february 2012 issue 502 www ... · online rsm tenon plans to cut 10% of its staff and ... ahold...

● IAB Awards 2012: category shortlists unveiled ● RSM Tenon to cut staff after reporting loss

● Round table: industry leaders debate EC proposals

Fighting backUS firms clamber for growth

in challenging market

February 2012 Issue 502 www.InternationalAccountingBulletin.com

www.vrl-financial-news.com

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IAB AwArds 2012International Accounting Bulletin

contents02 news

• RSMTenontoshedstaffafterreportingloss

• NexiaInternationaladmitsCliftonLarsonAllen

• DeloittesuedoverAholdfraud

02-18 roUnd tABLe: ec AUdIt reForM ProPosALs

TheEC’scontroversialproposalsonaudithaveleftuncertaintyandconfusionintheirwake.Weassembledahigh-profilegroupofaccountingfirmleadersandpublicpolicyexpertsinLondontodebatethemajorproposalsandoffertheirthoughtsonwhatwillhappennext

19-24 coVer storY coUntrY sUrVeY: UnIted stAtes

FirmshavefoughtbackintheUSwithmoregrowthpunctuatedbyanincreaseintaxandconsultingwork.Feepressure,IFRSuncertaintyandtheevolvingroleoftheauditorremainachallenge

editorial Advisory BoardFrank Arford, CroweHorwathInternationalCEO

Kevin Arnold,NexiaInternationalexecutivedirector

Geoff Barnes,BakerTillyInternationalpresidentandCEO

stephen Jacobs,INPACTInternationalpresident

Jon Lisby,KrestonInternationalexecutivedirector

James Mendelssohn,MSIGlobalAllianceCEO

christian Mouillon,Ernst&Youngglobalvice-chair,assurance

Jeremy newman,independent

ed nusbaum,GrantThorntonInternationalCEO

Michael reiss von Filski,GenevaGroupInter-nationalCEO

Liza robbins,MorisonInternationalCEO

Martin van roekel,BDOInternationalCEO

Jean stephens,RSMInternationalCEO

robert tautges,HLBInternationalCEO

Pauline wallace,PwCheadofpublicpolicyandregulatoryaffairs

The past month has been hard work and challenging for the IAB team.

Following our World Survey launch, we hosted a round table which tackled the EC audit proposals (turn to page 3).

The round table featured a host of global firm leaders and public policy experts but was a bit mid-tier heavy, not for a want of trying. Thank you Tracy Gordon of Deloitte for wav-ing the Big Four flag!

Consensus was reached on some of the pro-posals. The rather short, six-year mandatory rotation period is just not practical, but rota-tion itself is not necessarily evil. Audit-only firms are a bad idea and should be scrapped. And, banning Big Four only clauses is a no-brainer.

There were interesting views on joint audit in which attendees couldn’t agree on a way forward. Part of the problem is the EC’s defi-nition of a joint or shared audit is too narrow.

The scripting of the EC document confused our panel, which is quite worrying when you consider they are some of the brightest techni-cal accounting minds in the world.

And the winner is…Aon, the global insurance broker, has come on board to sponsor the IAB Awards and we are delighted to have such a reputable company supporting our event.

When we embarked upon this process, never did I imagine we would have more than 100 nominations from around the world.

The shortlist (below) is stronger than I had hoped and the IAB team is looking forward to the awards cocktail reception on 8 March in London. A big thank you goes out to our judges – Sue Almond, Jane Howard and Jeremy Newman. <

Arvind [email protected]

EC proposals come under scrutiny

edItor’s Letter

network of the Year• BDO• KPMG• Mazars• NexiaInternational• PwC

rising star network• KrestonInternational• NexiaInternational

Association of the Year• DFKInternational• GenevaGroup

International• MorisonInternational• MSIGlobalAlliance• Praxity

rising star Association• IAPAInternational• IGAFPolaris• MorisonInternational

Audit Innovation of the Year• BDO–AuditProcessTool• Mazars–HumanRights

Audit• PwC

consultancy of the Year• DeloitteLondon2012• DriversJonasDeloitte• Hansen-Holm&Co

(Ecuador)

sustainable Firm of the Year• KPMG• Mazars• PwC

tax Adviser of the Year• BDOInternational• Piascik&Associates

(UnitedStates)

employer of the Year• BDOInternational• Beierholm(Denmark)• KPMG(United

Kingdom)• PlanteMoran

(UnitedStates)

It Vendor of the Year• CaseWareInternational• Qurius• ThomsonReuters

ONESOURCE

Young Accountant of the Year• AndrewConway

(InstituteofPublicAccountants)

• AndrewHeng(BakerTillyMonteiroHeng)

• BettinaCassegrain(QualityAssuaranceReviewerforHLBInternational)

• Trond-MortenLindberg(BDONorway)

International Accounting Bulletin’s Personality of the Year and Lifetime Achievement Awards arechoseninternallybytheeditorialteamand,therefore,donothaveshortlists.

International Accounting Bulletin Awards 2012 Shortlist

2 y February 2012 www.InternationalAccountingBulletin.com

news: AnALYsIs International Accounting Bulletin

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LinkedIn–Searchforthegroup‘WorldAccountingIntelligence’

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RSM Tenon plans to cut 10% of its staff and merge offices to help recover from a 9.3% drop in revenues to £107.8m ($172m) in the six months to 31 December 2011.

RSM Tenon posted an £11.4m loss com-pared to an £8.5m profit for the same peri-od a year earlier. Its results were affected by a £60.7m goodwill charge.

RSM Tenon hopes to save £14m annu-ally by trimming, merging and improving efficiencies.

RSM Tenon said the loss is mainly due to insufficient cost savings and efficiency measures following the acquisition of RSM Bentley Jennison and certain assets of Vantis. On its balance sheet, a major contributor to RSM Tenon’s decline is a £60.7m impairment of goodwill.

The London Stock Exchange-listed com-pany was forced to restate its accounts for the previous year to £118.9m as a result of “significant errors and change in account-ing policy”.

RSM Tenon also owes £88m to Lloyds Banking Group and is arranging new terms for committed facilities deferring some of the payments until 31 October 2012.

RSM Tenon has recently appointed new chief executive Chris Merry. Former chief executive Andy Raynor and chairman Bob Morton resigned in January following a predicted 10% slump in revenues in the last six months of 2011.

The firm’s auditors, PwC, have issued a going concern warning against the firm as the results were published. <

MerGers And AcQUIsItIonsNexia secures CliftonLarsonAllen

Nexia International has admitted CliftonLarson- Allen (CLA), the newly merged top 10 US firm.

The news follows last month’s merger of Clifton Gunderson and Larson Allen and is a blow to HLB Inter-national who counted Clifton Gunderson as its largest US member.

At a global level, it could result in HLB International (13th) dropping below Kre-ston International (14th) if the US revenue loss is not recovered.

CLA will generate annual revenues of about $550m and is the most significant combination in the US mar-ket in the past year. The firm has about 3,600 profession-als, including more than 500 partners.

PeoPLe

BDO US chief executive to retire

BDO US chief executive Jack Weisbaum is to retire at the

end of his second term in October.

Weisbaum joined BDO as a partner in 1982, was elected chief executive in 2004 and re-elected to serve a second term in 2008. His successor will be determined by a part-nership vote in late March.

In the UK, BDO has re-elected Simon Michaels as the firm’s managing partner for a four-year term to 2016.

Meanwhile, BKD chief executive Neal Spencer is to step down in June.

Jack Weisbaum, BDO US

LeGAL

Deloitte sued over Ahold fraud

Dutch shareholders’ associa-tion VEB has sued Deloitte and 178 former and current

partners over alleged wrong-doing in the Ahold account-ing scandal.

The fraud emerged when the Dutch retailer revealed in 2003 that its profit had been inflated by more than £800m. VEB accused former auditor Deloitte of issuing misleading opinions on the company’s financial statements.

“The total damage in the Ahold case amounted to many billions,” VEB said.

The Big Four firm said the fraud was partly intended to deceive Deloitte as auditor.

“Several courts, including the Dutch criminal court, confirmed that over the years,” Deloitte said.

MerGers And AcQUIsItIons

U-turn on Eide Bailly, Wipfli merger

Top 30 US accounting firms Wipfli and Eide Bailly have pulled the plug on their pro-posed merger and will con-tinue to operate as separate firms. The proposed merger would have created the 12th largest accounting firm in the US with annual revenues of $314m. <

strAteGY

RSM Tenon to cut 10% of staff, reports loss of £11.4m

February 2012 y 3

roUnd tABLe: ec AUdIt reForM ProPosALsInternational Accounting Bulletin

www.InternationalAccountingBulletin.com

After a year of deliberation and con-sultation, the European Commission (EC) has unveiled its final proposals on audit market reform. There is a

growing number of voices of dissent in the profession with many claiming viewpoints put forward during the consultation process have not been considered. Fierce lobbying from accounting firms and the business com-munity is expected to continue in the coming year as the EC Council and Parliament make their assessments.

The International Accounting Bulletin and The Accountant invited a group of account-ing leaders to discuss some of the key propos-als, particularly the more contentious ones, including mandatory rotation of audit firms, the banning of some non-audit services, ‘Big Four only’ clauses, an EU audit passport and joint audits.

The panel features leaders and public pol-icy experts from the Big Four and mid-tier accounting networks, as well as a technical director from the professional accounting body, Association of Chartered Certified Accountants (ACCA).

Arvind Hickman, International Accounting Bulletin, editor: tracy, what are your thoughts on the consultation process? do you believe that the views from various stakeholders, especially in industry and other investors have been taken into consideration? Also, what are your thoughts on the general consultation process?

Tracy Gordon, Deloitte UK, public pol-icy director: We and others were given the opportunity to respond. However many stakeholders have objected to elements of the proposals which have remained. All in all, there’s still a long way to go and we hope that as the process continues some of these thoughts that have been fed in already will be reflected.

Arvind Hickman: Andrew, you represent the european Group of International Accounting networks and Associations (eGIAn), and you probably have a lot of experience dealing with such consultations and putting forward certain views. How do you feel the consultation process has panned out? How

well has it been run and do you think the ec is listening to what people are saying?

Andrew Nicholl, EGIAN, secretary: Not being Brussels-based, I haven’t been as involved actually at the coalface of the EC consultation.

But from the meetings that I’ve attended, I gained the firm personal impression that this commenced with Michelle Barnier’s view that “I’ve made up my mind and don’t confuse me with inconvenient facts” and that’s com-ing out of the very early consultative confer-ences, where comments were being made and nothing was taken on board.

The other impression I had – and I’ve had more of an involvement possibly on the detailed nuts and bolts of the proposals so how it might work in practice – is the poor quality of drafting.

Some areas don’t join up, some of them are not easy to understand, the mention of new words that people don’t understand to replace established professional terms. Indica-tions that some politicians don’t understand what a joint audit is as opposed to a group

Uncertainty remainsAyearonfromwhentheoriginalECGreenPaperauditreformproposalswerelaunched,andthefinalrecommendationshaveleftuncertaintyandconfusionintheirwake.AgroupofaccountingfirmleadersandpublicpolicyexpertsgatheredinLondontodiscussthenextevolutionoftheproposals

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International Accounting Bulletin


roUnd tABLe: ec AUdIt reForM ProPosALs

audit as well as some of the other things such as the consortium audit confusion.

It would appear to be that it was drafted from a position of lacking of understanding of practical points. The whole process could have been significantly improved initially with more focus on practical application, which might have made for a more positive consultation process subsequently.

Arvind Hickman: does anyone else have any views about the consultation process? Patrick, is that something you agree with?

Patrick de Cambourg: My view is the consul-tation process is a consultation process and that drafting a proposal becomes a political process so stakeholders have contributed. I would like to remind everybody that at the beginning of the consultation, some people were saying “No issue in our profession; nothing to worry about, nothing to consider seriously”.

And for me, if the starting point is a pos-sible unbalance between the views of the stakeholders – or some of the stakeholders – and the people that represent the general interest of following democratic process, then I think what we are experiencing at the moment is the adjustment between the views from the profession, other stakeholders using the services of that profession, the general public represented by the appointed com-mission, the governments elected and the parliament-elected people.

I think from a political standpoint it is somehow natural we are not in full agree-ment. In other words, if the stakeholders had to draft regulation by consensus, I think it would be an interesting process, but I don’t know what the outcome would be. So today, we are trying to address a public interest question by a democratic process.

Sue Almond, ACCA, technical director: We hosted an event only a few days after the proposals were introduced and three of the MEPs who had been very closely involved in the process were speaking at it. I think it’s probably not just the accountancy profession that have a degree of frustration about the way some of the responses have been fed in, because there were some quite unusual con-sultations that had gone on at the parliamen-tary level as well that were not then fed in to the final proposals.

So I think there probably are issues that do need to be picked over in the final outcome.

Ed Nusbaum, Grant Thornton International, chief executive: The only thing I would add is it would have been nice to see more inves-tors respond to the consultation and give an

investor perspective. Responses from investors were quite lim-

ited, quite poor and it looks like the proc-ess would be improved by more outreach to investor groups. It’s pretty obvious where corporations are coming down on this but it is relevant because they’re our clients – the real issue is we need to think of the needs of investors.

Arvind Hickman: John, what are your thoughts on the overall package at this stage?

John Capper, RSM International, interna-tional regulation specialist: Our view is we very much welcome the proposals.

We believe there is a widespread view across a range of stakeholders that some change is needed in terms of this high level of auditor concentration within the listed company markets in Europe, because it does represent a systemic risk to the functioning of the market.

We work closely with Andrew Brown in the EGIAN Group and it’s interesting how EGIAN has gained a much higher level of profile because 20 networks have stuck together and said “We stand for these similar things between us”.

A similar thing happened with Group A in the UK where the comments from it were sent to Vince Cable to explain what its view was.

When this was widely distributed to MEPs and other stakeholders then those people realised that there were voices other than the ones they’d already been hearing. More people are now open to the idea that some change should happen and could happen. We don’t think any single measure on its own will solve the problem and we do think the changes will take quite a long period of time.

Some of the talk within the EC about how fast these changes to market structure would take place is over-optimistic. It will take some time. We would be looking for effec-tive mechanisms to open up the market to new players and I’m not sure we’ve actually so far found all those mechanisms that will work, but it is important that we do so.

And why is it important? Well, actually, most of the larger listed companies do not have a choice of four firms. They will have a choice much lower than that because of con-flicts of interest and avoiding competitor’s auditors.

The market is very stagnant and needs to be changed in the interests of quality, inde-pendence and innovation.

Arvind Hickman: Andrew, do you have anything to add to that?

Andrew Nicholl: I support completely what John has just said, but there is also a big con-cern beginning to emerge with one or two of the firms I’ve talked to [about] watering down the proposals between the leaked ver-sion and the one that was officially issued by the EC.

We may find the mix here ineffective – faced with retendering costs and a more fluid market there, but without any particular likelihood of gaining any degree of market penetration vis-à-vis the loss of the manda-tory joint audit proposals.

You sort of feel maybe within the propos-als that have come out there are no real driv-ers for market change there.

There’s some incentive, possibly with a longer period of appointment for joint audits, but the issue of having to do tenders, and to do a very proper tender is a seriously expen-sive process, you may suddenly find people are doing a lot more tender activity but with-out any return for [the increased] cost [they will incur].

n ec AUdIt reForMs roUnd tABLe

Attendees, in alphabetical ordersue Almond,AssociationofCharteredCertifiedAccountants(ACCA),technicaldirector

nigel Bostock,CroweHorwathInternational,partner

Patrick de cambourg,Mazars,president

John capper,RSMInternational,internationalregulationspecialist

Paul Ginman,BakerTillyInternational,chiefoperatingofficerandtechnicaldirector

tracy Gordon,DeloitteUK,publicpolicydirector

david Isherwood,BDOInternational,partner

Jon Lisby,KrestonInternational,chiefexecutive

James Mendelssohn,MSIGlobalAlliance,chiefexecutive

Andrew nicholl,EuropeanGroupofInternationalAccountingNetworksandAssociations(EGIAN),secretary

ed nusbaum,GrantThorntonInternational,chiefexecutive

nick tomkins,HLBInternational,qualityassurancemanager

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Arvind Hickman: tracy, what are your thoughts representing a Big Four firm?

Tracy Gordon: Our over-riding concern is audit quality is the most important factor here, and we would completely take the point that four is not ideal and that because of con-flicts of interest it very often is less than four that corporates have to choose from.

However, we do have concerns some of the proposals will have an adverse affect on audit quality because the concentration issues may not be properly addressed. Increased tender-ing doesn’t necessarily mean more audits would be given to the smaller firms. It just could be a lot more cost for the low and the mid-tier firms, but with no guarantee the audits will actually go to them.

John Capper: We were told at one of the EGIAN meetings by a commission official that they were also very worried about the lack of choice necessary to make mandatory rotation work. There will not be the scope to be able to rotate to one of the other Big Four because of the conflicts of interest.

They want to open the markets up and that was the reasoning behind the idea of splitting up the Big Four. There will either be more players to choose from or non-audit services would be separated to eliminate the conflicts thereby leaving large Public Interest Entities (PIE) the choice of the three pure audit firms that might be left.

This proposal is aggressive, but may solve the short term problem by creating eight firms out of four.

That may or may not be what the market is looking for so then you get into the interest-

ing aspects of whether or not one of the non-Big Four players ought to be involved in the process either as mandatory shared or joint auditors or at least in a fair tender process.

Nigel Bostock, Crowe Horwath Internation-al, partner: I would echo what’s been said so far. My view on the proposals are that the removal of joint audits has really meant the emphasis of the proposals is now less direct-ed at market concentration and more focused on quality, independence and governance.

Whilst some of the remaining proposals could potentially have some impact of reduc-ing market concentration, I think they’re more indirect consequences of other objec-tives now.

The only exception is the audit only firm proposal although I think the general view is the concern this would adversely impact audit quality and I don’t think there’s gen-eral support anywhere for the audit only firm proposal. I think that’s going too far.

Arvind Hickman: Patrick, when you look at the proposals holistically, do you believe they can reach Barnier’s original goal of when they first came out?

Patrick de Cambourg: I think it’s like a rugby game. We had the first half, now we are start-ing the second half and we don’t know what the outcome of the game will be because it’s a serious game, it’s a topical game and it’s public interest.

Going back to the rugby comparison, I think we are probably at the beginning of the second half and quite frankly we all know that between the leaked version of the pro-

posals and the version finally released a lot of discussions have taken place.

But I think that from the point of view the commission and also from the point of view of the MEPs and governments, it’s not final.

Today I think we have all the ingredients in the proposals the problem is the pendulum is on one side at the moment – on the pure audit firms. If you seriously consider that point, is it viable long term for the reasons that John explained? I’m not sure. Would it be possible to implement? I don’t know. If it is a market cap, then say it.

So the pendulum on this is, for me, some-thing that has to be considered again. The rotation per se is a system that has not been extremely successful in the countries that have implemented it and six years is a very short period. You were talking about the cost of tendering, but the cost of rotating is also significant.

The joint audit has been watered down and transformed into an option with an element of incentive… I think it would be in the inter-est of the profession to reconsider the proper balance of those ingredients in the interest of all parties because if the diagnosis is the one that Tracy shared with us, then we should as a profession say “Yes, we want to diversify that part of the market”.

We also want to be able to add value to our clients via consulting services because that’s key for the European economy and therefore on the rebalancing of the panel.

Arvind Hickman: Focusing on the proposals, mandatory audit firm rotation after six years was rather controversial because when it originally came out in Green Paper form it was nine years but this has been shortened by three years. sue, do you think there is currently a problem in terms of how long certain PIe engagements are? do you think there is a problem with independence?Listening in (from left): Paul Ginman, Jon Lisby and James Mendelssohn

n ec AUdIt reForM ProPosAL

Mandatory rotation of audit firmsThe EC proposes audit firms be required to rotate after a maximum engagement period of six years. A cooling off period of four years is applicable before the audit firm can be engaged again by the same client.

The period before which rotation is obligatory can be extended to nine years if joint audits are performed, ie, if the entity being audited appoints more than one audit firm to carry out its audit. Pre-viously, it was thought joint audits would be mandatory. <




Sue Almond: Whether we see there’s a prob-lem independence-wise or not is a different thing, but there is definitely a perception problem and there is an issue about the length of engagement.

Some of the figures quoted when you’ve had an incumbent auditor in place for more than 100 years or whatever, and the average figures that are quoted are 50 years for UK listed companies, it’s a long time and we can quite understand why people might perceive that as an independence issue.

I think we certainly agree there is move-ment that needs to take place in that arena. If you come to specifics, then our view is these things should be driven by the companies, by the board and investors, not by arbitrary time limits that may or may not take account of the issues of the business at the time.

So certainly I would echo what was said about six years; it is effectively quite a short period for not just the audit firms but for the businesses as well.

Arvind Hickman: From a practical perspective, if you’re an auditor of a big firm and you have a client for a very long period of time such as 30, 40 or 50 years – how does that affect your mindset? does that actually have a material difference on how you approach that engagement? Is it a perception or is there an element of truth to that perception that it’s a problem?

Tracy Gordon: There are extensive ethical rules that say one partner cannot do an audit for 30 years, so there’s a regular cycle of part-ner rotation. Yes it’s the same firm, but you have to change the key audit personnel every certain number of years.

So the perception is not played out in prac-tice and audit firms are heavily regulated [in terms of the conduct of our audit] and I think all these issues are being looked at incredibly carefully. The ethical standards are getting stricter all the time.

David Isherwood, BDO International, part-ner: I think it’s perception versus reality. At the end of the day, quality will gain you trust and the company has got to trust you. So to a certain extent the difference between reality and perception is one of academic interest is not one we should put complete trust in the audit product we deliver.

I echo what people said, six years manda-tory rotation is very short, and the intended consequences of mandatory timing are quite severe. Nevertheless, being at the same firm for 70 years doesn’t seem… right. One of the most common things I’ve found is the num-bers coming out of the debate over the past 18 months have been a surprise to many peo-

ple in the profession – our own people. So I think possibly there’s more transpar-

ency needed on how long somebody has been in position, how long they have been the auditor and then using that to drive ten-dering and rotation.

Now, should there be some safeguards with that stop, they probably should be back stops both in tendering and rotation, but six years or nine years sounds ridiculous.

Arvind Hickman: How about 20 years?

Jon Lisby, Kreston International, chief execu-tive: I think the profession generally shares the view that six years is too short. The important issue is the investors become more participative in future and the whole proc-ess of auditor selection becomes more trans-parent and there should be informed choice about the audit firm appointment.

John Capper: I think part of the concern over the length of audit tenure in the largest PIEs isn’t just whether it changes the mindset of the audit team within the audit; it’s what the outside world thinks.

There is a danger that if it’s 40 or 50 years, it’s actually because the firm hasn’t got any effective choice of where else to go and that is a really difficult systemic risk issue. Based on the current market structure, if some of the largest PIEs globally could not find another auditor if they had to move from the one they’ve got then that is shocking even with four firms, let alone if four became three. Clearly new entrants are needed in the mar-ket place.

Of course there were a lot of the comments

to say there was no systemic risk, maybe as part of the debate now we need to uncover the reality of the level of true risk.

Arvind Hickman: ed, six years sounds a bit of a short cycle, but is there a period of time where it’s sensible to do this or do you think rotation should come from other mechanisms and not regulation?

Ed Nusbaum: Six years as everyone’s saying puts a lot of stress on the system and I think if every company’s got to change in that short period of time, to find other firms for its audit would be difficult; so a longer period is criti-cal. I think all of us would survive mandatory rotation.

It could work, certainly. None of us want to lose our clients and our firm like every other firm would simply lose clients. As part of the rotation you’d hopefully win as many as you lose, maybe more, maybe less. So, it’s the fear of the unknown, I think, that scares a lot of people.

Companies are quite happy with their relationships with their auditors, or they wouldn’t keep them – nobody’s forcing them to keep those relationships – so it’s no sur-prise that companies don’t want to push for mandatory firm rotation if they like the one they’ve got.

And I don’t think they do it because of cost misdirection’s because history has shown that when you do force rotation, costs actu-ally go down, not up. I think the arguments for quality are pretty weak as well – if the auditors tell you you’re doing a good job and yet many companies like Apple have switched auditors – I suspect the new audi-

Holding court: Grant Thornton chief executive Ed Nusbaum (right) gets his point across

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tors are doing a very good job on the audit as well. I think it’s really a matter of percep-tion of the marketplace and perhaps the real-ity when you have a 50-year relationship is you do get too close to the company and too much associated with that company, which is not healthy for anyone involved much less the accountants.

So, a mandatory firm rotation is not per-fect, but certainly one can see why regulators throughout the world are at least consider-ing it.

Arvind Hickman: would mandatory firm rotation actually improve choice and competition in the market?

Ed Nusbaum: Obviously it would improve competition. I’m not sure about choice, but it would certainly improve competition. You’re forcing competition, but if it’s just amongst us it’s a relatively small group of firms. There are going to be some firms who will consider other alternatives.

I think the focus is on the FTSE 100 so the very largest companies, but there are a lot more listed companies than just those…and for every firm around this table there are probably thousands of companies they cur-rently don’t audit.

I think it would increase competition and would probably increase the market structur-ally.

Arvind Hickman: Is there enough capacity amongst the Big Four to absorb all the different changes?

Ed Nusbaum: In my opinion, yes. There’s

no doubt there is a lot of capacity. Even if you look at them the Big Four firms have capacity to grow and expand, as do other mid-tier firms and certainly we have capac-ity. But could we take on all the FTSE 100? Of course not.

Andrew Nicholl: I think there’s a danger to the profession as a whole in assuming what level of capacity there is, a lot of us say that it’s quite difficult to retain senior people within audit. People wish to do other things; some people move to areas of professional activity that aren’t as tightly regulated and don’t carry the vicarious liability which audit does.

We need to be rather careful saying what capacity we have overall, because we need the right people. We need to remember the quality of service is delivered by the peo-ple, not a firm – the firm doesn’t deliver any

services; the people within it do the service delivery.

Arvind Hickman: Picking up on sue’s point before that perhaps mandatory rotation – or forced rotation – isn’t the best mechanism we’ve got. does anyone have any other suggestions of how else we could try to divide the work up more?

Ed Nusbaum: I come from America and there’s always this dislike of more regula-tion, so I think if there’s any way to do it through market forces it would certainly be more advantageous.

However, it’s extremely difficult to accom-plish through market forces. When I was growing up there were three major auto-motive companies in the US and now one of those is owned by Italians and the other two are by the Japanese. No one would have thought the three companies in the US would be the three major automotive companies.

So there is an evolution that occurs through market forces, but in this case mar-ket forces probably are not enough. You could look again at mandatory tendering, look at mandatory rotation and I don’t think there’s a silver bullet; I don’t think there’s a simple answer that’s going to solve all the problems.

Sue Almond: I think it was David who made the point about people not knowing some of the figures that have been out and I think if this exercise has done something, it has pub-licised what the current position is. I think that in itself will drive a certain amount of activity.

You could get to a state where, for exam-ple, in some of the governance code you need to comply and explain. You could pick a number out of the air – whether it’s 10, 15, 20 or something like that – but maybe you could get to a stage where there’s a presump-tion independence might be impaired, and so you could ask for explanation from the audit committee, from the people who’ve made the decision that this is the right thing for that business. There are other options around.

David Isherwood: It’s mounting to be a combination. We’ve tried market forces before, In the UK we have a market partici-pants group which many of us are part of. It didn’t bring about new change, but things like transparency if market-led will work. We think with a certain amount of intervention leading that, it can spark change because the market is not getting there by itself.

Tracy Gordon: It comes back down to what Ed was talking about and the lack of investor participation in this. Having his say: Mazars president Patrick de Cambourg (centre) takes the floor

“the very strong preference would be to take an awful lot of that detail away, preferably to leave it to the IAAsB to set the standards for audit reports globally and to have a broader debate with people like investors to really understand what it is that’s wanted out of the content of the audit report”SueAlmond,ACCA


roUnd tABLe: ec AUdIt reForM ProPosALs International Accounting Bulletin

The Guidance on audit committees rec-ommends that companies disclose how long they’ve had their auditors, but unfortunately not many of them actually do that, based on the results of a survey we’ve done.

And yet there doesn’t appear to be a huge amount of shareholder push back as to why that information isn’t there.

Patrick de Cambourg: I think the key is to get to a proper balanced reform package because with the pure regulation side, where you set barriers like rotation, it might be a solution but that’s a rather extreme one. So if you want to anchor it, market forces, I think the idea first of all of transparency and proper governance – comply or explain – maybe with a mandatory rotation of a certain period of time, if nothing else happened.

Mandatory tendering is one way to instil market force corporate governance. We are firm believers that joint audits or shared audits are also a good solution. And frankly, if we want a better profession, a more diver-sified profession, this is probably one of the other mechanisms to consider very seriously because it has demonstrated its capacity, if it was extended, would certainly play a sig-nificant role.

Arvind Hickman: Joint audits were included in the draft document but removed as mandatory and used as an incentive in the final process. what are your thoughts about that change?

Nigel Bostock: I think it is very disappoint-ing the proposals diluted the joint audit solu-tion. I believe the reason for that was the case wasn’t persuasively put across that joint audit was a solution and the decision was made it was not appropriate.

However, any solution needs to be evi-dence based and I am not sure either argu-ment has been fully explored. I don’t think joint audit is totally off the table, because there is still scope within the regulations for a joint audit.

For example, going back to the point of mandatory rotation, I think the difficulty at the moment is the draft regulation suggests six and nine years depending on whether or not you have a single or joint auditor.

My sense is if you have a greater differen-tial between the two, it would actually create wider choice which would potentially help to provide a more balanced reform package and a better solution.

So, as a suggestion, if you had nine and fifteen years mandatory rotation depending on whether you had a single or joint audit it would potentially incentivise businesses to actually look at if the right solution for them

is either a single audit or a joint audit.I also think there’s a sense of disappoint-

ment at the lack of attention for the concept of a shared audit as well. It wasn’t really explored sufficiently in the regulations.

I think there’s a clear distinction between, say, the following three scenarios: scenario one, where you have a global, multi-national group audit that’s just done by one player; scenario two, a global multi-national audit that’s done by joint auditors; and scenario three, a global multi-national audit that might be being done by a Big Four firm at the group level but actually has a number of subsidiaries that are audited by one or more different players.

I see the latter (a shared audit concept) as a viable balanced reform solution as it pro-vides potentially greater challenge through-out the group audit process, protects quality and helps partly address independence and market concentration.

I share Patrick’s thoughts there was a lot more that could be done to actually give a balanced reform, and I don’t think it’s an either/or option. I think there are a number of alternatives that can be put forward.

Patrick de Cambourg: I think in the proc-ess the difference between the initial version and the final version of the proposal is prob-ably a lack of perception, and by criticising too much, having not considered the joint audit enough, which operates in one coun-try between large and smaller firms, then the commission took a stance, a rather extreme stance, on other points of the regulation.

Therefore… I have reservations on the shared audit but from a technical stand-

point but rebalancing is possibly the way forward.

John Capper: I think what’s interesting is the possibility of a longer mandatory rotation period based on a number of incentives that open up the markets.

At the moment the debate is rather nar-row where only joint audit extends the rota-tion period. I agree with the idea that if you allow a longer initial period than six years, and then a longer extension other than three years, you could give the large PIEs more incentive to open up the market in a number of ways.

There are other areas that might open up the market and help create new market entrants. If you allowed extended rotation not just for joint audits but maybe also for shared audits and other things that help to open up the market then somebody may need to make a judgment about whether that PIE has done enough to help to open up of the market.

A combination of incentives might have more effect than only the one provision cur-rently in there, which is the joint audit.

One of the difficulties, in all the political process, when talking to the politicians, is we were always advised by their officials not to complicate the thing by trying to explain the difference between joint or shared, and that you only need to talk about one of those things.

From that point of view, there is a lack of understanding about what shared and joint auditing is. Hopefully in the greater debate that will take place now, there will be a wider understanding of the benefit of both.

Point to make: RSM International, international regulation specialist John Capper

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Andrew Nicholl: I also think, the propos-als for joint audit contained a fundamental flaw that there should have been a disconnect between the two firms’ period of appoint-ment because there were certainly indica-tions being received that approaches were made to mid-tier firms on a country level by Big Four firms in that country as to whether they would like to enter into an informal arrangement, you know, going together into that tender.

A different period of appointment between the two players creates a degree of independ-ence, oversight and eases transition between firms. To deliver what the proposals are sup-posed to deliver; it needs this extra step if it were to go ahead.

John Capper: And greater continuity as well, because one of the shared or joint auditors will then be continuing whilst the other changes.

Andrew Nicholl: That’s right. It builds that continuity with a transition between the other firms. But that was missing from the leaked proposals and I think that’s fairly fundamental if it was to deliver benefits to a greater extent.

Arvind Hickman: do you think joint audits were removed purely because they were leaked and that people knew what was coming coupled with intense lobbying? or do you think there’s an element of politics going on with what ended up in the document?

Patrick de Cambourg: Personally, I think it’s a controlled misunderstanding. People were considering that it was considered one of

those strange French features when frankly; I am personally convinced as a professional that there is significant merit in such a system.

Arvind Hickman: Patrick, what’s your experience with mandatory joint audits?

Patrick de Cambourg: Oh, it works very well. It’s very good for quality. You know, the two pairs of eyes concept is excellent in terms of governance, in terms of even opening up to non-audit services to a certain extent because you always have someone overlooking the other.

The degree of misperception decreased a lot in a year and a half or a year, but not enough and therefore, I think a number of people have shot at the wrong target.

Possibly they are getting somehow the extreme counterpart in order to solve the problem.

If we share the diagnosis the market is too concentrated and the quality of auditing needs to be considered, by shooting at the wrong target then you unbalance the pro-posal and I think that’s what happened.

Arvind Hickman: I have spoken to different people at various Big Four firms and they’re quite adamant joint audit actually decreases quality and causes a lot of problems because of the things that get through the cracks. tracy, what is your personal perspective on joint audit – how they will function and how effective they might be?

Tracy Gordon: I’ve definitely heard the argu-ment that there is an issue that you’ve got to be very careful as to who’s doing what and making sure things don’t fall through

the cracks. I think there’s a view it increases cost, having two firms doing one audit and another view is joint audits have not been forbidden here and yet hardly anybody actu-ally does them, so that must say something in itself; that there’s always been a possibility to have a joint audit, but why if it’s so good don’t more people do it?

Andrew Nicholl: I’m showing my age, but I can remember when I started in the pro-fession joint audits were not uncommon in the UK. That’s going back to the late ‘70s/early ‘80s. I worked on a job where we were working with one of the Big Four and some-thing quite large nearly did fall down the crack.

It was very reliant on the top end view to notice that having sliced and diced the finan-cial statements, and the two firms doing the segments, something new arising didn’t fit into any of the allocated categories and near-ly didn’t get audited. But I’ve also worked on joint audits where I think they did improve quality, which was actually fielding mixed teams from the two firms.

So, an audit was tackled by staff from both firms rather than putting rigid walls round. I think slicing and dicing the financials poses significant risks to quality; mixed teams from both firms, I think, has the potential to increase quality and transfer of expertise.

Both carry liability issues. The liability environment was very different in the late ‘70s/early ‘80s in the UK and I don’t think the implications of professional liability in this context are actually being explored well.

David Isherwood: I think it’s more about application. There are a lot of intelligent peo-ple in the profession and we have the ability to conduct something like a joint audit in an efficient and cost-effective manner or an inef-ficient, expensive manner.

We have the ability of culture one which adds to the quality and one which actually detracts from the quality. It’s up to the profes-sion to refine that and define what we’re able to do.

But one thing I do think, we too are slightly disappointed with the way they watered down the joint audits in the papers that came out of the proposals, because I think we could really think about the choice issue, and to really try to give people choice in the upper market.

You’re going to really need an incentive to get another player into the market and joint audit would seem to be the way, but the bal-ance of the market needs us to do more and might be an extension of rotation times with balance and regulation identified. Somewhere in there is an incentive to actually bring anoth-er player into the top end of the market. Up for discussion: Deloitte UK’s Tracy Gordon and Sue Almond of ACCA



Arvind Hickman: what are your thoughts, sue? obviously with your previous roles you have been inspecting the quality of those around the audits. How do you think this will work practically?

Sue Almond: If I come to it from the ACCA’s perspective, I think David raises a really important point, that this has been described as being a measure to improve quality. I’m not sure there’s evidence as to whether it improves quality or how it can impact qual-ity. I guess our frustration is the joint audit, and other suggestions, are not based on evi-dence.

When we hold investor forums and things like that, there really isn’t much appetite from investors for joint audits. They actually take quality as a given from whichever audit firm it is, and so there’s clearly not a demand from that end.

If, as Andrew and David would suggest, joint audit is a way of invigorating the market, then that’s a completely different proposition and it should be presented as such rather than being presented as a quality measure.

I think from a practical point of view, there hasn’t been a lot of work done into how these things operate effectively. I think there are a whole range of different models you could put and there’s been an awful lot of focus on just one very narrow definition of joint audit.

When you get into the other arrangements, it would be really interesting to actually explore how some of these things work in practice at the detail level and professionally we can get on and make these things work.

Arvind Hickman: Is it the general consensus that not enough groundwork was done on that particular proposal to begin with to produce something that covered all these bases? the definition you see for the joint audit is quite narrow and there are many different variations. do you think that perhaps if they’d thought it through more thoroughly then it would still be on the table?

Patrick de Cambourg: I think that it’s still on the table. It would be wise to consider it and explore it further. With regards to the costs we communicated, we did of course get deeply involved.

We have conducted a survey on a number of key clients for us which we have shared with some of the firms around the table, where we perceived the cost is extremely acceptable if you compare to mandatory rotation or to other means to protect independence or to improve quality. So we’re talking about less than 5%. That’s our vision demonstrated on cases between a Big Four firm and ourselves in any case. As regards to cracks, as David said, you know you are not obliged to be stupid; in other words, you can structure an audit.

If you’re a good professional, you can structure an audit properly and even if you split the sections, the global conclusion has to be conducted jointly. And there needs to be a cost review. Turning to technicalities, but it’s important – I need to ask whether it’s well organised.

Ed Nusbaum: I think that’s the problem Patrick its not well organised.

Arvind Hickman: Moving on to the restriction on non-audit services. Perhaps you can share a few insights on which services in particular Barnier is referring to and then your thoughts about what would be the sensible restrictions or not?

David Isherwood: I think it’s too general. It means related audit services and the reason why they’re consultancy and the ones they share audit data on. He hasn’t bothered separating the two, giving 10% on the audit related and then another amount on the other ones.

I guess our thoughts are the restriction of non-audit services is a threat to your inde-pendence that is well recognised by the IFAC Code which all the firms at the table signed up to. And the IFAC Code laid the founda-tion to actually protecting auditor independ-ence. My view is that such a blunt instrument as banning all non-audit services is probably not the right time to serve the company, the investor or the auditor. It’s too blunt, and it might not always result in independence.

Arvind Hickman: does anyone else have any views on non-audit services?

Ed Nusbaum: I think the 10% limit on audit-related services is totally inappropriate. The

Point of view: Paul Ginman, Baker Tilly International COO and technical director

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Non-audit services

Audit firms will be prohibited from pro-viding some non-audit services to their audit clients if non-audit fees exceed 10% of audit fees.

Large audit firms will be obliged to separate audit activities from non-audit activities in order to avoid all risks of conflict of interest, thus creating audit-only firms.

Banned non-audit services include bookkeeping and preparing accounting records and financial statements, inter-nal control or risk management services, valuation services and providing fairness opinions, actuarial and legal services, implementing IT systems, internal audit services for audit clients and broker/deal-er/investment adviser services. <

February 2012 y 11



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audit-related services that we view in the proposals particularly for a listed company, could easily amount to double or triple or quadruple of that restriction.

Arvind Hickman: which services are you alluding to?

Ed Nusbaum: Anything related to the audit; particularly things related to the comfort levers.

Tracy Gordon: The interim review.

Ed Nusbaum: The interim review, exactly, could easily beat that 10%. If you’re going to do an audit, you want to do more with that interim review, not less and you want to move toward the audit.

The last thing you want is to spend less time on the interim review and then find the problem at the end of the year. That would be a disaster for the company and a disaster for the auditors.

Patrick de Cambourg: Transparency on those services is the way forward, if you disclose very precisely first of all to the governance of the company and then to the public what is being done, precisely, and without being hypocritical in the description of what you do.

Ed Nusbaum: I think the restriction at 10% is really primarily because people are under-informed.

David Isherwood: If you look at the figures in the UK and if you look back to the year 2000 when ratios of credit, the top compa-nies we’re talking about, to the ratio of their audit fees and to their non-audit fees was actually quite high, it was several multiples.

If you look at those figures now globally they are less than what was the norm. So

clearly I think the independence rules and principles of the past few years have sig-nificantly impacted the ethical standards of this country and the ethical practices world-wide.

The fact we are rebalancing all the accept-able amounts of non-audit services, but to put a complete ban on them would push it towards the other end of the spectrum, which is just not appropriate.

Sue Almond: I think this is another place where audit committee rules come into play as well because that’s their role. Part of that is to challenge whether this is the right pro-vision, and the auditors are likely to do it. I think that is a more appropriate mechanism than an arbitrary percentage.

Ed Nusbaum: It is a different system… there is a provision there. Somebody earlier in the session said how complicated the rules are and this is one area where I’ve read it a cou-ple of times and then had some experts read it and I still don’t understand it.

So, for example, there’s a restriction on due diligence for mergers that says you have to get the approval of the regulators.

I have no clue what that means, it’s like I’m starting anew. It’s what that means and how it will work in practice. So, the point I think, whatever they do, it would be really nice for it to be simplified and clear so there’s not all that debate as to what’s allowed and what’s not allowed. I do think, though, that as a profession, restriction on some of our non-audit services – we already have some in the IFAC Code – is not a bad thing.

It does help improve objectivity, I think it sends the right message to the marketplace, and I don’t think we as a profession should be afraid of some restrictions on non-audit services. Yes, we will lose some work for our listed clients, but presumably we’ll pick up work from other clients.

I think it sends the right message to the marketplace. Whatever the relationship is between audit and non-audit fees, I don’t think that’s really the critical issue; it’s really about the perception of our independence and you’re going to have to have rules to judge that.

There’s some advantage of banning some other services. I personally would support it, simply because it sends the right message about the profession to investors; that we are objective, we’re not trying to do an audit just so that we can do additional consulting work. We do an audit because the audit’s important; we value the importance of the audit.

Arvind Hickman: nick, would you query ed’s assessment that he would support some restrictions in the sense of improving the independence of the sector?

Nick Tomkins, HLB International, qual-ity assurance manager: Yes, I think I would because I think it’s more a perception. In Europe, it’s a heavily regulated environment and when I read reports I don’t see lack of independence coming out as a major issue from regulators.

Audit firms that are members of the Forum of Firms all follow the IFAC Code of Eth-ics and have strong safeguards in place. I think independence safeguards are work-ing in practice, but it’s the public perception of independence that’s critical here. And to some extent I would support Ed in saying that perhaps restricting some more non-audit services, if that helps with public perception and the public confidence in audit, would be a good thing.

It just needs to be carefully balanced in terms of the things that it really makes sense for the auditors and no-one else to do, like interim reviews and so on; we don’t want to restrict those. So, yes I would support some

From left: EGIAN’s Andrew Nicholl, David Isherwood of BDO, Grant Thornton’s Ed Nusbaum and James Mendelssohn of MSI



restrictions to enhance public confidence on large PIEs.

Arvind Hickman: Paul, what’s your knowledge of the new independence requirements and how they vary across europe? the UK is well known for its independence. I’m just wondering if that’s the case in other countries and whether there is actually a sense of having a hard-line system.

Paul Ginman, Baker Tilly International, chief operating officer and technical director: All EU countries have an independence code. They differ from those countries that have taken the IFAC Code as it stands, to others such as the UK which has its own code, and which in some ways is tougher and more restrictive.

The French code, again, is different; it’s much tougher on non-audit services. So there are differences and I think that level playing field hasn’t sufficiently been addressed in the proposals as they stand, which gives rise to some difficulties.

I believe it would be better if the propos-als were clearer on what is meant by related and truly non-related audit services so there is a clear position that everybody can under-stand rather than these artificial boundaries that have been set.

I can only echo this concern about the 10% for related audit services: it’s nonsensi-cal. You would have auditors having to give up parts of what are clearly integral to the audit, such as the interim review. Are they seriously saying you have to get a separate firm to come and do the interim review? That may be good for opening up the market, but really not commercially logical.

John Capper: The other thing not to lose sight over is when you ask about other countries is that there are 24 networks in the world that have adopted the IFAC International Code

of Ethics. The mid-tier and the Big Four all follow the same independence rules.

We do not want change just in Europe. Europe adopts and seeks to influence the global standards if they feel that they need to be change. For most of us, it makes it more difficult having a different set of regulations in Europe than we are using in the rest of the world. So everyone around the table follows the same sets of independence rules already.

Arvind Hickman: It’s an interesting point you raised and one I’ve discussed with a few other global leaders. In terms of global harmonisation across the world, you’ve got europe coming out with these proposals – some of them quite radical – and you might have china or Australia or other countries having completely different proposals. this must prove to be a headache for global networks and associations. How do you get around that?

Ed Nusbaum: Life would be beautiful if there was a global audit regulator, but there isn’t. We would love to have a global audit regulator to standardise rules around the world; but that doesn’t exist. We have the Sarbanes-Oxley Act (SOX) in the US that already puts restrictions on non-audit serv-ices, and additional services far beyond the standard you’re talking about.

We deal with them – it’s a pretty tough, but we deal with it. And if you have a US-based client, you have to adhere to those SOX rules throughout the world.

When SOX was adopted, I recall hav-ing discussions with people throughout the world about how it hit their companies and subsidiaries throughout the world; there’s nothing we can do about that. And then China imposes different regulations; India has proposals; other countries have different regulation and we deal with that now.

In Italy you’ve got very different rules on

the separation of audit and tax. If we’re hop-ing for a global set of standards, that would be nice but I don’t see that happening any time too soon. Europe working together actually makes it, from that perspective, a lot easier than having separate rules in each member state.

Patrick de Cambourg: First of all, that’s one of the points in the proposal, promoting the EU domestic market, with harmonised rules… in the minimum standard approach is excellent. The second point is where we struggle, when you want to apply in Europe the US rules or in the US the French rules, because our professionals are in China.

I think if the regulators were able to say people have to comply with the rules of the polls – European poll, American poll, Chi-nese poll and not bother to have a global approach for a global business, it would sim-plify a little bit.

Andrew Nicholl: The factor that has impeded the mid-tier to the greatest extent is that there is not a best single infrastructure that applies worldwide for regulation and rules. That possibly could offer the greatest incentive for the mid-tier to get more involved in the mar-ket – if there was greater consistency.

Arvind Hickman: so the cost of verdict is what you believe to be the biggest barrier?

Andrew Nicholl: It gives you economies of scale. You’ve only got the (resource develop-ment) cost once and you can spread it over your entire organisation, which makes it much more attractive to make the greater investment that’s needed for more participa-tion with public interest entities, etc.

Arvind Hickman: we’ve already heard quite a few with the view that audit only firms aren’t the greatest proposal that’s ever graced the

From left: John Capper of RSM, Kreston’s Jon Lisby, Crowe Horwath’s Nigel Bostock, and Nick Tomkins of HLB International

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accounting industry. I’m interested because obviously if audit only becomes a reality, and it’s generally aimed at the larger firms like the deloitte’s, it would threaten the business model of the professional services code. tracy, what are your thoughts about the proposal and how would you manage if something like this did come into play?

Tracy Gordon: Operating as a single pro-fessional services firm gives us the ability to bring a range of different skills and experi-ence to our clients, as well as better training and experience for our people, particularly graduates. Audit quality would suffer if spe-cialist expertise was unable to contribute to complex audits, and audit firms’ ability to hire and retain high quality people would be adversely affected.

Patrick de Cambourg: So you’re at the threshold?

Tracy Gordon: It’s a national threshold for the one third of audit revenues.

Arvind Hickman: Is that right?

Sue Almond: That’s what was said, yes.

Tracy Gordon: That is true, if one firm in the network goes over the one third limit (on a national basis) then that precludes the whole network from performing non-audit services. But if that part of the network was to exit the network then the rest of it would be alright [and would be able to carry on].

Ed Nusbaum: It’s a pretty big difference. But I think it’s safe to say, although obviously the impact hurts a part of the profession, it creates havoc, it makes it more difficult to recruit people, quality of service, the clients … it really hurts the needs of the smaller cli-ents, because it’s not just listed companies,

there are private companies and those com-panies the smaller can’t afford, and it really creates a lot of damage to the profession, but also to the needs of companies.

Arvind Hickman: do you think there is any case for audit only firms?

Jon Lisby: We can’t see any sense in audit only firms and believe it would be likely to cause significant problems. One issue would be where the brightest brains might ema-nate; it is not difficult to imagine whether the brightest brains would go to an audit firm or to a non-audit firm. We suspect they might go to the non-audit firm, so it would seem unlikely such a proposal would increase audit quality. We see this as being a poten-tially disastrous move.

John Capper: I think the difficulty is that it’s hard for the profession to be seen to be argu-ing in favour of its existing business model when the regulators strongly believe that it operates against the public interest.

Ed Nusbaum: It restricts the business model, but I think it goes deeper than that. It is a problem because you can’t attract the best people, it’ll hurt quality, and if it’s bad for the company, it’s bad for the market. It does hurt the business model, but I think it also hurts the quality of the audit and it has a nega-tive impact on corporate governance in the company.

Sue Almond: I think somebody said earlier it’s about the people. Audit quality is about people in their work; and if you have people who are growing up in a narrow silo, then they’re not going to have the kind of broad, questioning, sceptical attitude about the whole range of business activities that they would do if they’d come through a broader-based profession.

David Isherwood: And that’s probably not just the accounting profession. I think in the UK the accounting profession is one of the larger employers of undergraduates, and so if you consider the impact on that body of people, if it’s fundamentally changing that layer under the new auditor then that needs thinking through.

Arvind Hickman: do you think by its very nature it might also change the role of the auditor? Because if you have sole audit firms, their function might be slightly more targeted towards people in that broader revenue inspection role rather than what they currently do.

Sue Almond: I’m not convinced. I think the danger is they become too narrow and you lose some of that broader vision you get through being in a multi-disciplinary practice.

David Isherwood: And I think we need to look fairly hard to find a role that the auditor can take on and where the auditor’s going to be 10 years from now, 20 years from now. I think that question is a whole bigger question which deserves merit in its own right. It’s not just a by-product of some audit-only firm.

Patrick de Cambourg: You’re unable to deliver a proper audit if you don’t have the tax specialists. I’m not talking about the guys who are ticking the boxes and returns, I’m talking about the guys that have the advisory mentality, that can understand what’s wrong, what’s right; without actuaries, without com-puter specialists, IT specialists.

Also, can you audit a bank without hav-ing the specialists for the very sophisticated markets? I doubt any firm here would be in a position to maintain teams in these areas and specialism’s without these people being able to nurture specialism outside the audit field. Maybe you can go to outside subcontrac-

From left: Patrick de Cambourg of Mazars, Baker Tilly’s Paul Ginman, Sue Almond of ACCA and Deloitte UK’s Tracy Gordon



tors, but that’s not the right solution I think in terms of responsibility.

Nigel Bostock: I would agree exactly with Patrick’s point. One of the biggest challeng-es in the audit profession at the moment in implementing the regulations is the need for us to exercise more scepticism. It’s not always easy to demonstrate how you do that but a lot of audit focus is around estimates and judgments.

Going forward there’s probably a greater need for the profession and audit firms to have an even wider breadth of skills and expertise that they can draw upon. And actu-ally, it breeds skills, experience, sharing and knowledge, but most importantly, the profes-sion is an extremely huge breeding ground for a lot of financial directors and business leaders of the future.

It doesn’t just stop at the profession, but actually gives breadth of experience which people then take on beyond the profession into industry. All that side of the model in terms of how the profession works is not broken, but there is a risk from these regula-tions that there could be an unintended con-sequence.

Patrick de Cambourg: You need a highly sophisticated and more complex environ-ment.

Arvind Hickman: Moving onto re-tendering; do you support the concept?

James Mendelssohn: I think the answer to the question is yes but with a very big “but”. I think Ed used the expression “there is no silver bullet”, and that’s absolutely the case. I think re-tendering is a good idea but the whole process has to be transparent. For example, the new rules might, in certain cir-cumstances, require re-tenders to involve a non-Big Four firm.

If there is a re-tender involving a non-Big Four firm, we need to see the tenders, the pub-lic needs to see the tenders and then the deci-sion needs to be based on objective criteria.

If the most competitively priced bid hap-pens to come from a non-Big Four firm and the client decides not to go for that bid, then stakeholders need to know why. There needs to be that really sceptical, enquiring mind as to why that should happen.

So I think the answer is undoubtedly yes. But the whole process has to change; there is not a single panacea. The best change hap-pens through managed evolution. We need a combination of regulation, transparency and good strong corporate governance.

We need to anticipate where the profession should be in five years time and work care-

fully to achieve that because the best change happens by a series of smaller steps than one giant leap.

Arvind Hickman: what about in terms of the costs of re-tendering and how that might actually affect various firms? tracy, what’s your experience of the re-tendering cost process and do you believe there’s a need to improve the transparency and invite new entrants to the table?

Tracy Gordon: I think we do invest a lot in the tendering process and if you have to re-tender at regular intervals, clearly that’s going to increase costs. If we were doing it so more often we’d get more efficient at it, but you’ve still got to put a huge amount of investment into getting to know the company you’re ten-dering for if you’re new to the client.

It is hugely expensive to invest real time and do the job properly. In terms of trans-parency, yes, I agree the audit committee’s decision at the end of the day should be very transparent and explained and followed up by real challenge from the shareholders.

James Mendelssohn: We have to get away from this market concentration and there’s got to be sufficient transparency to encour-age the mid-tier to really invest in the tender-ing process; because it’s a huge investment.

Clearly, there’s no obligation to tender whether you’re Big Four or whether you’re not and to a certain extent that will open up the market as well because there will be a time when firms say “No, we don’t want to tender” due to potential conflicts, or just because of the time and resource.

I think the worry for the mid-tier is there is a significant cost to tendering and the whole process can become a cosy club if either the client decides to use the process as a way of reducing the price with the incumbent audi-tor, or indeed the tendering process becomes something of a cartel with audits simply mov-ing from one of the Big Four to another.

This is why I think we need a combina-tion of regulation and transparency. We need there to be regulation requiring the inclusion

of non-Big Four firms in certain (but not all) audit tenders and we need there to be trans-parency in the review of the tendering proc-ess.

Ed Nusbaum: It’s not so much the proposal but what people think it is. The interesting part of the proposals is that the shareholders actually vote between the two recommenda-tions and management.

It’s totally new to the whole auditor selec-tion process and nobody knows how it is going to pan out. I don’t know what the ramifications of that are, but I’m fascinated that some of the shareholders should actually vote between two firms.

It does somehow feel that we’re in for a mixture of challenges, certainly we’ll have to make sure the shareholders will be put first and make sure management wants to be rec-ommending, but also gets votes.

Arvind Hickman: one of my questions was whether you thought that if it’s mandatory re-tendering every X amount of years then the system becomes open to abuse and clients will obviously want lower prices and lower fees, etc?

Patrick de Cambourg: But in fact, today, if you’re on an annual appointment basis, you are threatened as well, if I may. And on the

4

“clearly the perception is it’s just the wrong thing to do. It will be interesting if this were to come through”EdNusbaum,GrantThornton(onbanningBigFour-onlyclauses)

n ec AUdIt reForM ProPosALs

Mandatory retenderingPublic-interest entities will be obliged to have an open and transparent tender pro-cedure when selecting a new auditor. The audit committee (of the audited entity) should be closely involved in the selec-tion procedure.

EC said the audited entity will be free to invite any statutory auditors or audit firms to submit proposals for the provision of the statutory audit serv-ice on the condition that at least one of the invited auditors or firms is not one who received more than 15% of the total audit fees from large public-interest entities in the member state concerned.

EU audit passportThe Commission proposes the creation of a single market for statutory audits by introducing a European passport for the audit profession. To this end, the com-mission proposals will allow audit firms to provide services across the EU. <

February 2012 y 15



4

cost side, also, if you increase the shareholder rotation aspect, it’s an investment on how many years you can or cannot advertise it from a pure evaluation aspect. So it has to be an investment and a return.

John Capper: One of the things that I’m not sure has been thought through in the propos-als are some of the lengths of periods. For example, if it was a nine year appointment because you’ve got the joint audit taking place in your group and the partner has to rotate after seven years, that’s very odd for the new partner to only be in place for two years.

The reality for the proposed tendering is it will be done at the mandatory rotation period at six years. If the various proposed periods fitted together better there maybe tendering each five years and rotation after ten years, which could give scope for a 15 or 20 year extended mandatory rotation if the large PIE has got the incentives in place for opening up the market.

Partner rotation within the firm can then be factored in as well. If there were 15 or 20 years on mandatory rotation, then you do need one or two partner rotations sometime within that period to follow the global standard.

Arvind Hickman: Going back to the period of partner rotation to re-tendering rotation is there a perfect amount of time do you think?

John Capper: I just don’t think it’s sensible to have the short period currently proposed. It might be easier to have two more equal periods of partner involvement rather than having seven and a two.

Andrew Nicholl: I think there’s another issue for all firms – potentially becoming extreme for the mid-tier – if you’re successful at get-ting a substantial number of listed clients… because of the concentration of timing of work on those particular clients, you’ll be faced with having to staff up to deal with that, and then trying to work out what you are going to do with those staff members when there isn’t the demand for listed com-pany work.

The majority of listed entities tend to have December year ends, certainly in the UK. That drives when the audit work is being done and where the audit effort is being done and then potentially you’re going to have under-utilised staff at other times of the year.

Paul Ginman: There is no perfect period for rotation. It is easy to agree at either extreme of a short or long period but beyond that there is no consensus. However, if there is an increase in the restrictions on the provision of non-audit services, it will be harder to find firms in a position to tender.

Patrick de Cambourg: Except that the serv-ices will go elsewhere, as Ed was mentioning. It might be then the rotation of non-audit services.

David Isherwood: This becomes a particular problem with training your junior staff. It is not politically correct. It’s not the partners, the senior managers who there’s always a shortage of; it’s the people you’re trying to train where they’ll be quite difficult to deploy.

Arvind Hickman: the eU audit passport proposal seems to be a sensible proposal in theory, but in practice how can it become applied across so many countries with different jurisdictions?

Paul Ginman: The concept of a passport seems to assume that, in general, countries are homogenous and you can walk into any other European country and do an audit in exactly the same way and understand the business structures and the regulations of the enterprise as if you were doing an audit in your home country.

Audit firms can operate across the EU by simply notifying the local authorities, but only on a so called temporary or occasional basis. If they want to establish a permanent presence an aptitude test will still be required.

I’m not sure what this means with the pro-posals as they’re written. To make it work properly across Europe you need a lot more consistency. For example, compliance with tax law is an important part of auditing and yet even with the directives we have, there’s so much difference from country to country.

How are we going to be able to audit that without sufficient expertise in those local rules? I think it’s just a bit naïve to say you can walk into another country and sign an audit. Yes you may go in and say “Well, I’m the partner, I can rely on a local team” but does this manage the risk?

Patrick de Cambourg: Maybe there is a need for fine tuning, but nevertheless, it’s a very good move.

David Isherwood: I think the aspiration is a good thing that Europe aims for being able to audit a European company.

I think there have got to be checks, bal-ances and procedures to maintain audit qual-ity and I don’t think anyone around this table yet knows enough about it, or have thought enough about it to know whether that’s actu-ally doable or not. But you’ve got to applaud the aspiration.


Banning ‘Big Four-only’ clauses

The EC said that in order to facilitate an objective choice of an audit provider, con-tractual clauses limiting audit firm choice should be prohibited, the transparency on audit quality and on audit firms should be increased and an audit quality certifi-cation should be established. <

Weighing up the pros and cons: EGIAN secretary Andrew Nicholl


16 y February 2012



John Capper: The only thing I’d add to that is in some of the discussions leading up to the proposals, it was said this provision would enable a small audit firm to go and do audits anywhere in Europe. And I think it’s probably much more likely to be the opposite; that the larger firms are going to find that much eas-ier to use an EU passport. I don’t even know whether it benefits the mid-tier at all.

But to me, I don’t understand the attempt to involve very small audit practitioners in the PIE market. It was the same with joint audit, there was the idea that you could have a very small audit practitioner who could be the joint auditor of some of the largest listed PIEs in Europe and that’s just nonsense.

Arvind Hickman: In terms of the audit report proposal, I’m a little bit unclear about how it will work and how people like Barnier are to determine what should be in an audit report. sue, can you shed some light?

Sue Almond: I guess there are some sensible things underpinning some of the objectives; there is obviously a need for auditors to say more about what they do, etc.

We touched earlier on whether legislation is the right place for certain things and I think this is very much an area where the format of the audit report just shouldn’t be written into law, particularly if you’re taking selected highlights from standards and dropping it in bits of legislation.

I think the very strong preference would be to take an awful lot of that detail away, pref-erably to leave it to the International Audit-ing and Assurance Standards Board to set the standards for audit reports globally, to have a broader debate with people like investors to really understand what it is that’s wanted out of the content of the audit report.

It seems to me that there are one or two things that are trying to address some of the things investors say about understanding risks and things, but they’re not captured correctly.

They’re talking about audit risks; they’re not talking about risks to the business. Then there are other things, I’ve no idea where the call came from to have the names of the audit team in the audit report or whatever and I’m not sure what it gains because you’re pro-viding quantity not quality of information to people.

Arvind Hickman: there’s a limit to the word count?

Sue Almond: Yes, 10,000 words.

Arvind Hickman: do you agree with the underlying idea the report in the current form

is insufficient and doesn’t provide enough quality information for investors to make an informed decision?

Sue Almond: I think there’s an awful lot coming through from a lot of different par-ties about the fact the audit report needs to be more descriptive about what’s gone on in the company in the audit, and that you shouldn’t be able to sit there with a series of audit reports and not be able to tell which business they came out of. So yes, I think there’s definitely scope for improvement.

Patrick de Cambourg: John mentioned that we are moving into an area, into a world where judgment is very important and more important every day. So, I think that some-how the reporting should convey the sub-stance, the judgment of areas addressed, and how they’ve been addressed.

That’s a very general statement, but I think at the moment, I don’t know if that happens in the UK, in France we read our reports in general meetings… We moved in a number of instances where we decided to say we don’t read it, we’re going to summarise, which is a bit dangerous.

But in order to create the bond between the shareholders and the audit, because if you don’t do that then it becomes a formal exer-cise and if we have a formal exercise, then the cost is going to keep on going up.

Arvind Hickman: Moving on to banning restriction on covenants or the Big Four clause as it’s sometimes known – do you think

banning these or outlawing them in contracts or in other ways is actually going to have a material effect, or do you think it’s more of a perception thing? For example, I could write something down in a contract, but that’s not necessarily going to mean it’s my behaviour; there might be other ways for banks to get the message across.

Ed Nusbaum: Well, I think it’s real. We cer-tainly have experience of situations where banks have put these clauses in and we have lost an audit as a result of that. We actually had some success in convincing banks to list Grant Thornton as one of the firms they’re required to use. So I guess there’s success with it as well. But clearly, the perception is it’s just the wrong thing to do. It will be inter-esting if this were to come through.

Tracy Gordon: We support getting rid of it.

Arvind Hickman: do you think it will stop that type of behaviour from happening?

Ed Nusbaum: In itself, it’s not going to change concentration, but I think there are situations – very few situations – where we from the auditor company respond and finance with some of our bank clients and one of the bankers has inserted this clause and then we have to get rid of the audit. I don’t think the banker even gave it any thought. That day we withdrew millions of dollars worth of work.

So I suspect in the mind… nobody even gave it any thought; it was a matter of put this clause in, and somebody discovers that six months or a year later all of a sudden you have to switch auditors.

It is a very real problem. I don’t think it will totally change the profession in any shape or form, but it will certainly positively impact it… I think from a profession stand-point and a perception standpoint the banks are not pushing any mid-tier audit firm and the regulators are supporting this and it is supported by all the Big Four firms.

Sue Almond: I think this is one of the areas where certainly we’re going to be pushing for the drafting to be improved, because there is a real disconnect between what’s said in the explanation – which says they’re prohib-ited, which is what you just said – versus the actual draft legislation, which talks about it being null and void, which means you can have it.

You can quite imagine a small business who has just gone through months of pain in getting financing, then seeing a clause that says you’ve got to have this firm as auditor. It’s going to take an awful lot of, firstly, legal

4

“…the danger is they become too narrow and you lose some of that broader vision you get through being in a multi-disciplinary practice” SueAlmond,ACCA(onaudit-onlyfirms)

February 2012 y 17



4

knowledge and secondly, gumption to get up and challenge that. So I think there’s still a way to go in terms of making the drafting effective, but it’s certainly the right way to go.

John Capper: The only thing I would add, is it’s not just in loan arrangements. These conversations take place when people go to float on the public stock markets as well even though the provisions may not end up in the final legal documentation. It can be at the time of the early conversation when the auditors are chosen, and then once they’re in place that it’s gone from the legal documents.

So, it’s across a range of contractual arrange-ments or circumstances where you would not want there to be restrictive arrangements in place.

Nigel Bostock: I was going to say probably from the mid-tier perspective as it will cor-rectly create greater choice. Such clauses are uncompetitive and don’t need to be there because the Big Four should be engaged, where appropriate, based on their skills and capabilities relative to the circumstances and on merit but not because a clause indicates the business cannot select any other firm. How-ever, I don’t think you should just look at the Big Four clause in isolation.

When you consider this together with the prohibition on non-audit services it starts to lead to a measure of balanced reforms, which encourage audit committees and management to actually look beyond a smaller number of larger firms for the provision of various serv-ices.

Not just audit, which actually allows mid-

tier firms to demonstrate their capabilities in certain areas.

This should further lead to increased demand for various services from mid-tier firms and increased competition as it widens the horizon of firms considered by businesses and institutional buyers, not just for audit but for all services.

Arvind Hickman: Are there any other proposals, good or bad, that anyone would like to comment on?

Sue Almond: I think there are some issues in the regulatory area, the regulation not just of public interest audit firms but for all audit firms that are removing a lot of the powers of the public interest regulator, which cer-tainly is quite contrary to what people like the Financial Reporting Council in the UK are looking to do. And I’m not sure it’s going to enhance the quality of the regulation.

Arvind Hickman: My final questions are where to from here? And what does the future hold? obviously there’s a lot of lobbying going on from various different sources. we’ve got to a stage now where the proposals are part of this and there will be a lot of lobbying going on to various politicians in europe. what are your thoughts on what will happen from here: what the different networks are doing, what predictions do you have at this stage, how optimistic are you of seeing regulations that you would be happy with?

Andrew Nicholl: That’s a really big question. I think at the moment the lobbying, etc, has delivered some benefits to the mid-tier by the fact we now have greater visibility. Although it’s been interesting there’s been some feed-back, from the politicians, as to why the mid-tier can’t speak with one voice like the Big Four do. So it almost seems quite per-verse they don’t like having a monolithic Big Four there, but they want the mid-tier to be equally monolithic.

I think they need to get their minds round that and make us even more accepting that the mid-tier will have different views on dif-ferent aspects.

There may be some items in the propos-als where we all agree and then there will be others where we have, for hopefully good commercial reasons, slightly different views. We’re going to see some very active lobbying in the near term.

The mid-tier has been picked out as being the second half – they all say that it’s a game of two halves. I think that will be to deal with some of the more political issues, the propos-als to re-instate joint audit has been talked about, but also hopefully to try and get some

more input into the practicalities of how it’s intended to work.

Get the wording cleaned up so it becomes much clearer and dealing with issues like the different year limits which doesn’t work. It’s fairly apparent the drafting has been done by different teams and it’s not joined up.

A number of those aspects need to be done. Hopefully we’ll manage to achieve that because maybe we’ll be seen as being less politically motivated than the Big Four; maybe our input will be more accepted. At EGIAN we will be getting together next month – people who are involved in the audit side of life more – to discuss some of the aspects and we will be doing our best.

Arvind Hickman: why doesn’t the mid-tier get together like the Big Four does? wouldn’t that be more effective than having many different voices?

Andrew Nicholl: The mid-tier is made up of networks of independent firms. You have issues where component firms may have a dif-ferent commercial attitude. My network has a few component firms within it who will not do listed company work because they don’t like the costs of the risk profile of listed company work; the exposure to vicarious liability.

So, people make commercial decisions. Now that can have an effect on your global reach. Talking to my equivalents at some of the other networks, most of those have got individual component firms that have differ-ent attitudes and it’s quite difficult to impose a single commercial model.

Ana Gyorkos, reporter, ‘The Accountant’

Arvind Hickman, editor of ‘International Accounting Bulletin’

18 y February 2012



This may be an indication of, possibly, the different brand strength, who knows. But the reality is that not every firm within each of their networks conforms to a single template and as a consequence, they have their own rules – even leaving aside translation differ-ences.

Arvind Hickman: Has anyone got any thoughts about that?

Ed Nusbaum: I think how many firms here at the meeting, but at least there is a voice push-ing through that organisation, but we have 21 firms. It’s much harder to get 20 foreign firms to agree on anything, or a small number.

I think there are a lot of common themes and comments coming around, but I don’t think that’s really an issue. I do think we’ll see some positive change.

We’re already seeing the benefits, just the higher visibility provides some positive change if nothing else; the beginning or the eleva-tion of the covenants. And I think there’ll be other things in here that some of us and some around this table won’t like. But all in all, the process is an open process.

Somebody earlier said quality of life has been changed through market forces. In this situation, market forces are unknown and additional regulation is needed. I’m optimis-tic, although I am concerned about the confu-sion with some of the wording and making sure that the time laws and rules are easy to understand.

Arvind Hickman: tracy, what are your thoughts on what happens next re the ec Green Paper?

Tracy Gordon: Well, I just think there’s such a huge way to go yet. We’re trying in terms of the lobbying, we have to be thinking ahead to the next Presidency even, and the changes that that might bring about. I think at the moment the lobbying has to focus at high level issues, and when we possibly get fur-ther on where those are going, that’s when we have to get into the detail.

There’s so much detail that needs serious adjustment, because of phrasing, the words that are used, the unintended consequences of putting it in the regulation as opposed to a directive. There’s just such a long way to go.

Arvind Hickman: does anyone else have any thoughts about where this debate will head?

Patrick de Cambourg: I don’t know where it will be heading, but I think it would be in the interest of the profession, the covenants, the largest ones, the mid-size ones, not to shoot at the wrong target again. Sorry to say that,

but I think a rebalanced package would be in the interest of all players.

That may be a wish rather than a feeling about where it should be going, or where it should be going rather than where it will be heading; that I don’t know. And the public interest has to be taken into account as well, because we are not the only ones to decide.

Jon Lisby: There would appear to be a real-istic chance that Europe with so much hap-pening at present, chooses to put all of these proposals on the back burner and defer any decisions at this stage.

Patrick de Cambourg: I don’t think so.

Sue Almond: I think something we need to be very conscious of is this is an enormous

package of measures, and we’ve spent the vast majority of today really only talking about three or four articles out of a big pack-age. I think the thing we all need to watch as a profession is that things don’t get sneaked through because attention has been diverted onto market structure things; there are much bigger things in there as well that need to be concentrated on.

Andrew Nicholl: I’ve got a hope for the future. One of the big influences on the market is if you want change, it’s the consumer of the goods or the services – here the audit services – that causes change to happen. And I think if the focus was moved more towards corporate governance, corporate code and moving the consumer – the demand side – of the equation of this, it would work far better. <

4

A European Commissioners (EC) response to a House of Lords (HoL) committee inquest on audit reform proposals has been met with scepticism.

Lord Lawson told International Account-ing Bulletin certain EC proposals being defended by EC internal markets director general Jonathan Faull were “inadequate and present severe weaknesses”.

The HoL committee was questioning Faull over the EC audit reform proposals in a follow up to its own report on the state of affairs in the UK audit market, which is cur-rently being investigated by the UK Compe-tition Commission.

When asked by the Lords whether he expected any or all of the proposals to improve mid-market, market share, Faull responded saying he hoped once it becomes legislation then it will.

“The proposals such as mandatory ten-dering and rotation, etc, all point in that direction and would enable that,” Faull said. “What we have tried to do is for small-er firms to get experience of auditing larger companies and we hope the incentives cre-ated will be sufficient. However, it is not our role to change market structure.”

On a number of the more contentious proposals, such as mandatory audit firm rotation every six years, Faull was asked if it could lead to a company taking on less good auditors, in which he replied, he did “not think it would”.

“We think such rotation is necessary due to the oligopoly nature of the market and the negative effect of high concentration on

audit quality,” he explained.On joint audits and why they were

ditched, Faull said the EC took a view that it was “not appropriate to propose it”.

“We have the four-eyes principle and based on the experience of some member states, it showed it might not be appropri-ate. Unsurprisingly, the Big Four did not like it, but we have heard the same from other players as well. The level of support for it at Green Paper stage was very limited,” he explained.

Lawson, a former UK Chancellor, said Faull “did not answer a single question” and was disappointed that the EC propos-als did not contain a statutory obligation for regulators and bank auditors to improve communication lines.

Faull said this was because “we found that the dialogue between auditor and regu-lator should be left to their discretion”.

Lawson’s frosty feedback was shared by Lord Smith of Clifton who said Faull’s answers “are those you would expect from a Eurocrat”.

When asked whether he perceived a con-flict between UK audit market’s needs and the EU proposals, Smith said “at this time, European consensus is difficult to find any-way, because of the eurozone troubles”.

Smith said the eurozone crisis has impact-ed on the audit reform discussion and “audit proposals are being watered down because the EU has now other priorities, although the proposals are linked [to the financial crisis]”.

Sara Perria


UK Lords sceptical over EC’s response on audit proposals

February 2012 y 19

sUrVeY: UnIted stAtes International Accounting Bulletin


As the US moves into an election year, there is much uncertainty over the accounting profession. Severe audit fee pressure a debate over the role

and relevance of the auditor, and a stagnant economy has taken the shine off growth in consulting and tax.

Compared to fiscal 2010, the past year has resulted in an improved performance by most US firms, led by the Big Four, which grew rev-enues by between 6-10%.

A look further down the table shows more firms, networks and associations are growing this year than in fiscal 2010 but there is still an unsettling number who’s revenue has dropped revenue.

While audit struggles under the strain of fee pressure and increased competition, tax practices have done particularly well. There is strong demand for international tax services and compliance advice that help clients adhere to a growing spate of regulation tax agencies are introducing to recover more revenue at a time when it is hard to come by.

An important trend in the US accounting market is consolidation, especially among top 100 firms looking to build capacity in order to cover greater geographical spreads or move upstream to serve larger clientele.

Traditionally, the US profession has been

served by strong regional firms but, increas-ingly, firms are extending operations beyond state borders. The recent union of Clifton Gunderson and LarsonAllen, now a top 10 national firm, is a prime example.

A decision over IFRS adoption, which we were led to believe would occur in 2011, has been shelved for another few months as the Securities and Exchange Commission (SEC) dawdles of what type of convergence/endorse-ment/adoption model is politically most safe. There is support for IFRS from many quar-ters but a division over the right model and timeframe.

The US Public Company Accounting Over-sight Board (PCAOB) has begun to test the water on audit firm rotation and independ-ence, which so far has been met with a frosty reception.

Although 2012 is an election year, which typically means fewer new regulations, the debate on how the accounting and audit pro-fessions should evolve will continue in ear-nest.

Big Four solidDeloitte may have lost its number one glo-bal ranking to PwC but it continues to stand on top of the US podium with fee income of $11.9bn in the year to 31 May 2011. The firm grew revenue by 9% and its headcount by 12% to 51,262.

Deloitte brings in over $3bn more than its nearest rival PwC, which is due to Deloitte’s diversity of service provision. The firm receives $5.7bn (48%) from management consulting and financial advisory services.

From audit, Deloitte generates $3.82bn compared with PwC’s $4.25bn (48%).

PwC posted 10% growth to $8.84bn, Ernst & Young (E&Y) reported 6% growth to $7.5bn and KPMG increased revenue by 10% to $5.36bn.

Driving Big Four growth is the advisory services, which contributes an average of 32% of Big Four revenue (turn to page 20).

A chunk of the growth is by strategic acqui-sitions. PwC acquired global management consulting firm PRTM and the assets of port-folio optimisation solutions firm Folio Tech-nologies. KPMG acquired enterprise systems

consulting services firm Optimum Solutions. E&Y acquired the tax risk and process reengi-neering practice of True Partners Consulting, while Deloitte acquired Intrasphere Technolo-gies, a global drug safety and regulatory con-sulting business.

Although the Big four are cagey about how much revenue these acquisitions bring in, PRTM has 700 consultants, including 124 principals, and two thirds of these are US-based.

Mid-tier firms have found it more challeng-ing to find growth as they rely more upon core service lines, such as audit and tax.

McGladrey & Pullen, the leader of this seg-ment, reported a 1% revenue contraction to $1.37bn.

Strong performances in this year’s report include Morsion International, which grew revenues more than fourfold to $88m due to the addition of Marks Paneth & Shron, a large New York firm. MSI Global Alliance’s US revenue was up 32% and GMN Interna-tional increased 31%.

A network to watch out for is PKF North America, which has posted 7% growth to

Firms fight backThepastfiscalhasprovedchallengingformostUSfirmsbutgrowthhasbeendrivenbyconsolidationandanincreaseintaxandconsultingwork.Economicwoes,feepressureandtheevolvingroleoftheauditorremainachallenge.sara Perriareports

n UnIted stAtes

At a glancerevenueLargest by revenue: Deloitte,$11.9bn

smallest by revenue: EuraAuditInternational,$500,000

Highest growth rate:MorisonInternational,453%

Lowest growth rate: RussellBedfordInternational,-44%

staffLargest workforce: Deloitte,51,262

smallest workforce:EuraAuditInternational,6

Most professionals: Deloitte,38,301

Most partners:Deloitte,2,886

Most admin staff: Deloitte,10,075

Most offices:CroweHorwathInternational,196Source:International Accounting Bulletin

n UnIted stAtes

total revenue vs market growth: 2001-2011

Source: International Accounting Bulletin

0

10

20

30

40

50

60

FY01FY02

FY03FY04

FY05FY07

FY08FY09

FY10FY11

FY06

$bn

-5

0

5

10

15

20%

Total revenue

Market growth

4



sUrVeY: UnIted stAtes

$1.16bn on the back of a 21% increase in fis-cal 2010 and is edging ever closer to Crowe Horwath International, which dropped 7% to $1.23bn. Although Crowe Horwath post-ed positive interim results, Crowe Horwath International’s other US firms found the going more tough.

This year’s International Accounting Bulle-tin survey included a top 20 firms’ table.

The association Praxity, which has large US member firms in BKD (11th on the IAB Top 20 – see table on page 22), Moss Adams (12th), Plante Moran (13th) and Dixon Hugh-es Goodman (14th), grew combined revenues by 9% to $1.56bn.

Nexia International, up 9% this year, is poised to rocket up the IAB rankings in next year’s US survey following the 2012 merger of LarsonAllen (13th) and Clifton Gunder-son (16th). Nexia International could rise by as many five positions in the Networks and Associations table. Conversely, HLB USA, which grew by 8% in its 2010/2011 fiscal, could drop positions after losing Clifton Gunderson.

Feeling the pressureAudit contributes an average of 43% of firms’ overall revenue but is subject to intense fee pressure.

Big Four and mid-tier leaders indicate audit demand is either stable or continuing to grow but revenues are not increasing due to a severe price-cutting from firms of all shapes and sizes.

Grant Thornton US chief executive Stephen Chipman says the audit practice “grew in hours” but revenues are flat “because it’s a very competitive segment of the market, with very significant pressure on fees”.

CliftonLarsonAllen chief assurance officer Anita Ford describes fee pressure as “bit of balancing act”.

“We go after the middle market and so we are picking up bigger clients where we are more cost effective, than say the Big Four… and we are also losing out on some cases on the lower end where a client is simply looking for the absolute lowest cost provider. We try to be as efficient and as competitive as we can in our pricing but we will not cut corners to compromise quality.”

Ford observes it is mostly smaller firms that are undercutting but “for the first time ever, from time to time, we’ll have a Big Four firm beat us on price”.

“It’s our understanding they’ve cut back all of the people that they can bear to cut back and they are just trying to keep people busy with some work, and occasionally they are so aggressive they will undercut us,” she says.

McGladrey has also experienced significant competition, especially from the Big Four who are moving more into the middle market.

“In order to compete with [fee discounts], we have to be really careful with our fees and in some cases match proposals with other firms offer,” Adams says, adding that he believes middle market companies will ques-tion whether the Big Four will serve them for the long haul.

CliftonLarsonAllen has streamlined its audit process to make it more efficient and cost effective. Another strategy the firm uses is to provide clients with a more complete serv-ice that incorporates IT security assessments and other value add-ons.

Value-adding is a popular strategy to keep clients happy and fee cuts at bay.

“Not merely trying to push additional serv-ices but rather understanding their business needs and helping match up solutions to issues they are facing with the services that fit with those needs,” Adams says.

Morison International newly admitted firm Marks Paneth & Shron managing partner Mark Levenfus says the firm’s audit practice has grown by 2% due to opportunities from conversion – or supposed conversion – from US GAAP to IFRS audit requirements.

On the mandatory audit side, he adds, the battle is to hold onto clients.

“Sometimes we can’t manage it and some-times we manage it because of our solid rela-tionship with our clients. As a result, we do in certain circumstances have to reduce our fees and hopefully we can offset this by increasing our clients,” Adam says.

tax takes offTax is the second largest source of revenue for firms, bringing in 37% of the pie. Firms may find this slice increases due to strong demand

caused by local and state tax regulation as well as the growing international activities of clients.

“What we are seeing is more companies, even in the small end of the marketplace have continued to have needs with interna-tional relationships, whether that’s buying or selling or locating in another country,” Adams says.

“[The states] are looking for [any] revenue sources they can find and there are [now] a lot more complex rules around income taxes and other taxes. This creates an opportunity for us to help our clients ensure they are being as prudent as they can and maximising their tax positions.”

Baker Tilly International chairman James Castellano says that despite a sluggish US economy, company profits are good and 4

4n MerGers And AcQUIsItIons

Consolidation bug spreads far and wideThe number of M&As occurring in the US increased by 33%, according to Interna-tional Accounting Bulletin analysis.

In December last year, McGladrey & Pullen finalised the acquisition of RSM McGladrey, a tax, consulting and business advisory firm that had worked alongside McGladrey under an alternative practice arrangement. McGladren & Pullen part-ners had to provide significant capital to fund the acquisition from H&R Block.

“We only had 20 partners who did not come along with the deal that were asked to, and seven of those retired,” McGlad-ery & Pullen managing partner and chief executive Joe Adams explains.

“It’s a smaller amount than we had anticipated and we raised $50m more capital than we thought we were going to raise and substantially more than we needed,” Adams adds.

As recently as early 2012, LarsonAl-len announced it is merging with Clifton Gunderson creating CliftonLarsonAllen. The firm will be part of Nexia Interna-tional and among the 10 largest US firms.

Ford says the merger won’t result in many redundancies as the firm’s only over-lap occurs in only four cities out of the 24 states the firm covers.

Grant Thornton acquired acquisition of assets of CCR, another top 100 account-ing firm and acquired the health solutions division of advisory firm Computer Tech-nology Associates. • For a full list of firm movements, turn to page 24.n UnIted stAtes

Most of the Big Four’s growth has come from advisory services

Source:International Accounting Bulletin

Deloitte

PwCKPMG

E&Y 0

200

400

600

800

1,000

1,200Advisory growthAudit and tax growth

Total:$1bn

19%

37%

38%18%

81%

63%

62% 82%

Total:$810m

Total:$475m Total:

$400m

$m


sUrVeY: UnIted stAtesInternational Accounting Bulletin

n UnIted stAtesLeading accounting firms, networks and associations: fee data

rank nameFee

income ($m)

Growth rate (%)

Fee split (%)

Year-endAudit &

accountingtax

servicesManagement

consultingcorporate

finance

corporate recovery/ insolvency

Litigation support other

FIRM/INTERNATIONAL AFFILIATE

1 Deloitte*† 11,939.0 9 32 20 44 – – – 4 May11

2 PwC*†(1) 8,844.0 10 48 29 – – – – 23 Jun11

3 Ernst&Young*†(2) 7,500.0 6 40 31 8 21 Jun11

4 KPMG*† 5,361.0 10 43 26 – – – – 31 Sep11

5 McGladrey&Pullen*† 1,370.4 –1 43 36 20 – – – 1 Apr11

6 GrantThornton*† 1,125.1 2 45 29 23 2 1 – – Sep11

7 BDOUSA*† 572.0 –2 61 28 11 – – – – Jun11

8 UHY*† 186.0 –9 32 43 7 4 – 8 6 Dec11

9 WeiserMazars*(3) 124.5 4 50 40 10 – – – – Aug11

10 Rödl&Partner* 25.8 3 39 61 – – – – – Dec11

total revenue/growth 37,047.8 8

NETWORKS & ASSOCIATIONS OF INDEPENDENT FIRMS

1 LeadingEdgeAlliance* 1,639.4 9 39 36 20 2 1 1 1 Dec11

2 Praxity*(4) 1,545.9 9 47 34 16 – – 1 2 n/a

3 BakerTillyInternational*† 1,376.7 1 48 34 8 1 1 2 6 Jun11

4 CroweHorwathInternational*† 1,229.7 –7 37 38 18 – – – 7 Dec11

5 PKFNorthAmerica* 1,155.0 7 42 44 6 – – – 8 Dec11

6 McGladreyAlliance* 941.0 –6 50 38 8 – – – 4 Apr11

7 MooreStephensInternational* 927.1 5 42 39 9 – 1 1 8 Dec11

8 KrestonInternational*† 851.6 –4 38 27 6 – – – 29 Oct11

9 HLBUSA* 832.7 8 46 35 10 – – 1 8 Dec11

10 IGAFPolaris* 823.6 – 43 39 11 – – – 7 May11

11 NexiaInternational*† 797.5 9 44 42 8 – – 1 5 Jun11

12 AGNInternational* 592.4 –9 35 39 6 – – – 20 Dec11

13 DFKInternational* 411.4 11 45 44 5 – – 2 4 Sep11

14 BKRInternational 321.0 0 59 28 1 – – – 12 Jun11

15 CPAAssociatesInternational* 302.0 –1 42 44 14 – – – – Oct11

16 IAPA 260.5 2 – – – – – – – Mar11

17 EnterpriseWorldwide*(5) 166.0 9 44 45 – – – – 11 Dec10

18 MSIGlobalAlliance* 162.9 32 43 34 13 – 5 5 – Jan12

19 MGI* 148.9 11 – – – – – – – Jun11

20 INPACTAmericas*(5) 109.8 –6 45 41 11 – – 1 2 Dec10

21 CPAsNet/UC&CSGlobal*† 106.0 – 44 38 14 – – 4 – Dec11

22 AlliottGroupNorthAmerica* 102.2 –25 42 47 3 2 1 1 5 Apr11

23 IntegraInternational* 94.5 –5 40 30 15 5 5 5 – Dec11

24 MorisonInternational*(6) 88.0 453 64 27 1 – – 7 1 Dec11

25 KSInternational*(4) 49.9 –6 55 33 4 1 7 n/a

26 RussellBedfordInternational*(7) 47.0 –44 – – – – – – – Jun11

28 GMNInternational* 25.3 31 42 43 6 4 – – 5 Dec11

29 Fiducial* 13.7 –13 44 44 3 – – – 9 Sep11

30 EuraAuditInternational* 0.5 –3 – 29 71 – – – – Dec11

total revenue/growth 15,122.2 2

Notes:*Disclaimer=Onlydatafromthenamedmemberfirmortheexclusivememberfirmswithinanetwork/associationisincluded.Datarelatingtocorrespondentandnon-exclusivememberfirmsisnotincluded.†TheseorganisationscomeundertheIFACdefinitionofanetworkornetworkfirm.(1)Allrevenuedatareferstogrossrevenue.Otherincludesadvisorylineofserviceandstatutorilywhollyownedsubsidiaries;(2)Allrevenuedatareferstogrossrevenue.CorporateFinanceincludesTransactionAdvisory.OtherincludesAdvisoryServices&elimination;(3)WeiserMazars2010datarefertoDecember,2011datarefertoAugustyearend;(4)Memberfirmsreportatdifferentyearends;(5)Datareferto2010and2009yearend;(6)MorisonInternationalgrowthduetoappointmentofNewYorkfirmMarks,Paneth&Shron;(7)RussellBedfordInternationalprovidedestimatedfigures.Source: International Accounting Bulletin



clients are looking at ways to improve their income by minimising their tax obligations.

“As result, they look into our firm for help in tax structuring and tax planning,” Castel-lano says.

E&Y explains that governments are strug-gling with high deficit levels and need to increase the amount of revenue they collect “whether through higher taxes or increased tax enforcement”.

“The past few years have seen governments shifting from using their tax codes as a lever to deliver fiscal stimulus to regarding it as a tool to raise revenue for depleted coffers, and we see both opportunities and challenges in this area as companies manage this rapid change,” E&Y says.

The US Internal Revenue Service (IRS) has elevated its review of cost-sharing and the transfer of offshore intangibles that automati-cally mandate audit and examination.

The tax collector is also using previously unspecified methods to collect tax, such as the

‘income method’, ‘acquisition price method’ and ‘market capitalisation method’ in examin-ing the transfer of intangibles.

“Controversy is on the rise as increasingly well-staffed tax authorities apply more sophis-ticated and sweeping transfer pricing tools,” E&Y says. “At the same time, fortunately, a wider array of dispute resolution channels is available and being used. More countries, more issues, more tax authority pressure and more disputes. That’s why transfer pricing is a leading international tax issue.”

Ford says there has been some fee pressure on the tax compliance side.

“However, we are seeing an increase in rev-enue for value added tax services. Services that reduce taxes are picking up; especially within the last year. We’ve got more traction in inter-national tax, especially in the transfer pricing area,” Ford says.

M&A comebackThere’s optimism about advisory services, such as risk consulting, due diligence and transaction support. Importantly, for the larger firms, M&A’s are making a comeback, albeit slowly.

Adams says the ability to provide integrat-ed quality services is the ‘x factor’ to increase opportunities and has enabled McGladrey to increase by 30% due diligence and transaction support over the past fiscal.

“There’s a lot of activity going on,” says Chipman. “As for the growth strategy, organ-ic growth is difficult to drive so M&A activity is more prevalent. Also, because corporations have a lot of cash in their reserves”.

However, E&Y stresses M&A activity in the US in 2012 is off to a slow start and below the levels of 2011.

Castellano warns M&A activity is peeling off because of uncertainty over the US econo-my, which is causing companies to be cautious about long-term financial commitments.

Nevertheless, there is persistent demand and deal-making is expected to pick up in 2012, particularly in key sectors like health care, energy and utilities, and technology.

Adams says risk advisory services are doing well because “firms are managing their risk to a higher degree, especially in the middle market”.

IT advisory services are on the up due to technology innovations such as cyber security, mobile, cloud computing and data analytics. This is a common thread among the larger firms, particularly the Big Four.

regulation uncertaintyWhen it comes to regulation, the issues are many but the general sentiment is one of uncertainty.

IFRS continues to be the ‘big issue’ as a

Securities and Exchange Commision (SEC) decision on future adoption has been delayed until this year.

Ford says the final decision over adoption or convergence of US GAAP with IFRS chang-es from year to year.

“Right now it looks as if the momentum has been lost. Whether something will spur it on again, I don’t know,” Ford says.

Adams feels the debate is coming to a point where the decision is going to happen and a “form or variation of IFRS” will be adopted.

Uncertainty over adoption is presenting opportunities for firms to advise clients on how they should prepare for the transition.

“For instance, in the consulting side we’ve done some IFRS training for clients who need to convert,” Levenfus says

Castellano expects IFRS to be implemented in the US, however, “all indications from the SEC are that mandatory implementation of IFRS will be a slow and deliberate process”.

The Public Company Oversight Board (PCAOB) has begun consulting stakeholders over mandatory audit firm rotation and audi-tor independence. Mandatory rotation has not been well received by US firms.

Chipman questions whether the problem with a long-term relationship between auditor and client is based on reality or perception.

Adams says mandatory rotation wouldn’t add anything that firms don’t currently pro-vide but would increase costs.

“The free enterprise model that has made the US and many other countries very success-ful works because it created fair competition and if you are trying to manipulate that you don’t know what you are going to get,” Adam warns.

E&Y says the US accounting profession is at an important crossroads.

“The profession’s ability to contribute to increased transparency, greater stability and greater market confidence will determine our ability to be relevant in the future,” E&Y says.

Despite the uncertainty of an election year, regulation could prove to be the major chal-lenge and opportunity for firms. IFRS con-version work could prove a shot in the arm for firms when an adoption decision is made.Advisory services should provide new sources of revenue, while old sources, such as transac-tions work, should continue to re-emerge.

Tax will remain buoyant while tax collec-tors struggle to fill their coffers.

But questions still remain over the profit-ability of audit. The evolution of the audi-tor is another issue that will continue to fuel debate.

While the current fiscal will yield improved growth for most firms, bigger challenges lay ahead for the US profession. <


4

n UnIted stAtestop 20 firms

rank FirmFee income 2011 ($m)

Growth

1 Deloitte 11,939.0 9%

2 PwC 8,844.0 10%

3 Ernst&Young 7,500.0 6%

4 KPMG 5,361.0 10%

5 McGladrey&Pullen

1,370.4 -1%

6 GrantThornton 1,125.1 2%

7 CBIZ(e)(1) 592.4 2%

8 BDOUSA 572.0 -2%

9 CroweHorwath 498.0 4%

10 BKD 391.2 0%

11 MossAdams 323.0 2%

12 Plante&Moran 304.5 2%

13 LarsonAllen(2) 285.0 26%

14 DixonHughesGoodman

278.0 1%

15 Marcum 274.2 9%

16 CliftonGunderson(2)

255.0 5%

17 EisnerAmper 254.6 1%

18 JHCohn(3) 243.0 3%

19 BakerTillyVirchowKrause

242.0 2%

20 ReznickGroup 202.5 6%

Notes:(e)IABestimate;(1)CBIZ/MayerHoffmanMcCannhaveanalternativepracticestructure.MayerHoffmanMcCannisalicensedCPAauditfirm.CBIZprovidesotheraccounting,taxandadvisoryservices.Totalrevenuewouldamountto$733.8fortheyearendedDecember2011;(2)CliftonGundersonandLarsonAllenhavemergedinJanuary2012tobecomeCliftonLarsonAllen;(3)JHCohn2011figuresareaprojection.Source: International Accounting Bulletin


sUrVeY: UnIted stAtesInternational Accounting Bulletin

n UnIted stAtes

Leading accounting firms, networks and associations: staff data

rank nametotal staff Partners Professional staff Administrative staff offices

2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

FIRMS/INTERNATIONAL AFFILIATES

1 Deloitte*† 51,262 45,730 2,886 2,883 38,301 33,688 10,075 9,159 100 100

2 PwC*† 32,993 29,546 2,290 2,204 25,237 21,661 5,466 5,681 73 73

3 Ernst&Young*† 26,500 24,600 2,400 2,300 19,400 17,500 4,700 4,800 78 77

4 KPMG*† 22,278 21,285 1,744 1,759 15,664 14,762 4,870 4,764 88 87

5 McGladrey&Pullen*† 7,046 7,130 708 742 4,843 4,895 1,495 1,493 85 88

6 GrantThornton*† 5,482 5,091 544 517 3,754 3,477 1,184 1,097 52 50

7 BDOUSA*† 2,566 2,497 260 263 1,734 1,682 572 552 41 39

8 UHY*† 954 939 111 107 585 589 258 243 15 15

9 WeiserMazars* 624 581 97 84 405 375 122 122 6 5

10 Rödl&Partner* 123 117 18 16 75 69 30 32 6 6

totals 149,828 137,516 11,058 10,875 109,998 98,698 28,772 27,943 544 540

NETWORKS & ASSOCIATIONS OF INDEPENDENT FIRMS

1 LeadingEdgeAlliance* 8,848 8,098 825 1,169 6,108 5,172 1,915 1,757 177 158

2 Praxity* 8,148 7,358 1,120 1,021 5,378 4,804 1,650 1,533 115 98

3 CroweHorwathInternational*† 7,886 8,482 1,403 1,464 4,820 5,200 1,663 1,818 196 210

4 PKFNorthAmerica* 7,335 6,666 1,035 955 4,200 4,055 2,100 1,656 175 160

5 BakerTillyInternational*† 6,351 7,001 870 929 4,344 4,938 1,137 1,134 102 99

6 McGladreyAlliance* 6,351 6,968 980 1,014 4,213 4,596 1,158 1,358 184 203

7 KrestonInternational*† 5,442 5,444 315 312 4,614 4,611 513 521 49 50

8 MooreStephensInternational* 5,087 4,867 801 710 3,317 3,214 969 943 127 121

9 IGAFPolaris* 4,749 – 647 – 3,173 – 929 – 113 –

10 NexiaInternational*† 4,565 4,048 729 722 2,941 2,523 895 803 78 74

11 HLBUSA* 4,472 4,498 660 678 2,926 2,962 886 858 82 87

12 AGNInternational* 3,663 3,986 432 445 2,585 2,826 646 716 127 142

13 BKRInternational 2,184 2,249 301 307 1,535 1,575 348 367 62 61

14 CPAAssociatesInternational* 2,029 2,060 360 314 1,282 1,370 387 376 68 71

15 DFKInternational* 1,904 2,094 308 339 1,232 1,284 364 471 41 42

16 IAPA 1,318 1,256 235 210 806 802 277 244 22 17

17 MSIGlobalAlliance* 1,188 980 180 152 826 670 182 158 30 28

18 MGI* 1,022 1,116 171 169 660 770 191 177 44 48

19 INPACTAmericas* 817 885 132 138 535 583 150 164 57 57

20 EnterpriseWorldwide*(1) 800 719 199 193 410 338 191 188 35 35

21 AlliottGroupNorthAmerica* 785 935 126 212 557 440 102 283 34 51

22 CPAsNet/UC&CSGlobal*† 715 37 155 8 450 26 110 3 36 4

23 IntegraInternational* 606 629 115 121 374 386 117 122 31 30

24 MorisonInternational* 557 93 81 17 368 67 108 9 6 3

25 Fiducial* 314 337 42 50 236 261 36 26 75 85

26 KSInternational* 269 303 49 52 181 195 39 56 11 11

27 GMNInternational* 183 146 46 32 99 92 38 22 4 4

29 RussellBedfordInternational* – – 46 52 – – – – 20 17

30 EuraAuditInternational* 6 9 3 3 2 5 1 1 2 2

totals 87,594 81,264 12,366 11,788 58,172 53,765 17,102 15,764 2,103 1,968

Notes:*Disclaimer=Onlydatafromthenamedmemberfirmortheexclusivememberfirmswithinanetwork/associationisincluded.Datarelatingtocorrespondentandnon-exclusivememberfirmsisnotincluded.†TheseorganisationscomeundertheIFACdefinitionofanetworkornetworkfirm;(1)2010and2009data.Source:International Accounting Bulletin


24 y February 2012



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n UnIted stAtesFirm movements

NETWORK/ASSOCIATION FIRM ADDITIONS, MERGERS & ACQUISITIONS

AGNInternational Added:Silver,Lerner,Schwartz&Fertel;Lost:Hochfelder&Weber,Kane&Co.,Cowan,Bolduc&Doherty,PenderNewkirk

AlliotGroup Added: Nichols,Cauley&Associates,NSBN

BakerTillyInternational Merged:CherryBekaert&HollandmergedwithBraver,Schimler,PierceJenkinsinAugust2010,McLeod&CompanyinNovember2010andBurrusPaul&Turnbull,MBAFmergedwithNewYork-basedfirmERECPA’s,RubinBrownwithBONDI&Co,WeavermergedwithLTHawthorne&Associates(Texas),ParenteBeardmergedwithPressmanCioccaSmith(HuntingdonValley)inDecember2010;Lost:AmperPolitziner&Mattia(NewJersey)

BDOUSA Added: 40partnersandstafffromtheformerMcBrideShopa&CompanyfirminDelaware

CPAAssociatesInternational Added: Moss,Krusick&AssociatesofWinterPark(Florida)

Deloitte Acquired:Ubermind,IntrasphereTechnologies,Oco,AltosManagementPartners,MarketPoint

DFKInternational Merged: Abdo,Eick&MeyersmergedwithJelineck,Metz,McDonald-Hopkins(Minnesota);Acquired:Friedmanacquired15staffand3partnerfirminNewJersey,a5-person,1-partnerfirminOctober2011,individualpartnerpractice;Added:Abdo,Eick&Meyers(Edina,Minnesota),RamirezJimenezInternational(Irvine,California),SheaLabaghDobberstein(SanFrancisco,California)

Ernst&Young Acquired: ChicagoTPC,assetsfromProxyGovernance(PG);Added:ISAConsulting

GMNInternational Lost:oneinPennsylvania;Added: onefirminChicago

GrantThornton Acquired:GrantThorntonacquiredaportionofLECGCorporation’sSmartBusinessAdvisoryandConsultingPractice

IAPA Added: firmsinPaloAlto,firminDallas,Denton.Lost:BerenfeldSpritzerShechter&Sheer(CoralCables,FtLaudervale),Cordovano&Honeck(Englewood)

INPACTAmericas Gained: Hicks&Williams(Ontario,California)

IntegraInternational Acquired:LeafSaltzmanManganelliPfiel&TendleracquiredafirmanditsofficeinManhattan,onenewpracticeandopenedanewbranchoffice.Lost:GoldGersteingroupinPhiladelphiadivesteditselfofitsofficeinJenkintown

KPMG Acquired:KPMGUS,KPMGHoldingsLimited(UK)andKPMGInternationalacquiredthebusinessofadvisoryfirmEquaTerra

KrestonInternational Lost:KostinRuffkess

LeadingEdgeAlliance Lost:ThompsonDunavant(Memphis,TN);Added:MarksNelsonVohlandCampbellRadetic(KansasCity,MO),KemperCPAGroup(Greenfield,IN)

McGladreyAlliance Gained:Lewis,Hooper&Dick(GardenCity,KS),Pugh&Company(Knoxville,TN);Lost:Elms,Faris&Company(Odessa,TX),Broussard,Poche,Lewis&Breaux(Lafayette,LA),Rager,Lehman&Houck(Hanover,PA),LeMaster&Daniels(Spokane,WA),RJPile(Indianapolis,IN),Roberts,CherryandCompany(Shreveport,LA),Benson&McLaughlinPS(Seattle,WA),WrightGriffinDavis&Co(AnnArbor,MI)

MGI Added:fourUSmemberfirms;Lost:threeUSmemberfirms

MooreStephensInternational Merged:Carr,Riggs&IngrammergedwithRebowe&Company,HollandCPAsPSC,HoymanDobsonCPAsandBowenPhillips,Grassi&ComergedinthefirmPustorino,Puglisi&Co(NewYorkCity);Added:Melbourne(Florida),Metairie(Louisiana)BowlingGreen&Russellville(Kentucky),Tifton&Valdosta(Georgia);Lost:Goodman&Company

MorisonInternational Added: MarksPaneth&Shron(NewYork–3offices)

MSIGlobalAlliance Added:Isdaner&Company(Pennsylvania,Philadelphia),Squire(SaltLakeCity,Utah),GreensteinRogoffOlsenandCo(SanFrancisco,California),BrooksMcGinnis&Company(Georgia,Atlanta),AndersonZurMuehlen&Co,newofficeinGreatFalls(Montana);Lost: BertorelliGandiWon&Behti(SanFrancisco),MiddletonBurns&Davis(Dallas,Texas)

PKFNorthAmerica Added:SavilleDodgen(Dallas,TX),Kingery&Crouse(Tampa,FL),OconnorDavies(Harrison,NY),PKFPuertoRico(SanJaun,PR);Lost:Dutton&Associates(Omaha,NB)

PwC Acquired:DiamondManagement&TechnologyConsultants

RussellBedfordInternational Merged: PMBHelinDonovan(Austin,Texas)mergedwithMcEvoy&Co(Houston,Texas);Acquired:RBSM(NewYork)acquiredtheauditandaccountingpracticeofJewettSchwartzWolfe&Associates(Hollywood,Florida);Lost:OutsourcePartnersInternational,Inc

UC&CSGlobal Added: strategicalliancewithCPASNET(30firmsacrosstheUS)

WeiserMazars Merged:WeiserMazarsmergedwithBiscotti,TobackandCompanySource: International Accounting Bulletin

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