Month: November 2021

Private Equity Is Now Dipping Its Toes In Public Accounting Firms

Christina Lane

In early August, EisnerAmper announced a “strategic investment” in the firm courtesy of investment management firm TowerBrook Capital Partners, the first of its kind for a firm of that size. The door is now wide open for private equity to get a piece of the accounting pie.

Per the press release:

TowerBrook’s significant capital infusion will help drive EisnerAmper’s long-term growth initiatives, which include accelerating the evolution of service offerings, investing considerably in talent and technology, and strategically expanding via organic growth and targeted mergers and acquisitions—all directed at exponentially enhancing client service.

We can safely extrapolate from this bit that Eisner understands it will take more than squeezing clients for every dime billable hours to compete in the ongoing (and escalating) talent war.

This news pretty much flew right by our radar because we’re usually too busy suspiciously eyeing creepy firm robots for the first sign of hostile human takeover and other such critical matters but a recent Reuters article about the investment caught my attention and I figured this item might be of note.

Before everyone gets excited, it’s not like accounting firms will become the next Bitcoin. But it does mean that we could see some truly interesting shake-ups in the years ahead. On the investor side, this is a win as they can avoid being on the receiving end of long screeds about why private equity is destroying [x] market (currently it’s housing) because no one over at Slate is going to make it their personal mission to excessively hand-wring over investment firms ruining accounting.

Back to that Reuters piece. In it, we learn that the Eisner deal is something that’s been in the works for longer than many of you have been in the profession, it just never panned out until now.

The deal is transformational and there are likely more to come, said Allan D. Koltin, CEO of Koltin Consulting Group and an advisor to accounting firms involved in many of the profession’s largest mergers and acquisitions. “Private equity has been trying to get into the accounting profession for 15 years,” Koltin said. “This journey started back in 2006 and, up until a few weeks ago, in the world of the Top 20 CPA firms it’s been unsuccessful.”

Market changes have created an unprecedented demand for capital among accounting firms — for technology, talent, and strategic acquisitions — that opened the door for this type of deal, Koltin explained.

“Firms are merging fast and furiously to expand geographically and to expand their products and services,” Koltin added. “As a result, there are more larger firms in our profession today than ever before. When you get to a point in your growth somewhere between $100 million and $200 million — it’s like [getting] a target on your back. You have to keep growing. This business is unforgiving. If you don’t continue to grow you can’t continue to recruit and retain great talent. They go somewhere else.”

In case reading between the lines isn’t your specialty, that last paragraph is a strong signal that firms are freaking out about this talent problem. We’ve known that, of course, but it’s yet another piece of evidence to file away in our binder of things that keep firm leaders up at night. And for all of you, this means that you are running this show, not the people who sign your paychecks.

Given that, we’ll be keeping an eye on this going forward.

Further reading:
Guest Article: Be Wary of Private Equity – Could Be the Devil With a Blue Dress On [INSIDE Public Accounting]
As M&A activity reshapes the tax & accounting profession, private equity takes a hand [Reuters]
EisnerAmper Announces Investment By TowerBrook Capital Partners [PR Newswire]

The post Private Equity Is Now Dipping Its Toes In Public Accounting Firms appeared first on Going Concern.

Did you miss our previous article…
https://www.digital-accountants.com/?p=427

How Are Public Accounting Salaries Stacking Up For 2022? (Part 4, Accounting Principals)

Christina Lane

Accounting Principals has finally released its salary guide for 2022, and the main takeaway is average base salaries for roles in public accounting are expected to increase 6.4% across the board next year. So you guys get a salary adjustment that would barely cover the current inflation rate. Hooray.

For 2022’s salary guide, Accounting Principals provided salary data for employees in three tiers based on experience:

Low: Zero to two years of experience in that position or one similar.Medium: Three to 10 years of experience in that position or one similar.High: Ten or more years of experience in that position or one similar.

Below are the average base salaries for each of the 11 public accounting jobs in AP’s 2022 salary guide, listed by experience with a comparison of 2021’s projected salary and 2022’s projected salary (2021 -> 2022):

ccounting services

Low experience: $53,844 -> $57,312Medium experience: $63,062 -> $67,124High experience: $71,198 -> $75,784

ccounting services, senior

Low experience: $58,994 -> $62,794Medium experience: $71,198 -> $75,784High experience: $99,723 -> $106,146

udit/assurance services associate

Low experience: $54,430 -> $57,935Medium experience: $66,040 -> $70,293High experience: $75,282 -> $80,131

udit/assurance services associate, senior

Low experience: $59,409 -> $63,235Medium experience: $69,205 -> $73,662High experience: $79,952 -> $85,102

udit/assurance services manager

Low experience: $69,205 -> $73,662Medium experience: $91,563 -> $97,460High experience: $103,734 -> $110,415

udit/assurance services manager, senior

Low experience: $85,477 -> $90,982Medium experience: $93,841 -> $99,884High experience: $110,877 -> $118,018

Tax services associate

Low experience: $50,386 -> $53,631Medium experience: $56,147 -> $59,763High experience: $66,821 -> $71,125

Tax services associate, senior

Low experience: $71,198 -> $75,784Medium experience: $82,385 -> $87,691High experience: $87,462 -> $93,095

Tax services manager

Low experience: $88,503 -> $94,203Medium experience: $103,750 -> $110,432High experience: $133,162 -> $151,567

Tax services manager, senior

Low experience: $92,563 -> $98,525Medium experience: $112,911 -> $120,183High experience: $142,396 -> $151,567

Partner

Low experience: $144,430 -> $153,732Medium experience: $216,424 -> $230,362High experience: $324,480 -> $345,378

You can find our previous articles on salary projections for 2022 here.

The post How Are Public Accounting Salaries Stacking Up For 2022? (Part 4, Accounting Principals) appeared first on Going Concern.

EY Rakes In $40 Billion In Global Revenue, Will Try Not to Suck So Much At Auditing

Christina Lane

A day after Deloitte got the Big 4 revenue boasting season rolling yesterday, EY announced today that it pulled in a “solid” $40 billion ($39,959,000,000, to be exact) in revenue for the year ending June 30, a 7.3% increase over 2020’s $37.2 billion.

But aside from all the patting each other on the back for once again coming in third (probably) among the Big 4 in total revenue, the biggest news out of the EY camp today was this, courtesy of the Financial Times:

EY will invest about $2bn over the next three years to improve the quality of its audits following scandals including the collapse of German payments group Wirecard in a high-profile fraud last year.

The sum will be part of a record $10bn investment plan unveiled by the accounting firm on Wednesday that will fund initiatives including staff training and improving its ability to detect fraud.

Along with its rivals, EY has come under pressure to invest in its business to strengthen audit processes. It has suffered a series of setbacks including its failure to sound the alarm over a fraud that toppled Wirecard, a company it audited for a decade, and its work on collapsed FTSE 100 medical group NMC Health.

And let’s not forget the £2.2 million fine EY will have to pay the UK’s Financial Reporting Council for botching its audit of bus transportation company Stagecoach. And then this week it was reported that EY is facing litigation in Switzerland from investors of the now-collapsed conglomerate Zeromax:

Zeromax, whose crash in 2010 made it the second-largest bankruptcy in Swiss history, made multimillion-dollar jewellery purchases and made irregular offshore payments – which the big four auditor approved.

EY’s Swiss partnership gave the company clean audits between 2005 to 2007, and continued to audit Zeromax for another three years, but did not disclose audit opinions on the company’s annual accounts, in the run up to its collapse.

In remarks today, EY Global Chairman and CEO Carmine Di Sibio said EY would invest $2.5 billion between 2022 and 2024 in new technology, including in artificial intelligence and machine learning for its audit platform, Canvas, according to FT.

He added the investment would “allow us to do a better audit and a more efficient audit” and improve the group’s chances of detecting fraud. In total, Di Sibio said about $2bn of the three-year investment would “impact audit quality”. …

Di Sibio stressed that EY had strengthened its processes around “client acceptance and client continuance” as a result of the Wirecard scandal. The group now undertook a more rigorous investigation of current and future clients, he said, including scraping social media sites, and was investing in more training for its auditors in fraud detection. About $500m a year will now be spent on staff training.

Speaking of EY’s much-maligned audit and assurance business, it’s still making money despite all the scandals. Of EY’s four main service lines, A&A brought in nearly $13.6 billion in 2021. Here’s how the other service lines performed this year:

Audit and assurance: $13.6 billion (up 5.8%)Consulting: $11.1 billion (up 6.4%)Tax: $10.5 billion (up $7.2%)Strategy and transactions: $4.8 billion (up 14.6%)

EY’s global headcount at the end of June was 312,250, up from 298,965 at the end of June 2020.

EY to spend $2bn on improving audit quality after scandals [Financial Times
EY hit with $1bn claim for one of the largest bankruptcies in Swiss history [City A.M.]

Related articles:

EY Won’t Let a Mere 2.3% Increase In FY 2020 Global Revenue Ruin Its Thursday

EY UK Sheds Some Pounds Because An Audit Partner Messed Up Big Time

Deloitte Is the First Big 4 Firm to Clear $50 Billion In Global Revenue

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How Are Public Accounting Salaries Stacking Up For 2022? (Part 3, Hays US)

Christina Lane

In today’s edition of “How Much Are You Worth?” let’s take a look at public accounting salary projections for 2022 from recruitment firm Hays US.

We chose four tax and four audit roles from Hays’s 2022 Salary Guide to highlight in this post. Hays provides accounting salary ranges, with the first figure indicating minimum pay and the second figure indicating maximum pay. In this particular salary guide, the salary ranges for tax and audit roles are given for eight states/regions:

CaliforniaColoradoWashington, DC; Maryland; and VirginiaFloridaGeorgiaIllinoisNew YorkTexas

Unfortunately many of the salary ranges for public accounting jobs in the 2022 guide are exactly the same as in Hays’s 2021 Salary Guide (see: California, Illinois, and Texas). However, some roles in some states are expected to see a bump in pay next year. For those roles, we provided a comparison of 2021’s projected salary range and 2022’s projected salary range (2021 -> 2022). The smallest pay increase was 3.4% (audit manager in Colorado), while the largest was 44.7% (tax director in New York).

Here is Hays’s public accounting salary projections for 2022:

California

Tax director: $120,000-$200,000Tax manager: $80,000-$150,000Tax senior: $80,000-$120,000Tax accountant: $75,000-$95,000Audit director: $150,000-$200,000Audit manager: $110,000-$150,000Audit senior: $60,000-$100,000Audit associate: $40,000-$60,000

Colorado

Tax director: $140,000-$200,000Tax manager: $100,000-$120,000Tax senior: $70,000-$90,000Tax accountant: $75,000-$95,000Audit director: $150,000-$200,000 $150,000-$220,000Audit manager: $110,000-$145,000 $120,000-$150,000Audit senior: $80,000-$100,000 –$90,000-$100,000Audit associate: $40,000-$60,000 $55,000-$70,000

DC, Maryland, and Virginia

Tax director: $160,000-$210,000 $160,000-$250,000Tax manager: $80,000-$150,000 $100,000-$150,000Tax senior: $50,000-$75,000 $70,000-$100,000Tax accountant: $65,000-$90,000 $75,000-$90,000Audit director: $150,000-$200,000 $150,000-$250,000Audit manager: $100,000-$130,000 $100,000-$175,000Audit senior: $60,000-$90,000 $70,000-$100,000Audit associate: $40,000-$60,000 $55,000-$70,000

Florida

Tax director: $140,000-$220,000 $150,000-$240,000Tax manager: $90,000-$130,000 $100,000-$130,000Tax senior: $70,000-$90,000Tax accountant: $50,000-$75,000Audit director: $150,000-$200,000Audit manager: $80,000-$115,000 $100,000-$130,000Audit senior: $65,000-$85,000 $65,000-$90,000Audit associate: $50,000-$70,000

Georgia

Tax director: $140,000-$240,000 $140,000-$275,000Tax manager: $90,000-$155,000Tax senior: $70,000-$90,000 $70,000-$100,000Tax accountant: $55,000-$75,000 $60,000-$75,000Audit director: $150,000-$200,000Audit manager: $90,000-$150,000Audit senior: $65,000-$90,000 $65,000-$95,000Audit associate: $50,000-$75,000

Illinois

Tax director: $160,000-$210,000Tax manager: $80,000-$150,000Tax senior: $50,000-$75,000Tax accountant: $65,000-$90,000Audit director: $150,000-$200,000+Audit manager: $100,000-$130,000Audit senior: $60,000-$90,000Audit associate: $40,000-$60,000

New York

Tax director: $130,000-$190,000 $140,000-$275,000Tax manager: $80,000-$150,000 $90,000-$160,000Tax senior: $80,000-$110,000Tax accountant: $65,000-$90,000Audit director: $150,000-$250,000Audit manager: $90,000-$150,000 $100,000-$175,000Audit senior: $60,000-$100,000 $70,000-$100,000Audit associate: $40,000-$60,000 $55,000-$75,000

Texas

Tax director: $180,000-$210,000Tax manager: $135,000-$165,000Tax senior: $75,000-$90,000Tax accountant: $60,000-$80,000Audit director: $150,000-$200,000Audit manager: $115,000-$135,000Audit senior: $75,000-$95,000Audit associate: $55,000-$65,000

If you missed Part 1 (Robert Half) and/or Part 2 (Alliance Resource Group) in our series of public accounting salary prognostications for next year, click on the links above or click on the article titles below.

Related articles:

How Are Public Accounting Salaries Stacking Up For 2022? (Part 1, Robert Half)

How Are Public Accounting Salaries Stacking Up For 2022? (Part 2, Alliance Resource Group)

The post How Are Public Accounting Salaries Stacking Up For 2022? (Part 3, Hays US) appeared first on Going Concern.

Did you miss our previous article…
https://www.digital-accountants.com/?p=331

Opinion: It’s the AICPA’s Own Fault No One Wants to Be a CPA Anymore

Christina Lane

[Ed. note: we received the following in response to my newsletter column dated September 14, 2021. In the column, I referenced the 2019 AICPA Trends report, which stated that non-accounting majors made up 31% of all firm new hires at that time. The reader comment is published here with permission from its author who wishes to remain anonymous. We are sharing it with you in order to facilitate the ongoing discussion about low candidate numbers and the long-term value and viability of the CPA credential.]

Going Concern:

Some 20 years ago in the dead of night the AICPA’s Professional Ethics Enforcement Program (PEEC) changed the historical requirement that only CPAs can be partners in CPA firms to a mere majority. They then lobbied NASBA to get all the State Boards of Accountancy to include the “watering professionalism down” provision in their individual state laws.

Surprise, surprise the Big 4 firms are now primarily interested in attracting non-accounting majors as new employees. The foreseeable result is a significant reduction of student interest in our profession and the death of the 150 hour programs in our colleges and universities. Notwithstanding the stellar efforts of the CPA Exam Division the number of CPA candidates has significantly dropped and frankly this self-inflicted decline will continue.

This also puts at risk the “professionalism” of the whole CPA calling. No other profession – law, medicine, architecture, nursing, engineering etc. etc. – has knowingly diluted the professionalism of their own calling.

It also is a slap-in-the-face to any CPA who worked so very hard to pass the CPA exam.

– Professional Contributor

Further reading:
Time to Panic? New CPA Exam Candidate Numbers Are Lower Than They’ve Been in More Than a Decade [GC, August 2019]
NASBA Sees Significant Decline in CPA Exam-Related Revenue [INSIDE Public Accounting, November 2020]
Trends Show CPA Gap Widens [NASBA, November 2019]

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Did you miss our previous article…
https://www.digital-accountants.com/?p=328

A Big 4 Firm Being Untruthful? You Don’t Say!

Christina Lane

From the Financial Times yesterday:

A senior KPMG partner advanced an “untruthful” defence at a disciplinary hearing into the accounting firm’s misconduct in the sale of bedmaker Silentnight to a private equity fund, a tribunal has found.

The tribunal also found that KPMG and David Costley-Wood, the partner who led the Silentnight work, had failed to co-operate in not providing evidence to investigators from the UK accounting regulator.

KPMG was fined £13m in August and ordered to pay more than £2.75m in costs for its role in placing Silentnight into an insolvency process in 2011, which allowed HIG Capital to acquire it without the burden of its £100m pension scheme.

The accounting firm was found to have acted in the interests of HIG, which it was nurturing as a potential client, even though these were “diametrically opposed” to those of its client Silentnight. KPMG sold its own insolvency advice business, now called Interpath, to HIG this year.

In addition to the £13 million fine the Queen’s KPMG received, Costley-Wood was fined £500,000, severely reprimanded, and excluded from holding an insolvency licence or being a member of the Institute of Chartered Accountants in England and Wales for 13 years. The tribunal recommended he be banned for 15 years. During a four-week hearing held last November and December, he called the Financial Reporting Council’s case against him a “witch hunt” and said the regulator was “trying to trash my name in the press.”

However, most likely knowing the shit was going to hit the fan, Costley-Wood conveniently “retired” from KPMG on June 4.

You can read the tribunal’s full report here.

KPMG accused of ‘untruthful’ defence over Silentnight misconduct [Financial Times

Related articles:

KPMG Just Missed Getting a Record-Setting Fine In the U.K. By *This* Much

This Is Not Good, KPMG. Not Good At All.

KPMG U.K. Restructuring Partner Channels Angry Donald Trump During Disciplinary Hearing

The post A Big 4 Firm Being Untruthful? You Don’t Say! appeared first on Going Concern.

Did you miss our previous article…
https://www.digital-accountants.com/?p=310

Bonus Watch ’21: Deloitte’s Audit Practice Is Trying to Nip This ‘Great Resignation’ Thing In the Bud By Offering Retention Bonuses

Christina Lane

There’s a firm that finally gets it when it comes to giving employees of one of its core lines of service a reason not to join the mass exodus that is going on right now in the Big 4.

It’s not promoting some fictitiously great company culture. It’s not giving employees Omaha Steaks or 1-800-Flowers gift cards. It’s not throwing pizza parties during busy season. The only way the Big 4 can retain their prized employees during “The Great Resignation” is by giving them more money. Plain and simple.

You would think Deloitte, the most behemoth of the behemoth accounting firms, would have realized this during compensation season. But an analysis of employee raises this year showed Deloitte didn’t loosen the purse strings like PwC and EY did (we’ll be analyzing raises at KPMG soon).

However, last month Deloitte announced that the firm would be providing mid-year salary adjustments to employees in all service lines before the end of 2021. But in an email to Deloitters, CEO Joe Ucuzoglu wrote, “In some markets and for some professionals, our compensation remains highly competitive and no current adjustments are warranted,” so not everyone will receive bumps in pay.

Then last week during an all-hands call, Lara Abrash, chair and CEO of Deloitte & Touche, the firm’s audit and assurance practice, made a surprise announcement to her group (from a post on r/accounting; bolded part added for emphasis):

Deloitte Audit

Hybrid – will make options for those who want to remain virtual beyond this year.

Compensation adjustments – Announced previously. All markets will be eligible for adjustments, including enabling areas. Adjustments will be based on market data and level, not performance. Will communicate late October/early November. Adjustments will average in high single to low double digit. Over 80% will receive a 10% or higher raise. Highest percentages will be focused to seniors and managers.

Longer term compensation strategy for bonuses – This will be a one-time award for certain US client service professionals. US A&A professionals second-years through SM1/2. Amounts will vary by level. Between $20k and $35k. Those who receive will stay until at least the end of May 2023. Paid out 1/7/2022.

But of course there’s a catch (from a different post on r/accounting):

Caveat being: you must stay until may 2023 or you’ll have to pay back in full

Here’s a thread with a decent discussion on r/Deloitte about the retention bonus:

Thoughts on A&A retention bonus? from deloitte

 

This seems like a win-win for Deloitte. You give employees who were thinking of leaving in the next year (like the OP above) a reason not to leave before May 31, 2023—the last day of Deloitte’s 2023 fiscal year—AND if they do leave, the firm gets its money back.

We haven’t heard about any of the other Big 4 firms or larger midtier firms offering retention bonuses to employees. If we missed one, let us know in the comments or via the contact info below. We also haven’t heard if Deloitte is offering this retention bonus in its consulting and tax practices? If the firm has, get in touch with us.

So who’s taking the retention bonus at D&T?

Related articles:

Compensation Watch ’21: Deloitte Staff Gets Some Encouraging News About Raises and Promotions

Compensation Watch ’21: Deloitte Puts Mid-Year Raises On the Table (Updated with Email From Deloitte CEO)

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EY Pats Itself On the Back For Not Blowing As Many Audits As Before

Christina Lane

Last month the PCAOB teased the results of its 2020 inspection reports by saying audit firms were getting better at not being awful at auditing. From the PCAOB’s Staff Update and Preview of 2020 Inspection Observations:

For the majority of the annually inspected audit firms, we identified fewer findings in 2020 compared to our 2019 inspections. In our triennially inspected audit firms, some improvements were noted, although deficiencies continue to remain high.

Annually inspected firms would include the Big 4, Grant Thornton, RSM US, and BDO USA, for example. Now that the US’s audit cops released the 2020 report cards for six of those firms earlier this week, we’ve seen substantially less mistakes made in public company audits at two of those firms: PwC and Deloitte.

Is the pandemic the reason why PwC and Deloitte had the No. 1 and No. 2 lowest audit deficiency rates of all time, respectively? Maybe. The PCAOB admitted that its response to the pandemic included:

Conducting all inspections remotely;Adjusting its inspection approach to consider the impact of COVID-19 on the audits of public companies;Refining its planned quality control procedures; andProviding insights to inform stakeholders on the PCAOB’s oversight activities related to the COVID-19 pandemic.

Who knows if those heavy-handed and intimidating inspectors are just as thorough going through the audit inspection process off-site as they are on-site. But it does make you wonder if these audit firms are actually getting better at auditing or is it the circumstances caused by the pandemic that are making it seem like these firms are getting better at auditing? Time will tell.

Another firm that showed improvement in its deficiency rate from 2019’s inspection report to 2020’s inspection report is EY—and its leadership couldn’t wait to tell everyone about it.

A day after the PCAOB released EY’s latest inspection report, Uncle Ernie put out its 2021 audit quality report, which includes all sorts of boring EYspeak on how performing high-quality audits builds a better working world … or something like that. The report also includes a colorful snapshot of key EY audit metrics:

One stat missing from this chart is EY’s audit error rate from its 2020 inspection report, which was 15.4%, down from 18% in its 2019 report and 26% in its 2018 report. But there is an entire section of EY’s latest audit quality report devoted to PCAOB inspections and how the firm isn’t botching as many audits as it used to:

In a press release accompanying the audit quality report and in the report itself, you’ll see quotes from EY leaders who are just beaming with pride that their US audit professionals are more competent than EY Germany’s auditors “committed to continuously improving the quality of the firm’s audits and strengthening the firm’s system of quality control.”

Kelly Grier, EY US chair and managing partner who announced to staff on Oct. 21 that she is not seeking a second term, said: “The independent auditor’s role in promoting trust and confidence in the capital markets is critical and our 2021 report highlights our commitment to audit quality. I am so proud of how we’ve continued to focus on the fundamentals—performing high-quality audits with integrity, independence, and professional skepticism—while using technology to innovate how we audit and meeting new challenges such as reimagining where we’ll work and how we’ll maintain our culture of belonging.”

Says Denise Pelli, EY’s US director of professional practice quality and regulatory matters: “Our latest inspection report indicates that the investments we have made in audit quality are paying off. The results reflect a focus by our audit teams on careful execution and timely supervision and review. They also reflect our investments in the digital audit and other changes to our audit approach and support from our quality network and specialists.”

Great job, everyone. Now share what you’re doing with your colleagues in Germany.

Below is EY’s 2020 PCAOB inspection report, if you are inclined to read it:

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Related articles:

EY Isn’t Botching As Many Audits These Days, According to Latest PCAOB Inspection Report

It’s True: PwC Had a Nearly Flawless 2020 PCAOB Inspection Report

Deloitte Came Oh So Close to Having a Historically Low Audit Deficiency Rate

EY US Chair Kelly Grier Will Not Seek a Second Term

The post EY Pats Itself On the Back For Not Blowing As Many Audits As Before appeared first on Going Concern.

Friday Footnotes: A Very Guilty Accountant; Beware Audit Independence; Grant Thornton Does a Thing | 10.29.21

Christina Lane

Wealthy retired accountant is found guilty of murder [Daily Mail] The pregnant daughter of a wealthy retired accountant who was today jailed for life after stabbing her husband to death has told the court of her heartbreak, saying: ‘I lost my dad but I’ve also lost my mum.’ Isabelle Potterton said on Friday that her mother Penelope Jackson – who murdered her retired colonel husband David, 78, on her 66th birthday and calmly told police ‘I should have stabbed him more’ as he lay dying – is ‘not the person I knew’.

SEC Acting Chief Accountant urges scrutiny of auditor independence in current environment [JD Supra] This week, Acting Chief Accountant Paul Munter issued a statement regarding the importance of auditor independence—a concept that is “foundational to the credibility of the financial statements.” The responsibility to monitor independence is a shared one: “[w]hile sourcing a high quality independent auditor is a key responsibility of the audit committee, compliance with auditor independence rules is a shared responsibility of the issuer, its audit committee, and the auditor.”

New Deloitte report explains how tech companies have to change to be more ethical [TechRepublic] The report released on Wednesday, “Beyond good intentions: Navigating the ethical dilemmas facing the technology industry” spells out the contradictory forces at work. In a survey of tech professionals, 82% strongly agreed that their company was ethical. In the same survey, only 24% strongly agreed that the tech industry takes an ethical approach to the products and services that it creates.

EY report: Fortune 100 companies boost audit transparency, including on ESG [Compliance Week] “Our examination of proxy disclosure data for 2021 demonstrates that companies continue to provide voluntary disclosures in audit-related areas of interest to investors and other stakeholders, typically going beyond the specific areas of required disclosures,” EY stated. In addition to providing required disclosures about the functions, policies, and procedures of audit committees, many companies are also shedding new light on “the type and degree of oversight exercised by audit committees.”

PwC upskills business workforce to leverage automation opportunities [SiliconANGLE] PricewaterhouseCoopers LLP has developed a new software product, called ProEdge, which focus on identifying the skills needed for the future, teaching those talents, and helping to scale the usage of the skills across the organization, according to Kevin Kroen, partner, PwC Advisory, intelligent automation and digital upskilling leader at PwC.

Grant Thornton commits to net zero greenhouse gas emissions by 2030 [Business Wire] Grant Thornton plans to achieve its net zero goal by reducing business travel, better using its office space and increasing energy efficiency across its operations. The firm may also use carbon credits and other investments in the future to account for any residual carbon emissions.

FASB addresses contract assets, liabilities acquired in a business combination [Journal of Accountancy] Acquiring entities are required to measure contract assets and liabilities acquired in a business combination in accordance with FASB’s Topic 606 revenue recognition guidance, according to a new FASB standard issued Thursday. To eliminate diversity in practice, FASB issued Accounting Standards Update No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers.

Hunting for Money, Democrats Rush to Rewrite Tax Code [New York Times] Lawmakers are racing to finalize legislation to pay for new spending initiatives. The process usually takes months, but they are trying to do it in days.

Photo by Tranmautritam from Pexels

The post Friday Footnotes: A Very Guilty Accountant; Beware Audit Independence; Grant Thornton Does a Thing | 10.29.21 appeared first on Going Concern.

ESG Is the Next ‘Hot Thing’ In Accounting, Say MIT Researchers

Christina Lane

For years we’ve been hearing how blockchain and AI will transform accounting, and this recent article from MIT Sloan School of Management (aka MIT Sloan) about the five forces remaking accounting gives them both the obligatory nod. But we’re not here to talk about blockchain. We’re here to talk about ESG.

After a brief introductory paragraph about the “change bearing down on the accounting discipline,” they go directly into climate change and what that means for the bottom line:

“For the longest time, the purpose of a company was to provide returns for its equity investors and debt investors,” said Nemit Shroff, accounting professor at MIT Sloan. “ESG is saying that the purpose of a company is broader than just its investors — it’s society at large. That means that the measurement has to in some sense reflect that, and that’s a huge fundamental change.”

The one constant amid much change: Knowing exactly what to measure will be essential to making progress.

“Rewards [for companies] are going to be greater in instances where you can measure the company’s performance,” Shroff said.

Before we go any further, let’s zip over to Investopedia first to get a definition of ESG so we’re all clear what we’re talking about:

Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.

We good? OK.

If you recall, Deloitte announced in August it was rolling out a climate learning program for its 330,000 people to “inform, challenge and inspire Deloitte people to learn about the impacts of climate change and empower them to confidently navigate their contribution to addressing climate change by making responsible choices at home and at work, and in advising our clients.” They claim this is the first program of its kind for a major worldwide organization. And KPMG has already planted its own flag, investing $1.5 billion into a three-year ESG initiative. So we know it’s a hot topic, the research from Sloan just confirms that.

Continuing with the article:

More than ever, investors care about a company’s ESG performance and companies are under pressure to show the positive impact they’re making. A report from Moody’s Investor Services showed global flow to environmental, social, and corporate governance concerns increased to $80.5 billion in the third quarter of 2020, up 14% from the previous quarter. And when BlackRock chief Larry Fink urged companies to eliminate greenhouse gas emissions by 2050, investors paid attention.

“Businesses are increasingly recognizing that maximizing shareholder value involves more than profits,” said Chloe Xie, assistant professor of accounting at MIT Sloan. But because ESG measurement and reporting aren’t currently standardized on a balance sheet the way that earnings are, this remains “a new frontier for accounting.”

Many companies measure their environmental impact by focusing on their carbon emissions and the specific actions they’re taking to reduce them, such as planting trees that will absorb carbon from the environment, Shroff said.

“Carbon emissions is a natural thing for people to think of, and I think partly it’s because we tend to focus on what we can measure, and we can measure carbon emissions,” Shroff said.

Collapse enthusiasts are no doubt intimately familiar with the looming threat of climate change but this is genuinely new territory for a profession “whose core responsibility is to help businesses maintain accurate and timely records of their finances” as Sloan said.

A December 2020 Harvard Business Review article punctuated the article’s title about the future of ESG with an incredulous question mark at the ridiculous idea that the future of ESG lies in the hands of the accounting profession and yet here we are. The IFRS Foundation is considering global sustainability standards and the SEC has declared an enhanced focus in climate-related disclosures.

It seems that unlike the robots that they’ve been saying for 10 years are coming for your jobs, this “revolution” may actually be upon us.

The post ESG Is the Next ‘Hot Thing’ In Accounting, Say MIT Researchers appeared first on Going Concern.