Usually Adrienne handles these things but I seem to have started a beef, so here goes. Last Friday, I poked fun at BDO Global CEO Jeremy Newman, after he admitted that regulatory intervention in the UK would b up the audit market,” even though that’s the last thing he wants. “It is a shame it has taken so long and that it will require regulatory intervention,” he writes but then immediately qualifies the statement, “though it is not too late for my colleagues in the Big Four, and others, to act on a voluntary basis to create the environment necessary to allow real competition.”
This overt doublespeak caused me to open my post with this:
Perpetual fusspot and BDO Global CEO Jeremy Newman has not been shy about how unfair he thinks the dominance of the Big 4 is. The majority of his blog posts are tagged “Global Accounting” and several consist of bellyaching about Big 4 this and the Big 4 that. Of course, since the mainstream media has finally picked up on the idea that the concentration of auditors could be a bit of a problem […]
Newman wrote another blog post today starting with “I have never understood Twitter” but then did a Twitter search on himself, “not expecting to find anything” but he eventually landed on my blog post. He blockquoted the excerpt above (and linked!) and then wrote this:
Now call me sensitive, but I do not see myself as a “perpetual fusspot” or “bellyaching”- just someone raising a valid concern and one that has now been recognised by others, including the OFT but also the European Commission, MEPs, the UK’s House of Lords and many others, as being a potential issue. I also don’t think the dominance of the Big 4 is “unfair” – I think it is a risk and not in the public interest. And again this view is shared by others – including those who represent the public interest.
Clearly, Mr Sensitive had never graced this fine publication before but I read most of his blog posts and as I pointed out, lots of posts are tagged “Global Accounting” with titles such as “Big 4 bias – can we ever overcome it?,” “Financial Reporting and Auditing: A time for change?,” “There is a Credible Alternative,” and “Restrictive bank covenants keep the Big Four on top….”
Now maybe I’m way off base here but having so many posts (there are more) attributed to this topic, strikes me as someone who is excessively worried about something (i.e. “fussing“). I’m not suggesting he should start doing Mad Men recaps but there is consistent narrative. Plus, the word “fusspot” is funny. Furthermore, evoking “bias,” “can we overcome” and “credible alternative[s]” inherently speak to an unlevel playing field (i.e. “unfair“). Perhaps I’m too wrapped up in semantics but I think my point has been made.
On the bright side, I’m flattered that Mr Newman was offended enough to write a response of sorts (without naming names, unfortunately) and hopefully he finds some things on GC that are to his liking. Unfortunately he still doesn’t appear to be on Twitter, the catalyst to this whole exchange. I encourage JN to join the fun. Then he’ll be able to keep up on himself.
Perpetual fusspot and BDO Global CEO Jeremy Newman has not been shy about how unfair he thinks the dominance of the Big 4 is. The majority of his blog posts are tagged “Global Accounting” and several consist of bellyaching about Big 4 this and the Big 4 that. Of course, since the mainstream media has finally picked up on the idea that the concentration of auditors could be a bit of a problem, Newman has lots of articles to jump from and since the UK’s Office of Fair Trade has said something needs to be done about this, he had another opportunity this week:
Under the headline “Antitrust watchdog urges reform to break audit grip of Big Four” the FT states:
“Regulatory action may be required to break the dominant grip of the Big Four accounting firms on UK audits of leading companies…”
The only word I would challenge is “may” – it should say “will”.
Presumably this article was in the print edition because Newman doesn’t link to it but suffice to say he’s concluded that the government needs to either break up the Fab 4 like Yoko Ono or put some laws in place that mandates non-Big 4 firm inclusion. Either way, Newman laments to the Big 4 that it doesn’t have to be this way:
At long last it seems that something might now be done to open up the audit market. It is a shame it has taken so long and that it will require regulatory intervention – though it is not too late for my colleagues in the Big Four, and others, to act on a voluntary basis to create the environment necessary to allow real competition.
Judging by the statements from the firms, they seem more or less going along with it but these firms aren’t conscientious objectors. Don’t expect them to play nice.
BDO announced a new member firm in Brazil today because…well, KPMG kindasorta poached their last one. Well, BDO Global CEO Jeremy Newman has had it up to here (i.e. eye-level) and wanted to point out that A) this not uncommon:
“BDO is not the first firm to have suffered as a result of our larger competitors using their dominant financial position to buy market share and we have expressed our concerns about this in BDO’s recent submission to the European Commission’s Green Paper on the role of the audit profession,” said Newman.
B) this is some shady dealings:
“These tactics are not driven by client needs but by one firm’s wish to buy market share and presumably achieve further economies of scale. We are concerned that when one firm looks to dominate it reduces choice for clients and leaves the market worryingly dependent on just a few players.
and C) these aren’t just fightin’ words. The most interesting accounting firm in the world will be taking action:
“BDO will be lodging an objection to this deal with the Brazilian competition authorities.”
BDO lines up complaint against KPMG Brazil [Accountancy Age]
BDO International CEO Jeremy Newman is a little concerned about the trend of lowball audit fees out there. Now, those aren’t his exact words, in fact he calls it ‘‘extreme downward pressure on fees’ which still seems far more than honest than “my US colleagues call ‘fee compression.’”
He’s worried because he thinks that all this slumming around for any little opining job will lead to shoddy audits:
There is increasing evidence that fees are being forced down to such an extent that one worries this will encourage audit firms to ‘cut corners’ to reduce their own costs and thereby reduce audit quality – particularly given that the buyers of audit services (ie clients) do not monitor or determine audit quality which is a role taken on by regulators who are not involved in the pricing discussion between the client and the audit firm.
Yes, the man has evidence, courtesy of:
Canadian Public Accountability Board – “CPAB has learned that certain audit committees are pressuring firms to significantly reduce audit fees. This stance may be incompatible with the audit committees’ important role … in helping to ensure the integrity of financial reporting.”
Australian Securities and Investments Commission – “We will also focus on audit quality for new or existing audits where audit fees appear low or appear to have been reduced for reasons other than changes in the underlying business of the entity being audited.”
And he rounds it out with a quote from a speech given by Stephen Hadrill, the Chief Executive of the UK’s Financial Reporting Council, “There is a role for the market in setting higher expectations of auditors. So far the market has not played that role. Quite the opposite. It is more likely to applaud lower audit fees than higher quality.”
So if you’re desperate to retain some business or provide “client service” through the Wal Mart method, you’ll be on your own. As long as Newman is running the ship at BDO, they will be choosing quality over quantity, “despite the pressure on us to reduce costs,” no matter what other firms (read: Igbay Ourfay) are doing.
A Bizarre Market [CEO Insights]
So much so that he wrote a letter. The BDO
International Global Coordiation CEO and infrequent blogger sent his letter to the Financial Times today in response to previous letters to the FT that unequivocally placed the blame for the financial apocalypse on accounting rules.
Newman, who strikes as the mild-mannered sort, comes as close to telling all the haters out there, “OH, HELL NO” as one might expect:
Sir, It is unfortunate if people are persuaded that accounting rules are to blame for bad lending decisions and poor investments (Letters, December 29). Banks, and other financial institutions, needed injections of monies from governments (and others) because they lost money and were short of cash – not merely because of accounting issues. Inadequate bad debt provisions, if such was the case, may have resulted in unduly large bonuses being paid but it was not the bonuses that created the cash shortages – it was the poor lending decisions that resulted in such bad debts. Equally, accounting rules did not result in companies overpaying for acquisitions – it was the poor investment decisions that resulted in a decision to overpay.
It’s pretty clear that J. New is sick and tired of everything being blamed on accounting rules and he figured writing a stern (but cordial) letter to the FT was the best way to draw the line in the sand. While that might have some effect, we would invite him to cut loose (read: go completely ape shit) on his blog to tell those IFRS haters what they can do with their pointer fingers. If you want us to read a draft JN, we’re here for you buddy.
Poor business decisions were behind losses [FT]
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.
BDO is done messing around. Having watched Grant Thornton fail miserably at trying to get the bean counter universe to embrace “Global 6 Accounting Organization”, the firm, with the help of global CEO Jeremy Newman’s blog, are stepping it up a notch.
According to Newman’s post for today and Accountancy Age, all BDO firms are now operating under the name ‘BDO’ rather than, for example, ‘BDO Seidman’ for the U.S. firm and ‘BDO Stoy Howard’ in the UK.
The reason for the name change, according to the one managing partner:
Continued, after the jump
Simon Michaels, managing partner at BDO, said the move was not just about the “look and feel” of the brand but was aimed at “significantly increasing our market share”. If we present ourselves as a unified global network… then the clients experience the high level of service and that helps to drive the reputation,” he said.
See? It’s working already. A ‘managing partner at BDO’ means this guy could be anywhere. It’s a global firm, in case you’ve forgotten. And ‘increasing our market share’? Dude may not be saying ‘Global 6 Accounting Organization’ but that’s all we’re hearing.
Newman chimes in on his blog:
At the same time we will be updating the ‘look’ of our visual identity – which will hopefully be evident from this website. Nothing too dramatic – but building on the BDO heritage whilst signalling a more modern approach.
Call us unappreciative of the subtle changes for this new ‘look’ but it seems the same to us. Our speculation is that the new ‘BDO’ is striving for continuity amongst all its offices in order to saturate the market to the point that ‘Global 6 Accounting Organization’ bulldozes its way into the vernacular.
Discuss BDO’s strategy or perhaps your thoughts on ‘Global 6’ in general, in the comments.
BDO rebrand creates unified global identity [Accountancy Age]
We’d like to think that we encourage free and open discussion here. Everyone is welcome to join the conversation.
And by everyone, we mean if Dennis Nally, Tim Flynn et al. were to tell us in the comments how we deserved a life sentence of footing the Brooklyn phonebook because of our butchering of the English language, we’d be thrilled. Sadly, this is probably nothing more than a pipe dream.
Jeremy Newman, the CEO of BDO International, is by far the closest to fulfilling this dream. J. New, you’ll be interested to know, has his very own blog.
More, after the jump
Not surprisingly, the blog doesn’t seem to have the class or brilliant readership of other accounting/finance blogs that we know about but we give the dude credit for putting himself out there. Granted, if someone calls him a “hack loser” it probably won’t get published in the comments but you’ve got to start somewhere.
So this is our invitation to the rest of the Big 4 CEO’s and, yes, you too, Grant Thornton, to make the unprecedented leap into the blogosphere. Think of the transparency these firms would have as a result. The need for the annual survey about how these firms are such great places to work would become unnecessary because there would be constant real-time updates based on every decision made.
The best part is that, if GC happens to say something that they find offensive, unfair, blown out of proportion, or just plain obnoxious, then they’ll have the opportunity to
talk shit respond directly. Then we can have feuds in the blogosphere that will be significantly more direct than any confrontation that has ever occurred between two people in a Big 4 firm.
Let’s help these guys out as I’m sure this will be a difficult task for them. Leave your suggestions of what your favorite CEO’s blog would be called or what kind of questions you’d like to ask them in the comments
After throwing an all night rager last week when BDO
International Global Coordination skated on the $521M verdict, Jeremy Newman, BDO Boss, wants everybody to chill.
Newman said he had always been confident that BDO International’s arms-length approach would be proved but added: ‘There is still the risk of a further appeal, as well as the appeal by the US firm.’
See? Staying cool. Not out of the woods yet. But when we beat those bastards on appeal, then we are getting down.
Newman stays cool after BDO victory [Accountancy Age]