Hello and welcome to what is probably the last Monday news brief of 2024! Just popping in to wish everyone a Merry Christmas — or Happy Holidays, or Joyous Time Off From Fking Work, whatever you prefer — and let you know that we’ll be running repeat articles and shitposts this week (as usual really eh?) so we can take a nice break and will then put up some Best of 2024 stuff to get us through the end of the year.
For now, here’s some news I was able to scrape up.
Why are these PE firms circling professional service firms like birds eyeing up their prey? Plainly, the sector is struggling with flat profits and partner pay, with cracks starting to show at the bigger firms.
Even at the Big Four giants the cracks were visible, with headlines all year regarding swarms of layoffs across the businesses. This cold feeling inside the Big Four has yet to settle; their most recent batch results revealed each firm has a profitability problem.
Big 4 ≠ the firms private equity is gobbling up.
What are the PE firms getting out of it? According to the Department of Business and Trade, the professional and business service sector accounts for 12 per cent of the UK’s total economic output, with a collective turnover of £277bn.
“The sector is attractive because they are stable, non-cyclical businesses providing reliable workflows and revenue streams,” explained James Paton-Philip, a partner at Hill Dickinson told City AM.
They added that these firms can be “consolidated and merged with other businesses”.
And:
Another area the investment vehicles are looking to transform is in technology. The majority of professional services firms, especially the Big Four, are pumping extra financial resources into building out tech, with a spotlight on AI.
“Private equity firms are keen to invest in professional services firms that have a big potential to be transformed by investment in technology,” explained Fiona Czerniawska, CEO, Source Global
She added that “AI has significant potential in areas like audit, tax, and parts of consulting, and private equity firms are eager to be early adopters of this and other technology, get ahead of competitors in the market, and generate a good return on their investment.”
At least one private equity firm invested in accounting has fully revealed its playbook: Invest, grow, reduce the debits, offload. We are currently in the invest and grow stages of the cycle though the expense reduction stage may already be in effect at some PE-backed firms. In five or six years, market conditions willing, we’ll start to see PE dump their merged and purged practices (if they can find buyers).
The Securities and Exchange Commission today announced that Entergy Corporation, a Louisiana-based utility company, agreed to pay a $12 million civil penalty to settle charges that it failed to maintain internal accounting controls to ensure that its surplus materials and supplies were accurately recorded in its books and financial statements in accordance with generally accepted accounting principles (GAAP).
According to the SEC’s complaint, filed in the U.S. District Court for the District of Columbia, from at least mid-2018 to the present, Entergy included materials and supplies at their average cost as an asset on its balance sheets. However, during this time, Entergy had allegedly been informed by its employees and management consultants that this asset included a substantial amount of potential surplus, including aged materials and supplies in excess of Entergy’s anticipated future use or exceeding the maximum stocking levels deemed necessary by its business units. According to the complaint, Entergy failed to establish a comprehensive process to review these materials and supplies to identify surplus, remeasure it, and record any differences between its average cost and remeasured cost as an expense, in accordance with GAAP.
“Internal accounting controls serve as a front-line defense in ensuring the accuracy and reliability of financial statements,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “Investors rely on public companies, such as Entergy, to ensure that adequate internal accounting controls are in place. We allege that Entergy failed to fulfill its obligation in this regard.”
The Albanese Government is today releasing a discussion paper on the use of legal professional privilege claims in Commonwealth investigations as part of the Government’s comprehensive response to the PwC tax leaks scandal.
Legal professional privilege is a fundamental tenet of our legal system but abuse of it can undermine investigations and erode trust.
The discussion paper tests key issues identified through initial consultation in the Government’s review of the use of legal professional privilege in Commonwealth investigations.
Around 100 stakeholders from across government, the legal profession, academia and industry contributed to the initial stage of consultation, jointly led by the Attorney-General’s Department and the Treasury.
Last year the Albanese Government announced a significant package of reforms in response to the PwC scandal.
We are cracking down on misconduct and rebuilding confidence in the systems that keep our tax system and capital markets strong.
The legal professional privilege discussion paper has been published to the website of the Attorney-General’s Department.
The TLDR is PwC attempted to cockblock the government from obtaining information it sought about the firm’s malfeasance and the government is still pissed about it. See also: Tax Office halved $1.4m PwC fine for false privilege claims [AFR, October 2023]
Houston-based Weaver leased and will renovate a full floor at the One Hughes Landing building, located at 1800 Hughes Landing Blvd. in The Woodlands, the company confirmed. The firm initially moved into an 11,087-square-foot space on the fourth floor of the tower in December 2023. Weaver will move into a new fifth floor space, totaling 26,031 square feet.
EY India has partnered with the National Association for the Blind (NAB) to create over 600 audiobooks, aiming to benefit more than 1,00,000 people with visual impairment across India. The initiative is part of EY Ripples program, where EY employees devote their time to SDG-focused projects, bringing together their combined skills, knowledge and experience to positively impact wider sections of the society.
Estimates are that 0.36% of the total population of India is blind (5 million people) and 2.55% are visually impaired (35 million people). In addition, India has approximately 240,000 blind children.
KPMG UK discusses generative AI in the financial and professional services sector:
AI and Generative AI (GenAI) are no longer a new phenomenon. For over a year, KPMG has been actively using and investing in an internal GenAI tool, seamlessly integrating it into ways of working and exploring possibilities of augmentation. Since making GenAI available to colleagues, the firm has seen a 15% boost in productivity over the last year and generated over 1.3 million prompts in just one month alone. [X]
There is no doubt that AI and GenAI will continue to transform the way people work. Across industries and functions, people are empowered to embrace new possibilities, performing new tasks and achieving remarkable results in a single day. This transformative shift unlocks large potential, driving innovation and business growth.
Over the next five years, the estimated boost to productivity by adopting Gen AI is 58% across support functions (e.g. HR, Finance, Customer Service and IT), 45% across control functions (e.g. Risk, Compliance, Internal Audit), and 44% across revenue functions (e.g. Sales, Marketing). Support functions are expected to gain the most from AI and GenAI, driven by the automation of bulk operational processes, user support via conversational dialogues, and code generation in IT. This means colleagues will free up more time to focus on strategic and business-partnering activities, as well as expanding the capacity and reach of their operations. While these statistics are FPS focused, the functions exist across all industries and similar impact is expected.
Who stands to benefit from this so-called boost in productivity, I wonder?
I hope everyone has a safe and restful holiday. If you need me, email or text any time. Text is best, my email is overflowing with idiotic PR pitches about the best cities in which to be a naked vegan (I wish I was joking) and other off-topic foolery. Love ya, mean it!
KPMG appoints Michael Andrew as global chairman based in HK [Reuters]
Accounting giant KPMG has appointed Michael Andrew as global chairman to be based in Hong Kong, the firm said on Thursday. Andrew, a 27-year veteran at the accounting firm, was previously chairman of KPMG Asia Pacific and Australia, KPMG said in a statement. He replaces Tim Flynn, who will retire at the end of September.
Oil CEOs on the Hot Seat [WSJ]
With gas prices above $4 a gallon in much of the country, Democrats and Republicans are ether to cut tax credits for oil companies enjoying a banner profit year. Senate Democrats plan to grill the CEOs of Exxon Mobil Corp., Chevron Corp., ConocoPhillips and the U.S. units of BP PLC and Royal Dutch Shell PLC about the taxes they pay at a Finance Committee hearing on Thursday. Republicans, who have criticized the Obama administration for not acting faster to approve more offshore drilling, won passage of a House bill Wednesday that would require decisions to be made about offshore-drilling permits within 60 days.
Next Up, a Crackdown on Outside-Expert Firms [DealBook]
With the government securing a conviction against Raj Rajaratnam of the Galleon Group on Wednesday, federal prosecutors will shift their focus to expert networks — the intricate web of money managers, corporate executives and consultants at the center of another wave of insider trading cases.
The $8,000 Credit Cost Some Home Buyers Much More [WSJ]
If you missed out on the $8,000 tax credit for first-time homebuyers that expired just over a year ago, you might be better off for it. Numbers released Monday suggest typical recipients have lost twice as much to falling house prices as they gained from the incentive.
Democrats Embrace U.S. Tax Increase Versus Medicare Cut in Debt Talks [Bloomberg]
Democrats in Congress are gaining new confidence in promoting tax increases to reduce the national debt by presenting them as the alternative to Republicans’ proposed cuts in Medicare health-care coverage for the elderly. Democratic leaders are avoiding any call for tax increases on the middle class, a key voting bloc, and limiting their proposals to those that would affect wealthy individuals, oil and gas companies, and businesses accused of sending jobs overseas.
Google’s Mysterious Retroactive Charge [CFO Journal]
Google’s surprise $500 million charge against first-quarter earnings for an ongoing government investigation related to online advertising raises an interesting question: Why is Google applying the charge retroactively to the first quarter?
H&R Block Tax Services sues Arizona franchisee [KCBJ]
The division of H&R Block Inc. (NYSE: HRB) claims in U.S. District Court in Kansas City that Phoenix-based XL Wealth Management LLC signed an agreement on July 20, 2010, to open franchise locations in Arizona in preparation for the height of the 2011 tax season. But according to the lawsuit, that’s as far as things got in H&R Block’s relationship with XL Wealth Management. Despite H&R Block’s agreement to provide $550,000 in startup money and the company’s subsequent visits to Arizona to check on XL’s progress, the franchise locations never opened.
Bob Lutz: I’m Not an Anti-Finance Guy [CFO Journal]
The former General Motors vice chairman has got a knack for numbers, and claims he even put a brake on unnecessary costs occasionally. But he’s got a beef with executives who focus solely on budgets and spreadsheets, instead of focusing on the product and on consumers. And he thinks that’s the biggest cause of Detroit’s downfall – and that Detroit is now back on the right track.
Pandora Prices Its I.P.O. at $16 a Share [DealBook]
Pandora Media on Tuesday priced its initial public offering at $16 a share, above its recently raised target range. The company, whose shares will start trading on the New York Stock Exchange on Wednesday under the ticker “P,” has raised $234.9 million, valuing the business at $2.6 billion.
Firms Squeezed on Tax Bills [WSJ]
During the financial crisis, hosts of small companies fell behind on their taxes for the first time, accountants and lawyers say. Their timing couldn’t have been worse.
Detroit bomb squad detonates suspicious package left outside IRS building [NYP]
Bomb squad officers in Detroit blew up a suspicious package early Wednesday outside a building that houses the Internal Revenue Service, the FBI and other federal offices. A black backpack that was found on the steps of the building around 4:30 am was blown up by bomb squad agents outside the building at around 6:45am after an X-ray unit showed it contained a power source.
What Happened to Barry Minkow? [Grumpy Old Accountants]
Zebra. Stripes. Or is it a tiger?
Happy Flag Day! 14 States Exempt Flags from Their Sales Taxes [Tax Foundation]
FYI for next year.
Crooked accountant rips off £450,000 from Coatbridge firm in just four months [Daily Record] Sue Sachdeva is not impressed.
IRS Stuck with $153.3M in Undelivered Tax Refunds [AT]
In what has turned into an annual ritual for the service, the IRS said it has a fortune waiting in its coffers that could not be delivered to taxpayers because of mailing address errors. Taxpayers can still claim their refunds, though, and can probably use a little help from their accountants. The average size of an undelivered refund check this year is $1,547, which makes a nice stocking stuffer for the holidays.
Accountant: Bills for library maintenance ‘didn’t pass the smell test’ [Centro decision on hold for another day [SMH]
Investors in Centro Properties must wait until 11am tomorrow morning to hear if the proposed aggregation plan of its trusts will occur after a court order stopped the process late today. While Justice Barrett passed the scheme of arrangement earlier today, the lawyers for PwC immediately requested a stay of execution in order to read the judgment and determine if PWC wished to appeal. After a two and a half hour session, Justice Barrett in the NSW Supreme Court agreed to a request from the defendant, PwC, to halt any action until 11am tomorrow.
90% of HMRC staff on strike [Accountancy Age]
UNIONS have estimated that up to 90% of HM Revenue & Customs staff are on strike today. The PCS union, which represents lower ranking staff, announced the figure following “early reports” of staff staying away from work. The major public unions are striking over cuts to jobs, pay and pensions. PCS general secretary Mark Serwotka, said: “The impact of these cuts will not only be felt by public sector workers. It will also be felt in those communities where they live and spend their wages, which is why it needs to be stopped.”
At Deloitte, More Pain Before Any Quality Gain [Re:The Auditors]
Francine McKenna: “[A] confidential, internal Deloitte training document, prepared this past summer, […] reveals the firm expects the worst when the inspection reports for their 2009, 2010, and 2011 audits are published by the PCAOB. The 2009 report should be out by the end of this year. The training document also shows how difficult it is for Deloitte leadership to steer the largest global firm away from the “audit failure” iceberg.”
The Big Four Accounting Firms’ Financial Tipping Point — Time for a Fresh Look [Re:Balance]
In the wake of the EU reform goodie bag bonanza, Jim Peterson keeps things in perspective.
Tax Exam Question: 80-Year Old Man Donates Suit to Goodwill With $13k Life Savings Sewn Inside Lining [TaxProf]
An 80-year-old Illinois man mistakenly donated an old suit to Goodwill with his $13,000 life savings sewn inside the lining. (He kept the savings in the suit because he did not trust banks.) He is offering a $1,000 reward for the return of the money, which he needs to help care for his wife, who is battling stage-four cancer.
GOP warns troops on tax votes [The Hill]
House Republican leaders warned their caucus the GOP risks losing its image as the party opposed to tax hikes if it allows the one-year payroll tax break to expire at the end of the year. Majority Leader Eric Cantor (R-Va.) told his rank and file in a closed-door meeting Wednesday that “taxes are a Republican issue and you aren’t a Republican if you want to raise taxes on struggling families to fund bigger government,” according to a source in the room. The leadership bid for support represents the GOP’s clearest endorsement yet of the tax extension, which is a cornerstone of President Obama’s jobs plan.
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