Monday Morning Accounting News Brief: Young CPAs Should Be Scared, Says Guy; Accounting Tricks on Tax Plans | 3.3.25

Posted on by Adrienne Gonzalez
woman reading on a balcony in the morning with a cat

Hey. Want some news?

In Footnotes on Friday we included a story about Saudi Arabia’s Public Investment Fund banning projects with PwC through next February of next year. This is significant because the Middle East has been carrying Big 4 firms the past year or two, that consulting money is critical to sustain their dry practices in the US, UK, and Australia.

Reuters has a follow up on that story:

PwC is working with Saudi Arabia and its sovereign wealth fund to mend relations with the kingdom, two people familiar with the matter told Reuters.

Saudi Arabia’s Public Investment Fund (PIF) and the kingdom as a whole are major clients for PwC, with over 2,600 of the consulting firm’s global workforce dedicated to projects in the country.

The kingdom has suspended activities between the $925 billion fund’s holding company and PwC, while its portfolio companies can still engage the consultant, one of the people said.

PwC told its employees in a memo on Friday, that the situation with Saudi Arabia related to a “client” matter, and not a regulatory issue, one of the sources told Reuters.

Alright so we still don’t know the exact source of this tension.

There’s not a press release yet but we were informed this morning that KPMG US has elected Tim Walsh next Chair and CEO. We’ll get a story up with more details shortly.

We should probably talk about this:

Full text:

25-35 year old accountants/CPAs should be scared right now.

Not to be click baity but I had this realization on my way to Los Angeles this morning (buying an accounting firm).

Gone are the days where you can work for a CPA firm for 20 years and just be granted partner.

Private equity is buying firms in groves and raising the prices, eliminating staff, and leaving no profit margin for you.

Hell, no more opportunity for you.

The time to act is now my friends 🥂

And a response I found funny:

An AI story I read in Futurism this weekend:

What hasn’t been said about artificial intelligence? It’s a disruptor, a game changer, the next technological revolution. Soon we’ll all be chilling with our feet up while our AI assistants do all the heavy lifting — right?

One economist isn’t so sure. A new study by Caleb Maresca at New York University predicts that just the looming possibility of transformative AI has the potential to completely upend the economy in a bad way, decimating wages and sending interest rates skyward.

“My findings reveal that expectations of [transformative AI] can substantially affect current economic conditions,” Maresca writes, “even before any technological breakthrough occurs.”

I mean yeah, we knew. It gets a bit more specific though. As soon as I read this I understood why Google Discover pushed me the article, because I read and write about the accounting profession where they’ve been as cheap as possible long before AI.

For one thing, a growing expectation that AI will gut the price companies pay for work could lead to huge increases in interest rates — the cost of expected inflation on borrowed money — by as much as 10-16 percent in some scenarios. This would mean the cost of starting a new business or buying a house goes to the Moon, scaring people into saving more and spending less. (That might be prudent on an individual level, but at scale, it’s generally seen as bad for the health of the economy.)

It’s impossible to know just how much work AI will actually end up taking over, but the study safely assumes big business will revel in any chance to cut costs on labor — no doubt the ultimate endgame of AI development. Indeed, today’s ultra-wealthy are already positioning to take the helm, boosting AI hype as they do.

A fun headline coming out of Australia: Big Four firm EY is both axing and promoting new jobs in Australia

Amid ongoing headwinds in the strategy & management consulting sector, Ernst & Young has flagged a further one hundred job cuts following its previous downsizing efforts at the end of 2023, which resulted in the approximate loss of 230 employees.

Meanwhile, the Big Four firm is talking up its recruitment drive in Ballarat, which since its launch in the town in 2022 a 90-minute drive north-west of Melbourne has grown its local headcount to 25 professionals, slightly shy of its original promise of 200 new jobs, albeit with another five people expected to come onboard in the next month.

I think we’re going to start seeing this a lot. It’s rumored EY just laid off hundreds of IT people globally (layoffs are confirmed as of now, numbers are not) and consultants were stiffed on bonuses but there’s likely to be significant growth in AI and AI-adjacent areas.

CNBC on Trump’s tax plan:

Rep. Richard Neal, D-Mass., ranking member of the House Ways and Means tax committee, said Wednesday that Republicans’ policy plan — central to which is an extension of the Trump tax cuts, estimated to cost more than $4 trillion — amounts to a “reverse Robin Hood scam” that gives to the rich and takes from the poor.

But:

Meanwhile, Republicans say low- and middle-income households stand to win under the plan.

“Extending the Trump tax cuts delivers the biggest relief to working-class Americans and small businesses in a generation,” Rep. Jason Smith, R-Mo., chairman of the Ways and Means Committee, said Tuesday.

Experts say both sides’ arguments have merit.

Here’s something else though: The accounting maneuver that could make the cost of extending Trump’s tax cuts look like zero

A controversial budget maneuver is gaining steam on Capitol Hill that could help make Donald Trump’s first-term tax cuts permanent while also making room for additional tax break pledges he made on the campaign trail.

But it would push up the national debt by trillions of additional dollars beyond what’s already planned.

The idea is to essentially make the cost of extending the 2017 Tax Cuts and Jobs Act free, at least for accounting purposes. That can be done by assessing changes using a so-called current policy baseline, a bit of Washington arcana with trillions in potential consequences.

I personally couldn’t care less about this but maybe you do. Journal of Accountancy looks back on lessons learned from the first year of SAS 145. Specifically, they spoke to a practitioner about what that looked like at her firm:

SAS 145 did not change key audit risk concepts, but it altered and clarified the existing risk assessment guidance and added a few new requirements.

“When our firm did an assessment of SAS 145, we felt there were two big changes that would require edits to our existing risk assessment documentation in virtually all of our audit files,” said Tina Nordquist, CPA, A&A service line leader at Brady Martz and Associates PC in Minot, N.D. “The first was the change in the math in assessing the risk of material misstatement, and the second was the definition of a relevant assertion.”

Because of these changes, Nordquist said, the firm took the opportunity to challenge its staff to take a hard look at the opportunities provided by the standard, to take an especially deep dive into all risk assessments and testing approaches, and to shift their time and focus to areas of higher risk.

That’s it for this news brief. Email or text if you have some news or tips for us, or hit us up on Twitter/X DMs. Believe it or not I actually check them.

Love you. Have a good week!

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The contentious budget talks that have dominated Washington for months intensified Wednesday, prompting President Obama to say he would accept a short-term hike in the debt ceiling if it gave lawmakers time to finalize a comprehensive deal. Obama had pledged to veto any short-term measure, but White House spokesman Jay Carney said Wednesday that the president could accept an extension of “a few days” if it allowed a long-term deficit-reduction and debt-ceiling deal to work its way throug>My Big Tax Break Looks Like Your Big Spending [Bloomberg]
There is plenty of spending to cut. For instance, we’ve got one government program that hands people money to buy houses that, in most cases, they would buy anyway. They get even more money if they buy a more expensive house. Over the next five years, that program alone will cost almost $500 billion. Another federal agency will spend more than $400 billion to reward people for making money by investing and earning capital gains and dividends rather than by going to work and taking their income in wages. I like investors and I participate in the market, but is this really the sort of activity that requires a $400 billion subsidy?

Fed planning for potential default [Reuters]
The Federal Reserve is actively preparing for the possibility that the United States could default as a deadline for raising the government’s $14.3 trillion borrowing limit looms, a top Fed policymaker said on Wednesday. Charles Plosser, president of the Philadelphia Federal Reserve Bank, said the U.S. central bank has for the past few months been working closely with Treasury, ironing out what to do if the world’s biggest economy runs out of cash on August 2.

Cisco’s 6,500 Job Cuts Could Hurt Push for Offshore Tax Holiday [Bloomberg]
Cisco Systems Inc. (CSCO)’s plan to eliminate about 6,500 jobs worldwide is complicating the corporate lobbying campaign for a tax holiday that would allow multinational companies to return $1 trillion in offshore profits to the U.S. at a low tax rate. The San Jose, California-based company, the world’s largest networking-equipment maker, has been among the most vocal supporters of a repatriation holiday being considered in the U.S. Congress. Cisco chief executive John Chambers has said he wants to return as much as $30 billion in overseas profits to the U.S. The company could increase its headcount by 10 percent, depending on details of a repatriation bill, he said before the job-elimination announcement.

Federal auditors scold IRS for slow notification of security breaches [WaPo]
In a recent report, the Treasury Department Inspector General for Tax Administration reprimanded the Internal Revenue Service for failing to notify taxpayers in a timely way — if at all —when the tax agency inadvertently exposed their personal information. IRS records showed 4,081 inadvertent disclosures of taxpayers’ personal information in fiscal 2009 and fiscal 2010. The IRS sent letters to taxpayers whose privacy was violated 86 days after the fact in 20 percent of the cases auditors examined in a sample of incidents from July 2010 to February 2011.

3 Groups Denied Break By I.R.S. Are Named [NYT]
Three nonprofit advocacy groups that were denied tax exemption by the Internal Revenue Service were all units of Emerge America, an organization devoted to cultivating female political leaders for local, state and federal government. The I.R.S. denied tax exemption to the groups — Emerge Nevada, Emerge Maine and Emerge Massachusetts — because, the agency wrote in denial letters, they were set up specifically to cultivate Democratic candidates. Their Web sites ask for evidence that participants in their training programs are Democrats.

Twitter Poised to Close a Two-Stage $800M Funding, With Half Used to Cash Out Investors and Employees [All Things D]
In a move reminiscent of one done by Facebook in 2009, Twitter is close to completing an $800 million funding deal that will include a second part in which around $400 million of the total will be used to cash out current investors and also employees. According to several sources close to the situation, the complex transaction could be completed within two weeks. Along with basic funding needs, this is largely being done this way to give those with stakes in the San Francisco microblogging company an ability to monetize their privately held common stock and also to do this selling in a more organized — and legal — manner.

Ernst & Young’s Greater Washington Office Announces Leadership Promotions [E&Y]
Four new partners in the DC office. If your office has announced promotions, we want to know.

PwC US Appoints Robert W. McCutcheon as New Industrial Products Leader [PwC]
RWM is the Pittsburgh OMP and will continue in that role but now is also responsible for leading the group that services several industries including “aerospace & defense, chemicals, engineering & construction, industrial manufacturing, metals, transportation & logistics, and forest, paper and packaging.”

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Don’t forget family members.

Is Accounting Rule Anarchy a Good Idea?

John Carney comments on Sheila Bair’s bellyaching about mark-to-market today by simply wondering why there has to be a debate at all. That is, couldn’t accounting rules just be served up – presumably buffet style – and the banks would choose which treatment they like best and then regulators could judge their health based on their choices:

Here’s what I don’t get: why do we need one set of accounting standards at all? To put it differently, why should banking regulators feel obliged to judge the safety and soundness of financial institutions according to any measure that they do not like? If Bair doesn’t think fair value is appropriate to the banking sector, can’t she just ignore fair value when judging whether banks satisfy regulatory requirements?


It’s an interesting question. Why does the FDIC care what fair value says when determining bank health? Analysts use and refer to non-GAAP data all the time, so what difference does it make if regulators rationalize their analysis on similar non-GAAP measures?

After explaining that, despite the complaints of a certain billionaire (among others), transparency is actually a good thing, Carney floats an idea:

My truly radical proposal is that we should probably do away with this argument altogether by allowing banks—and every other company for that matter—to choose which accounting standards they want to use. If amortized cost is truly a better standard, banks using that will surely be rewarded by higher stock prices and cheaper access to credit. On the other hand, if fair value is appropriate, the market will reward that. Why not let banks choose and bear the costs of their choice?

While we’re with John in spirit (especially for the banks, they run things after all), the BSDs in the accounting will never let this fly. The idea of letting individual companies determine what accounting rules to follow is enough to cause Big 4 partners to set themselves on fire in the middle of Union Square in protest.

However, if you’ve got thoughts on we could put this thing in motion, it might be kind of fun to see how it works out.