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Tuesday Morning Accounting News Brief: Big 4 Needs a Governance Makeover; BEC Went Out With a Bang | 1.2.24

Cute cat wearing party hat near tray with whiskey at home. After party hangover

Here we are, a brand new year. Guess it’s back to the grind, starting with some news. I’ve been mostly checked out for a week so I don’t even know if there’s anything going on. Surely something happened in the last week.

I too would like to know the answer to this.

More than 16 thousand people sat for BEC before it went bye-bye, almost three times as many as the score release before it.

Don’t miss the comments on that tweet. They’re always fire when NASBA is late with CPA exam scores. Like this person who did the math:

Ignition’s Asia-Pacific managing director David New explains why it’s time for accountants to raise their prices and bashes the antiquated billable hour while he’s at it (we love that):

At its heart, accounting is a numbers profession. However, accountants all too often seem to get the numbers wrong when it comes to calculating their worth and charging their clients according to the value they provide.

Against a more challenging economic outlook, with inflation rebounding, higher interest rates and labour costs, many accounting firms could find their margins being increasingly squeezed. Creating the right pricing strategy and pricing their services accurately will be critical to setting themselves up for success in 2024.

For many accountants, this will mean increasing their prices.

FT hits the ground running with this piece: Big Four firms rethink governance after year of mis-steps and scandals:

The debate over governance at the Big Four, which collectively employ 1.5mn people and audit most of the world’s largest public companies, was overdue following years of heady growth, according to Laura Empson, a professor specialising in the management of professional service firms at the University of London’s Bayes Business School.

“The current governance of the Big Four encompasses the worst aspects of partnership governance and the worst aspects of corporate governance,” she said. “The partnership model eliminates the principal-agent problem, in that owners, managers and major producers are one and the same. At a small scale that can work very effectively. The problem is, when it becomes scaled-up, the leadership becomes more and more divorced from the partners.”

In less problematic Big 4 news, FT also talked about KPMG trying to “take the pain out of busy season” for auditors:

KPMG said the number of people working more than 50 hours in total across the eight weekends of busy season for public company auditors fell from almost one-third three years ago to less than one-fifth last year — and it is on course to reduce it further in 2024. Twenty-nine per cent of staff worked no weekends at all last year, up from 18 per cent two years before.

Spurring the change has been a set of targets imposed two years ago to finish certain percentages of audit work for large public company clients by deadlines in October and December, and a vow to cut the pay of senior executives if those targets are not met.

“We needed to take some of the top off the mountain in January, February and March,” said Scott Flynn, vice-chair for audit at KPMG US. “Younger people think about work-life balance differently than we did when I was starting out, and so we’ve tried to meet our professionals where we think they need to be met.

“Also, my work at 10pm or 11pm is not as good as my work at 4pm and 5pm. Especially not in January and February.”

EY got a lawsuit for Christmas:

Accountancy firm EY is facing a new lawsuit claiming 1.5 billion euros ($1.66 billion) in damages over its role in auditing Wirecard’s books before the German payments company collapsed in 2020.

The suit was filed by Wirecard’s insolvency manager Michael Jaffe in a court in Stuttgart, a court spokesperson said on Friday.

It is one of several lawsuits EY is facing in the matter, including an investor suit filed last week claiming more than 700 million euros in damages.

EY declined to comment, as it did on last week’s suit.

The accounting firm has previously rebuffed claims against it for damages in relation to Wirecard.

Wirecard filed for insolvency in June 2020, owing creditors almost $4 billion, after disclosing a 1.9 billion-euro hole in its accounts that EY said was the result of a sophisticated global fraud.

Eliana Shiloh is a cyber and strategic risk analyst at Deloitte and has been making the rounds in the clickbait pubs for this TikTok about the sketchy “Get to Know Me” Insta challenge:

@elshiloh literally delete rn save yourself!! #cybersecurity #hackers #instagramtrend ♬ original sound – eliana shiloh

Gene Marks issues a warning in Forbes to any accountants getting excited about big AI announcements ahead:

[T]ake note of the words in all of these statements, press releases and news articles: they are “could” and “will” and “building” and “promises.” It’s all just starting. Accountants should be aware: none of this stuff is ready yet for prime time.

Wipfli published the results of two industry surveys from the banking and credit union sectors:

Persistent inflation and continuing rate hikes have diminished consumer core deposits and savings, and liquidity has tightened. These factors and others have contributed to less bullish predictions from both surveyed financial institutions and credit unions in the 2024 State of banking industry report and the 2024 State of credit unions report.

PwC economists shared some bad news with UK business owners:

Nearly 30,000 businesses will fail next year under the weight of high interest rates, economists have warned, taking corporate insolvencies to their highest level since 2004.

Company insolvencies are predicted to surge by 15pc over the next 12 months, according to a forecast by PwC, as debt pressures take their toll.

Small businesses are most likely to go under, with one in four hotel and catering companies at risk, the new report said.

China’s SEC held a meeting with Big 4 firms and we find out how much money they made in audit fees:

The Shenzhen branch of China Securities Regulatory Commission (CSRC) in recent days held talks with heads of the Big Four accounting firms with the aim to strengthen regulatory oversight on annual report audit service and improve the quality of capital market information disclosure, per a government statement posted on Thursday.

According to data from the CSRC Shenzhen branch, the Big Four accounting firms undertook 2022 annual report audit services for 45 listed companies, or 11 percent of all Shenzhen-based listed companies, under the scope of its regulatory oversight.

And they charged a combined service fee of 390 million yuan ($55.03 million), or 48 percent of all such service fee submitted by listed companies in Shenzhen.

Fortune wrote about how former IRS commissioner (and Y2K hero) John Koskinen optimizes his charitable trust to support his alma mater–and give assets to his children tax-free:

“People are anxious about what life is going to bring, which is why charitable lead trusts work well within established institutions where the funds are being professionally managed. “Nobody can predict what the next 20 years will look like in this country,” he admits. “But the best investment advice has been buy and hold. Ever since the depression, the economy has done well. Even during the recession of 2007, it was the people who sold when times were tough who I worried about most. There are always uncertainties in the economy, but in America, there’s usually another boom around the corner. Now is a good time to invest–especially with the assurance of a CLAT.”

Alright, that’s enough of that. Before I go, allow me to share a tip for those doing Dry January: fizzy water. Lots and lots of fizzy water. Try Waterloo’s orange vanilla, it’s bomb.

Welcome back to work!