September 2013 Issue 529 www.InternationalAccountingBulletin.com

Fair play Implications of UEFA’s

new financial rules

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G Deloitte’s record £14m fi ne G Lehman Brothers reprised G Critical moment for US audit reporting G Mixed fortunes in Latin America Give your students a business perspective of the world of accounting. Give your students access to content they can trust. Give your students the edge. Subscribe to

The Accountant xxxxx A subscription to The Accountant is the ideal accompaniment to an accountancy course of study. Including exclusive features and interviews with major figures in the accountancy sector, The Accountant will help your students to understand the real-world implications of the theory they are learning, and help improve their employability in a competitive jobs market. A weekly newswire gives you regular updates of all the big stories, while IP access means students can view our content anywhere with access to the student portal.

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ConTenTs

Give your students a business news 02-04 All change for the mid-tier ■ SFO to prosecute Olympus over accounting fraud. perspective of the world of ■ Lehman Brothers, a wake-up call for the profession. ot even two years ago, I remember following the loss of PKF UK in a merger speaking to the then chief executive with BDO UK earlier in the year, it’s unlikely accounting. CoMMenT 05 of RSM Tenon, Andy Raynor, who RSM will follow suit. PKF International, for 05: GaLe CrosLey with charm and enthusiasm told me example, decided to rebuild part of its rep- Gale Crosley, a US CPA and consultant nabout all the exciting news at RSM Tenon resentation by appointing two smaller UK for accounting firms examines a more and how the firm was planning to continue practices – which combined are only about a Give your students access to joint approach towards accounting firm growth and calls for the end of so-called growing by M&A and was expecting strong third of the size of former PKF UK. individual tactics. double-digit growth. RSM, as the seventh-largest network glob- The interview at the time was for our UK ally, and with very strong member firms in content they can trust. FeaTures 06-10 survey in December 2011 and only a month key economies such as the US, has as good a o6-07: ueFa FInanCIaL FaIr pLay after publication something went very wrong value proposition as any firm in the market. Amid news of record transfer fees, at the firm and now we see it sold in a pre- However there are very few market players Give your students vincent huck examines UEFA’s new Financial Fair Play rules. pack deal to Baker Tilly UK. of a similar size to RSM Tenon that could,

08-10: audITor reporTInG ChanGes On the one hand this could be interpreted with one move, fill the gap. As this maga- the edge. Subscribe to After 75 years the audit report is finally as a great and encouraging demonstration zine was going to press there was as yet no set to change in the US. of the ambitions of mid-tier companies and announcement of a new UK member firm; may foretell similar deals elsewhere in the however not rushing into a decision on UK The Accountant world, especially as the mid-tier attempts to membership might be wise as, for any net- CounTry surveys 11-20

xxxxx be perceived as a force to be reckoned with work, it’s key to have a strong representative

11-15: LaTIn aMerICa and a credible alternative to the Big Four. ready to take on the increasing competition A subscription to The Accountant is the ideal accompaniment to an accountancy course of study. Including Uneven economic development and However, on a more sentimental note, the among top mid-tier firms. uncertainty around local regulation move also means the loss of one of the UK’s are just two of the challenges facing exclusive features and interviews with major figures in the accountancy sector, The Accountant will help the accounting profession in Latin well known accounting firms, which did a wake-up call your students to understand the real-world implications of the theory they are learning, and help improve America. paul Golden reports. adopt a somewhat bold business strategy and On to more recent events, in mid-Sep- 16-20: FranCe even dared to be listed on the London Stock tember we marked the fifth anniversary their employability in a competitive jobs market. A weekly newswire gives you regular updates of all the big Cramped between tight regulations and Exchange. It also means a change for more of the Lehman Brothers collapse and IAB a stagnant economy, French firms try stories, while IP access means students can view our content anywhere with access to the student portal. to make the most of a difficult market. than 2,500 Tenon employees, who are to be approached several industry experts for their vincent huck reports. integrated into Baker Tilly UK and despite opinions of how the profession has changed no job loss announcements as yet, there will since and whether enough’s been done to certainly be changes as the two firms merge prevent another such collapse (see page 4). Subscribe to The Accountant for: SIGN UP FOR THE FREE NEWSWIRE and set out new business goals. Hopefully, While accountants were cleared of any this process will be smoother than RSM major responsibility leading to the collapse, • IP access to our content. So your students can access our Get free weekly updates and free content. Tenon’s unhappy unions with Bentley Jen- many believe it served as wake-up call for the content campus-wide with one login Sign up here: nison and Ventis which it acquired in 2009 entire profession. editorial advisory Board and 2011 respectively, with those deals and From several comments received we also Kevin McGrath, Crowe Horwath • Content you can trust. We have 125 years of experience http://www.vrl-financial-news.com/system- International CEO their unsuccessful integrations quoted as one gathered more can still be done to improve Kevin arnold, Nexia International of the main reasons for Tenon’s demise. corporate governance and protect stake- delivering accountancy news. pages/headernav/free-news.aspx executive director Geoff Barnes, Baker Tilly International Additionally, the loss of RSM Tenon leaves holders and hopefully debates such as the • Truly global analysis. We cover a range of stories from around president and CEO RSM in want of a new UK representative, overhaul of auditors reporting in the US (see Graeme Gordon, Praxity executive director the world, so your students get a wide perspective of the sector. stephen Jacobs, INPACT International president which could be prove to be difficult and, pages 8 to 10) and increased emphasis on Jon Lisby, Kreston International once found, is highly likely to leave another integrated reporting will go some way to executive director donal watkin, MSI Global Alliance CEO network or association firmless in the UK, facilitate that in the future. Christian Mouillon, Ernst & Young global vice- leading to additional chain reactions. chair, assurance While PKF International decided on ed nusbaum, Grant Thornton International CEO ana Gyorkos DON’T mISS OUT. Subscribe to The Accountant today. Michael reiss von Filski, Geneva Group a change of approach to the UK market [email protected] International CEO Contact our subscriptions team on +44(0)20 7563 5688 Liza robbins, Morison International CEO Martin van roekel, BDO International CEO or email us at [email protected] to find out more. Jean stephens, RSM International CEO robert Tautges, HLB International CEO pauline wallace, PwC head of public policy and regulatory affairs www.vrl-financial-news.com www.InternationalAccountingBulletin.com September 2013 y 1 news round-up International Accounting Bulletin

IAB onLIne – sepTeMBer news round-up

Top 5 articles uK Act 2006, which sets out the liability issued the following statement: Standard Chartered puts audit pwC tops Big Four of those who convey information “We have been invited to tender out to tender ranking in the uK required by auditors. and are putting in a bid. We are PwC UK increased its revenue by The SFO believes that certain happy to compete on the quality of RSM Tenon sold to Baker Tilly UK 3% to £2.6bn ($4.15bn) in the year people within Gyrus gave misleading our audit work.” in pre-pack and deceptive explanations to to 30 June 2013, retaining its ranking us the auditors working on the PKF International appoints as the largest UK accountancy firm. In pCaoB critical of August Deloitte UK reported £2.5bn in company’s accounts for the fiscal KpMG and pwC audits second UK firm years 2009 and 2010. annual revenues, up 8%. The US Public Company Accounting The Olympus fraud was first PCAOB critical of KPMG and PwC PwC UK reported growth across Oversight Board (PCAOB) has found a exposed by former chief executive audits all its main service lines with number of flaws in audits conducted Michael Woodford, who set off assurance growing 1% to £969m, by PwC US and KPMG US between alarm bells in global media after the Deloitte fined £14m for MG Rover tax 3% to £680m and consulting 2011 and 2013, according to the Olympus board dismissed his concerns advisory work by 9% to £478m. Deals services watchdog’s latest inspection report. over accounting fraud. remained flat at £562m. The PCAOB inspected 52 audits Most re-tweeted article So far all investigations related The firm also reported a slight conducted by PwC in the US and to the scandal found no great fault PwC tops Big Four ranking in increase in profit from £727m in 2012 reviewed the firm’s audit work on two with the company’s auditors, EY the UK to £740m in 2013. Profit distributed other issuer audit engagements in ShinNihon and KPMG Asza, and to partners was up 4% from last year which the firm played a role but was read in 158 countries blamed the executive team for the at £705,000 each. not the principal auditor. extent of the fraud. UK 25% PwC UK chairman and senior The inspectors found cases where US 17% partner Ian Powell said: “It’s been a GLoBaL it deemed there to be deficiencies, India 9% strong year as we continue to navigate standard Chartered puts including 21 which it considered to Singapore 4% a clear course to deliver responsible, audit out to tender be audit failures, or cases where it felt Australia 4% profitable growth in challenging Standard Chartered has become PwC had failed to obtain sufficient Other 42% market conditions. Our performance the latest bank to put its appropriate audit evidence to support reflects a balanced portfolio of audit out to tender. its audit opinion on the financial businesses, the high quality of our The global bank has been audited statements or the effectiveness client work, and the range and depth by KPMG for the past 40 years and in of internal control over financial of our people’s expertise.” 2012 paid a total of £18.7m ($29.9m) reporting. to KPMG in fees. The PCAOB also reviewed 48 audits uK/GLoBaL In its 2012 annual report, the bank performed by KPMG and reviewed sFo to prosecute olympus over said it was going to put its audit out the firm’s audit work on two other accounting fraud to tender in 2013 to keep “in line with issuer audit engagements in which Two years after the $1.7bn Olympus the UK Financial Reporting Council’s the firm played a role but was not the accounting fraud was exposed, the recent recommendations.” principal auditor. UK Serious Fraud Office (SFO) said Standard Chartered said in a As with PwC, the PCAOB inspectors it will prosecute Olympus and its statement: “While we are entirely reported a number of deficiencies Join our online community British subsidiary Gyrus over the happy with our existing auditors, in the audits, including a deficiency falsified accounts. KPMG, we acknowledge that it is relating to auditing aspects of an Olympus said in a statement that prudent to benchmark the services issuer’s financial statements that LinkedIn Group the SFO alleges the global camera- we receive against other market- the issuer announced an intention World Accounting maker and its UK subsidiary broke leading providers.” to restate after the primary Intelligence Section 501 of the UK Companies When contacted by IAB, KPMG inspection procedures. <

Twitter WAI_News Movers & shaKers

rsM’s global leader for quality Parker Randall International has by Crowe horwath us, with Facebook page appointed Junaid Subhani as vice- World Accounting and risk Bob dohrer (pictured) immediate effect. Intelligence has been re-elected for a president of its South-East The firm also made Jay Chung second three-year term Asia region. and Lisa voeller partners on 19 as chairman of the Subhani is currently august and 8 July, respectively, senior partner at Parker scan our Qr code for quick Forum of Firms (FoF). and announced 14 staff will be Randall Pakistan and smartphone access to IAB established in 2002, promoted to partner level on is a fellow member of the FoF promotes the 1 april 2014. the Institute of Charted international standards set Accountants of Pakistan and by the International Federation Former EY US partner Brian the Pakistan Institute of Public of accountants’ standard- Schwartz joins PwC US as the firm’s Finance Accountants. setting bodies. These include risk assurance practice leader. quality control, auditing, ethics, eric durham, sandy hofmann Schwartz succeeds Ken Coy as independence and training and Bret updegraff have been leader of the firm’s governance, standards. promoted to director level risk and compliance team.

2 y September 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin anaLysIs/FIrM MoveMenTs news

uK Deloitte fined record £14m and ex-partner excluded for MG Rover advisory work

he UK Financial Reporting Coun- all members of the profession. The sanc - continue our discussions with relevant cil (FRC) tribunal has imposed a tions imposed are in line with the FRC’s stakeholders and professional bodies about record fine of £14m ($22.35m) on aim to ensure penalties are proportionate the potentially wide ranging impact on the Deloitte UK for failing to manage and have the necessary deterrent effect to profession and wider business community T prevent misconduct and bolster public and of the tribunal findings.” conflicts of interest in its advice to British car-maker MG Rover Group regarding its market confidence.” Deloitte has until 7 October to appeal collapse in 2005. The FRC fine imposed on Deloitte the FRC tribunal decision. The FRC also fined Deloitte UK’s former dwarfs any other issued by the watchdog, The initial charge against Deloitte and partner, Maghsoud Einollahi, £250,000 the highest of which was £1.4m given to Einollahi was filed by the UK Accountancy and excluded him from the profession for PwC last year over its handling of JP Mor- and Actuarial Discipline Board (AADB) three years. gan Securities’ audit. in February 2012, when it claimed the These sanctions follow the tribunal’s rul- In addition to the fine Deloitte was also defendants had failed adequately to consid- ing in July, which found Deloitte UK and given a severe reprimand by the FRC. er the public interest and the potential for Einollahi’s advisory work for MG Rover Responding to the fine Deloitte UK said there to be different commercial interests Group in breach of the Institute of Char - it was dissatisfied with the outcome of between the ‘Phoenix Four’, who bought tered Accountants in England and Wales’s the tribunal and disagreed with its main MG Rover in 2000, and MG Rover Group code of ethics. conclusions. and associated companies and share- Executive director of the FRC Conduct “We are disappointed that the efforts holders. Division Paul George said: “The final we and others made did not successfully In July 2012 the AADB became a part report of the tribunal provides a clear anal- secure the long-term future of the MG of the Financial Reporting Council, which ysis of the case and how it reached its con- Rover Group,” a spokesperson said. took on the case under its disciplinary arm, clusions. It should be essential reading for “Over the coming weeks, we will the Professional Discipline Team. < FirmMovements

pKF International has added McKinley Plowman & Associates Mazars has merged with Ghanaian process and technology consulting scottish firm Johnston Carmichael is based in Perth and has 40 firm ET Akonor and Co, giving services to mid-range US companies. as its second uK network member. staff providing accounting and the network coverage in the Carmichael has annual revenues advisory services. African country. praxity has added member of £33m ($52.7m), 53 partners ET Akonor is headquartered in Accra, firms in the uK and palestine to and 550 staff working across 11 rsM has added nigerian firm sIao and serves clients in Burkina Faso, its association. offices in scotland. partners to its network. Gambia, Liberia and Sierra Leone. The new firms are uK-based while joining pKF International sIao partners is said to be nigeria’s Brand Finance and Johnston Carmichael said fifth-largest firm with annual fee hLB International has added hLB palestine-based el wafa. it will remain a member of income of $3.2m ($5.1m) and antwerp Fiducia to its network. Brand Finance, with offices Leading edge alliance. more than 100 staff. hLB antwerp Fiducia is located worldwide, specialises in brand MSI Global Alliance has added The firm is headquartered in in Belgium and specialises in valuation and management for Mexican firm Lores Budiño y Lagos and has offices in the accounting and tax work. international brand owners, tax Compañia and Australian firm Federal Capital Territory, abuja authorities, intellectual property McKinley Plowman & Associates to and ekiti state. Grant Thornton US has acquired the lawyers and investment banks. its association. rsM said the firm provides audit, Oracle consulting business of US el wafa provides audit, accounting, Lores Budiño y Compañia is based assurance and tax services, as company MarketSphere. tax and consulting services to the in Mexico City and has 80 staff well as human resource and The acquisition brings 160 new financial, service, manufacturing offering accounting and business general business advisory and consultants to Grant Thornton US and trading sectors, as well as for advisory services. compliance services. who specialise in providing business not-for-profit organisations.

www.InternationalAccountingBulletin.com September 2013 y 3 news anaLysIs International Accounting Bulletin

Lehman Brothers, a wake-up call for the profession

Five years since the collapse of American investment bank Lehman Brothers IAB speaks to some of the top influencers in the profession about the lessons learned

he collapse of American investment standards that underpin appropriate busi- with the skills needed to be prepared for any bank Lehman Brothers five years ago ness behaviour are developed in an integrat- potential challenge. unravelled the worst financial crisis ed way that supports long-term, sustainable “There is a severe talent gap in the account- since the Great Depression. business.” ancy profession with more emphasis needed T RSM global leader of quality and risk Bob on governance, risk management, internal Although green shoots of recovery are emerging in some western economies, the Dohrer says that as a result of the financial controls, fraud prevention and detection, profound mistrust of financial institutions crisis, there is a higher demand for more rel- and ethics training.” might yet have a long-lasting effect. evant financial information. At CPA Australia, chief executive Alex Some influential people from the account- “Decision-makers, regulators and other Malley says the fallout and the uncertainty ing industry have shared with the Interna- stakeholders who use financial informa- stemming from the global financial crisis tional Accounting Bulletin their views on tion to make investment and other decisions continues. Amid the current “economic and how Lehman Brothers’ bankruptcy changed are demanding more information about social turbulence”, he says, a challenge for the rules of the game for the profession. companies than ever before, especially infor- the profession emerges: restoring trust and Sue Almond, technical director of the mation regarding risks associated with the transparency in the markets and corporate Association of Chartered Certified Account- company,” Dohrer says. activity. However Malley observes a tenden- ants (ACCA) says the financial crisis meant cy towards over-regulation in an attempt to everyone, not just the profession, had to satisfying stakeholders manage risk. take a hard look at what needed to change Dohrer, who is also chairman of the Forum “While understandable in the wake of a to guard against another crisis happening of Firms, says although the audit profession financial crisis, [over-regulation] is a real again. has heard this demand “loud and clear” and issue and an ongoing challenge for the pro- “If ever there was a wake-up call, this is responding appropriately, some stakehold- fession. I’m a strong advocate of a measured was it,” she notes adding: “The benefits of ers are not entirely satisfied. approach to regulation, where reforms are long-term business sustainability, with less “Auditors understand the days of three- grounded in facts and substantive analysis.” emphasis on short-term profits, is critical. At paragraph boilerplate auditor’s reports with Malley believes that in today’s intercon- a very general level we have seen the profes- a pass/fail grade have come and gone and nected world, this tendency creates regula- sion take on a more business-strategic role in that stakeholders want information about tory conflict and challenges for the profes- its outlook, being more alert to risk and its the audit directly from the auditor,” he says. sion, as it has to work with differing laws impact on business strategy”. Dohrer adds that the International Audit and regulation across legal boundaries. Almond believes corporate governance is and Assurance Standards Board has issued “In practice we tend to see knee-jerk regula- an area where there may still be some work proposed auditor reporting standards to tion-making when we seem to have little evi- to be done and standards could be devel- meet this demand and adds: “Auditors in dence that additional regulation will achieve oped to become more effective. general believe that serving the public inter- its stated objective,” Malley says. “One of the key aspects of sound corporate est includes sharing more information they Malley calls instead for the profession to governance is ensuring there is an appropri- have gained in an audit with those using drive initiatives that improve trust and trans- ate balance between risk and reward. This information to make important decisions.” parency, for him, a central challenge for the was proved to be badly lacking in some Dohrer feels auditors remain united in the accounting profession. financial institutions in the lead-up to the position that they should not be the original “The accounting profession can influence credit crunch. It’s also an area heavily influ- source of information about the company stronger governance frameworks, business enced by corporate culture and values – an itself and acknowledges this reaction may leadership and management. We need to area ACCA is focusing on in its current disappoint some stakeholders. continue to develop theory, standards and research.” “We understand our important role in the practices that are appropriate for the current Almond thinks guarding against another financial reporting supply chain but cannot products and practices of financial markets.” global crisis such as the current one is not serve the public interest by ourselves; we According to Malley, better information just the task of the accountancy profession need everyone to step up their game, includ- and education and more effective regulation and she says a collaborative effort from ing companies themselves,” he adds. would also contribute to improve the viabil- different stakeholders is needed. The US Institute of Management Account- ity and sustainability of the markets. “The whole board needs to be tuned into ants (IMA) chief executive Jeff Thompson “Professional accountants can help ensure the benefits of better corporate governance, believes the profession needs to do more to business decisions are not only recorded and not just the finance director, and key stake- prevent future cases such as Lehman Broth- reflected appropriately, but that they are the holders need to work together to ensure the ers and, especially, it should be up to speed right ones,” Malley concludes. <

4 y September 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin sTraTeGIC GrowTh CoMMenT

Strategic growth in a sandstorm

Gale Crosley, a US CPA and consultant for accounting firms examines a more joint approach towards accounting firm growth and calls for the end of so-called individual tactics

f you’ve spent more than five minutes had long been to start one’s own business with me – in a seminar, in consultation and socialise with elite members of the com- or reading my articles – you know that munity on the golf course or in the country I am passionate about strategic prac- club dining room. We had breakfast with I bankers and lunch with lawyers. tice growth. In this article I take a step back and address the reasons for my conviction. With little understanding of strategic Strategic growth is a mindful, firm-based growth approaches, the profession fell sig- approach that contrasts starkly with the nificantly behind other sectors. That deficit notion that a firm can grow sustainably by would prove difficult to overcome. partners increasing their individual books Fast forward to the early 2000s and there of business. In my view there is really no was little need to sell our services, even other option if you want to expand and though it was permitted in several coun - thrive in today’s changing global market - tries. That’s because the collapse of Arthur place. Andersen and other accounting scan - To say the accounting profession came dals boosted the fortunes of mid-market late to practice growth is to understate con- accounting firms worldwide. siderably. After my early years as an auditor The demise of the iconic firm led to the in two Big Eight firms, I spent several years passage in the US of the Sarbanes-Oxley at IBM. When I returned to the profession Act in 2002. The law brought a significant a couple decades later, I assumed that the tightening of regulations and a deluge of increasingly demanding; specialisation is sophisticated management of growth I work for the remaining Big Four, sending a no longer an option, but is now essential for observed at Big Blue was typical of public flood of work downstream to middle mar- growth in our mature profession; commu- accounting. ket firms. There was little need to sharpen nication platforms have undergone a radi- In technology, competition was tough growth-related skills when business was cal makeover, with engagement in social and the pace was quick, with obsolete washing in over the side. media now mainstream and expected; and products and services promptly replaced By 2007, however, the Great Recession sustainability of individual firms is increas- by newer, more appealing ones. It was the began to rear its ugly head, souring previ- ingly in question. epitome of a growth-driven environment. ously sweet market conditions. Many firms Like a sandstorm blowing across the How wrong I was to imagine that some- were caught without a growth plan or desert, these elements are realigning thing similar was occurring in public philosophy. our profession. A firm-wide, step-wise accounting. The corporate world had been Here again, the failure to develop a con- approach to growth that remains constant honing its growth approaches for decades sistent, scalable growth strategy left firms despite market and societal fluctuations is by 1977, the year Bates v State Bar of Ari- stranded and struggling. the only way forward. zona reached the US Supreme Court. That In order to get there, you need to start by historic ruling, which declared the ban where we are today having a heart-to-heart conversation with on advertising unconstitutional, set the As we emerge from this historic downturn, your partner group about growth and sus- stage for a global change in the accounting we find economic conditions distinct from tainability. Ask the tough questions. Find profession. in the past. Beyond the diminished demand out if they have the appetite, as a team, Despite the legal outcome US firms and other fallout of the Great Recession,our to embrace world-class growth in the same remained reluctant to jump into the fray markets have become significantly more way they embrace world-class service for decades afterward. Selling ourselves did complex. I liken the change to the dramatic delivery. not come naturally and there were few role effects of a sandstorm I observed while in The alternative is to stick your heads in models to lead the way. Dubai recently. The landscape changes the sand and pretend that all is as it should Elsewhere in the world, governments and quickly, with peaks and valleys realigned be. But that’s no more an option than main- professional standards groups adopted a and objects no longer where they once stood. taining relationships with referral sources patchwork quilt of strictures against pro - Among elements currently buffeting our and calling it a growth strategy. active growth approaches. This served to profession: partners of baby boomer age Gauge the willingness to try a different dampen the enthusiasm of many firms to are retiring in record numbers; globalisa - approach that’s more “we” and less “me.” embrace professional, strategic growth. tion is changing the scope of our business; Then move forward – clear-eyed and com- Here in the US and abroad the custom the regulatory environments become mitted to the future you desire. <

www.InternationalAccountingBulletin.com September 2013 y 5 feature uefa fiNaNcial fair play International Accounting Bulletin

Football’s rules aim to create a level playing field Amid news of record transfer fees, Vincent Huck examines UEFA’s new Financial Fair Play rules, while questions are raised about clubs’ finances becoming acceptable to shareholders and supporters alike.

ootball’s history could be described spending and investment. In the late- To qualify for participation in European as a journey from a popular sport to 90s there was a growing concern within club competitions, clubs will have to submit a multibillion pound business. Fans football that, although the European game by mid-July their financial information have been reluctant to follow this was benefiting from higher revenues, this for the past year through a web-based IT F was not necessarily translating into greater solution provided by UEFA. From there evolution and for years the border between sport and business has become blurry. If this profitability for clubs. On the contrary, the the figures will be reviewed to ensure that needed be any clearer then the latest summer higher the figures got, the more indebted clubs are compliant. transfer window has made it so – football is clubs seem to become. “Checks are done by UEFA. Only in first and foremost a business where there To counter this phenomenon and protect certain cases accounting firms may be asked are movements of large sums of money. a majority of clubs from the risk of going to intervene. These would be Deloitte or A few records have been broken during into administration, UEFA first introduced PwC,” a UEFA spokesperson said. this summer transfer window and it didn’t the UEFA Club Licensing system in 2004 “No particular information on the IT happen on a football pitch. Real Madrid which established a set of best practices [solution] is available.” acquired Gareth Bale for a record transfer criteria which clubs have to meet in order In England, Deloitte is Arsenal’s auditor fee of £85m ($135.8m). And, overall, teams to qualify for participation in UEFA club while PwC is auditor for Manchester United. in the Barclays Premier League spent a competitions. And in 2009 UEFA adopted Both firms also audit clubs from continental record £630m in player transfers. What the FFP rules which will be implemented for Europe which participate in European makes this even more surprising is that the first time this season. competitions. Asked by the International it happened in the very year the Union of Accounting Bulletin if this represented a European Football Associations’ (UEFA) National rules potential conflict of interest, UEFA declined Financial Fair Play regulations (FFP rules) Independently from UEFA’s FFP rules, to respond and Deloitte said it wasn’t for come into effect in order to make the game’s individual football federations such as them to comment. finances healthier and re-establish a better England, France, Spain and Germany’s have However, PwC sport and leisure sector balance between business and sport. adopted similar rules at a national level. leader Julie Clark said: “For any of our And therefore a lot of football fans, “These financial regulations all share assignments we go through all the checks to analysts, commentators and even players similar principles, but they are all different,” ensure that we have no conflicts of interest, were left with many questions: how can it says Deloitte UK sport business group and there wouldn’t be anything different in be that the year regulations are imposed director Paul Rawnsley. “They are not this instance.” on clubs to control their finances, the copied from what UEFA has done, even Rawnsley doesn’t believe the new transfer market experiences a spending though some of them are labelled under regulations will bring significantly more frenzy with fees escalating to hitherto the banner ‘financial fair play’ which can opportunities to accounting firms. unscaled heights? And are the FFP rules the make it confusing.” “Traditionally, accounting firms provide solution to help accountants, club financial Essentially, FFP rules are articulated audit and tax services to football clubs,” he directors and club auditors make football’s around the idea that clubs need to break says. “I don’t think Financial Fair Play will finance healthier? even at the end of the financial year. In have such an impact on these services. The The FFP rules are UEFA’s solution other words, clubs can’t spend more than services that accounting firms provide at for introducing more discipline to club they earn and can only report a minimum the moment will continue. It doesn’t mean finances and encouraging responsible amount of loss in their accounting books. that there is suddenly more work for clubs’

6 y September 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin ueFa FInanCIaL FaIr pLay FeaTure

auditors because of these rules.” contract so they will account for a yearly interview with tifosobilanciato.it he said: But not everyone shares his opinion. Ed loss of around £14m a year.” “[There is a] substantial absence of officially Thompson a financial projects manager who On the other hand, Real Madrid sold audited annual reports by most of the clubs created a website on the issues surrounding a number of players to clubs in Italy and pertaining to Eastern Europe (including Financial Fair Play believes that even now, England for a combined amount which Russia) Federations. I have the utmost with the rules not fully implemented, they almost equals the total cost of Bale’s transfer. respect, of course, [for] the correctness already have had an impact. “But Real Madrid’s financial statement is not of the owners and shareholders, but it is “One of the things FFP rules have done is going to show a break-even which is what it also true that we have a part of the UEFA to get people more interested in accounting,” is,” Tagoe says. world that has stringent procedures and he says. “Suddenly football writers and “In 2013 it’s going to show that they have request a third party (the audit firm) control, football fans got more interested in the made a profit. Because they’ll only account while another part of the same world can accounting side of how things work. for part of Bale’s transfer as a loss and the potentially draw up budgets without these How do clubs report the sale or purchase totality of the money they received from being subject to any external check.” of players? How do they report their players they sold as income.” Despite those accounting loopholes, sponsorship deals? Ultimately, how do they Tagoe therefore believes that FFP rules Thomson believes that “UEFA should be report their income and losses?” are a smokescreen as clubs will “be clever able to apply the rules”. The Association of Chartered Certified about a few things around the edges and just Deloitte’s Rawnsley goes further by Accountants head of technical, John play games with it”. saying: “For the Financial Fair Play Davies, believes the FFP rules will provide objectives to be achieved effective policing opportunities and challenges to accounting sponsorship deals will be required and the football family firm, because if a club fails to meet the Transfers are not the only instance where needs to work together, including an break-even figure, it will face huge financial the interpretation of the rules can be intolerance of financial cheats.” losses by being excluded from lucrative loose. Sponsorship deals have also been And that is probably where accounting UEFA competitions. “The firm auditing in the critics’ spotlight. Tagoe says that firms will have a big part to play. BDO a football club’s accounts will have the as sponsorship contracts run on a set partner, professional sports, Charles additional challenge of knowing that its number of years, allowing clubs to time the Barnett says: “When it comes to auditing a audit opinion is likely to be relied upon reporting of their revenues and losses. “If football club it is no different from auditing by the football authorities for a specific the sponsorship contract runs over three another business. We have a requirement to purpose, and this will affect its exposure to years for example, and you have losses in a look at the going concerns and ascertain if liability,” he says. particular year, you can book the expected clubs have produced realistic projections.” “As regards to the opportunities, the revenues early enough to make up for the But Tagoe disagrees: “Football is like introduction of the FPP regulations is highly losses,” he says. no other business in my view; it is not only likely to increase the demand on the part of For Tagoe accounting firms should the shareholders who need to be reported football clubs for high-quality professional take advantage of the FFP rules at two to, the fans need to be reported to because financial advice.” levels: first, by helping their clients to do they invest a lot in their football clubs – they The Chartered Institute of Management the right thing. “In terms of accountancy are not just customers. Do you know any Accountants’ executive director for there is some latitude in interpreting the supermarket where customers have asked education Noel Tagoe also believes that rules, and accounting firms shouldn’t for their ashes to be scattered around the new regulations will impact the accounting encourage an aggressive interpretation of aisles? It happens at football clubs.” of clubs. An impact he attributes to the rules’ the rules,” he says. For this reason he believes clubs should lack of efficiency. Secondly, he believes accounting firms present reports that show fans the club “When all this notion of Financial Fair shouldn’t only think in terms of reporting. they have invested in, both financially and Play came into being, they were looking “At the moment everything is based on emotionally, is being run properly. “And at the sustainability of football clubs and reporting and implicitly we believe that you cannot trust the management to do that particularly they were worried about the if we focus on reporting, people will then without an audit,” Tagoe says. high debt levels that threatened the very manage well but I’m not seeing football Most critics of FFP rules acknowledge existence of the clubs,” he says. clubs at the moment doing that. Maybe I’m UEFA’s objectives are genuine and that with “Now if you’re going to do that, you’ve got too pessimistic,” he says. these rules it seeks to do the right thing, but to look at their debt positions very clearly. “What I think they are doing is managing, they are sceptical about the capacity of each But what FFP rules do is to look at losses their reporting, rather than taking actions player, club, accounting firm and UEFA that a club makes over a period of time.” that would lead to the desired outcome – itself to follow the rules. This might just be He argues his point by taking Gareth financial sustainability .” accounting firms’ biggest opportunity and Bale’s transfer to Real Madrid as an Others, like AC Milan’s organising challenge with regards to Financial Fair Play example. “In the case of a transfer, a club director and European Club Association – by helping the planet’s most popular sport can amortise the cost of a player over a vice-president Umberto Gandini, have to regain financial integrity, they might just period of time,” he says. “Real Madrid raised concerns over the lack of standardised win back part of the public’s faith that was bought Gareth Bale for £85m on a six-year rules of auditing across Europe. In an lost during the financial crisis. <

www.InternationalAccountingBulletin.com September 2013 y 7 FeaTure audITor reporTInG ChanGes International Accounting Bulletin

A critical moment After 75 years the audit report is fi nally set to change in the US. So will the PCAOB’s landmark proposal enhance the quality of information for investors, or is the outcome of the reforms likely to be boilerplate statements and higher fees? IAB investigates

hat came out of the financial PCAOB, is confident this will “enhance the holders have asked for more insight and crisis was a generally expressed quality of the audit by illuminating some transparency into the actual audit process view by educated non-audi- of the more difficult audit areas which are as a result of the recent financial crisis. tors and lay people, includ- obviously part of the related disclosures in “Stakeholders realise that there is more “W the financials”. to the story behind the audit of a company ing investors, that the audit report lacked relevance,” says James Doty, chairman of The proposed auditor reporting stand- than is simply reflected by line items on the Public Company Accounting Over- ard would require the communication of financial statements and the standard pass/ sight Board (PCAOB). ‘critical audit matters’ as determined by fail auditor’s report. Proposals to change After several years of evaluation, study the auditor; the addition of new elements the audit report have been made around and holding discussion groups to ascertain to the auditor’s report related to auditor the world by the European Commission, how to make the audit report provide more independence, auditor tenure, and the audi- the IAASB and now the PCAOB, so the relevant information to the users of finan- tor’s responsibilities for, and the results of, momentum for change is present.” cial statements, the PCAOB has now put the auditor’s evaluation of other informa- Chris Smith, partner and audit and forward The Auditor’s Report on an Audit tion outside the financial statements; and accounting practice leader at BDO US, com- of Financial Statements When the Auditor enhancements to existing language in the ments: “I believe it is the right time to be Expresses an Unqualified Opinion, and auditor’s report related to the auditor’s making a change. For one, the basic audi- The Auditor’s Responsibilities Regarding responsibilities for fraud and notes to the tor’s report in the US has been the same Other Information in Certain Documents financial statements. model for decades. Like anything, it is prob- Containing Audited Financial Statements It’s a step which chimes with other ably good that we look at things from time and the Related Auditor’s Report. measures being taken to revisit the func- to time and ask if what we do makes sense The proposed standard would retain tion of the audit, such as the International in light of our current environment.” the pass/fail model in the existing audi- Auditing and Assurance Standards Board There is general agreement among firms tor’s report, but would provide additional (IAASB) recent exposure draft: Reporting that if the users of financial statements are information to investors and other finan- on Audited Financial Statements: Proposed actively requesting better quality informa- cial statement users about the audit and the New and Revised International Stand- tion, then reforms should be made to meet auditor. It represents the biggest shake-up ards on Auditing. those needs. Understandably, there are of the audit report in the US for more than Bob Dohrer, global leader for quality and questions around what these changes mean 70 years. risk at RSM and also chairman of the Inter- in practice for audit firms and how they are Martin Baumann, chief auditor and national Federation of Accountants’ Forum going to be implemented. The main areas in director of professional standards at the of Firms, says: “Investors and other stake- need of clarity are:

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• When multiple significant judge - “There is a potential for this to be boiler - further throw into question the relevance ments come into play, how would an plate as you could have a lot of informa - of the audit and the willingness of auditors auditor select what is important and tion whereby you just disclose every single to do something that investors are looking break them down to a manageable audit matter that was considered, which I for, such as to describe for them what were size and number? don’t think was the intent. If you look at the difficult matters they faced. We require the language of the proposal, you could end them not only to identify the matters but • If these disclosures expose firms to up with that but our hope is that we can to describe the considerations that led increased liabilities, is there a danger identify opportunities to provide meaning- the auditor to determine the matter was the additional information will simply ful, focused disclosures.” critical. become boilerplate? “If auditors don’t embrace this, I think Top five issues they are missing an opportunity to show • Will more work on engagements mean It has been argued by some that it would they are valuable in the financial report- firms hike audit fees for clients? be useful to limit the critical audit matters, ing chain. Also, we will be monitoring this, perhaps agreeing the top five issues with the so assuming it’s adopted at some point, we • How can consistency in applica - audit committee as this would ensure the will have the ability to monitor what’s been tion be ensured? disclosures are ‘meaningful’ for the read - reported.” ers and it should keep variances in length Regarding higher audit fees, it’s up to the • Is there a danger that this could between reports down. audit committee to determine how much make the auditor the original source Once the form of the PCAOB’s proposal is paid, but neither Doty or Baumann see of information, rather than the is decided, the reality of what it means will a strong case for firms charging more. “It management team? only be understood after significant field would be transparently a mistake for audit testing. Auditors will have to explain what firms to suggest that because they are • How broad is the move away from the extra work is required and if there are any reporting more fully what they do in the ‘consideration of other information’ to additional costs; companies and their audit audit, it is an excuse of itself to [increase the ‘evaluation of other information’? committees will need to explain how useful fees],” insists Doty. they find the information; and then inves- According to Baumann, the auditors are To be clear, responses and comments on tors and the other users of financial infor- only reporting on what they already do. the proposed standard and related amend- mation will have to give feedback too. “This is a cost-sensitive approach in that we ments are due by mid-December and the For Doty, there is no reason for the added are saying that the audit firms need to dis- PCAOB is keen to state that much debate information to become formulaic. “This is close the matters that were addressed dur- lies ahead, with a discussion group due to something we have given a lot of thought to ing the audit and the difficult judgements be held next year. “There is a good chance at the PCAOB. Audits of issuers are highly faced. We are not asking for any new audit we will re-propose,” says Baumann, who specific. By taking the approach as outlined work to be conducted in any way. We are doesn’t expect any changes to come into in the proposal, it cuts against the tendency asking them to do additional reporting on effect until 2015. to boilerplate because it requires the most things they have already spent a lot of time There is certainly much to examine, espe- critical and most difficult judgements made on.” cially given the US culture of litigation. in that audit. If investors want extra information and Dohrer says: “More disclosure by auditors “The ways in which firms say that may not transparency, then it’s a ‘market need’ regarding difficult or challenging areas of vary across a firm’s practice, but the audits which has to be acknowledged. Doty says: the audit could be viewed as enhancing are going to vary. The management disclo- “The credibility of the audit has suffered quality, but enhanced quality of the report sure is going to vary. The information that because it does not contain more insight will not be achieved if the additional disclo- the audit has to evaluate, what management into the audit function and the auditor’s sure becomes boilerplate. With more disclo- has put in its notes to its financial state - judgements. The idea that management or a sure of critical audit matters, risk increases ments, that’s going to vary. It moves firms few audit firms should issue baleful prophe- for auditors and, as history has proved, a away from making uniform and formulaic cies about cost in this kind of a context is, common response to increased risk is to statements to investors.” personally speaking, a misguided response. standardise the wording of reports. Indeed, according to Doty, this is precise- “I think what you are going to hear from “Decisions about which ‘critical audit ly what the audit profession has been call- more thoughtful auditors around the world matters’ to describe in the report and which ing for.“The firms don’t want a reporting is that this is going to open up more oppor- audit matters don’t warrant disclosure will model that became increasingly obsolete. tunities for us to become more relevant and be highly subjective and will expose the Audit firms have wanted something like to inform audit committees and investors auditor to second guessing. Additionally, this, which maintained relevance, and there about the difficulties we face in an increas- disclosure of certain ‘critical audit matters’ is a reason why investors should read the ingly complex commercial world.” may actually conflict with other profes - audit report. It should lead to distinctions The proposal could have gone significantly sional standards.” of excellence in firms.” further. Says Baumann: “Some did want Cynthia Fornelli, executive director of Baumann agrees: “If auditors turn the auditors to provide analysis, if you will, the Center for Audit Quality, comments: this into a boilerplate report it will just of the financial statements, so there was

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a competing set of opinions between the tion of financial statements.” auditor’s analysis and management’s analy- The expectation gap around the scope sis. That would change the role of auditors of the auditor’s role, which is growing all from the attesting role they play to more the time, will have to be watched carefully. of an analytical role. We chose not to go Fornelli says: “The company needs to be the down that road because, first, we thought it original source of information. As we look would be very costly and secondly we don’t at this and field test the proposals on critical think that auditors are necessarily trained audit matters and other information, we’re as analysts.” going to have a keen eye on whether this is Again, the field testing will be key. At this generating disclosure of information by the stage, it seems reasonable to assume that auditor that the company hasn’t disclosed getting the methodology and language right, already. That to me is going to be a funda- then establishing quality control standards, mental question which we need to look at.” policies and procedures, to make sure that Over the next few months, there is going what’s done is reflective of the standard, to be plenty of hard analysis and debate James Doty combined with the coordination required about how to make this work. PwC’s US between auditor, management and audit assurance leader Vin Colman simply says: committee, will take time and that inevita- “[We] strongly support any enhancements bly has a cost attached to it. to the auditor’s report that will address the The spirit of the standard has to be abided What’s evident is that the PCAOB has needs of today’s users, and we look for- by, otherwise it defeats the purpose and only endeavoured to strike the right balance, ward to working expeditiously with the serves to put further pressure on the audit which can be seen by its staged and consul- PCAOB and all stakeholders to achieve this profession. Fundamentally, if agreement tative approach in introducing the standard. objective.” between the various stakeholders is reached Baumann says: “We know auditors face The stakes for the audit profession are and this is executed correctly then it could some very tough choices when reaching a high, which is why continued collaboration narrow the expectation gap. Regarding the conclusion for an audit. The audit is consid- and evaluation is being called for. Dohrer question of increased liability for firms, that ered to be very valuable, but the audit report says: “First, I would like to see the PCAOB in itself is not a reason to hold back as the is seen not to contain any usefulness what- and IAASB work together to arrive at the goal has to be useful information for inves- soever. We think that by sharing with inves- same standards for auditor reporting. tors in public companies. tors the most difficult decisions that audi- Additionally, at the risk of the proposed Doty, for one, is convinced that in the tors have to make, it will cast some sunlight reporting standard becoming rules-based, I aftermath of the financial crisis, when seri- onto the areas in the financial statements think it would be very helpful to auditors ous concerns were raised about the value which will help investors dig deeper and if the PCAOB could provide more specific and purpose of the audit as companies went allow them to ask management questions criteria for when an audit matter rises to the under almost on the heels of a clean audit to understand the issues better.” level of required disclosure in the auditor’s opinion, the moment has come to start The proposals could have gone much report. looking to the future: further. Doty adds: “There will be voices “The attest function is one that is raised that this does not go far enough in required,” he says. “Issuers have to have it providing insight and transparency into the “This is a milestone in providing to trade their securities in the established actual state of management’s own interpre- investor information and we markets. If auditors view this as less than an tation of a business’ prospects and the mate- opportunity, they will consign themselves rial trends and uncertainties that manage- should not assume there will not to a course of increasing irrelevance.” ment discloses. That will be a matter which be further changes in the audit, Seventy-five years is a long time to wait some investors will see as a limitation.” the audit report and what the before revisiting the audit report. Assum- Again, the field testing will be key., the auditor does.” ing this does go ahead, in whatever form general view from companies was that the is finally agreed upon, don’t expect the James Doty, chairman of the PCAOB auditor should not be casting a view on the changes to end there. As much as this pro- financial statement or for there even to be posal intends to strike a middle ground, the an argument for amending the scope of the sense is that it may not be too far off when audit report. “Quality in auditor reporting can only be auditors have to provide even more insight Baumann says: “To the extent that ensured if the proposed reporting standard and analysis. change would occur, they said they would is capable of consistent application by all “This is a milestone in providing inves- certainly prefer that auditors talk about the auditors and with the degree of subjectiv- tor information and we should not assume audit rather than their view of the financial ity involved with what should be disclosed there will not be further changes in the statements. I think management and audit at this point. One matter reported by one audit, the audit report and what the auditor committees would find that more appealing auditor very well may not be reported by does,” says Doty. In other words, this is just than auditors providing some sort of valua- another auditor.” the beginning. <

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Mixed fortunes for Latin American profession Uneven economic development and uncertainty around local regulation are just two of the challenges facing the accounting profession in Latin America. paul Golden reports

n common with other ‘emerging’ particularly disappointing for Latin Amer- Menendez agrees that high commodity pric- regions, there is significant disparity ica’s largest economy, Brazil, where GDP es and significant foreign investment have in economic growth rates across Latin growth is expected to hover around 3% over been the main factors affecting the volume of America. While GDP growth across the next few years. That projected slowdown work available to accounting firms in Latin I reinforces rising concerns about a regional America from both local and international the region averaged 4% over the past dec- ade and living standards rose strongly, the economic deceleration, especially because of clients in recent years. net commodity exporters of South America potential spillovers to smaller neighbouring “But while high commodity prices have recorded an average increase of 4.5% since economies. Non–commodity exporters are affected most of the countries in the region, 2003, while Mexico, Central America and expected to grow by around 2.25% over the foreign direct investment has been more the Caribbean managed a more modest next four years. selective, avoiding countries with unsta- 2.5%. In their conclusion, the authors suggest ble politics such as Argentina, Venezuela, In a new report, IMF economists Sebas- governments in Latin America should look Bolivia and Ecuador. Brazil, Chile, Colom- tian Sosa and Evridiki Tsounta observe that at strengthening the business climate (for bia, Panama, Paraguay and Peru – countries recent data supports the view that growth is example, by simplifying tax systems) and which have a stable economy – have shown slowing across the region. improving the enforcement of contracts and strong growth, a trend that has reduced Estimates of potential growth rates for access to credit information. unemployment and expanded the mid- the region during the period 2013–17 Roberto Cox, chairman Moore Stephens dle classes, which has in turn created new are 3.75% and the outlook appears to be Latin America and partner at Suarez & enterprises.”

networkS – fee dAtA Fee split (%)

Corporate Fee income Growth audit & Tax Management Corporate recovery/ Litigation rank name (us$m) rate (%) accounting services consulting finance Insolvency support other year-end 1 Deloitte*(e) 1,391.0 7% ------May-12 2 PwC* 1,037.0 9% ------Jun-12 3 EY*(e) 813.2 7% ------Jun-12 4 KPMG* 809.0 6% 54 21 - - - - 25 Sep-12 5 BDO* 168.5 4% 63 14 - - - - 23 Sep-12 6 Grant Thornton International* 145.7 20% 45 14 - - - - 41 Sep-12 7 RSM(1) 89.5 98% 62 12 19 - - - 7 Dec-12 8 Crowe Horwath International(2) 83.6 9% 64 21 8 2 - - 5 Dec-12 9 Baker Tilly International* 70.7 8% 65 18 11 4 - - 2 Jun-12 10 Moore Stephens International* 68.3 9% 70 16 7 4 - - 3 Dec-12 11 SMS Latinoamérica(3) 64.6 7% 47 28 18 1 3 - 3 Dec-12 12 Russell Bedford International* 54.5 22% 45 22 10 - - 1 22 Jun-12 13 Kreston International* 52.3 22% 52 32 7 2 1 - 6 Oct-12 14 PKF International* 42.4 6% 73 14 7 1 - - 5 Jun-12 15 Nexia International* 39.2 229% 60 21 11 1 - 1 7 Jun-12 16 Mazars* 38.8 19% ------Aug-12 17 HLB International* 29.1 -2% 65 16 7 - - 1 11 Dec-12 18 UHY International* 19.4 5% 50 19 9 2 1 2 17 Dec-12 19 Auren* 14.7 28% 42 45 9 1 - - 3 Dec-12 Total revenue/growth 5,031.4 9%

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) RSM’s fee includes $13.4m from correspondent and non-exclusive member firms; (2) Crowe Horwath’s fee includes $0.6m from correspondent and non-exclusive member firms; (3) SMS Latinoamerica includes $2.4m from correspondent and non-exclusive member firms Source: International Accounting Bulletin

www.InternationalAccountingBulletin.com September 2013 y 11 CounTry survey LaTIn aMerICa International Accounting Bulletin

In those countries where economic growth countries, the implementation of transfer regulations. It’s also important to move to has been strongest, Cox observes that con- pricing legislation has also required this ser- risk-focused audits and our procedures must tinuous GDP growth has led to the crea- vice, while foreign investment has demanded be intelligently planned and designed to tion of new businesses, which in turn has active work in areas of company formation, ensure that we detect riskier aspects.” increased the client base for accounting ser- back office outsourcing services and human In recent years, demand for due diligence vices. “In some markets, separation of ser- resources support.” has fallen drastically, he continues. “The vices has led us to being able to compete for Moore Stephens is implementing a main reason is that this demand is closely services which were previously inaccessible human resources programme across Latin linked to economic growth and foreign and that trend is increasing, mainly for tax America. Among its objectives is a desire to investment and currently the Argentine mar- and consulting services.” create a platform for the recruitment of new ket is dominated by uncertainty and policies He says that over the past 12 months, staff, who in most markets are lacking the that drive away foreign investment.” Moore Stephens member firms in Latin required knowledge and skills, says Cox. Lepera says the absence of legal security America have increased their billing by 25% “Our study of work behaviour has shown generated by constant changes in the legal in US dollars, excluding Brazil, which due that new staff expectations (in addition to framework of certain businesses has eroded to the devaluation of its currency recorded their salary) include the ability to work from business confidence, while the firm has to negative growth. The network’s Colombian home, welfare activities and training. This deal with local laws that are inconsistent member firm has been the standout perform- trend has led to the creation of our human with professional standards. Yet despite this er with growth of 38%. resources programme.” warning, he expects accounting services to “The greatest demand for services has Matias Lepera, external audit director of enjoy moderate but sustained growth across derived from the implementation of IFRS,” Kreston International member firm Lisicki Latin America over the next few years. Cox continues, “with clients requesting Litvin y Asociados based in Argentina, also RSM International regional leader for training for the adoption of financial state- accepts that the profession has developed at Latin America, Robert Burdett says account- ments to fully implement these new stand- different rates across Latin America. ing scandals in Colombia and Chile have ards. Another growing area has been the “In Latin American culture there is little strengthened respect for global standards. implementation of money laundering legis- attachment to formalities, but we should “IFRS is now an established standard in lation, which requires manuals and proce- extend our procedures as a result of new many Latin American markets, but it is still dures for most clients in the region. In some requirements such as money laundering a new process in others,” he says, adding

■ LaTIn aMerICa ASSocIAtIonS – fee dAtA Fee split (%)

Corporate Fee income Growth audit & Tax Management Corporate recovery/ Litigation rank name (us$m) rate (%) accounting services consulting finance Insolvency support other year-end 1 Praxity* 51.5 11% ------n/a 2 PrimeGlobal* 40.1 -30% 58 19 12 4 - 2 5 May-13 3 UC&CS Global* 32.7 5% 62 28 - - - 10 - Dec-12 4 DFK International(1) 27.9 17% 53 15 13 - - 1 18 Sep-12 5 MGI* 22.6 19% ------Jun-13 6 BKR International* 21.0 5% 56 31 - - - - 13 Jun-12 7 MSI Global Alliance* 20.4 38% 89 2 2 - - - 7 Dec-12 8 Antea* 19.7 26% 38 36 7 2 - 13 4 Dec-12 9 AGN International* 19.0 12% 88 6 - - - - 6 Oct-12 10 Morison International* 16.3 13% 62 18 7 5 2 1 5 Dec-12 11 Integra International* 9.7 15% 65 25 10 - - - - Jun-13 12 GMN International* 9.1 -7% 58 22 12 2 - 3 3 Dec-12 13 Alliott Group* 9.1 26% 65 13 13 7 - 2 - Aug-13 14 IAPA* 8.5 -18% 74 12 7 2 - 1 4 n/a 15 Abacus Worldwide* 8.1 n/a 21 11 19 9 - 21 19 Dec-12 16 EuraAudit International* 3.2 150% 70 13 12 - - - 5 Dec-12 17 INPACT International* 2.8 5% 64 22 5 3 - 2 4 Dec-12 Total revenue/growth 321.5 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) DFK’s fee income includes US$2.8m from correspondent and non exclusive firms. Source: International Accounting Bulletin

12 y September 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin LaTIn aMerICa CounTry survey

that tax issues are a permanent fixture on and, including correspondents, now has rep- information and rules requirements,” he the regional agenda. resentation in 17 countries across the region. continues.“Brazil, Argentina, Mexico, “There is always a new country imple- Burdett expects the network to maintain Venezuela and Colombia have very detailed menting transfer pricing, or new statutory double-digit growth across Latin America and strong rules for tax and financial tax audit regimes,” adds Burdett in a state- over the next 12 months through a combina- information.” ment that supports the view of Sebastian tion of organic growth and regional business Panama and Uruguay are some of the Sosa and Evridiki Tsounta that governments development activities. main hubs for UC&CS Global’s services in the region should focus on simplifying because of investments from other countries their tax systems. Challanges for tax and commercial reasons. “Chile is Burdett highlights Peru, Columbia and the According to Mauricio Mobarak, president also very attractive for inward investment, countries of the Southern Cone – Argentina, of the world council at UC&CS Global, as are Peru and Ecuador. In the Caribbean, Chile, Paraguay and Uruguay – as display- the main issue for accountants in Latin there is strong foreign investment in the ing high demand for professional services America is to communicate to shareholders Dominican Republic. Investors are asking to and says Brazil remains a vibrant market and stakeholders the benefits of having an work with accounting firms with a presence even though economic growth has fallen. external audit of their financial statements in all Latin American countries.” “Demand is always there for audit, tax, risk and to train company executives in manag- Competition for audit services is intense, assurance and other regular services. Inter- ing information. He suggests that tax and but the network’s main growth has been national companies are looking for a mod- financial information requirements are so in the tax, legal and accounting segments. ern service culture and strong English skills.” extensive that companies and accountants Mobarak states that mandatory tax audit In the last year RSM has established a pro- get overloaded by all the tax information activity is expected to fall because of tax sim- gramme of annual audit training for a full to be presented to the authorities, as well plification in some countries, as is happening week, on-site in every member country. It as the time required to prepare or analyse now in Mexico. now trades as RSM in 12 Latin American financial statements. “Business issues affecting our clients countries (up from four just two years ago) “The bigger the country, the greater the include lack of free foreign currency in Ven-

■ LaTIn aMerICa networkS – StAff dAtA

Total staff Growth partners professional staff administrative staff offices rank name 2012 2011 rate (%) 2012 2011 2012 2011 2012 2011 2012 2011 1 Deloitte*(e) 22,295 20,854 7% 813 760 15,618 14,597 5,673 5,302 - -

2 EY*(e) 14,980 14,000 7% ------

3 PwC* 12,236 11,174 10% ------

4 KPMG* 10,501 9,930 6% 487 464 8,191 7,747 1,823 1,719 --

5 BDO* 3,573 2,871 24% 187 157 2,862 2,272 524 442 65 57

6 Grant Thornton International* 3,437 3,009 14% 204 166 2,859 2,471 374 372 54 49

7 Moore Stephens International* 2,640 2,326 13% 175 164 2,031 1,805 434 357 54 50

8 Crowe Horwath International* 2,627 2,402 9% 165 157 2,022 1,920 440 325 60 60

9 RSM 2,108 988 113% 162 67 1,558 722 388 199 61 22

10 PKF International* 2,004 1,531 31% 106 107 1,728 1,223 170 201 38 35

11 SMS Latinoamérica* 1,873 1,767 6% 162 158 1,571 1,478 140 131 40 37

12 Kreston International* 1,755 1,334 32% 123 105 1,323 1,019 309 280 66 51

13 Baker Tilly International* 1,608 1,630 -1% 155 161 1,218 1,195 235 274 50 52

14 Russell Bedford International* 1,565 1,192 31% 131 147 1,280 885 154 160 49 42

15 Nexia International* 1,220 1,209 1% 110 103 895 873 212 207 45 44

16 HLB International* 1,215 1,335 -9% 120 125 916 1,001 179 209 48 53

17 UHY International* 840 827 2% 74 66 621 467 145 294 35 32

18 Mazars* 823 974 -16% ------

19 Auren* 537 454 18% 43 34 432 402 62 45 18 13

Totals 87,837 79,807 10% 3,217 2,941 45,125 40,077 11,262 10,517 683 597

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

www.InternationalAccountingBulletin.com September 2013 y 13 CounTry survey LaTIn aMerICa International Accounting Bulletin

ezuela, Bolivia and Argentina,” Mobarak ing services across Latin America will class’ demanded by certain segments of our continues. “Over the last 12 months we have expand by around 15% over the next 12 economies.” He expects consulting and tech- introduced a global tax, legal and social secu- months. nology to present growth opportunities over rity advisory programme for Latin American The Latin American accounting industry the next 12 months while accounting and investments and we have also run training has matured rapidly despite later adoption tax business remain stable. “It all depends weeks in Chile and Mexico covering IFRS, of IFRS than in other parts of the world on how the economy grows. I would say IFRS for small businesses and USGAAP.” and the key issues – audit rotation, permit that depending on the segments and GDP services, independence – are little different performance, growth should be between 5% opportunities to those affecting firms in Europe. That is and 10%.” Mexico, Argentina, Brazil, Peru and Chile the view of PwC Argentina assurance leader Over the last two years, inflation and stag- are identified as key growth markets by Jorge Manoel. nation have forced businesses in Argentina Diego Scravaglieri, partner in Argentine firm “Brazil was hot up to 2011 and early to streamline their budgets, explains Oscar Scravaglieri & Asociados and regional chair- 2012, with some slowdown lately. Peru Eduardo Mary, partner at Integra member man GMN International. has been a growing economy, which has firm RCBM in Buenos Aires. “Consequent- “Services offered by our network in the increased demand for accounting and con- ly, companies have eliminated new assign- region include those dealing with corporate sulting professionals. Argentina has also ments to their tax and accounting advisors, social responsibility,” he says. progressed, but is more impacted by the reduced the number of hours to ensure mini- He highlights unreliable inflation index- regulatory environment.” mum compliance and bargained fees down es with financial statements that cannot in the context of high annual inflation.” be adjusted to take account of this vari- recruitment He describes the tax systems at federal, able quality of data and constant changes Recruiting and retaining people with the state and city level as extremely complicat- in tax legislation as some of the challenges necessary skills is another challenge, says ed, but adds that it is not easy for account- facing GMN members. New Latin Ameri- Manoel. ing firms to demand better fees to reflect can initiatives include adapting manuals to “Firms have to invest heavily in initial increased demand for tax advice. international regulations in matters of both training programmes and in developing the “Fees have grown erratically over the last accountancy and audit. sophistication and internationalisation of 12 months. Companies have been trying to Scravaglieri reckons demand for account- their employees to keep up with the ‘best in keep them unchanged or slightly above pre-

■ LaTIn aMerICa ASSocIAtIonS – StAff dAtA

Total staff Growth partners professional staff administrative staff offices rank name 2012 2011 rate (%) 2012 2011 2012 2011 2012 2011 2012 2011 1 UC&CS Global* 2,168 2,122 2% 164 165 1,614 1,580 390 377 144 101

2 PrimeGlobal* 1,147 1,367 -16% 115 120 833 1,001 199 246 53 59

3 Praxity* 1,016 1,233 -18% ------

4 DFK International* 843 815 3% 71 66 650 581 122 168 41 40

5 MGI* 719 757 -5% 106 80 613 677 - - 38 26

6 MSI Global Alliance* 688 634 9% 43 39 499 457 146 138 14 12

7 Antea * 669 563 19% 66 50 520 451 83 62 24 18

8 Morison International* 649 617 5% 58 60 485 454 106 103 24 25

9 BKR International* 578 536 8% 55 57 500 396 23 83 28 22

10 GMN International* 520 501 4% 46 45 409 383 65 73 24 19

11 AGN International* 498 523 -5% 65 53 363 410 70 60 22 24

12 Integra International* 449 399 13% 44 40 325 283 80 76 22 22

13 IAPA* 374 445 -16% 41 39 194 268 139 138 15 12

14 Alliott Group* 350 464 -25% 43 42 249 218 58 204 14 13

15 Abacus Worldwide* 179 n/a n/a 24 n/a 109 n/a 46 n/a 8 n/a

16 INPACT International* 171 161 6% 24 23 129 120 18 18 11 10

17 EuraAudit International* 146 247 -41% 34 39 92 165 20 43 11 19

Totals Total 11,164 11,384 -2% 999 918 7,584 7,444 1,565 1,789 493

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

14 y September 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin LaTIn aMerICa CounTry survey

vious values while firms are pushing for big- rencies have been over-appreciated due to “Auditing, accounting and tax advice are ger increases to recover from the effects of foreign investment. In those conditions it in high demand and competition for audit mandatory salary increases and inflation.” becomes harder to export and cheaper to services, particularly in Mexico, is very According to Mary, international network import.” strong,” Maynez says. “We have only recent- member firms have been largely unsuccess- Villagarcia (who suggests there is still a ly joined MSI, but we are already working ful in their attempts to gain business from lot of work to be done around IFRS imple- on engagement projects with fellow member the subsidiaries of international companies mentation in a number of Latin American firms in Argentina, Chile, Colombia, Peru as they set up in new markets. “Although countries) adds that while organic growth is and Venezuela.” these firms have the technical ability to pro- likely to remain unchanged this year com- Maynez says some tax law changes pro- vide the necessary services and local inter- pared to 2012, there are opportunities for posed by the Mexican government could national company managers know that they growth through new firms wanting to join affect audit services. This point is taken up will get a better service at a reasonable price, the network. by Andres Hirschfeld, partner at MSI mem- head offices surrender to pressure from their ber firm Rodolfo Hirschfeld & Associates established audit or tax firm to get exclusiv- skill set in Uruguay, who says: “Each country is dif- ity [in each new market].” Practically all companies in Mexico recog- ferent – audit is not 100% required in all Eduardo Pestarino, regional executive nise accounting as an important area of their countries.” (Americas) Crowe Horwath International business, with transfer pricing services in Maynez says that while the average fee says developing significant practices in areas particularly high demand, explains Manuel increase in Mexico for the past 12 months is such as corporate finance, risk consulting, Rangel, partner at BKR International Mexi- 4.5%, his firm increased revenues by almost corporate governance and human resources can member firm CPC Rangel. Challenges 15% on the back of new clients and services. has enabled its member firms in the region to facing the industry include counterfeit goods “I don’t see any sign of indigenous firms generate business opportunities as fee pres- and tax evasion. increasing their share of the accounting sure on audit and tax services has increased. “In 2009 the Mexican Institute of Public services market, although there have been “Due to the economic and political situa- Accountants developed a nationwide pro- recent mergers that could increase the tion in Argentina, companies have not been gramme (‘The Power of Numbers’) focused market share of the merged entity.” investing in new businesses over the past on senior high school students to promote Payroll services are growing more slowly three years, which has impacted negatively the accounting profession. Employees have than the overall accounting services market on corporate finance consulting services – become more demanding in terms of sal- says Mariano Payaslian, partner at Gizzi & including M&A – which previously repre- ary and other incentives and competition Payaslian and Latin American chairman for sented a significant service line. Another key between firms for recruitment is intense.” Alliot Group. factor across the region has been the increase “We expect significant growth in account- “I think this is because companies con- in tax costs, not only the level of taxation, ing services after Mexico’s new energy and sider that this service is only a cost in which but the increasing costs of administration tax law reforms are passed,” adds Rangel. it is difficult to add value, so their objective needed to meet authorities’ requirements.” “Additionally, the stabilisation of the glob- is to find lower prices,” Payaslian says. “In The network has conducted several train- al economies, mainly the US and Europe, my opinion that is a mistake because while ing programmes in different specialities, will positively affect our local market.” we have seen payroll companies enter the including audit and assurance, tax, risk Tomas Manrique, MGI area coordinator, market in recent years using automated pro- consulting and corporate finance. “We have Latin America, explains that while some cesses to do the work at a lower cost, this translated both the Crowe Horwath inter- countries in the region are inspired by the leads to lower professional levels and more national audit platform and the firm’s audit IFRS as a common global language for busi- mistakes.” In terms of recruitment, Paya- manual and have been implementing them ness, local regulations apply for some mar- slian says his firm’s strategy is to focus on in all our member firms this year,” adds Pes- kets as a result of bilateral trade agreements. young people between the ages of 22 and 25, tarino, who says local firms without inter- “Among employees there is a drive for more with good professional skills. “We prefer to national affiliation have failed to increase tangible collateral benefits in the form of recruit people without experience but with their market share despite attempts to com- flexibility, opportunities for career progres- a strong interest in learning and developing pete in the middle market. Sergio Villagarcia sion to partnership, and training and coach- their skill sets,” he concludes. of PKF Villagarcia & Asociados is regional ing programmes.” It is clear from the above comments that director of PKF Latin America. He says that English language skills are a weakness in accounting firms in Latin America are taking while audit and tax are core services, mem- many Latin American countries according steps to address issues such as availability of ber firms in the region have been very active to Ramon Maynez, partner in the Mexican skilled staff, employee retention and custom- in auditing projects funded by multilateral MSI member firm Lores Budioo y Compa- er awareness of the value of their services. banks. nia, who draws a clear distinction between With increased uncertainty around prospects “The issues affecting our clients depend on strong demand for accounting services in for short-term economic growth across the the countries they operate in. Venezuela and Argentina, Brazil, Chile, Colombia, Peru region and continued pressure on fees, a Argentina have a big problem with inflation and Venezuela and weaker demand in proactive approach is essential in further and currency devaluation, while in Brazil, Honduras, Bolivia, Nicaragua, Paraguay raising awareness of the value of accounting Paraguay, Peru, Chile and Colombia cur- and El Salvador. services.<

www.InternationalAccountingBulletin.com September 2013 y 15 CounTry survey FranCe International Accounting Bulletin

Signs of recovery but little euphoria for French firms Cramped between tight regulations and a stagnant economy, French fi rms try to make the most of a diffi cult market. Vincent Huck reports

n the second quarter of 2013, the says: “This year’s characteristic is that there ■ FranCe French economy started to grow slight- was no correlation between the level of activ- ly again after two quarters of recession ity registered and the incomes generated. We At a glance and increasing unemployment. If, for saw a lot of activity because we are still in revenue I economical turmoil and that is when our some firm leaders, this is a morale booster and a sign of optimistic prospects for the clients need more services, but being in a Most revenue: Deloitte, €891m coming year, others remain pessimistic. period of crisis it only had a relative impact Least revenue: Key Will Group, €0.14m Despite a difficult economic context, on the fee incomes.” highest growth: Key Will Group, 120% French firms have performed relatively well Mazars France earned €307m in fees, up Lowest growth: HLB International, –50% in the past year. Surveyed networks have 4%. The firm retains its position behind grown by 2% while associations have seen the Big Four and far ahead of the rest of sTaFF their fee income increase by 4%. The fee the mid-tier. Mazars France chief execu- Largest workforce: KPMG, 8,000 income of the Big Four increased by an aver- tive officer Hervé Hélias says: “As some of smallest workforce: Key Will Group, 2 age of 3% in fiscal year 2012, which matches our competitors have said we are a ‘genetic Most partners: Deloitte, 470 the previous year’s growth. anomaly in the market’, this is a nice defini- Most offices: KPMG, 217 The most notable incidents for the 2012 tion of Mazars.” financial year happened in the Big Four He says he is satisfied with the perfor- eConoMIC IndICaTors ranking. Indeed Deloitte took over KPMG mance of the firm considering the economic national Gdp: €2,028.2bn at the top of the table with fee income of situation: “We continue to grow in a market 0.03% €853m ($1.15bn) in the year to 30 May 2012. that is not growing anymore.” national Gdp growth: €35,547 KPMG earned €839.1m in fees, up 2% from And he attributes the firm’s performance to Gdp per capita (ppp): 2% last year. a 50/50 mix of external and organic growth. Inflation (CpI): EY and PwC retain their respective rank- “We acquired a firm in Bordeaux and merged Current account Balance: –2.41% ing as third and fourth in the French market with a firm in Lille,” he says. “The integra- unemployment rate: 10.2% with fee incomes of €753m and €690m, EY tion of the two firms accounts for a little less population: 63.4m has seen a growth rate of 3%, hence reducing than half of the growth. And the remaining IAB survey IndICaTors the gap with KPMG. half comes from our work in audit.” All the mid-tier firms managed to gen- The Big Four and the mid-tier firms have revenue per employee: €115,520 erate growth, but only three of them seen a lot of activity in their audit service staff density: 1 accountant per 1,367 people reported double-digit growth: EXCO Kres- lines in the past year. “We are in a market which is heavily regulated,” Parker explains. Notes: Totals apply to IAB surveyed data only. This includes ton (10%), RSM France (13%) and PKF firms that belong to global networks and associations International (18%). “Therefore smaller firms have difficulties Source: International Accounting Bulletin, IMF EXCO Kreston chairman Franck Parker in adapting to the regulations and are less

16 y September 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin FranCe CounTry survey

aggressive on the market which leaves more services with added value for [their] clients”. have reduced their fees,” he says. “And we room for bigger firms like ours.” He says that the firm did a lot of work on can’t continue this way because clients ask Another challenge for French firms this communication with its existing and poten- for more reductions and we have come to year has been the fee pressure. Even though tial clients in order to convey the message the point where maintaining audit quality it has been very strong in France for the past that price is not the only consideration when will be difficult.” six years, it has clearly intensified in the past choosing an auditor, and that quality and year. experience should also be considered. Complex regulations Grant Thornton’s chief executive officer “Nine times out of ten we manage to make Apart from audit, other service lines, such as Daniel Kurkdjian says: “We were anticipat- them understand that the price shouldn’t be tax, have also performed well in the last 12 ing a stabilisation of the fee pressure but the only argument of choice,” he says. months. “All matters related to tax are clear- in fact we observed a decrease in fees of On the other hand, Grant Thornton ly increasing, because it becomes more and between 25% and 30%.” France counterbalanced the fee pressure by more complex to understand the regulation “There is a huge competition between the diversifying its client base, investing in IT around tax,” Fritzinger says. “It is very diffi- largest firms in the French market which services and identifying geographical loca- cult for our clients to have an overview of all encourages the client to exercise a fee pres- tion where salaries are lower. the rules and therefore we receive more and sure which ultimately explains the decrease “We successfully re-engineered our pro- more demand in this particular service line.” in the fees,” he says cesses without affecting the quality of our Hélias agrees and believes that “it is one of HLB Groupe Cofimé managing partner audit,” Kurkdjian says. “And at the same the markets where there is a possible growth Fredy Fritzinger believes that the increasing time we try to alert the authorities about the in the next year”. fee pressure doesn’t come from existing cli- issue so that they can make a clear statement For Kurkdjian, the complexity of the ents. “The pressure is more to win new cli- to the market for it to stop.” regulation is not the only reason why tax is ents,” he says. “And firms, especially the Big Fee pressure has become a real concern for increasing. “The field for non-audit services Four, lower their fees to get the assignments French firms. BDO France managing partner to audit clients is shrinking which gives some and after that they find a way to manage Michel Léger explains: “The fee pressure has space to firms like ours to pick up tax work [with the low fee].” definitely begun to affect audit quality and it from large corporates which have the Big To counter fee pressure each firm found can’t be like this forever; it is crazy.” Four as auditors,” he says. its own answer. Parker explains that EXCO It’s an opinion shared by Helias at Mazars. For the same reasons, there will also be Kreston had to invest in R&D to “create “At the moment nearly all the major firms more opportunities in advisory in the near 

■ FranCe networkS – fee dAtA Fee split (%)

Corporate Fee income Growth audit & Tax Management Corporate recovery/ Litigation rank name (€m) rate (%) accounting services consulting finance Insolvency support other year-end 1 Deloitte*(1) 891.0 4% ------May-13 2 KPMG* 839.7 2% 45 - - - - - 55 Sep-12 3 EY* 753.0 3% 49 - - - - - 51 Jun-12 4 PwC* 690.0 2% 63 15 - - - - 22 Jun-12 5 Mazars*(2) 307.0 4% 85 3 6 - - - 6 Aug-12 6 Kreston International* 138.9 10% 79 6 2 2 1 - 10 Oct-12 7 Grant Thornton 138.7 3% 79 8 - - - - 13 Sep-12 International* 8 Crowe Horwath France* 84.8 1% 79 16 1 - - - 5 Dec-12 9 BDO(3) 72.6 4% 90 4 4 1 - 1 - Sep-12 10 RSM (4) 67.1 13% 65 13 22 - - - - Dec-12 11 Nexia International* 45.8 –4% 82 7 4 7 - - - Jun-12 12 HLB International* 42.4 –50% 65 14 8 3 - 4 6 Dec-12 13 PKF International* 41.8 18% 70 17 11 2 - - - Jun-12 14 Moore Stephens 23.2 3% 61 9 1 4 - 4 21 Dec-12 International* 15 ECOVIS International* 3.6 4% 60 20 20 - - - - Dec-12 Total revenue/growth 4,139.5 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. (1) Deloitte organises fee income in the following business lines: audit and consulting €533.9m (+6,8%), accounting services €272.3m (+1%) and tax €84.4m (+1,8%). Deloitte’s reported €853m in fee income for year-end May 2012. (2) Mazars tax fees include law fees; (3) BDO’s fee income includes €2.6m from correspondent and non-exclusive member firms. (4) RSM fee income includes €12.5m from correspondent and non-exclusive member firms. Source: International Accounting Bulletin

www.InternationalAccountingBulletin.com September 2013 y 17 CounTry survey FranCe International Accounting Bulletin

 future. Hélias believes that the public sector sustainable firms need to find the right bal- have impacted the market at all level. is a particular area where there will be a lot ance between their presence in the capital But interviewed firm leaders tell the of opportunities in advisory services. and the regions resulting in some M&A. International Accounting Bulletin they “Even if the public sector has the lowest This will continue in the future as Kurkd - are more concerned with possible change prices on the market at the moment, I see jian explains: “We need a critical size in all in regulations and especially the one com- interesting opportunities in the next three the regions, therefore we are always looking ing from Brussels. years because the French state will have to at operations.” At national level not much has changed undergo a massive restructure and will have Like Grant Thornton France, most firm in term of regulation in the past 12 months. to implement massive saving plans,” he says. leaders admit that they are on a constant The French market was already heavily reg- Most firm leaders say the transaction mar- lookout for possible M&As. “We are defi- ulated and as EXCO Kreston’s Parker says: ket has been slow throughout the year but nitely looking for operations. We have made “It seems difficult to make it tougher than started to pick up in early summer. some contacts and we are working on it actually is.” Fritzinger believes that it is only a sea - it,” BDO’s Léger says. The French government is currently work- sonal recovery as the summer months offer ing on a reform that would raise the thresh- more time for negotiation. But Parker at new talent old of very small firms for mandatory audit. EXCO Kreston offers a different perspec- Equally, firms are also constantly looking “This won’t impact so much the big player tive: “There is some activity on the transac- out for new talents. but it will have a huge impact on the small tion market, there always is when you are in “Due to the economic crisis it’s easier than ones,” Léger says. a crisis. But the issue is that there is only cash in the past to find good people in the market It is believed the reform will also ease the to sustain the activity and not to pay your and especially beginners. But it’s harder to regulatory burden on the profession, but adviser. Therefore we have seen quite a bit find good people in higher position as they even so, the real concern is on what is hap- of movements from our clients, but it didn’t are reluctant to quit their jobs in an uncer- pening in Europe. translate into incomes for us.” tain economy,” Kurkdjian says. “We are very alert on what is happening On the other hand, there have been some Parker agrees: “In the mid-tier, the activity at the European level,” Parker says. “As the movements between firms. France is tradi- is sustained and we are not oversized so we decisions taken could make it easier for us, tionally a market geographically polarised are always looking at increasing our staff.” but it could also prevent us from doing our between Paris and the regions and to be The slow economy and fee pressure work properly.” 

■ FranCe ASSocIAtIonS – fee dAtA Fee split (%)

Corporate Fee income Growth audit & Tax Management Corporate recovery/ Litigation rank (€m) rate (%) accounting services consulting finance Insolvency support other year-end 1 Praxity* 314.4 4% 85 3 6 - - - 6 n/a 2 PrimeGlobal* 267.8 –4% 86 4 1 2 0 1 6 May-13 3 BKR International* 208.0 –1% 70 10 5 - - - 15 Dec-12 4 AGN International* 200.2 18% 83 11 - - - - 6 Oct-12 5 MSI Global Alliance* 67.0 9% 49 49 - 3 - - - Dec-12 6 DFK International* 50.9 71% 75 12 6 3 0 0 4 Sep-12 7 MGI* 47.8 10% ------Jun-13 8 EuraAudit International * 27.3 –27% 98 1 1 - - - - Dec-12 9 GMN International* 14.2 3% 50 30 3 3 - - 14 Aug-12 10 A.C.E.E.* 10.4 –37% 37 7 - - - 6 50 Dec-12 11 Morison International* 10.3 –3% 89 11 - - - - - Dec-12 12 KS International* 10.1 –1% 78 12 1 1 - - 8 Dec-12 12 IAPA* 10.1 5% 81 12 - - - - 7 n/a 14 INPACT International* 5.6 2% 38 49 10 - - 1 2 Dec-12 15 Alliott Group* 5.5 14% 76 6 10 - 2 6 - Dec-12 16 Integra International* 4.2 27% 55 35 10 - - - Jun-13 17 CPA Associates International* 3.0 3% 40 30 10 - - - 20 Aug-12 18 Key Will Group* 0.1 120% 73 11 11 - - - 5 Jun-12 Total revenue/growth 1,256.9 4%

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

18 y September 2013 www.InternationalAccountingBulletin.com International Accounting Bulletin FranCe CounTry survey

■ FranCe networkS – StAff dAtA

Total staff Growth partners professional staff administrative staff offices rank name 2012 2011 rate (%) 2012 2011 2012 2011 2012 2011 2012 2011 1 KPMG* 8,000 7,570 6% ------217 194

2 Deloitte*(1) 7,950 6,970 14% 470 440 6,230 5,430 1,250 1,100 200 200

3 EY* (e) 5,304 5,150 3% ------

4 PwC* 4,000 4,000 0% ------25 25

5 Mazars* 2,503 2,355 6% 169 169 1,968 1,845 366 341 38 36

6 Kreston International* 1,820 1,819 0% 131 130 1,550 1,550 139 139 100 100

7 Grant Thornton International* 1,352 1,295 4% 112 112 1,065 1,010 175 173 22 22

8 Crowe Horwath France* 899 871 3% 100 90 709 697 90 84 68 62

9 BDO* 785 775 1% 72 70 603 595 110 110 32 32

10 RSM* 540 451 20% 52 43 443 373 45 35 9 9

11 HLB International* 327 1,081 –70% 32 88 250 864 45 129 36 80

12 Nexia International* 422 438 –4% 46 46 338 350 38 42 17 18

13 PKF International* 324 218 49% 50 36 249 160 25 22 6 4

14 Moore Stephens International* 220 194 13% 21 21 173 152 26 21 5 4

15 ECOVIS International* 35 36 –3% 3 4 31 30 1 2 2 3

Totals 34,481 33,223 4% 1,258 1,249 13,609 13,056 2,310 2,198 560 595

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) Deloitte’s figures account for 2013 and 2012 . (e) IAB estimation Source: International Accounting Bulletin

■ FranCe ASSocIAtIonS – StAff dAtA

Total staff Growth partners professional staff administrative staff offices rank name 2012 2011 rate (%) 2012 2011 2012 2011 2012 2011 2012 2011 1 PrimeGlobal* 3,340 3,315 1% 255 261 2,876 2,696 209 358 200 165

2 Praxity* 2,623 2,472 6% 178 176 2,073 1,950 372 346 43 41

3 BKR International* 2,500 2,500 0% 260 260 - - - - 170 170

4 MSI Global Alliance* 950 740 28% 120 100 780 600 50 40 74 53

5 AGN International* 588 511 15% 125 119 430 359 33 33 89 86

6 MGI* 533 537 –1% 65 68 468 469 - - 27 26

7 EuraAudit International* 332 412 –19% 37 39 266 336 29 37 21 31

8 DFK International* 329 334 –1% 33 32 257 260 39 42 18 18

9 GMN International* 159 155 3% 11 10 134 131 14 14 9 9

10 IAPA* 122 122 0% 14 14 41 41 67 67 8 9

11 Morison International* 84 94 –11% 12 12 61 72 11 10 1 2

12 A.C.E.E.* 83 139 –40% 18 25 50 90 15 24 12 16

13 KS International* 81 100 –19% 11 14 60 77 10 9 4 4

14 INPACT International* 62 63 -2% 7 7 50 51 5 5 4 4

15 Alliott Group* 52 50 4% 9 9 37 35 6 6 2 2

16 Integra International* 43 45 –4% 5 5 35 37 3 3 1 2

17 CPA Associates International* 21 25 -16% 5 5 15 18 1 2 1 1

18 Key Will Group* 2 2 0% 2 2 - - - - 2 2

Totals 11,904 11,616 2% 1,167 1,158 7,633 7,222 864 996 686 641

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 September 2013 y 19 CounTry survey FranCe International Accounting Bulletin

Connect to Wealth Through Intelligence

 The now long-expected audit reform by the introduced. Therefore the potential imple- EU Commission should be finalised before the mentation of the new rule on audit rotation end of the year. After intense lobbying and combined with joint audit is another source of editor: Ana Gyorkos discussions it is understood that the Commis- concern. Tel: +44 (0)20 7406 6707 Email: [email protected] sion will introduce mandatory audit rotation “Assuming that joint audit will continue deputy editor/editor of the Accountant: in Europe. It’s not known yet how frequently there will be an issue because when you have Carlos Martin Tornero firms will have to rotate with some reports two auditors you will have to replace both. It Tel: +44 (0)20 7406 6706 Email: [email protected] talking about a 25 year rotation period will probably not be done at the same time. But while others mention 12 years and some say- it might become an issue,” Hélias says. reporter: Jonathan Minter Tel: +44 (0)20 7406 6705 ing 10 years. “There are a number of other questions that Email: [email protected]

The reform hasn’t been finalised yet and need to be addressed. For example: how do reporter: Vincent Huck will still have to go through a parliamentary you count the number of years you have been Tel: +44 (0)20 7406 6709 Email: [email protected] vote before it is adopted. But the Commission auditing a client? seems to be speeding up the process as 2014 “There have been so many mergers between Group Publisher: Andy Cook Tel: +44 (0)20 7406 6561 will be an election year in Europe, and if the firms on the French market that it’s hard to Email: [email protected]

reform hasn’t been approved by then there is a figure it out.” contributors: Paul Golden risk that it might be buried in a drawer. Also on the negotiation table in Brussels is chief Subeditor: Nick Midgley Even if no one will acknowledge it public- the restriction of non-audit services to audit Subeditor: Kev Walsh ly it is a possibility that a majority of French clients. For Kurkdjian: “This creates uncer- Sales & Marketing director: Sarah Wootton firms do want it buried. tainty; accountants have hesitations on wheth- Tel: +44 (0)20 7406 6541 Firm leaders don’t want mandatory audit er to take audit or advisory assignments”. Email: [email protected] rotation in France because they believe they Brussels, fee pressure and a slow economy campaign Solutions Manager: Keri Farrell Tel: +44 (0)20 7406 6548 are already well equipped to insure audit qual- are on the French firm leaders’ minds but they Email: [email protected] ity with joint audit, which has been mandatory agree that even if the future prospects are thin Subscription enquiries: Jeannie Lam in France since 1966. there is a need for optimism, and that the key Tel: +44 (0)20 7406 6579 Hélias of Mazars France says: “Every French to success lies in external growth and prepa- Email: [email protected] firm is opposed to mandatory audit rotation ration for the market to pick up. For more information on Timetric, because we already have rules, such as joint “If we prepare ourselves for when the mar- visit our website at vrl.timetric.com

audit, to insure audit quality. Moreover, joint ket picks up, if we are ready to efficiently For more information on accessing audit is the only measure so far that has support our clients when the market starts International Accounting Bulletin content online, including a five-year archive, please brought competition to the market.” growing again, and if we continue our telephone +44 (0)20 406 6579 or email When Michel Barnier, a French citizen, took strategy of external growth we should be [email protected]

over as the head of the EU Commission many fine,” Parker says. London office French firms hoped he would be an advocate Hélias at Mazars identifies another area 40-42 Hatton Garden, London of joint audit and spread France’s approach of where firms should be alert in order to help EC1N 8EB, United Kingdom Tel: +44 (0)20 7936 6400 audit to the rest of Europe. But as Kurkdjian of the market to pick up again: “We are suf- Fax: +44 (0)20 7406 5601 fering from pessimism and we need to show Grant Thornton says: “He tried but he failed.” asia office Joint audit is very strong in French culture some optimism to the younger generation 20 Maxwell Road and it is highly unlikely that it will be aban- because I think there is a psychological aspect #04-02J, Maxwell House Singapore 069113 doned even if mandatory audit rotation is to the crisis that we can easily overcome.” < Tel: +65 6383 4688 About WealthInsight Fax: +65 6383 5433 ■ FranCe Email: [email protected] WealthInsight provides detailed data and insightful analysis on We work with and provide solutions for: FIrM MoveMenTs Financial News Publishing Ltd, 2013 the world’s High Net Worth Individuals (HNWIs) and wealth  Wealth Managers neTworK/assoCIaTIon FIrM addITIons, MerGers & aCQuIsITIons Registered in the UK No 6931627 sector. With decades of experience providing business ISSN 0265-0223  Private Banks deloitte acquired: Scacchi & Associés (Paris, Ile-de-France), Monitor Group Unauthorised photocopying is illegal. The contents information, WealthInsight helps organisations make informed  of this publication, either in whole or part, may not Family Offices euraaudit International Lost: EuraAudit Sofico France (Rombas, Forbach, Hayange et Longlaville), be reproduced, stored in a data retrieval system decisions and win new business.  Technology Providers Etudes et Startégies (Mulhouse), Fidalsec-Linsig (Mulhouse ) or transmitted by any form or means, electronic, mechanical, photocopying, recording or otherwise,  without the prior permission of the publishers. Professional Services – Consultants, Accountants, Grant Thornton International added: AACE (Paris, Ile de France) AtA WealthInsight’s core is our proprietary HNWI Lawyers, Real Estate Professionals Database of the world’s wealthiest individuals. Around hLB International Lost: COGEP (Bourges), ACG (Toulouse)  Fund Managers, Asset Managers, this database we have built a number of valuable research Key will Group added: Equity France (Reuil Malmaison, Ile de France), LT Expertise (Lille) Venture Capitalists based products and services that make WealthInsight much Mazars added: Mazars Gourgue (Grenoble, Rhône-Alpes), Mazars Etablissement  Non-profits and Educational Institutions Bordeaux (Mérignac, Aquitaine) more than just a rich contact list. nexia International Lost: Corevise (Paris, Ile de France) rsM added: MBV (Paris, Ile de France) Source: International Accounting Bulletin For more information contact us at [email protected] T: +44 (0)207 406 6553

20 y September 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.

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