Welcome back to the working world, everyone. I trust you all had a nice holiday. Since we had a couple days off I took the opportunity to finally finish the Silent Hill 2 remake. I got the ‘Head of Controlling’ ending (jk, I got Leave).
Let's acknowledge the most important people behind the spectacular Silent Hill 2 remake: pic.twitter.com/GGquHgEVvq
— Going Concern (@going_concern) November 30, 2024
Alright, enough chit-chat. NEWS.
Richard H. Kravitz, MBA, CPA discusses private equity and ethics in the profession in CPA Journal:
The recent multibillion-dollar investment by private equity in a major CPA firm reminded me of the concerns that I raised in an article that I wrote 15 years ago in the November 2009 CPA Journal (years before I joined our editorial team), called “Socially Responsible Accounting: A Call for Reform of the Profession” (https://www.nysscpa.org/0911-rk). If readers will recall, this time was marked by a deep, protracted recession and unprecedented wealth destruction.
…
A Hypothetical Ethical Performance Audit of a PE Firm
If one were to perform an “ethical audit” on a private equity firm that is planning to spend billions of dollars to acquire a majority stake in a global accounting firm, what might be observed? Consider the list of recent violations and their total dollar value [Source: Violation Tracker, Corporate Research Project, 2024] committed by an anonymous private equity firm:
▪ Environmental violation $6,430,719 29 ▪ Wage and hour violation $2,273,859 4 ▪ Employment screening violation $1,500,000 1 ▪ Workplace safety or health violation $988,184 18 ▪ Accounting fraud or deficiencies $750,000 1 I will leave it to the reader to decide whether this private equity firm would improve the audit quality of an acquired global accounting firm, not to mention whether it would maintain its objectivity and integrity. Is the $750,000 fine for accounting fraud or deficiencies a material item?
Read more — and there’s a lot more — here: Private Equity and the Ethics of a Profession
Across the pond, a PE firm is merging some little firms together:
A London-based private equity firm is planning to snap up smaller regional accountants and merge their operations amid a wave of takeovers of professional services firms.
Buyout firm Sovereign Capital Partners is set to launch a new professional services group, Affinia, which will combine seven regional accountants already owned by Sovereign.
Affinia, which is understood to make around £35 million in sales cumulatively, hopes to double in size within five years by buying up accountants in the east and southeast of England. The company has drafted in Darren Redmayne, a former executive at insurance group Close Brothers, to spearhead its push into accountancy.
“I like building businesses in areas of financial services going through transformational change. And accounting services, with the support of private equity, is going through a period of quite transformational change,” said Redmayne.
Yeah, buddy, it sure is.
Deloitte UK appoints a woman to run audit for the first time in its 179 years:
The Big Four firm told its staff on Thursday that, from January 1, Allee Bonnard will take over from Paul Stephenson, who has been Deloitte’s managing partner for audit and assurance for the past four years.
Deloitte can trace its roots back to an accountancy firm set up by William Welch Deloitte in London in 1845. Bonnard will be the first woman to be made the group’s top auditor in the UK.
“I am hugely proud to be the first female leader of Deloitte’s UK audit and assurance business,” Bonnard, 47, said. “Whilst we have made significant strides on gender equality, we know there’s still more to do to ensure all of our diverse talent are given the opportunity to thrive.”
Also across the pond, Big 4 and mid-tier firms are losing audit clients. KPMG lost the most, a fact Bloomberg Tax felt needed to be called out in their headline:
KPMG Leads UK Big Four in Losing Audit Clients, Market Share
The UK arms of the Big Four accounting firms have all lost stock-exchange listed clients this year, with smaller firms continuing to increase market share, a new report found.
Adviser Rankings, which tracks the UK audit market, said Monday that the Big Four—Deloitte, Ernst & Young, KPMG and PwC, also known as PricewaterhouseCoopers—lost listed clients over the year up to Nov. 6. That held true for leading mid-size firms like BDO and Grant Thornton, too.
Baker Tilly has a new global head of audit and he’s an Aussie with the exceedingly macho name Nick Bull.
Reporting to global CEO Francesca Lagerberg, Bull will be responsible for overseeing Baker Tilly’s audit practice across approximately 140 countries worldwide, which altogether boast a headcount of almost 45,000 professionals.
Interestingly, Bull actually works for Baker Tilly affiliate Pitcher Partners, a top ten firm with revenue of $349 million for 2024.
Mark Koziel is officially taking over for Barry Melancon as president and CEO of the AICPA and CEO of the Association of International Certified Professional Accountants, effective January 1. If this sounds familiar to you, Koziel as top pick was announced in October so it’s not new, just official.
Should we Photoshop his head on the ‘Smithers, Fetch Me the CGMAs’ image we’ve been using for Barry for like 12 years now because we can never just let shit go or will he give us a fresh moment of his own? Time will tell.
Here’s what Mark had to say about his new gig, per JofA:
“I am excited and honored to be appointed CEO of the world’s largest accounting membership body,” Koziel said in a press release. “I look forward to playing a key role in leading the organization and the profession to new heights. The profession is well positioned to expand and continue to evolve the value it brings serving the public interest and addressing the challenges faced by economies, business, and society. I cannot wait to start working closely with members, candidates, volunteers, and staff to do just that and drive our great profession forward.”
Alright, guy. We’ll be watching. Closely.
PwC’s head of audit told Bloomberg Tax that the firm supports “alternative pathways” to CPA licensure. Their headline uses the phrase “Easing CPA Licensing Requirements” but as we’ve seen from the initiatives the AICPA has rolled out in response to low CPA exam numbers, it seems “easing” means “anything but lowering the requirement back down to 120.” (See also: The Powers That Be Are Getting Desperate For People to Do This Experience and Learn Thing)
Anyway, this is what Deanna Byrne had to say about it:
PwC’s top US audit leader is backing efforts to reform accountant licensing requirements by swapping college credit hours for more on-the-job experience.
Developing the Big Four firm’s roster of auditors and recruiting newcomers from a shrinking pool of candidates is a top priority for Deanna Byrne, who took the job as the firm’s assurance leader in July. She spoke about her goals for the US audit practice in a wide-ranging interview with Bloomberg Tax this week. Other top objectives include enhancing audit quality and expanding the firm’s work vetting the reliability of clients’ sustainability reporting and use of artificial intelligence technology.
“We are supportive of alternative pathways into accounting that preserve mobility, which is really of critical importance, but that build competencies and help increase the number of people coming into the profession,” Byrne said.
Here’s a fun headline: “PwC scandal shows ‘biggest is never best’”
KPMG should steal that as a tagline.
The PwC tax leaks scandal shows “biggest is never best” when it comes to accounting firms, experts say, with the big four’s vast partnerships incapable of regulating governance and ethical failures.
Panellists at the Institute of Public Accountants’ national congress last week, including Labor senator Deborah O’Neill and IPA group President Cheryl Mallett, agreed bigger firms habitually prioritised profit over professional responsibility.
Senator O’Neill, who chaired the parliamentary joint committee investigation into the sector, said the current regulatory framework enabled a culture where “individuals acquiring services have been profoundly displaced by profit seeking”.
Mallett said her biggest learning from the PwC tax leaks scandal and the inquiries that followed was that “biggest is never best”.
“When the big end of town starts swapping out the motivation to be ethical with the motivation to make money and profits, that’s where we ended up in this dark place,” she said.
“I would like the government to do to restore trust in in our industry is stop over regulating us [small firms].”
Up north, the Canadians discover their Canada Emergency Business Account (CEBA) program, hastily rolled out as pandemic aid to businesses, had some problems:
Export Development Canada (EDC), the Crown corporation responsible for administering the loan program, heavily relied on sole-source contracts with one contractor to deliver the program.
More than 90 per cent of the $230 million in administrative expenses was paid to Accenture, a professional services and IT company, based on sole-source contracts, the report said.
EDC flagged early on in the process that it didn’t have the capacity to administer the program on its own and would need to seek outside help, the report noted. But the Crown corporation “outsourced many key aspects of the management of the CEBA program without strong checks and balances in place,” the report said.
Specifically, EDC allowed Accenture to determine the scope and prices in its contracts with little pushback.
The audit found that Accenture was tasked with running an informal selection process to identify a vendor that would run an accounting system to track and monitor loans and collections. Accenture ultimately recommended one of its own subsidiaries for the $36-million contract, despite other vendors meeting the technical requirements for this aspect of the program. Accenture’s recommendation was accepted by EDC, the report said.
LOL
“In our view, this was a conflict of interest that EDC did not manage. In addition, we note that Accenture was compensated to run a process in which it ultimately won the contract. These practices do not align with EDC’s procurement principles of fairness and transparency,” the report said.
Looks like that’s all I’ve got for now. Get in touch anytime via email or text if you’ve seen something we should write about or have a tip to share. Comments are turned off but you’re welcome to reach out if you have any, or hit us up on Twitter if you haven’t abandoned that ship.
Have a wonderful week, you. I missed you!