October 2013 Issue 530 www.InternationalAccountingBulletin.com

Time is running out UK FTSE 350 must retender their audits every 10 years: CC

● Deloitte overtakes PwC as largest global network ● Africa’s taxing problem ● Russia: Between innovation and old practices ● Japan: On the long path back to growth xxxxx International Accounting Bulletin edITor’s LeTTer

conTenTs

news 02-07 Winners and losers? ■ Deloitte overtakes PwC as largest global network. ■ Europe pushes ahead with mandatory rotation. After four years of debates and two years the Council, the European Commission and ■ The UK competition jigsaw of the UK Competition Commission (CC) the European Parliament can now go ahead, unravelled. investigation, the final report on concentra- and with all three parties agreeing on manda- tion levels in the UK audit market is out and tory rotation, it looks likely European com- coMMenT 08 the verdict is that 10-year mandatory reten- panies might have to apply it. The final legal

08: Anders Heede dering is to be implemented by all FTSE 350 document is, at best, going to be finalised BDO International’s Anders Heede companies. As the initially suggested five- early next year, however if the trialogue gets speaks about accounting market con- year mandatory retendering remedy caused gridlocked there’s still a chance audit reform solidation and explains why he believes that in five years only two of the three stakeholder uproar from firms, large corpo- might be diluted as it’s European election truly global mid-tier networks will rates, banks, professional bodies and even year in 2014 and the battle for power will remain. the government, the final report took that be unleashed among politicians. Until then FeATure 09-10 into account. And now, as the CC settles on all firms are likely to focus their attention on 10 years, the question many have been ask- the three EU bodies in an attempt to influ- o9-10: AFrIcA’s TAx probLeM ing is: have the Big Four won and will this ence the final outcome and, as one of IAB’s Africa is haemorrhaging tax revenues really go far enough to open up the audit sources says, the lobbying, which has already due to faulty tax practices and rules opened to abuse. Vincent Huck reports. market to the mid-tier? been called excessive by some MEPs, is only While the CC’s remedies are not as severe likely to step up a gear. as was perhaps initially expected, the move counTrY surveYs 11-20 xxxxx to 10-year retendering with no comply or call for transparency 11-14: russIA explain option is likely to cause changes As World Survey time approaches (ques- As Russia’s accounting industry finds in the market where the average tenure is tionnaires to be sent in early November) I’d itself between regulatory changes currently several decades long. When the like to reaffirm to all our readers and survey enhancing the quality of the profes- sion and old practices harming its debates first started in the House of Lords participants that transparency in your dis- overall reputation, vincent Huck finds Economic Affairs Committee the mid-tier closure to us is essential. In dealings with us optimism and willingness to adapt to a changing world among firm leaders. went a long way to demonstrate just how you know we try to be fair and address issues

15-20: JApAn hard it is to break into the FTSE 350 mar- that you have highlighted, but in return we Japan’s accounting market has faced ket for audits and, since then, we’ve seen need you to allow us access to your infor- strong downward pressure on audit and the amended FRC Corporate Governance mation and to be true in your disclosures. tax fees during the past year as com- panies and other organisations look to Code, companies’ attitudes changing, as In this issue you can read the latest Russia cut costs and target accounting services well as market-driven developments among survey, which is one of our essential surveys and legal fees as important areas to make savings. david Hayes reports. the largest mid-tier players. The UK now this year. However, data disclosure among has three very powerful mid-tier players as the Big Four has slipped in the past four Baker Tilly UK and BDO UK both bulked years in Russia. We’ve now gone from only up by M&A and with Grant Thornton missing one of the Big Four to missing the editorial Advisory board UK reporting double-digit organic growth. information of three of the largest firms. As Kevin McGrath, Crowe Horwath The message is clear: the ‘next three’ mean accounting firms and the profession itself are International CEO Kevin Arnold, Nexia International CEO business. The effect of the CC remedies still key advocates of good corporate governance Geoff barnes, Baker Tilly International remains to be seen and perhaps it’s too early and are encouraging their clients to become president and CEO Graeme Gordon, Praxity executive director to speculate in whose favour they are ulti- more responsible, transparent and successful stephen Jacobs, INPACT International president mately going to work, but what does need to it seems surprising that those values are not Jon Lisby, Kreston International executive director be acknowledged is that this is a change, and applied to their disclosure. I would kindly donal watkin, MSI Global Alliance CEO it has led to mountains of publicly accessible call on you to take the lead in transparency christian Mouillon, Ernst & Young global vice- chair, assurance evidence on the market and raised awareness and disclosure, not only in order to assist us ed nusbaum, Grant Thornton International CEO that long audit tenures are incompatible with with our analysis, but also to understand the Michael reiss von Filski, Geneva Group today’s good corporate governance practice. market in which you operate and to appreci- International CEO Liza robbins, Morison International CEO It has also cemented the power and respon- ate the growth opportunities and challenges Martin van roekel, BDO International CEO sibility of audit committees. And the changes that apply to you and your competitors. Jean stephens, RSM International CEO are far from over. To everyone’s surprise the robert Tautges, HLB International CEO pauline wallace, PwC head of public policy and Lithuanian presidency of the European Ana Gyorkos regulatory affairs Council announced the trialogue between [email protected]

www.InternationalAccountingBulletin.com October 2013 y 1 news round-up International Accounting Bulletin

IAB onLIne – ocTober news round-up

Top 5 articles GLobAL More than 70% of the reports Beijing to discuss the formation of a Deloitte overtakes PwC as largest Financial services a examined by KPMG in each of national group. global network sector at risk, KpMG these three geographical areas The association said the creation The financial services sector is were flagged red. of the umbrella organisation is Mandatory audit firm rotation the most exposed of any industry a significant step towards the likely to hit EU companies to fraud, corruption, insider uK creation of a national group and will trading, negligence and bankruptcy, deloitte uK allow member firms to work more Baker Tilly UK promotes partners according to a study by KPMG. appeals MG rover fine closely together. and directors The study, entitled Astrus Insights, Deloitte UK confirmed it has appealed Founder of member firm AMA CPA was conducted by KPMG’s corporate against the £14m ($22.46m) fine and Mayee Management director Financial services a sector at intelligence experts who analysed by, and the findings of, the Financial Andrew Ma said: “We believe that risk, KPMG 8,000 integrity due diligence reports. Reporting Council’s (FRC) MG forming a group of our member firms Rover tribunal. in China will help us to achieve our Former Spanish PM appointed According to the study, more than 40% of these reports were rated red, Last month Deloitte UK was fined goals by creating a sense of belonging KPMG’s special advisor meaning there is a significant risk, for failing to manage conflicts of and enabling us to work together as Most re-tweeted article and nine out of 10 of the highest-risk interest in its advice to British car- one. China has been identified as an reports were completed for banks. maker MG Rover Group regarding its increasingly important area for DFK Deloitte overtakes PwC as largest “While some banks are doing collapse in 2005. International and the association global network their utmost to delve deeper into A Deloitte spokesperson said: wants the country’s member firms to read in 171 countries the backgrounds of those they do “After careful consideration, we have become stronger and more active.” business with, we know that many decided to seek leave to appeal the uK UK 27% are still applying a cursory review, findings of the MG Rover tribunal. US 11% only going as far as a sanctions check We recognise the general desire to eY uK grows 6% Malaysia 9% and an internet search for their move on from this case but do not EY UK has reported a 6% rise Singapore 8% research,” KPMG head of forensic agree with the main conclusions in its annual revenues to Australia 5% Alex Plavsic said. of the tribunal which we feel could £1.7bn (US$2.73bn) in the year Other 40% According to Plavsic the study create significant uncertainty for to 30 June 2013. shows these checks fail to identify individual members and member The firm reported growth in three nearly 84% of potential risks. firms of the ICAEW.” of its four service lines. Advisory went KPMG’s study found the greatest The next step in the appeal process up by 17% to £486m. Assurance and risk is the integrity of directors, is for an independent FRC tribunal tax both grew by 6% to £507m and shareholders and ultimate beneficial member to check the grounds for the £455m respectively. And transaction owners of a company. appeal and decide if it should proceed. advisory services declined The study also highlighted that by 11% to £273m. third-party risk depends on where cHInA EY UK said it recruited 2,480 staff financial institutions choose to do dFK International chinese members in the past fiscal, half of whom were business, as certain geographical form umbrella group students. The firm plans to match zones offer a greater risk than others. DFK International Chinese member this figure in the coming year. With The Middle East and North Africa, firms have formed an umbrella these results EY might be a step closer Join our online community Central and Eastern Europe, including organisation with the objective of to closing the gap with third-ranked Russia, and Central Asia topped the becoming a national group. KPMG UK. Last year KPMG reported list of locations with the highest risk, DFK International’s seven revenues of £1.7bn and will report its LinkedIn Group the study found. Chinese member firms met in 2013 results in December. < World Accounting Intelligence Movers & sHAKers Twitter WAI_News Former spanish prime Minister 1 October 2013. bought RSM Tenon in a pre-pack Jose María Aznar has been Reader previously held the deal in August. appointed advisor to John position of insurance sector Facebook page AGn International has scott, KpMG deputy leader for advisory services World Accounting appointed randy redwitz as Intelligence global chairman and at KPMG UK. Reader has its international chairman managing partner of also worked at the firm’s and Liam McQuaid as its the firm in spain. UK, Australian, Swiss vice-chairman. redwitz is scan our Qr code for quick Aznar’s and US practices. the managing partner of a smartphone access to IAB appointment is california-based accountancy linked to sco)tt’s eight former rsM Tenon firm robert r. redwitz & co and role as deputy global partners from edinburgh and he has been the vice-chair of chairman. He will provide scott seven from the east Midlands AGn International since 2011. with advice on macroeconomics have joined Mazars uK. McQuaid is the managing and geopolitical issues. partner of an Ireland-based Baker Tilly UK has promoted accountancy firm duignan KPMG appointed Gary Reader nine partners and 11 directors carthy o’neill. He has 35 years’ (pictured) as global head across the firm, mostly former experience in audit, accounting of insurance, effective on RSM Tenon staff. Baker Tilly UK and business consulting.

2 y October 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin AnALYsIs/FIrM MoveMenTs news

uK Grant Thornton UK reports double-digit growth

rant Thornton UK has reported Barnes also said audit fee pressure Barnes said that due to the strong a 13% rise in fee income to continued to be strong and that debates performance he still expects the firm to be £471m ($755.1m) in the year such as the UK Competition Commission’s ahead of new competitors Baker Tilly UK to 30 June 2013. audit market concentration inquiry have and BDO UK, which have both almost G helped towards encouraging companies to Grant Thornton UK chief executive doubled in size through recent M&A Scott Barnes attributed the growth to the put their audits out to tender. activity. BDO UK merged with PKF UK strong advisory services performance earlier in the year and Baker Tilly UK (up 21%), with forensic, business risk Transactions has just bought RSM Tenon in a pre-pack services and public sector services as top Barnes said tax services were flat year- deal in August. advisory performers. on-year, which is partly down to less “Those two deals have created bigger The firm also reported a fee income transactions work. businesses. We are probably about £100m increase of 9% in audit which Barnes partly “There was a slight decline in services bigger that those two firms given our attributed to the work acquired from the such as corporate finance advisory and growth,” Barnes said. abolished Audit Commission. M&A work, which are reducing year-on He also said he’s not surprised by these “We had about two-thirds of the year of year. This might improve a bit in the coming moves as firms are finding it increasingly Audit Commission work in the numbers as year but it is still quite patchy. I would hard to grow organically. Despite the we took on the people and started working expect there to be more transactions next increase in consolidation Barnes said the on it last October. We expect revenues from year,” Barnes said. firm has no large scale deals in mind. Audit Commission work to increase in the Grant Thornton UK also said distributable “We will continue looking for next year,” Barnes told the International profits rose 6% over the period and the niche acquisitions that support our Accounting Bulletin. average profit per partner rose by 4.2%. strategy,” he added. < FirmMovements

BDO International has added JF Group BDO Liechtenstein, was founded in Geneva Group International has Italian Baker Tilly International in Myanmar and Sylvester Leong & Co 2007 by current managing partner added Brussels-based DGST Reviseurs member, Baker Tilly Revisa, has in Brunei to its network. Herbert Bischof. The firm has five D’entreprises to its association. merged with Italian firms Bompani JF Group provides audit, accounting partners and nine staff and is DGST is led by 17 partners, employs Audit and Iter Audit. and financial consultancy services. headquartered in Schaan. For 2013 a staff of 35 and has nine offices The network said Bompani Audit It is led by Wan Tin and was the firm expects revenues of €2m throughout Brussels and the Walloon reports annual revenues of €2.5m established in Yangon in 1990. Wan ($2.7m). region. ($3.39m) and has offices in Florence is a member of the central executive and Rome. Abacus worldwide has added two committee of the Myanmar Institute nexia International has added Iter Audit has offices in Rome and members firms as it celebrates its of Certified Public Accountants and bulgarian firm Anda consulting Brescia and is said to earn €1.5m in first anniversary. has previously worked with PwC’s and polish firm Advicero Tax to its annual fee income. The additions are sTL Alliance Myanmar representative U Hla Tun & network. Limited based in Hong Kong and HLb International has added the Associates. based in sofia and varna, Anda suárez oramas & Asociados from firms expat norway, dataplan and consulting was established in 2006 Sylvester Leong & Co is one venezuela. pAA Tax Legal consulting to its and has three partners and seven of Brunei’s larger chartered sTL Alliance has two partners and 20 network in norway and Moldova. professional staff. It offers audit, accountancy firms according to BDO total staff specialising in audit and expat norway and dataplan are International. The network said tax services for the manufacturing, accounting, due diligence and norway-based firms which provide the addition will complement BDO wholesale distribution and retail, consulting services to a wide range tax, accounting and advisory Consulting Sdn Bhd which was set up construction, and engineering of industries. services. in 2012 to provide advisory services industries. Advicero Tax is headquartered in pAA Tax Legal consulting is in Brunei. suárez oramas has two partners warsaw with one partner and 10 based in chisinau, Moldova, and This month BDO International also and 15 staff specialising in audit staff offering accounting, audit, provides accounting, tax and added Pro Finance International (PFI) and tax services for the textile, tax advisory and legal services, advisory services to clients in the of Liechtenstein to its network. hospitality, aviation, construction mainly to the real estate, retail and telecommunication, trade and PFI, which has now been renamed and pharmaceutical industries. renewable energy sector. agricultural sectors.

www.InternationalAccountingBulletin.com October 2013 y 3 news AnALYsIs International Accounting Bulletin

Deloitte overtakes PwC as largest global network Deloitte becomes the largest global accounting firm for the second time in three years in a race to the top that’s far from over. Ana Gyorkos reports

or the second time in the past three ■ rAce To THe Top years Deloitte has claimed the title of revenue ($bn) Year-on-year growth Assurance ($bn) Tax ($bn) Advisory ($bn) largest global accountancy network Deloitte 32.4 3.5% 13.1 6.1 13.2 as PwC reported global revenues of F PwC 32.1 2% 14.7 8.2 9.2 US$32.1bn in the year to 30 June 2013, Source: PwC and Deloitte Annual Reports up 4% at constant exchange rates and up 1.8% year-on-year. ■ deLoITTe And pwc bY reGIon In September, Deloitte reported revenues deloitte ($bn) pwc ($bn) of $32.4bn in the year to 30 May 2013, up North America 15 12.0 3.5% year-on-year. Deloitte and PwC have been neck and Central and Latin America 1.3 1.0 neck for the past few years with Deloitte Europe 10.3 12.6 nudging ahead for the first time in 2010 Asia-Pacific 4.9 5.3 by just $9m. It’s lead, however, was short- Middle East and Africa 0.9 1.0

lived as PwC yet again claimed the global Source: PwC and Deloitte Annual Reports number one spot in 2011 and 2012. the strength of the PwC network, and our mies. After five years of crisis, recession PwC’s tax ($8.1bn) and advisory revenues investment in the quality of the work we do and slow growth, we see some positive signs ($9.1bn) were up year-on-year, 3% and for our clients. of sustainable recovery. The US and Japan 5% respectively. “Over the next three years we plan to have returned to growth and the eurozone is However, assurance services were down invest over US$1bn in the development of emerging from recession. slightly by $103m or less than 1% to $14.7bn. PwC’s operations around the world, with a “On balance we are cautiously optimistic, PwC global chairman Dennis Nally said: particular emphasis on emerging markets, and predict real global growth in the coming “PwC’s firms around the world have con- and growing client offerings such as cyber year of 3%.” tinued to increase revenues despite ongoing security services and risk assurance. PwC revenues were down slightly in most tough economic conditions and increasingly “Economic growth in the developing mar- regions year-on-year. However at constant fierce competition in our markets. That kets, though slowing, continues to outpace exchange rates only Australia and the Pacific gives testimony to the talent of our people, expansion in the more established econo- were down by 1%. PwC Americas revenues were up with North America reporting 7% growth and South eY reports 6% revenue growth America 9% at constant exchange rates. EY has reported annual revenues of In Asia-Pacific EY increased revenues by However year-on-year, due to currency US$25.8bn in the year to 30 June 2013, up 4% despite a challenging economic back- exchange rate variations, South America 6% year-on-year and up almost 8% in local drop and led by the growth of the China revenues were down by less than 1%. currency terms. (10%) and Vietnam (14%) practices. Middle East and Africa revenues were flat EY reported organic growth across all its EY said it recruited 38,000 people in the year-on-year, but at constant exchange rates main service lines with assurance growing past fiscal year, comprising 24,000 gradu- up 7%, mainly attributed to the “benefits of 4% to $10.9bn, tax increasing by 7% to ates and 14,000 experienced staff. a consolidation of PwC firms across Africa”. $6.9bn, and advisory 18% to 5.8bn. More than a quarter of the firm’s new Western Europe revenues were down 1.3% The global firm attributed the strong partners are women – 131 out of 520. (up 2% at constant exchange rates) and East- organic growth to the “strategic focus on The global firm also rebranded from ern Europe was flat year-on-year and up 3% leveraging all our core consulting and tech- Ernst & Young to EY in July this year. at constant exchange rates. nology competencies on delivering trans- For the future, EY chairman and chief In Asia growth levels stalled, on aver - formational risk and performance improve- executive Mark Weinberger said: “Over age down 0.6% year-on-year and up 2% at ment services in high-growth sectors”. the next three years we will spend $400m constant exchange rates, attributed to the Regionally, Americas revenues were up by on improving our audit methodologies and “increasingly competitive market for assur- 10.4%, with the firm’s US practice said to tools to continue to enhance audit quality. ance services and the slowdown in economic have grown 10%. At the same time a major investment in tech- growth across the region, and in China and Europe, Middle East, India and Africa nology and services, $1.2bn over the next India in particular”. revenues were up 7% with the strongest per- three years, will deliver transformational Overall PwC increased its headcount by formers being Turkey (19%), India (17%), technologies to help EY better connect 38,000 new recruits with the total workforce the Middle East (13%) and Africa (11%). with our clients.” now at 184,000, up 2% <

4 y October 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin AnALYsIs news

Europe pushes ahead with mandatory rotation After more than three year the European audit reform is ready to go to trialogue and, with mandatory rotation and some restrictions to non-audit services likely to make it into the final document, perhaps Europe is about to see less watered-down regulation than previously expected. Ana Gyorkos reports

his month saw the European Coun- after three years, move to its final The Association of Chartered Certified cil under the Lithuanian presidency stage, the trialogue. Accountants (ACCA) technical director Sue propose 10-year mandatory audit The trialogue meetings are to start at the Almond said the Council’s stand is a clear firm rotation for EU companies in end of October with internal market and sign that mandatory audit firm rotation is T services commissioner Michel Barnier rep- their version of the audit reform document. likely to be implemented in the EU. The Council’s proposals allow for some resenting the European Commission, Legal The time frame for the duration of rota- exceptions such as 15-year mandatory rota- Affairs Committee (Juri) rapporteur Saj- tion still needs to be agreed (see table) as all tion for the audit of credit institutions and jad Karim representing the EU Parliament three parties currently have different views insurance undertakings in case of public and the Lithuanian Presidency represent- on the time scale of rotation. tendering; 20 years for audits of credit insti- ing the Council. As often stated by industry experts reme- tutions and insurance undertakings in case dies such as retendering and rotation would of joint audit; and 20 years for the audit of Trialogue process address some stakeholder concerns about other public interest entities in case of public Grant Thornton International director Nick long tenure and possibly signal new oppor- tendering or joint audit. Jeffrey said the trialogue process is likely tunities for the mid-tier. The move signals all three bodies – the to consist of several official and unofficial However, the Big Four have vocal - European Commission, European Par - meetings and a final legal text is possible by ly argued it would harm audit quality liament and the Council – are now in the end of the year. and raise costs. agreement that mandatory rotation is the However, if no agreement is reached by right solution for the European statuto - the end of February 2014 the reform could restriction on non-audit services ry audit market. come to a standstill due to the European While the EU Parliament suggested in its It also means the debate can now, Parliament elections in May. document that no additional restrictions are to be made on firms offering non-audit ■ AudIT TrIALoGue MAIn poLITIcAL Issues services to audit clients, the European Mandatory rotation restrictions on non-audit european supervision of the Council and European Commission disa- services audit sector gree, which is likely to make this provision European Commission Every six years with a four- year “Audit firms will be prohibited The EC said the European one of the main political issues during tria- cooling off period before from providing some non-audit Markets and Securities logue discussions. tendering again services to their audit clients if Authority (ESMA) should be non-audit fees exceed 10% of required to issue guidance The Council suggested fees from adviso- audit fees. on several issues such as, for ry services apart from the ones on a “black For large audit firms a example, on the content and list” are to be limited to no more than 70% suggested separation of audit presentation of the audit activities from non-audit report and audit committee of the average of the fees paid in the last activities in order to avoid all oversight reports. three consecutive financial years by the risks of conflict of interest.” audited entity for the statutory audit. European Parliament Every 14 years, but if an audit No restrictions or limit on the Mostly amended or deleted Almond highlights there has been lit - (led by Juri committee) is shared and a comprehensive provision of non-audit services articles referring to reporting tle information on what the Council per - review is carried out, the as long as an audit committee to ESMA and ESMA oversight. longest time for an audit approves those services. The ceives as the “black list” and she expects engagement can be 25 years. audit-only firms provisions that to be a key topic of discussion during deleted from the document. trialogue meetings. European Council Every 10 years apart from Fees from advisory services Against ESMA being According to Jeffrey the 70% limit could every 15 years for the statutory limited to no more than 70% the oversight body for audit of credit institutions and of the average of the fees paid the profession and said mean that about 20% of audit committees insurance undertakings in in the last three consecutive cooperation through the might have to think more carefully about the case of public tendering; every financial years by the audited Committee of European company’s suppliers of non-audit services. 20 years for the statutory entity for the statutory audit. Auditing Oversight Bodies audit of credit institutions and Also, refers to services on should be applied. IAB contacted all the Big Four firms in insurance undertakings in case a “black list”, however no the UK and asked what this provision would of joint audit; and every 20 explanation on what those mean for their business. years for the statutory audit of services are. other Public Interest Entities However they either declined to comment in case of public tendering or or didn’t respond by the time this article joint audit was published. < Source: IAB

www.InternationalAccountingBulletin.com October 2013 y 5 news AnALYsIs coMpeTITIon International Accounting Bulletin

Commission settles on 10-year retenders While Europe contemplates mandatory audit firm rotation the UK Competition Commission has decided to impose 10-year mandatory retendering for the UK FTSE 350. Ana Gyorkos reports

K FTSE 350 companies will to compete regularly for business and show understand how the CC has reached the have to put their audit out to they’re up to the mark”. conclusion that, in their view, companies tender at least every 10 years, “This will help them prepare for and are offered higher prices, lower-quality according to the final decision by counter any perceived lack of experience, audits and less innovation, particularly U resources and reputation which may have given that the CC has found no evidence the UK Competition Commission (CC) investigating competition levels in the hindered them from winning FTSE 350 to suggest that auditors are profiting from statutory audit market. audit engagements in the past. In effect they audit above competitive levels, that we fail The CC initially suggested mandatory will more frequently be able to compete on to challenge management or exert undue retendering every five years; however several a level playing field,” she says. influence on the market.” critical letters of were received by the CC The decision to move from five to 10 Institute of Chartered Accountants calling for guidelines more in line with the years retendering was mainly welcomed in England and Wales (ICAEW) chief UK Financial Reporting Council’s (FRC) by the industry, however there are still executive Michael Izza says the CC has Corporate Governance Code prescribing uncertainties mainly connected to the EU listened to feedback from the business retendering on a ‘comply or explain’ basis audit reform process and the long-standing and regulatory communities about the every 10 years. However, the CC’s final divide between the views of the Big Four additional costs and disruption five-yearly decision mandates retendering after 10 and the mid-tier. retendering would cause. years with no ‘comply or explain’ option. “The requirement to tender every 10 The CC says: “No company will be able to striking a better balance years is more in line with the recently delay beyond 10 years, and the CC believes KPMG EMA head of audit Tony Cates introduced 10-yearly tendering on a that many companies would benefit from says the firm believed that a 10-year tender ‘comply or explain’ basis by the FRC, which going out to tender more frequently at process “strikes a better balance between, has already seen signs of more frequent every five years.” on the one hand, allowing an auditor to tendering taking place.” The CC says that if companies choose get under the skin of complex, global However, it is regrettable that the not to go out to tender every five years, the businesses and provide real insight and CC did not have full faith in the FRC’s audit committee “will be required to report management challenge while, on the other requirement,” Izza added. in which financial year it plans to put the hand, ensuring an effective and rigorous The CC final decision comes a week audit engagement out to tender and why tender process to choose the best auditor. after EU audit reform was given the this is in the best interests of shareholders”. “Following the FRC’s announcement green light to go to its final stage, with The Commission also says it considered last year, we are already seeing most large mandatory rotation looking as a likely the FRC’s ‘comply or explain’ provisions companies detailing their tender plans in remedy for the European statutory audit carefully, but “did not think that a their annual reports. Whilst we continue to market (see page 5). company should be able to delay tendering believe that the ‘comply or explain’ principle Any decision at EU level could overwrite beyond ten years”. is an appropriate basis for UK corporate the CC’s decision for the UK audit market. CC audit market investigation group governance in that it provides discretion Deloitte UK head of public policy and chairman Laura Carstensen says: “After to audit committees, overall the final CC’s managing partner David Barnes warned listening carefully, in particular to remedies complement the recent FRC that there will be “some uncertainty until shareholders whose interests have been our changes which have resulted in stronger the position in Europe is finalised” in main focus, and the FRC, we have decided audit committee engagement, increased regards to what is the final verdict for the that 10 years is the appropriate backstop audit tendering, and more detailed audit UK statutory audit market. period for mandating that the audit committee and auditor reporting,” he adds. Mazars head of UK public interest engagement be put out to tender. Whilst we EY UK welcomed the CC’s decision to markets David Herbinet says the CC’s think many companies would benefit from move away from five-year retendering, decision is not the final chapter as a greater frequency of five years (and that an however the firm says that after two years “significant change could also come to increasing proportion would benefit from of investigations and several thousand pages the UK listed audit market by way of EU going to tender as the period since the last of evidence, “the CC has failed to provide legislation, which has a much wider scope tender process lengthens), we have accepted evidence of a lack of competition stemming covering a broader spectrum of companies that requiring this in all cases could dilute from the conduct of auditors and that any outside the FTSE 350”. the benefits we all want to see. issues that have been identified are a general The Association of Chartered Certified Carstensen adds that the mandatory symptom of the market”. Accountants (ACCA) technical director tendering remedy will “open the door to EY UK managing partner for assurance Sue Almond says the CC decision provides other auditors who now have the chance Hywel Ball says: “We are at a loss to an opportunity to strengthen the FRC’s

6 y October 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin coMpeTITIon news AnALYsIs

wHAT THe cc FInAL reporT reALLY MeAns For uK FIrMs? IAB speaks to bdo uK senior audit partner James roberts and pwc uK head of regulatory affairs Gilly Lord

IAB: What does 10-year retend- that the mid-tier couldn’t do and what this decision. So if investors want five-year ering mean for UK businesses? are their options in terms of supply aris- tendering, they can use this to make it hap- James Roberts: I don’t think companies ing from more frequent retendering? pen. If they want 10-year tendering, then will wait to the end of that period because Roberts: There are about 35 companies they can let that happen as well. it would be too risky if you’ve got difficult in the country, either because they are in transactions etc. I think companies are like- a specialist sector or their share size, we IAB: Do you think there is a poten- ly to retender more like every eight years. wouldn’t be able to audit, eg large banks. tial supply issue because of tendering? If you leave it to the last minute you’ll get So we wouldn’t bid for audit. As for sup- Lord: I think more thought might be something you don’t want like a hostile bid. ply, if you are using one firm for corporate required from audit committees as to how finance, one firm for tax, one firm for some- exactly they’re going to award the audit IAB: Will it make the market more dynam- thing else, you will have to reshuffle your and non-audit services, and consider how ic and do you foresee any supply issues? suppliers. Quite awkward. I don’t think the those two things could work together. Par- Roberts: I hope the market will become CC has really addressed this issue. ticularly given the reforms we may see in more dynamic. It’ll take time; first we have Europe, which may hike the requirement to see what happens with the EU legisla- IAB: What are your thoughts on the for non-audit services. So I don’t think there tion. Over time there might potentially be a move from five-year retendering to 10? is a supply issue, but I do think there will be problem in terms of supply, because you’ve Gilly Lord: There was a lot of response more thinking required. got four giant firms and I think the large from investors and audit committees who mid-tier needs to demonstrate to the mar- wrote to the CC saying five-year tendering IAB: What about the EU’s decision? ket that it is worth taking a risk of moving isn’t the right answer. And the CC, quite Lord: I find Europe difficult to predict, away from the Big Four. We have to work rightly, listened because ultimately they are although I wish I could, as we’d all like to hard to find propositions of value. the customers of our audit and they’re the have a sense of where it’s going. I think I people the CC should be trying to help. I now feel it’s more likely we’ll get some IAB: For example, like the recent like the way the CC bridged their original resolution in this parliamentary mandate. merger of your firm with PKF UK? five-year tendering position to their new If we get resolution it seems it will prob- Roberts: Yes, that helps in terms of scale. position of 10-year tendering. The CC says ably include some kind of mandatory firm But particularly looking at specific sectors that at five years audit committees have got rotation. There are lots of ‘ifs’ there, but such as retail, real estate etc. to report the decision they’ve made with its feeling likely we’re going to get it final- regards to tendering. I like this because it ised and, if it is, I think there’s going to be IAB: Are there tenders in the FTSE 350 gives investors a real route to take part in mandatory rotation. existing recommendation and “with The CC also says there will have to be more flexibility on implementation than mandatory rotation likely to come from a shareholders’ vote at the AGM of FTSE was originally envisaged and we will the EU in the next few years anyway, 350 companies on whether audit committee consider the implications to our resource introducing a five-year requirement to reports in company annual reports and funding requirements. “We note the tender right now (as the CC had earlier are satisfactory. recommendation that the FRC should proposed) would have caused a burden and The CC also prescribes for the FRC’s change its articles of association to have confusion for businesses at a time when Audit Quality Review (AQR) team to due regard to competition. We will consider they need to be concentrating on their core review every audit engagement in the FTSE this carefully in light of our mission and business activities. It would have meant, 350 on average every five years. The audit responsibility to promote audit quality.” potentially, the audit rules changing three committee should report to shareholders on The FRC has in the past warned against times over a few years,” she adds. the findings of any AQR report concluded the CC’s AQR prevision saying additional In the final remedies announcement the on the company’s audit engagement during and more frequent inspections might require CC says that in order to strengthen the the reporting period. more funding and could “undermine the accountability of the external auditor to the Additionally, the CC says the FRC FRC’s current risk-based approach to the audit committee and reduce the influence should amend its articles of association selection of audits for inspection”. of management, only the audit committee to include an objective to have due regard Regardless of any open questions and is permitted to negotiate audit fees and to competition. the EU process, the CC investigation influence the scope of audit work, initiate In response to the CC final report the has come to an end and with it the four- tender processes, make recommendations FRC said: “We note that the summary year long process, which started as for appointment of auditors and authorise report recognises the valuable contribution parliamentary investigation questioning the the external audit firm to carry out our AQR work makes to audit quality. The role of UK auditors and the market in the non-audit services. proposals relating to that work provide financial crisis. <

www.InternationalAccountingBulletin.com October 2013 y 7 coMMenT Anders Heede International Accounting Bulletin

Consolidation will transform the mid-market within the next five years BDO International global head of network development Anders Heede speaks about accounting market consolidation and explains why he believes that in five years only two of the three truly global mid-tier networks will remain

s my firm, BDO, marks won’t have the resource to invest its 50th year, I believe in key developments (infrastruc- the accountancy pro- ture, tools and people) and ulti- fession is on the brink mately their cohesiveness will be A challenged. of a true global transformation. The transformation I’m talking about is the consolidation of pressures mid-tier accountancy firms. It’s For many, the pressure looks set a trend we’ve already witnessed to continue. Stressed margins for some years among the very will undoubtedly impact lower largest networks and it is now earning firms, forcing them to repeating itself for the mid-tier. seek scale benefits and synergies. Let me illustrate the scale Only the strongest and most of transformation I believe is capable networks, those able to coming. I predict by 2018, only meet the increasingly sophisti- two or three truly global mid- cated needs of mid-market busi- tier networks will remain. The nesses, will be left standing. impact of this will be far-reach- At BDO, we have actively pur- ing, not just for our profession, sued a strategy that will drive but for those we serve too. further mid-market consolida- The core client base for mid- tion. We are continuing to grow tier firms, small and medium- our network both organically sized companies, are increasingly seizing geography. They need professional services and by merging with strong firms that opportunities for international expansion. firms with the depth of skills and sector share our values and add to our strengths. In fact, according to Eurostat figures, 44% expertise and local knowledge to help them For example, our biggest, most recent of all EU SMEs already have international navigate risks associated with expansion. merger with PKF in the UK has resulted activity, and this is only likely to continue At the same time they need advisors with in a firm of 3,500 people with revenues as they purse global growth markets. the global infrastructure and centralised approaching £400m. Much like for larger corporates, this processes to deliver high-quality work and As we grow, we are continuing to invest internationalisation will not only bring tailored market-by-market service as their in markets and areas that set us apart and, them opportunity – it will also carry organisational structure and activities importantly, matter to our clients. As such, risk. In order to navigate the challenges become more complex. This applies to all last year BDO Li Xin merged with a sig - of expansion, and realise the potential forms of advisory – in particular auditing, nificant part of PKF China, strengthening across global markets, ambitious SMEs where scrutiny has never been greater. BDO Li Xin’s position as the largest Chi- will increasingly need professional services To be able to deliver all of this requires nese owner-managed audit CPA firm and firms to help them. investment – investment that many mid- the market leader in serving state-owned But these mid-sized companies have tier firms simply cannot make or sustain. enterprises in China. different needs and service expectations This is clearly evidenced by the number of Consolidation is inevitable and neces- to their larger counterparts. They aren’t firms we’ve seen leave the market in recent sary and denial is not an option. We have always best served by the largest firms, times because they have struggled to com- recognised this and, as such, have founded who have traditionally catered for the pete in a fiercely competitive market – a our long-term strategy in there being a demands of large corporates. In fact, our market where surplus capacity has pushed transformed mid-market. I believe it is now own research in 2011 showed 40% of UK prices down by some 15 to 20% over the time for the rest of the mid-tier to recognise SMEs are unhappy with the service they past four years, according to our own the change that’s coming, take control and receive from their current advisors. analysis of larger European markets. This plan for it. What’s clear is they expect exception - pricing pressure, combined with ongoing Our profession and the clients we serve al and consistent service, regardless of economic uncertainty, means weaker firms are counting on it. <

8 y October 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin TAx In AFrIcA FeATure

Africa’s taxing problem As tax planning practices of multinationals are under great public scrutiny and pressure mounts to close tax loopholes, there is an entire continent suffering from haemorrhaging tax revenues due to faulty tax practices and rules opened to abuse. vincent Huck reports

n the wake of the 2008 financial crisis the revenue authorities. “It is firstly a lack regional level.” the rising demand from the public for of financial resources, as many of the Away from domestic issues African coun- more transparency and accountability companies operating in Africa have revenues ties are also affected by tax issues at an on the part of businesses has put tax that surpass the GDPs of the countries they international level such as the secrecy of I operate in,” he says. “But most importantly tax havens and the issues around transfer evasion, tax avoidance and tax planning under the spotlight. the revenue authorities also suffer from pricing, tax evasion, tax avoidance and tax If up to now the international community understaffing.” planning. seemed reluctant to address the issue, 2013 APP head of communications Edward Harris explains: “The issue is the way saw a number of important developments Harris agrees: “Nigeria for example has the international system works, allowing that intensified the debate. In June, the G8 5,000 tax and custom officials for a popu- for easy flows of large amount of money under the UK presidency, called for greater lation of 140 million. In comparison the between different countries. You can work transparency with regards to tax authorities Netherlands counts 30,000 tax and custom and make profit in a country, but the inter- in order to tackle tax evasion. In July, the officials for a population of 10 million.” national financial system allows you to shift Organisation for Economic Co-operation your profits to a much lower tax jurisdiction. and Development released its Action Plan bribes and intimidation It might be legal, but it’s unfair.” on Base Erosion and Profit Shifting. And in This lack of resources undermines the capac- September, the G20 carried on the discussion ity of revenue officials to perform their job Accounting firms’ role on reforming tax internationally. and, according to TJN research, makes them For Mosioma accounting firms are at the Tax evasion, avoidance and planning, increasingly receptive to bribes and easily heart of the problem, because they advice as well as transfer pricing are global issues intimidated by any type of lobby. “Moreo- multinationals and approve their accounts. which affect every country, rich or poor, but ver, as a consequence revenue officials often “Who designs tax minimising and tax plan- the consequences on developing countries end up leaving the public sector and work- ning tools? The accounting firms and espe- are greater. For Africa in particular the scale ing for private companies or even accounting cially the Big Four,” he says. of harmful tax practices affects the capacity firms,” Mosioma says. Grant Thornton UK tax director Mike of the continent to develop. He describes the situation as a vicious Warburton says accountants are in a dif- circle from which it’s difficult to escape. “It ficult situation stuck between their duty to Africa’s losses is basically a need of capacity building,” he the public and their duty to their clients. “It’s Earlier this year, the African Progress Panel says. “It could come internally, as a percent- their jobs to make sure their clients are com- (APP) released a report on equity in extrac- age of the revenues collected by the authori- pliant with the law,” he says. “But it’s also tives, which reveals Africa loses $38.4bn a ties are kept for their own administrative their obligation to help their clients save tax year in trade mispricing, while receiving work. The more they are able to collect, the if requested.” $29.5bn in aid. The report also states Africa more they are able to keep. This could be an Harris believes it’s necessary to draw a loses another $25bn annually in other illicit incentive to empower revenue authorities.” line between what is strictly legal and what outflows, such as funds illegally earned, Other resources can come from external is ethical. “Tax avoidance can be legal in the transferred or utilised. initiatives. For example a part of the finan- strict sense of the word, but the scale of it is Tax Justice Network (TJN) Africa director cial aid from the West is directed to the so big that it has gone out of control and it is Alvin Mosioma explains: “African countries empowerment of tax administration. But completely unethical,” he says. face a number of challenges in their efforts to some initiatives also exist at the continental Mosioma questions where this duty to raise revenues from tax due to both domestic level, such as the African Tax Administration the public is and asks if it’s just a myth. “Do issues and to the international context.” Forum, of which Mosioma says “there are they want their clients to continue investing At the domestic level, Mosioma says ongoing processes that will be key to enhanc- in a country where the laws are disrespected, the main challenge is the weak capacity of ing the capacity of revenue authorities at a where governments are not able to support

www.InternationalAccountingBulletin.com October 2013 y 9 FeATure TAx In AFrIcA International Accounting Bulletin

education, where human resources are made more transparent if they answer questions one of them?” he asks. “The right direction available for them to exploit,” he asks. such as: where are their tax structures and is towards multilateral tax agreements at the “All these issues are tackled with tax. So how can they justify these tax structures? international level.” if it’s their obligation to undermine tax for Stroeve says: “In many cases it’s not about They might not agree on the nature of the their clients, where does the public interest avoidance, and the tax planning is often not regulatory changes, but all the stakeholders stand in a logic of profit maximisation?” really aggressive tax planning. Ultimately it involved in the debate: firms, international Harris and Mosioma agree accounting can be explained from a business and com- organisations, NGOs and governments firms and accounting bodies have a role to mercial perspective.” agree that a change in regulation is needed. play in tackling the issue. Mosioma believes “The rules of the game are more important accounting firms can be part of the solution double taxation than relying on the voluntary mechanism of by providing advice to multinationals which For Stroeve the main objective of tax plan- the players,” Mosioma says. in the long term will serve the public. ning is to avoid double taxation. “Of course He also believes, to a certain extent, in some instances companies are looking at International authority accounting firms and accountants can making a competitive benefit which requires And here lies another problem: at present provide expertise to government, such as tax planning,” he says. “But because of there is no international authority whose the OECD Tax Inspectors Without Borders shrinking budgets more countries are trying sole purpose is to administrate tax on the project (see box). to get more money through the door and, global scale. The UN and the OECD are Harris also sees another opportunity for more often than not, one euro is taxed on perceived to be in different camps, with the firms and accountants. “By proving their both sides. So it’s about paying your fair OECD believed to be the “rich countries’ integrity and professional morals, they are share, but not paying it twice.” club” defending the interest of the US and going to be part of the equation of shifting However, Mosioma argues that avoidance Europe, while the UN is seen as the advocate a global mindset away from tax avoidance,” of double taxation only leads to double non- of developing countries. But the creation of he says. “We need to shift the way we think taxation, and bilateral treaties on double an international body solely devoted to tax about tax and accounting. The global tax taxation isn’t the way forward. “If a country issues might be a solution, as Mosioma says: system isn’t fit for purpose and hasn’t caught like Kenya signs 100 bilateral agreements “The World Trade Organisation exists, so up with the rapidly changing world. It needs how will it have the capacity to enforce each why not the World Tax Authority?” reforming.”

reform on the way Tax Inspectors without borders Some, like OECD Centre for Tax Policy The Organisation for Economic Co- and they know the main issue they will and Administration director Pascal Saint- operation and Development (OECD) is face is related to transfer pricing,” Saint- Amans, argue that reform is on its way. In expected to start a new programme called Amans says. July the OECD released an action plan on Tax Inspectors Without Borders (TIWB) “If they don’t have a transfer pricing BEPS which sets out 15 actions for study in the spring of 2014. expert they can get one that matches their over the next two years. Most of these will TIWB will complement the assistance needs from the roster to come and assist result either in changes to OECD guidance, given by international organisations and for the period of the audit, as part of the for example on transfer pricing, or to the non-governmental organisations to tax team and under the supervision of the OECD Model Tax Convention and recom- administration in developing countries. local team manager. mendations to support domestic govern- OECD Centre for Tax Policy and “Ideally by working with the local ments. An instrument is also proposed to Administration director Pascal Saint- team, under the supervision of the local enable amendment of tax treaties without Amans explains: “In addition to all the manager, the tax expert would transfer his the need for renegotiation. assistance that’s going on and which is knowledge to his colleagues.” “On the one hand it’s positive. It has taken good, we felt that there was a need for a For Saint-Amans the benefits are mul- so much effort to reach this moment where short-term, more targeted type of initia- tiple: “We’re transferring knowledge the OECD and the international bodies rec- tive. through hands-on experience so develop- ognise the importance of this issue,” Mosio- “That’s why we came up with the idea ing countries may learn more. ma comments. “However we are concerned of Tax Inspectors Without Borders in “It clearly addresses their needs as they that it’s just a declaration of good intention 2012.” are the ones who express what they are and nothing happens after that. These decla- TIWB will essentially be a roster of tax looking for. rations by the G8, G20 and the OECD have experts, some of whom will be working “And it’s cost-effective because they are to be acted upon and should not remain for accountancy firms, nominated by targeted assignments.” political rhetoric.” OECD countries, at the disposal of devel- Saint-Amans says ultimately TIWB Mazars partner and tax advisor Erik Stro- oping countries for short missions. should be run by a foundation, but in eve believes these are good developments. He “For example, an African country has the short and medium term it will remain says more reporting is obviously more time planned a three-month audit on a multi- in the OECD and the funding will come consuming and may be burdensome for mul- national working in the mining industry from development agencies. tinationals, but it would make their dealings

10 y October 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin russIA counTrY surveY

Between innovation and old practices As Russia’s accounting industry finds itself between regulatory changes enhancing the quality of the profession and old practices harming its overall reputation, vincent Huck finds optimism and willingness to adapt to a changing world among firm leaders

n 1908 the founder of the International which changes take place and with illegal ■ russIA Olympic Committee Pierre de practices such as black audits. Coubertin said of the Olympic The International Accounting Bulletin At a glance Games: “The most important thing has for the third consecutive year revenue I encountered slipping levels of transparency is not winning but taking part”. Since then, his words have been widely repeated and among the country’s Big Four players. Most revenue: KPMG, RUB9,428m applied across many aspects of life. While only EY Russia refused to take part Least revenue: INPACT Int., RUB19.3 As Russia prepares to host the Winter and report its fee income to the IAB three Highest growth: EuraAudit Int., 868% Olympic Games in less than a 100 days years ago, now Deloitte and PwC have Lowest growth: BDO Int., -19% hopefully de Coubertin’s words will set the followed suit due to the lack of participation tone for the sporting events. However when of one of the Big Four firms. sTAFF it comes to Russia’s accounting market This year only KPMG Russia reported Largest workforce: KPMG, 3,043 competition can rarely be referred to as fair. its revenue’s to the IAB, which were up smallest workforce: Reanda Int., 30 As the world sets its eyes on the Russian 2% to RUB9.4bn ($229.3m). Most partners: KPMG, 77 Federation for the Games it will see a Most offices: EuraAudit Int.,70 stable economy in better shape than The mid-tier most of its European neighbours. Russia Among mid-tier firms, the most notable econoMIc IndIcATors reported a 3.4% growth in GDP in 2012 development is the growth of HLB Russia national Gdp: RUB, 62,356.3bn according to the International Monetary which reported RUB 4.1bn in fee income national Gdp growth: 3.4% Fund and forecasts predict much of the and climbed the ranking table to first Gdp per capita (ppp): 17,709.74 same in the coming two years. On the place behind the Big Four. The increase in Inflation (cpI): 9.1% other hand, Russia is likely to continue revenues can be attributed to the addition 4.0% being exposed over issues linked to human of Energy Consulting, a firm specialising current Account balance: rights, corruption, organised crime and in audit and consulting for the information unemployment rate: 6.0% questionable democratic practices. and technology sector. population: 143,500,000 This double-edge situation seen on the Most interviewed firm leaders told the IAB surverY IndIcATors economic and political stage can also be IAB this year’s results were the best they seen in the accounting market. On the one have had since the financial crisis in 2008. revenue per employee: RUB2,922,988 hand, regulatory reforms have unsoiled Nevertheless, the audit profession in Russia, staff density: 1 accountant per 10,649 the market and raised awareness of audit like the rest of Europe, has seen an increase people Notes: Totals apply to IAB surveyed data only. This includes quality, as well as created opportunities in in its activity, but because of fee pressure firms that belong to global networks and associations other service lines. But, on the other hand, this didn’t translate into increased revenues. Source: International Accounting Bulletin, IMF firms are still battling with the slow pace at PKF International member firm FBK

www.InternationalAccountingBulletin.com October 2013 y 11 counTrY surveY russIA International Accounting Bulletin

president Serguey Shapiguzov says: “On one profession as a whole.” end of the market, but this doesn’t mean side, like the rest of Europe, we suffer from Baker Tilly Russaudit director of audit that it’s small.” high fee pressure due to strong competition. David James agrees this practice, commonly But for Kreston International Russian But in Russia we also have a unique situation known as black audit, exists and he says member firm Marillion Audit Company as some clients are looking at buying the it’s because “not everyone in this market managing partner Sergey Kharitonov, even formal paper and not the real work behind understands the value of an audit. There though this practice is a reality it doesn’t it. The market is divided between the bigger are clients, which are only looking for a have a huge impact on the rest of the market. firms who provide serious audit and the formality”. His colleague Alexandre Sirous, “Black audit still exists but it concerns small smaller firms who mostly just provide the managing partner at Baker Tilly Russaudit, companies. If you’re a serious solid firm you paper. This is extremely damaging for our adds: “This practice only exist in the lower don’t feel this problem,” he says.

■ russIA netwOrks –fee dAtA Fee split (%)

corporate Fee income Growth Audit & Tax Management corporate recovery/ Litigation rank name (rubm) rate (%) Accounting services consulting finance Insolvency support other Year-end 1 KPMG* 9,458.0 2% 64 - - - - - 36 Sep-13 2 PwC(1) 8,731.2 3% ------Jun-13 5 HLB International* 4,146.0 822% 25 2 1 9 4 59 Dec-12 6 BDO* 3,378.0 –19% 40 4 52 3 - - 1 Dec-12 7 PKF International* 1,030.0 –4% 62 11 11 - - 11 5 Dec-12 8 RSM* 964.0 11% 38 4 29 - - - 29 Aug-13 9 Nexia International* 720.0 8% 57 14 11 - - 6 12 Jun-12 10 Kreston International* 677.7 –7% 40 9 4 2 7 - 38 Oct-12 11 Crowe Horwath 553.2 3% 23 4 52 10 - - 11 Dec-12 International* 12 Baker Tilly Russaudit* 344.2 7% 73 8 2 4 - - 13 Jun-13 13 Mazars* 307.1 9% 91 4 - - - - 4 Aug-13 14 Moore Stephens 298.0 –11 66 4 5 17 - - 8 Dec-12 International* 15 Reanda International* 36.3 57% 77 - - 15 - - 8 Dec-12 Total revenue/growth 30,643.6 13%

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) PwC provided revenues for 2012 and IAB applied the 3% growth rate quoted as growth level for the Russian firm in the PwC 2013 Global Annual Report; EY Russia and Deloitte Russia declined to participate in the survey.Source: International Accounting Bulletin

■ russIA AssOCIAtIOns – fee dAtA Fee split (%)

corporate Fee income Growth Audit & Tax Management corporate recovery/ Litigation rank name (rubm) rate (%) Accounting services consulting finance Insolvency support other Year-end 1 Morison International* (e) 2,719.4 7% 30 4 3 20 7 9 27 Dec-13 2 EuraAudit International* 2,481.5 868% 29 12 59 - - - - Dec-12 3 MGI* 1,060.5 0% ------Jun-13 4 MSI Global Alliance* 910.8 –2% 2 91 - - - - 7 Dec-12 5 Praxity* 437.1 7% 84 6 2 3 - 1 4 n/a 6 GMN International* 305.5 0% 14 85 - - - - 1 Dec-12 7 PrimeGlobal* 253.6 –5% 86 1 12 - - - 2 May-13 8 Integra International* 127.4 2% 75 20 5 - - - - Jun-13 9 INPACT International* 15.3 –15% 93 4 3 - - - - Dec-12 Total revenue/growth 8,311.1 40%

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (e) Morison International estimate. Year-end for its firm is Dec 2013. Source: International Accounting Bulletin

12 y October 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin russIA counTrY surveY

Firm leaders believe black audit is doomed Some recent changes include legislation a result, lots of them went out of business.” to disappear in future as the Russian on the procedure to obtain the audit Mazars’ Pinot explains the reform also authorities are starting to take measures for certificate. As the new law came to effect made it compulsory for an auditor to be better regulation of the profession. Mazars two years ago auditors had to pass an a member of a professional body like the Russia partner Florence Pinot explains: exam to obtain their certificates, and now Audit Chamber. “Also the control of the “Historically there was no attention given to have to undertake regular reviews and Ministry of Finance has been increased financial statements. Companies were not training each year. on the quality of audit. They organise interested and the authorities were focusing RSM Russia chair of the board of inspections on audit firms,” she says. on tax returns. This has changed; there has directors and managing partner Elena Loss Sirous of Baker Tilly Russaudit says this been a bunch of regulatory changes that says: “It resulted in a consolidation of the year, as a result of these controls, two firms show a new interest in the quality of audit market because it was very difficult for had their activity suspended for 90 days. and financial statements.” smaller firms to adapt to this change and, as “Moreover, the government is now passing

■ russIA netwOrks – stAff dAtA

Total staff Growth partners professional staff Administrative staff offices rank name 2013 2012 rate (%) 2013 2012 2013 2012 2013 2012 2013 2012 1 KPMG* 3,043 3,067 –1% 77 78 2,398 2,339 568 650 9 9

2 PwC* 2,400 2,459 –2% 90 102 - 1,875 - 482 8 8

5 BDO* 1,466 1,554 –6% 21 26 1,239 1,242 206 286 9 13

6 HLB International* 1,230 274 349% 32 13 1,037 203 161 58 14 11

7 PKF International* 699 653 7% 34 34 510 523 155 96 3 3

8 Nexia International* 630 603 4% 37 32 375 349 218 222 17 16

9 RSM* 543 544 0% 11 11 400 399 132 134 46 47

10 Kreston International* 391 423 –8% 8 8 299 321 84 94 5 5

11 Crowe Horwath International* 268 293 –9% 24 25 182 200 62 68 9 10

12 Moore Stephens International* 239 272 –12% 21 25 189 202 29 45 15 16

13 Baker Tilly Russaudit* 197 201 –2% 9 9 149 151 39 41 3 3

14 Mazars* 190 169 12% 1 2 159 141 28 26 2 2

15 Reanda International* 30 24 25% 6 5 18 12 6 4 4 4

Totals 11,326 10,536 7% 371 370 6,955 7,957 1,688 2,206 144 147

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin

■ russIA AssOCIAtIOns – stAff dAtA

Total staff Growth partners professional staff Administrative staff offices rank name 2013 2012 rate (%) 2013 2012 2013 2012 2013 2012 2013 2012 1 EuraAudit International* 621 422 47% 70 60 465 298 86 64 70 60

2 Morison International* 298 304 –2% 21 21 232 231 45 52 10 10

3 Praxity* 285 274 4% 4 5 231 242 50 27 4 4

4 MSI Global Alliance* 243 238 2% 4 13 186 186 53 39 3 7

5 PrimeGlobal* 169 191 –12% 11 13 126 143 32 35 4 6

6 MGI* 139 214 –35% 25 29 85 146 29 39 2 4

7 Integra International* 110 117 –6% 8 9 81 86 21 22 4 4

8 GMN International* 100 95 5% 9 10 61 60 30 25 4 4

9 INPACT International* 36 46 –22% 8 8 23 29 5 9 4 4

Totals 2,001 1,901 5% 160 168 1,490 1,421 351 312 105 103

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin

www.InternationalAccountingBulletin.com October 2013 y 13 counTrY surveY russIA International Accounting Bulletin

a draft law in parliament on criminal parts of the country. We see a lot of in key areas. For Mazars, increasing the liability for the financial statement for the opportunities in this area.” number of staff is the key strategy for the financial sector,” he says. “If passed into a The transaction market is another sector future. law this would mean criminal liability for where firms have seen increased activity. “We have an ambitious recruitment plan the management of these companies in a “A lot of the large European companies are and we intend to invest in people even more case of fraud.” looking to invest in Russia, because it’s then before,” Pinot says. “We have decided If a lot has already been done for the one of the few growth markets in Europe,” to focus on better recruitment and better quality of audit, interviewed firm leaders Deloitte’s O’Toole explains. “And on the retention of our teams.” agree there is still a long way to go before other hand, the larger Russian companies Branding is another challenge faced the audit profession is fully regulated. which may have peaked here in terms of their by mid-tier firms. Because the Big Four Pinot gives an example: “The fine for market share are looking for opportunities dominate the Russian market, other firms a company non-compliant with its audit to grow outside Russia’s borders.” don’t enjoy high recognition from potential obligation is still ridiculous. Firm leaders expect interest in Russia clients and consequently many of them “The repercussions of non-compliance from Western companies to grow are investing in rebranding campaigns. are so low and basic that it means that if in the coming months, but also see Loss says: “We want to ensure the RSM outcomes of an audit are not satisfactory opportunities in the upcoming customs brand is recognised as much as the Big Four, they [the company] have, in a way, full union between Russia, Kazakhstan and because our quality is not inferior to any freedom not to report it.” Belarus. “Essentially this would represent of the Big Four, but we’re less known in an expansion of the market, and the bigger Russia.” IFrs requirements the market is, the more opportunities there Audit reform wasn’t the only change in are,” Loss of RSM says. “It all depends how brand awareness regulation in Russia. As of last year the effective this union will be; there are still Mazars also highlights brand awareness Federation adopted the IFRS requirements some uncertainties with regards to this, but as a major challenge for the future. “We’re for listed companies and public interest on paper it’s a good thing.” well known among Western companies, entities. Deloitte CIS chief operation officer but unfortunately our brand isn’t very well and managing partner of audit Quentin Lack of qualified staff established in Russia, so that’s a challenge O’Toole says: “With the changes in Russia Despite growing activity, firms face the we need to address,” Pinot says. in terms of IFRS implementation a lot of tough challenge of a lack of qualified staff. Firm leaders are optimistic about the companies have to prepare their financial Loss summarises the situation: “We’re future despite some uncertainties with statements under IFRS as opposed to just looking for experts and specialists. But even regards to the economy and regulation. “It’s local accounting standards. though there are a lot of people, not a lot unlikely Russia will enjoy the growth it has “They need to transform their finance fit the profile.” had over the last years,” O’Toole says. operations, which has provided Pinot disagrees and says there’s plenty of And with the consolidation of the market, opportunities for us as clients don’t have labour force. She says that there has been mid-tier firms will have to focus attention enough expertise to do it themselves.” a deficit in the demography in the past 10 on larger clients, as Sirous of Baker PFK’s Shapiguzov agrees: “IFRS has years followed by a boom in the economy Tilly explains: “The current economic brought a lot of work and not only in audit therefore offsetting the balance between environment is a challenge as mid-size but also in advisory services.” supply and demand. companies are diminishing and we need to Advisory has also grown due to the On top of that, she says, the situation grow in order to cope with larger clients.” demand in internal control and risk is made even more difficult due to high In the coming months more regulatory management as Pinot of Mazars explains: volatility at mid-level roles. “Young people changes await the profession. First there “A lot of companies from the Russian are in demand so they expect bonuses are rumours that before the end of the traditional industries don’t have efficient and promotions which creates high year the Russian government will extend internal procedures, so there’s a lot of volatility,” she says. the coverage of companies which have to demand for financial advisory services.” Kharitonov of Kreston agrees arguing comply with IFRS. Then, early next year Another growing service line in Russia is that most of the young graduates go to work the government is expected to adopt a new tax. The country joined the World Trade for the Big Four. law on audit tendering. Organisation last year and consequently “The staff situation is not good,” he adds. “And of course the big one further ahead is has had a lot of focus on transfer pricing. “We are looking to hire young personal, the question of how Russia will react to the “Tax is very interesting new area,” James but out of 20 applications maybe only one EU audit reform,” O’Toole says. of Baker Tilly Russaudit says. meets the right requirements.” Shapiguzov The transition of the Russian market “Transfer pricing regulations similar to of PKF disagrees and says a good reputation has only started. And there’s little those existing in other OECD countries is key to attracting talent. doubt for firm leaders, that once the were introduced. Most firms will be looking to increase regulatory framework is in place and “What’s interesting is that it doesn’t their headcount in the coming months, as harmful practices removed, the existing only affect international groups but they all agree that to succeed in the Russian opportunities will only increase – no also groups with a presence in different market firms will need to hire specialists matter how long it takes. <

14 y October 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin JApAn counTrY surveY

On the long path back to growth Japan’s accounting market has faced strong downward pressure on audit and tax fees during the past year as companies and other organisations look to cut costs and target accounting services and legal fees as important areas to make savings. david Hayes reports

■ JApAn At a glance

revenue

Most revenue: Deloitte, JPY127.83bn MSI Global Alliance, omestic economic difficulties are the fiscal year. Deloitte Japan is the largest firm Least revenue: JPY30.3m main factor driving companies in in Japan with revenues of JPY127.83bn Highest growth: AGN Int., 104% Japan to cut accounting costs and ($1.3bn) in the year to 31 May 2013, Lowest growth: Deloitte, 34 other professional fees. Although up 7%. D Second-placed KPMG Japan’s reve- the Japanese economy continues to struggle, sTAFF the election of Shinzo Abe as prime minister nues were flat in the financial year ending last December and the appointment of a new 30 June 2013, compared with the previous Largest workforce: Deloitte, 7,928 government have given many business lead- year while third-placed EY Japan reported a smallest workforce:MSI Global Alliance, 7 ers hope of a recovery. 1% fall in revenue to JPY92.5bn in the year Most partners: KPMG, 713 Export industries and service sectors such to 30 June. Most offices: Deloitte, 39 as tourism have seen a pickup in activity Fourth-ranked PwC refused to take part econoMIc IndIcATors since the yen depreciation began early this in the IAB survey this year, but its revenue year following the installation of a new cabi- is estimated to be JPY59.9bn in the year to national Gdp: JPY475,867.8bn net. Consumer spending has begun to grow 30 June 2013. national Gdp growth: 2% again as Japanese households start to feel Gdp per capita (ppp): $4,627.9 more confident that economic recovery is on The mid-tier Inflation (cpI): 0% the horizon. Results among mid-tier firms in Japan show current Account balance: 0.99% With the yen now trading around 20% greater variation than among the Big Four, unemployment rate: 4.4% lower than this time last year against major due in part to mergers that have taken place population: 127.6m foreign currencies, export industries have among several local members of internation- begun to improve though imports, including al accounting firms. IAb surverY IndIcATors oil, gas and coal on which Japan is complete- BDO Japan, the fifth-largest account - staff density: 1 accountant per 4,662 ppl ly import-reliant, now cost more. ing practice in the country, with revenues Among International Accounting equivalent to about 20% of fourth-placed Notes: Totals apply to IAB surveyed data only, this includes Bulletin surveyed firms only one Big Four PwC Japan, reported a 3% fall in revenue firms that belong to global networks and associations practice, Deloitte Japan, appears to have for the past fiscal year, while Grant Thorn- Source: International Accounting Bulletin, IMF reported strong revenue growth in the past ton International in sixth place reported a

www.InternationalAccountingBulletin.com October 2013 y 15 counTrY surveY JApAn International Accounting Bulletin

6% increase in revenue for year ending Continuous client pressure on audit turing their operations in Japan which has 30 September, 2013, the overall figure being fees and stiff competition among account- resulted in an increase in audit service fees, slightly more than half the amount reported ing firms means audit services account for offsetting the audit fee decline experienced by the fifth-ranked practice. a declining share of total revenue for many from our domestic audit clients.” RSM and Crowe Horwath International, Japanese accounting firms. Long-term restructuring of Japan’s econ- ranked seventh and eighth respectively, both omy means the audit market will gradually recording double-digit revenue growth for Audit continue to contract. Kitano noted the num- the past fiscal year. RSM recorded encour- Audit is particularly important for Japan’s ber of listed companies on the Tokyo Stock aging revenue growth of 16%, while Crowe Big Four firms and for many mid-tier firms, Exchange is declining as a result of man- Horwath achieved an impressive 37% being the major service line for at least 12 agement buyouts and listed clients merging increase in the year ending 31 March 2013. of the country’s top 15 accounting practices. to achieve greater efficiency and to reduce Baker Tilly International, ranked ninth, Audit fees, for example, account for 64% operating costs in a bid to increase their reported an 18% fall in revenue, while of Deloitte’s total revenue, 76% of KPMG’s competitive edge in global markets. Reanda International in 10th place bucked and 79% of EY’s. the downward trend of lower-ranked mid- Tax work is the second-largest revenue Tax work tier practices and achieved a strong 21% source for most Japanese Big Four and mid- Accounting firms’ tax work will also revenue increase, both firms using the same tier firms, with most practices looking to be affected by Japan’s corporate sector year-end 30 June 2013. grow advisory services in future as a new restructuring though BDO is optimistic the The next five firms all saw revenue revenue source. anticipated decline in domestic tax engage- decline – HLB International in 11th place “For BDO Japan, audit services have ments will be offset by increased tax work down 5%; 12th ranked Nexia International been flat or have declined by 3% to 5% due generated through new Japanese outbound down 1%; 13th placed PKF International to audit fee pressures,” comments Soichiro investment. falling 19%; Kreston International in 14th Kitano, international division partner at “We are expecting recurring tax com- place down 5% and 15th ranked ECOVIS BDO Japan. “BDO international clients have pliance services to experience a decline as International down 3%. shown an interest in expanding or restruc- well, due to the significant competition.

■ JApAn netwOrks – fee dAtA Fee split (%)

corporate Fee income Growth Audit & Tax Management corporate recovery/ Litigation rank name (JpYm) rate (%) Accounting services consulting finance Insolvency support other Year-end 1 Deloitte* 127,830.0 7% 64 8 21 7 - - - May-13 2 KPMG*(1) 105,094.0 0% 76 12 - - - - 12 Jun-13 3 EY* 92,508.0 -1% 83 - - - - - 17 Jun-13 4 PwC* (e) 59,874.0 2% ------Jun-13 5 BDO* 11,975.3 -3% 46 39 14 1 - - 1 Jun-13 6 Grant Thornton 6,521.0 6% 73 15 2 4 - - 6 Sep-13 International* 7 RSM* 3,847.0 16% 28 12 60 - - - - Jun-13 8 Crowe Horwath 2,890.8 37% 66 15 17 - - - 2 Mar-13 Intenrational(2) 9 Baker Tilly International* 2,042.9 -18% 45 28 4 - 1 - 22 Jun-13 10 Reanda International* 1,948.0 21% 11 17 49 - 21 - 2 Jun-13 11 Nexia International* 1,606.0 -1% 91 0 8 - - - 2 Jun-13 12 ECOVIS International* 1,235.3 -3% 58 42 - - - - - n/a 13 HLB International* 1,195.6 -5% 35 45 5 - 6 - 9 Dec-12

14 PKF International* 1,113.2 -19% 86 2 12 - - - - Jun-13 15 Kreston International* 1,032.1 -5% 87 5 - - - - 8 Oct-12 16 Moore Stephens 520.0 2% 65 28 - - - - 7 Dec-12 International* Total revenue/growth 421,233.3 2%

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (e) = IAB estimate (1)KPMG’s year end is June- 13 for all service lines except tax, which ended Dec-12. (2)Crowe Horwath’s fee income includes JPY 1,068m. Source: International Accounting Bulletin

16 y October 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin JApAn counTrY surveY

We believe the decline will be offset by an changed in Japan – 90% of firms subject no well known international clients.” increase in international tax consulting ser- to audit are audited by the Big Four,” com- Baker Tilly Japan, which until the Kasu- vices and acquisitions,” Kitano says. “To ments Satoru Endo, managing partner of migaseki Audit Corporation demerger relied compensate for the decline in audit services, Grant Thornton Japan. “As for the account- on audit for 45% of its revenues, now sees we expect non-audit services to increase ing services market, advisory services con- tax work as offering growth opportunities. especially in the cross-border services area ducted by the Big Four continue to grow, Mickey Kida, managing partner of Baker which includes tax consulting, transfer whereas we expect a slight decrease in audit Tilly International’s Japan firm says: “There pricing, the establishment of compa- fees, less than 1% compared to the previous are two stories to our main service lines – on nies in overseas markets, M&A due dili- year. the one hand, we haven’t seen huge changes gence, restructuring and forensic advisory “We see a pickup in the Japanese econo- to the level of audit and assurance work. services.” my since the last cabinet change in December However, in tax, particularly international 2012, together with steady growth of GDP tax from Tokyo, we have seen good growth expected decline and the increase of corporate revenue, espe- over the last couple of years. Audit accounts for 47% of BDO Japan’s cially for listed companies. Because of the “We will continue to invest in growth total revenue at present and is expected to recovery of the capital market, we expect the areas, such as the advisory services of con- decline by about 2% annually over the next number of IPOs will also pick up.” sulting, including IT consulting, and more four years, reaching a projected 41% share of the compliance areas of outsourcing and of total revenue in the 2016 financial year. Growth target accounting services.” Tax work, however, is expected to remain Expanding audit services is one of Grant RSM Japan, which consists of three dif- stable at 38% of total revenue. Thornton International’s growth targets ferent firms for different practices, also sees “Tax services continue to be an extremely in Japan. Although the overall audit mar- tax services, including international tax competitive marketplace with numerous ket will continue to shrink in future, Grant work, as offering future growth opportu- domestic players,” Kitano says. “Larger Thornton Japan has just expanded its audit nities. A merger was the chosen method of accounting networks have the advantage practice by merging with Baker Tilly Inter- expansion for Tokyo XBorder Tax which in providing international tax consulting national Japan member firm, Kasumigaseki operates RSM Japan’s tax practice. engagements as well as transfer pricing Audit Corporation, on 1 October, adding the “Tokyo XBorder Tax merged with an ex- services and being able to provide services firm’s 27 CPAs and eight partners to its audit BDO tax firm in April 2013 and has since to both international and domestic-based staff numbers in the process. expanded with new hires in its transfer pric- companies.” “The audit market in Japan is extremely ing team,” explains Akinaga Murayama, Grant Thornton International, for which competitive,” Endo explains. “We wanted to representing partner at RSM Japan. audit services account for 73% of total rev- ensure we retained our competitive advan- “The larger firm focuses on outbound enue, expects price pressure to force audit tage and were able to capitalise on this to services in Asian markets, M&A and inter- fees down marginally this year. support our growth plans. Kasumigaseki’s national tax planning.” “The market share of audit firms has not clients are domestic orientated. They have Tokyo Kyodo Accounting Office (TKAO),

■ JApAn AssOCIAtIOns – fee dAtA

corporate Fee income Growth Audit & Tax Management corporate recovery/ Litigation rank name (JpYm) rate (5) Accounting services consulting finance Insolvency support other Year-end 1 Integra International* 1,400.0 0% 40 50 10 - - - - Jun-13 2 INPACT Asia Pacific* 989.2 11% 29 66 5 - - - - Dec-12 3 Praxity* (1) 786.0 4% 54 30 16 - - - - n/a 4 Morison International* 749.9 0% 86 - 13 - - - 1 Dec-12 5 CPA Associates International* 555.8 13% 50 40 8 1 1 - - Mar-13 6 PrimeGlobal* 536.8 10% 36 40 18 - - 5 1 May-13 7 DFK International* 439.2 2% 37 33 15 3 - - 12 Sep-13 8 MGI* 355.5 -6% ------Jun-13 9 AGN International* 317.0 109% 63 31 - - - - 6 Oct-12 10 MSI Global Alliance* 50.3 7% 100 ------Dec-12 Total revenue/growth 6,179.6 7%

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Praxity’s figures do not include Mazars’ results. Source: International Accounting Bulletin

www.InternationalAccountingBulletin.com October 2013 y 17 counTrY surveY JApAn International Accounting Bulletin

RSM Japan’s consultancy practice, focuses Meanwhile, this year’s yen depreciation with their investments despite the currency on corporate restructuring and has seen an has already had an impact on the M&A situation as long as the deals had made stra- increasing diversification of its client base in services market including generating new tegic sense. recent years. work through an increase in inbound and “Secondly, and in conjunction with the “Historically, the majority of TKAO’s outbound referrals. While the weaker yen increasing confidence in the new Abe gov- client base comprised major financial insti- has stimulated foreign investor interest in ernment, foreign investors are slowly invest- tutions and investment funds,” Murayama Japan, Japanese companies keen to ensure ing again in Japan led by private equity says, “But in recent years that client base has long-term growth continue to seek business firms, real estate and life science compa- expanded and diversified, and now includes opportunities overseas despite the recent nies.” a large number of multinational enterpris- higher cost of investing abroad BDO Japan also has noticed increased es, small and medium-size companies, and M&A interest among potential foreign a growing number of high net worth indi- Foreign investment investors since the yen depreciation. Japan’s viduals. The practice specialises primarily Big Four as well as mid-tier accounting firms successful bid to host the 2020 Olympic in structured finance and transactional sup- are seeing a new wave of foreign interest in Games in Tokyo has also buoyed foreign porting services.” investing in Japan develop, now that acquisi- investor confidence over longer-term eco- For Morisons International, whose Japa- tion costs are more reasonable due to the yen nomic growth prospects. nese practice is operated by A&A Partners, depreciation. “Private equity firms have been active in advisory services offer most growth poten- “The yen devaluation has several impacts Japan looking to purchase small and mid- tial as the firm does not offer tax services. vis-à-vis M&A. First, outbound investors size Japanese companies with strong balance “While revenue from audit tends to from Japan have taken a ‘wait and see’ sheets to take advantage of the weak yen and decrease due to competition among account- stance as deals become 10% to 20% more the expected improvement in the Japanese ing firms, revenue from advisory services is expensive,” explains Hiroyuki Sato, associ- economy as a result of the Abe stimulus increasing,” says Naoshige Shindo of A&A ate director of public relations at EY Shin plans and the Tokyo 2020 Olympics,” BDO Partners. “We consider revenue from advi- Nihon. Japan’s Kitano comments, noting the firm sory services very important and will make “Companies that were affected by this is also assisting Japanese clients looking to further efforts to enhance our service capa- were mostly first-time buyers, typically mid- increase their global presence. bility in that area.” market clients. Larger companies continued “Our M&A team members have been

■ JApAn netwOrks – stAff dAtA

Total staff Growth partners professional staff Administrative staff offices rank name 2013 2012 rate (%) 2013 2012 2013 2012 2013 2012 2013 2012 1 Deloitte*(1) 7,928 7,412 7% 699 659 6,351 5,949 878 804 39 38

2 KPMG* 6,252 6,606 -5% 713 719 4,844 5,162 695 725 36 36

3 EY*(2) 5,858 6,613 -11% 637 639 3,856 3,849 1,365 1,337 37 36

4 PwC* (e) 3,540 3,650 -3% 176 181 2,874 2,964 490 505 7 7

5 BDO* 1,049 992 6% 160 139 793 785 96 68 35 25

6 Grant Thornton International* 469 453 4% 67 67 272 216 130 170 8 8

7 Crowe Horwath International* 314 230 37% 50 32 235 175 29 23 10 9

8 Baker Tilly International* 244 249 -2% 53 45 148 171 43 33 11 11

9 RSM* 236 230 3% 21 20 189 183 26 27 4 4

10 Reanda International* 171 151 13% 11 11 150 130 10 10 5 5

11 PKF International* 141 135 4% 25 26 111 103 5 6 2 2

12 Nexia International* 123 116 6% 37 35 78 73 8 8 4 4

13 ECOVIS International* 114 120 -5% 8 8 97 103 9 9 2 2

14 HLB International* 101 100 1% 18 20 70 68 13 12 4 4

15 Kreston International* 86 91 -5% 16 17 56 60 14 14 3 3

16 Moore Stephens International* 36 37 -3% 11 11 23 24 2 2 1 1

Totals 26,662 27,185 -2% 2,702 2,629 20,147 20,015 3,813 3,753 208 195

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (e) = IAB estimate (1) As of May 2013 and May 2012, (2) EY 2012 Total staff is of EY Japan, but headcount split applies only to EY Shinnihon. Source: International Accounting Bulletin

18 y October 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin JApAn counTrY surveY

active handling a few large transactions for ents established overseas subsidiaries recent- At the end of 2012 at least eight Japanese Japanese listed companies looking to expand ly, our outbound referrals have increased,” companies had adopted IFRS and more than overseas,” he adds. says Shindo of A&A Partners, Morisons 30 were planning to adopt IFRS voluntarily While a number of accounting firms have Japan’s practice. including companies with global activities seen foreign investor interest in Japan grow BDO Japan is also reporting rising refer- such as trading companies, drug companies due to the recent yen depreciation, most rals with foreign investors keen to involve and automobile manufacturers. accounting practices have noticed some the firm in supporting their Japanese opera- “Voluntary adoption of IFRS was made growth in inward and outbound referrals in tions. possible in 2010, but there currently are no recent years. “Our clients with international invest- firm plans to make this mandatory,” says “Since 2008 much of our business has ments have been active allowing our BDO EY Shin Nihon’s Sato. “However, the ruling come from foreign direct investment from Japan Desk representatives to assist our cli- Liberal Democrat Party has made a proposal the United States, Singapore, Hong Kong ents in establishing entities in overseas mar- for a decision to be made on whether or not and the United Kingdom,” says RSM Japan’s kets, financial statement audits and cross- to adopt IFRS mandatorily within the next Murayama. “This business generally has border tax consulting services,” says BDO three years. If the decision is to make IFRS come from the purchase or sale of operations Japan’s Kitano. mandatory, the schedule for this will also be or marketing and sales support for medium- “BDO Japan international clients have set at the same time.” sized companies. shown an increased interest in their Japanese “Financial advisory services and business operations and accordingly have been engag- International expansion process outsourcing is often requested by ing us for audit, internal audit, forensic and Whatever the Japanese government finally these firms, and this has been a major line of due diligence services. The client base with a decides, the number of companies adopting business for us. strong interest consists of food distribution, IFRS voluntarily is likely to increase as more “We also see a lot of opportunities in apparel, luxury goods, electronics, logistics Japanese firms expand internationally and assisting Japanese clients moving to Asia- and trading companies.” seek overseas investors. Pacific countries. Outbound referrals have Big Four firms, including EY, and a num- increased dramatically in recent years and IFrs saga ber of mid-tier firms provide training and we are able to cope with demand by assign- Meanwhile, the Japanese government has other support for companies adopting IFRS ing Japanese staff to overseas territories.” still to decide whether to introduce the man- voluntarily. Japanese Big Four firms also second CPAs datory use of IFRS in Japan. The Japanese “The type of support we provide ranges to overseas branches in Asia, Europe and the government and FSA still are watching from initial studies and impact assessments United States where major offices have a movements by the US to see whether the US to full-scale conversion support,” Sato says. Japan desk and Japanese staff to liaise with decides to adopt IFRS before making a final “Generally, the more realistic it is for our cli- Japanese client requirements. decision for Japan. ent to adopt IFRS, the deeper our involve- “Japanese companies continue to invest Japanese companies have been permitted ment becomes. We provide audit services abroad and the number of their overseas to apply IFRS, if certain criteria are met, since for our clients that have already voluntarily subsidiaries is increasing. As some of our cli- the financial year ending 31 March 2010. introduced IFRS, as well.”

■ JApAn AssOCIAtIOns – stAff dAtA

Total staff Growth partners professional staff Administrative staff offices rank name 2013 2012 rate (%) 2013 2012 2013 2012 2013 2012 2013 2012 1 PrimeGlobal* 188 51 269% 18 17 154 33 16 1 8 3

2 Integra International* 111 135 -18% 6 6 97 120 8 9 5 5

3 Praxity* (1) 89 48 85% 6 5 77 30 6 13 2 2

4 INPACT Asia Pacific* 82 69 19% 24 24 44 42 14 14 9 9

5 CPA Associates International* 62 60 3% 5 5 35 33 22 22 3 3

6 DFK International* 59 42 40% 8 9 42 30 9 3 2 2

7 Morison International* 48 48 0% 15 15 27 28 6 5 3 3

8 AGN International* 39 12 225% 12 6 25 5 2 1 3 2

9 MGI* 26 27 -4% 14 14 12 11 - 2 3 3

10 MSI Global Alliance* 7 7 0% 1 1 5 5 1 1 1 1

Totals 711 499 42% 109 102 518 337 84 71 39 33

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Praxity’s figures do not include Mazars’ results Source: International Accounting Bulletin

www.InternationalAccountingBulletin.com October 2013 y 19 counTrY surveY JApAn International Accounting Bulletin

Connect to Wealth Through Intelligence

 Mid-tier firms are looking to support cli- For Big Four firms, the challenge is to ents wishing to adopt IFRS voluntarily using expand advisory service revenue in the face their global networks to provide necessary of relentless audit and tax service fee pres- editor: Ana Gyorkos resources. sure. Tel: +44 (0)20 7406 6707 Email: [email protected] “Japanese companies with global foot- For mid-tier practices, future prospects deputy editor/editor of the Accountant: prints are now considering early adoption may be bright if accounting firms are able Carlos Martin Tornero and we expect to see that the market for to take advantage of their smaller size and Tel: +44 (0)20 7406 6706 Email: [email protected] assisting companies complying with IFRS is lower cost base while delivering high-quality going to grow soon, so we will strengthen services. reporter: Jonathan Minter Tel: +44 (0)20 7406 6705 our capability of providing such services,” That said, a further round of mid-tier Email: [email protected]

says Grant Thornton Japan’s Endo. mergers seems to be in the offing as mid- reporter: Vincent Huck Other mid-tier firms see opportunities to ranked accounting firms continue to seek Tel: +44 (0)20 7406 6709 Email: [email protected] support clients converting to IFRS in future new partners to expand their business net- and are preparing customer support services works. Group Publisher: Andy Cook Tel: +44 (0)20 7406 6561 and advertising them. RSM Japan, for exam- “We expect further M&A activities Email: [email protected]

ple, is running seminars in Japan for other among mid-tier accounting firms in response Contributors: David Hayes accounting firms. to the trend of globalisation” says Grant Chief subeditor: Nick Midgley “We are certain the IFRS market will Thornton’s Endo. “We will try to achieve subeditor: Kev Walsh expand in the near future and that Japanese our growth target by providing a wide range sales & Marketing director: Sarah Wootton accounting principles are shifting to IFRS bit of advisory services by our professionals.” Tel: +44 (0)20 7406 6541 by bit,” says RSM Japan’s Murayama. Baker Tilly International is also looking to Email: [email protected] Baker Tilly international in Japan is also expand business in Japan by offering high- Campaign solutions Manager: Keri Farrell Tel: +44 (0)20 7406 6548 preparing to support clients through its glob- quality services rather than by cutting fees. Email: [email protected] al resources. “Competition among the mid-market subscription enquiries: Jeannie Lam “From Baker Tilly’s experience, those cli- continues to remain very high. We won’t be Tel: +44 (0)20 7406 6579 ents meeting the necessary criteria [to adopt drawn into price wars with competitors even Email: [email protected] IFRS voluntarily] are still in the stages of though it seems more commonplace now,” For more information on Timetric, conducting research and gap analysis,” says says Kida. visit our website at vrl.timetric.com

Baker Tilly Japan’s Kida. “Baker Tilly Japan will continue to invest For more information on accessing “We continue to support and consult heavily in its staff. We will continue to assess International Accounting Bulletin content online, including a five-year archive, please those clients through our experience and our domestic coverage and whether this is telephone +44 (0)20 406 6579 or email international expertise.” satisfactory for our clients’ needs.” [email protected]

RSM Japan, meanwhile, sees its practice London office The future as having strong fundamentals over the long 40-42 Hatton Garden, London Meanwhile, Japan’s accounting mar - term through being client focused and offer- EC1N 8EB, United Kingdom Tel: +44 (0)20 7936 6400 ket remains highly competitive and most ing lower fees than larger competitors. Fax: +44 (0)20 7406 5601 “We believe it’s fruitful to combine our accounting firms remain very cautious as Asia office Big Four and mid-tier practices continue to marketing efforts with other domestic net- 20 Maxwell Road anticipate a hoped for economic upturn that works, as this allows us to build our rela- #04-02J, Maxwell House Singapore 069113 is expected to precipitate increased foreign tionships with them and expand our service Tel: +65 6383 4688 About WealthInsight investment in Japan and fund a greater flow lines,” said RSM Japan’s Murayama. Fax: +65 6383 5433 Email: [email protected] of outbound investment. “Generally speaking, our market WealthInsight provides detailed data and insightful analysis on We work with and provide solutions for: Although some firms are hiring, the num- for assurance and compliance work is Financial News Publishing Ltd, 2013 the world’s High Net Worth Individuals (HNWIs) and wealth  Wealth Managers ber of new entrants to the accounting pro- shrinking. However, we find cross-border Registered in the UK No 6931627 sector. With decades of experience providing business  Private Banks fession over the past year does not appear transactions are expanding and getting more ISSN 0265-0223 Unauthorised photocopying is illegal. The contents information, WealthInsight helps organisations make informed  to be large. complicated.” of this publication, either in whole or part, may not Family Offices be reproduced, stored in a data retrieval system decisions and win new business.  or transmitted by any form or means, electronic, Technology Providers mechanical, photocopying, recording or otherwise,  Professional Services – Consultants, Accountants, ■ JApAn without the prior permission of the publishers. AtA WealthInsight’s core is our proprietary HNWI Lawyers, Real Estate Professionals FIrM MoveMenTs Database of the world’s wealthiest individuals. Around  Fund Managers, Asset Managers, neTworK/AssocIATIon FIrM AddITIons, MerGers & AcQuIsITIons this database we have built a number of valuable research Venture Capitalists based products and services that make WealthInsight much AGn Added: Ohwa & Co (Tokyo, Japan)  Non-profits and Educational Institutions Grant Thornton International Added: Grant Thornton Masters Trust (Tokyo) more than just a rich contact list. primeglobal Added: OAG (Tokyo) reanda Added: Reanda MC International CPA Partners’ Sapporo and Fukuoka branches (Japan) For more information contact us at [email protected] Source: International Accounting Bulletin T: +44 (0)207 406 6553

20 y October 2013 www.InternationalAccountingBulletin.com Connect to Wealth Through Intelligence

About WealthInsight WealthInsight provides detailed data and insightful analysis on We work with and provide solutions for: the world’s High Net Worth Individuals (HNWIs) and wealth  Wealth Managers sector. With decades of experience providing business  Private Banks information, WealthInsight helps organisations make informed  Family Offices decisions and win new business.  Technology Providers  Professional Services – Consultants, Accountants, AtA WealthInsight’s core is our proprietary HNWI Lawyers, Real Estate Professionals Database of the world’s wealthiest individuals. Around  Fund Managers, Asset Managers, this database we have built a number of valuable research Venture Capitalists based products and services that make WealthInsight much  Non-profits and Educational Institutions more than just a rich contact list.

For more information contact us at [email protected] T: +44 (0)207 406 6553 titititi•titititititititi titititititititititi titititititititititititi

tititi•ti••ti••tititi••titititi•tititititititititi•tititititititititi•tititititititi•tititititititititifftititititititi•ti titititititititititi•titititititi••titititititititititititititititititititi•tititititi•titititi•titititititititi•tititi•titititi•ti ti•tititititifititititititititititititititititititititititititititititi•tititi•tititi••tititititi•titititititititititititititititititi •tititititititifi••ti•titi•titititi

•titi •tititi••ti••ti•titi•ti•ti••ti••tititititi••titi•titititititi•titi•tititititi•titi•ti•titititi•tititititititititi•ti•titi •titi •tititititi•ti•ti•tititititititi•titititititi•tititititititi•ti•titi•titi•ti•ti••titititi•titititititititi••titititititititititititititititititititititititi•titi•tititititi••ti •titi •ti•tititi•tititititi•tititi••ti•tititititi•ti•ti•titititititititi•titititititi•titi•titi•tititifititi•titititi•ti•ti•tifititi•ti•titititi •titi •titi•titi•titititititititititititi•titi•tititititititititititititititi••tititi••ti•tititi•tititititititititititi•tititititititi•tititititi•ti••ti•tititi•

Fti•ti•ti•titititi•ti••tititititi•titititititi•tititititititititititititititi•titititititititititititititititi•tititititititititi•tititititi•ti•titititititi titititititititititi•tititititititi•tititi•tititi•titititititi•ti•tititi•titititi•ti••tifititititititititititititititi•

Untitled-2 1 21/10/2013 09:43