Friday Footnotes: If There’s AI in Your Job, There May Be More Money; Audits Make Clients Anxious; Who You Calling an Unsexy Sector!? | 5.24.24

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News

PwC faces crisis in China over audit of failed property giant Evergrande [Financial Times]
The Ls just don’t stop for PwC.
PwC is facing a crisis in China as partners brace for penalties over its audit of collapsed property developer Evergrande and some clients reconsider their relationship with the accounting firm. China’s securities regulator ruled in March that Evergrande had inflated its mainland revenues by almost $80bn in the two years before the developer defaulted on its debts in 2021, despite PwC giving the accounts a clean bill of health. Partners fear they could face one of the largest fines ever imposed on a Big Four accounting firm in China and other sanctions, prompting infighting among senior figures, according to insiders and retired partners still close to the firm.

Audit: Hundreds of billions in errors in Missouri’s annual financial report [The Center Square]
An audit of Missouri’s comprehensive financial report for 2023 found billions of dollars in errors and a need for improved internal controls and procedures. “Considering we have a state budget just over $50 billion and the multiple errors we identified were in excess of $718 billion, it’s clear this additional level of review is vital to ensure we have accurate financial reporting,” Republican Auditor Scott Fitzpatrick said in a statement announcing the report. The review of the accounting division in the state’s Office of Administration found various errors in financial statements and in required supplementary information. If the information hadn’t been corrected, the state’s Annual Comprehensive Financial Report would have been materially misstated, possibly leading to a wide range of problems related to state finances.

BDO underdog wins race to lead UK’s fifth-largest accounting firm [Financial Times]
Partners at BDO have elected Mark Shaw to lead the UK’s fifth-largest accounting firm in a surprise win for the firm’s head of business restructuring. The mid-tier accounting and advisory firm said on Wednesday that Shaw, who has not yet served on BDO’s leadership team, will succeed Paul Eagland as managing partner in October. Scott Knight, the firm’s head of audit and assurance, was seen as a favourite internally to succeed Eagland, according to multiple people familiar with the matter. However, it was announced to partners at a meeting on Tuesday that Shaw had triumphed in a five-candidate race. BDO has expanded rapidly in recent years, particularly in its audit practice led by Knight, but has also attracted increasing scrutiny from regulators.

Deloitte China hosts “Team Deloitte Set to Shine in Paris” sharing session at Olympic Qualifier Series 2024 in Shanghai [Deloitte]
The Olympic Qualifier Series 2024 in Shanghai will soon begin with a spectacular ceremony, welcoming top athletes from all over the world to strive to realise their dream of competing at Olympic Games Paris 2024 in breaking, sport climbing, skateboarding and freestyle BMX. As part of Deloitte’s The Olympic Partner (TOP) program partnership with the International Olympic Committee (IOC), Deloitte China is proud and excited to bring our Deloitte brand space with service capability showcase to the Olympic Qualifier Series 2024, where along with our people to cheer on Tiffany Leung, a consultant from Deloitte Canada, first-time hopeful and member from Team Deloitte, who will participate in the breaking competition.

Talent

Attn hiring managers! Having trouble finding your next pro in this tight labor market? Accountingfly has talent. Lots of it. Check out this week’s top remote accounting candidates and fill those open roles today. Well, on Tuesday after the holiday.

Top Remote Accountants of the Week | May 23, 2024

Office Space

Vancouver Centre II Welcomes Grant Thornton [Vancouver Centre II]
The company will occupy 30,000 square feet on the 19th and 20th floors of the tower. “Our new office will offer a collaborative workspace for our colleagues and a welcoming atmosphere for our clients,” says Mark Iwanaka, Managing Partner for South Coastal B.C., Grant Thornton. “We’re delighted to continue to support local businesses and a thriving economy here in Vancouver.”

Law & Order

Firm fined for anti-money laundering rules breach [BBC]
A company at the centre of a tax rebate scandal owes tens of thousands of pounds after being fined for not complying with money laundering regulations. Apostle Accounting, based in Stowmarket, Suffolk, is under investigation over a tax rebate scheme that left hundreds of people out of pocket. The firm is currently insolvent and is in the hands of liquidators. Owner Zoe Goodchild did not comment when approached by the BBC. Ms Goodchild has also been “excluded” by one of the professional bodies of which she is a member, the Institute of Certified Bookkeepers (ICB). According to the latest liquidator’s report, the ICB is listed as a creditor and is owed more than £40,000.

Imposing a $400,000 Fine, PCAOB Sanctions MaloneBailey, LLP for Pervasive Quality Control Violations [PCAOB]
From 2018 to 2021, PCAOB inspection staff conducted three inspections of the firm. During each of these inspections, the PCAOB notified the firm of significant audit deficiencies that raised concerns about the firm’s engagement performance. Despite the firm’s awareness of these deficiencies and concerns, it failed to make effective changes to improve its system of quality control. “Today’s order should serve as a stark reminder that firms must have effective systems of quality control,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations. “If they do not, we will hold them accountable for those failures, particularly when the failures have been repeatedly identified during inspections of the firm.”

Audit

Center for Audit Quality Asks PCAOB to Extend Comment Period for Two Proposed Standards [NYSSCPA]
With regard to Firm and Engagement Metrics and Firm Reporting, the CAQ asked for an additional 60 days beyond the June 7 deadline—for a total of 120 days—to allow it to review and respond to these April 9 proposals. “As an organization dedicated to supporting and enhancing audit quality, we have been and continue to be supportive of the PCAOB’s strategic priorities, including their goal to modernize standards,” the CAQ said in the comment letter. “The CAQ has the privilege of observing firsthand our member firms’ continued commitment to audit quality, and it is through that lens that we request this extension. An extension in the due date for comment letters will enable commenters to carefully consider the proposed requirements, including the impact of the final requirements included in recently adopted standards, and share thoughtful recommendations that will help the PCAOB finalize their standards and rules with requirements that have increased potential to improve audit quality while minimizing unintended consequences.”

Two thirds of US organizations say audit processes hinder their growth [Inflo]
Traditional audits are holding back organizations across the US from achieving their growth potential, with accountancy firms cautious to embrace modern approaches because of large vendors being slow to advance legacy tools. Despite a strong belief that their annual audit can provide valuable insights to help them grow their operations and make better decisions, over two-thirds of organizations (67%) feel their current audit process actually hinders business growth. ‍There are several key reasons for this sentiment. Over half of US organizations (52%) reported finding the audit process “stressful” because of the disruption it causes to business-as-usual procedures. This is largely due to the time it takes them to prepare (62%) and how manual the process is (61%). The study revealed that the larger the business, the more stressful the audit as organizations’ financial complexities increase. More than three-quarters (78%) of finance leaders said the ‘resource cost’ of audits causes them anxiety.

Technology

Learning how to use AI could boost your pay by 25%, study finds [CNN]
Been seeing a lot of chatter about this PwC report, we’re doing our own analysis shortly but in the meantime…
Jobs that require artificial intelligence skills offer significantly higher wages than those that don’t, according to new research published Tuesday. Consultancy PwC studied advertisements, posted last year, for a range of jobs, including app programmers, lawyers and accountants. It found that wages for AI-related roles were on average 25% higher in the United States than for comparable jobs in the same field that did not require those skills. The premium was 14% in the United Kingdom, and 11% in Canada. The differences were particularly pronounced in certain professions: lawyers in the United States with AI skills could earn a 49% wage premium and financial analysts a 33% premium compared with workers in equivalent traditional jobs.

AuditBoard’s $3 billion buyout shows that boring can be better [Axios]
AuditBoard, a Southern California provider of audit and risk management software, has agreed to be acquired for over $3 billion by European private equity firm Hg. This deal, on both sides, was ultimately about perseverance and finding value in an unsexy sector.

K-Drama??

Shin Ha Kyun And Lee Jung Ha Are Contrasting Team Leader And Rookie Auditor In “The Auditors” [Soompi] tvN’s upcoming office drama “The Auditors” has shared the first stills of Shin Ha Kyun and Lee Jung Ha! “The Auditors” tells the story of a rational audit team leader Shin Cha Il (Shin Ha Kyun) and a new emotional hire Gu Han Soo (Lee Jung Ha) at JU Construction’s audit office where corruption is rampant. The first still features Shin Cha Il, JU Construction’s audit team leader who exudes an unapproachable charisma. Having no trust in people, Shin Cha Il is a godsend for the team as he is someone who is unfazed by sentimentality, emotions, or personal affiliations. Moreover, his leadership embodies essential traits such as astute judgment, decisiveness, and eloquence.

Tax

IRS’s AI system to flag returns for audit may include unintended bias, report finds [FedScoop]
The IRS’s primary tool for flagging tax returns for audit is a “first-wave” AI system that includes inputs from humans, according to a new watchdog report, opening the door for unintended bias at a time when the agency is attempting to combat racial disparities in auditing. The Government Accountability Office found no evidence that the tax agency has conducted a “comprehensive review of the rules and filters contained” in its Dependent Database, an automated program that identifies returns with possible noncompliance risk. The DDB is considered first-wave AI by the GAO due to it having “expert knowledge encoded into a computer system.” 

AICPA makes recommendations to IRS on next Priority Guidance Plan [Journal of Accountancy]
The AICPA has made recommendations to the IRS on its 2024–2025 Priority Guidance Plan, including on the corporate alternative minimum tax (AMT) and group exemption letters. “As the IRS plans to prioritize providing additional guidance as stated in strategic initiative 1.7 in the IRS Inflation Reduction Act (IRA) Strategic Operating Plan, we encourage the IRS to issue guidance on the areas that we have suggested,” says a letter to the IRS, dated May 17 and signed by Blake Vickers, CPA, CGMA, chair of the AICPA Tax Executive Committee (TEC). In addition to the changes suggested for the plan, the letter recommends that Treasury and the IRS continue pursuing tax simplification, including using the simplest approach to accomplish a policy goal and offering clear, consistent definitions.

The IRS is Ramping up Tax Audits [Kiplinger]
Audit coverage of large partnerships and S corporations would increase to 1%. This number might seem small, but considering that for several years the audit rate for partnerships and S corps has hovered around 0.1%, it really is a sizable jump. The IRS’s updated plan projects that audit rates for pass-through entities with $10 million or more in assets would rise until they reach 1% for 2026 Forms 1065 and 1120-S. Wealthy individuals with lots of income would also feel more audit heat. The IRS’s overall audit rate for 2019 individual returns was 0.3%. But individuals reporting $1 million or more of income had a higher audit rate: 11% for 2019 returns reporting $10 million or more of income, 3.1% for returns with income of over $5 million and under $10 million, and 1.6% for returns reporting income between $1 million and $5 million. The IRS wants to raise the 11% figure for people with $10 million or more of income to 16.5% for 2026 Form 1040s.