too early to determine how widespread such obligations are; however, the FRC continues to receive examples of banks imposing loan covenants with ‘Big 4 only’ clauses, including one which imposed a higher rate of interest if the borrowing company chose a non-Big 4 auditor.’

Surely there is now sufficient evidence to recognise that such clauses are a potential constraint on choice in the market place and regulators should be urged to ban them.

So despite the lack of evidence that these obligations are widespread, this remains a matter of “urgency,” according to Newman. There are examples, people. That should be enough for you. The man is trying to build a Global 6 firm after all. Kindly throw in a little additional bank regulation to help him out.

FINS: Big 4 on the Resumé Is a Must-Have

Thumbnail image for Thumbnail image for hire me2.jpgWe have had some lively discussions regarding how important having a Big 4 firm on your resumé is.
According to FINS, it’s a must-have:

PricewaterhouseCoopers, Ernst & Young, Deloitte or KPMG. Resumes that boast experience at a Big Four firm are a step ahead of the pack.
These names signal that candidates are well-trained and meet stringent hiring standards, says Lisa Garcia, a marketing manager at Adecco’s Ajilon Professional Staffing, a recruiting firm based in Melville, N.Y. Other large firms such as Grant Thornton and BDO Seidman will also catch a recruiter’s eye.

“[S]tringent hiring standards” could be called in question in some instances but for the most part, we agree that having a big name on your resumé is definitely something that a lot of employers notice.
Our thread on Life After Big 4 life is a good place to get some further discussion.
Contrary to popular belief, your career is not dead in the water if you don’t have experience at a Big 4 firm. FINS lists some other must-haves including:
IFRS – It’s coming people (albeit slowly). If you’ve got experience with it, make it known.
SEC – Regardless of the Commission’s track record, there will always be filings.
Experience with specific industry software – Caseware, SAP, PeopleSoft, Deltek, and Black Baud
Numbers – listing specific accomplishments that result in cost savings or creating revenue streams
Customer service skills – Yes, you socially awkward types will be at a disadvantage.
So a good presence of all these things will look good on your resume but we wouldn’t get too hung up on any one aspect. If there’s anything else you’ve noticed that get the recruiters giving you that extra look, please share in the comments.
Now get out there and impress the pants off somebody. January will be here before you know it. Good hunting.
Six Must-Haves for CPA Resumes [FINS]

Face It People, Nothing Much Can Be Done About the Revolving Door

Revolving_Door2.jpgThere’s constant conspiracy theories bellyaching about certain companies getting their former big shots into public service and regulatory positions (we’re talking about you, Maxine Waters).
Well now there’s speculation about former Big 4 partners working at the IASB.
We get it, those who used to work at the big firms shouldn’t be writing the rules. So who the hell is going to do it? Shall we have the likes of Friehling & Horowitz appointed as the standard setters?
The large firms have the biggest pool to choose out of, so natch they’re going to have some of the better candidates to delve into this wonky rule-writing stuff. We’re probably lucky that there are people out there that actually want to serve on these boards, lots of Big 4 partners can barely turn on their computers.