Footnotes is a collection of stories from around the accounting profession curated by actual humans and published every Friday at 5pm Eastern. While you’re here, subscribe to our newsletter to get the week’s top stories in your inbox every Tuesday and Friday.
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Big News
Tax Firm Carrying On Arthur Andersen Brand Explores IPO [Wall Street Journal]
Do you know what’s really annoying? We were going to run this as a rumor story last week. People have been gossiping about it for weeks.
Andersen Global, the tax and legal services firm that emerged from the remnants of the defunct accounting giant rocked by the Enron scandal, is exploring taking its U.S. business public. The San Francisco-based firm is advancing efforts to pursue an initial public offering of the U.S. unit, Andersen, with the support of nearly all of its U.S. partners, according to internal memos reviewed by The Wall Street Journal. Ninety-nine percent of 264 participating U.S. partners voted in favor of continuing to consider an IPO earlier this month, an email showed. The U.S. unit, which offers tax, valuation and financial-advisory services, had more than 280 U.S. partners as of the start of the year. “This will enable me to advance discussions for key positions and put us in a place where we can pull the trigger when we are ready,” Andersen Chief Executive Mark Vorsatz said in a July 31 email to partners before the vote, referring to the hiring of executives and other personnel.
EY Sheds U.S. Audit Clients in Response to Shortfalls [Wall Street Journal]
Ernst & Young said it is cutting ties with many U.S. public companies as audit clients, a move to revamp its audit practice and improve the quality of its work. Eighty-four public companies exited EY as audit clients between Jan. 1, 2023, and Aug. 15 of this year, according to data from research firm Ideagen Audit Analytics. The firm also added 21 clients in that time. That is at least 50 departures more than at the other three large accounting firms—Deloitte, KPMG and PricewaterhouseCoopers—during the same period. In contrast with EY’s net loss of 63 clients, Deloitte, KPMG and PwC had net arrivals of 46, 13 and four, respectively, in that period. The reduced roster and loss of roughly $215 million in fees could threaten EY’s status as the largest auditor of U.S. public companies by market share, but that isn’t something the firm is worried about yet. The reduction is largely by design and is intended to “accelerate our transformation efforts,” said Dante D’Egidio, the firm’s Americas vice chair for assurance.
Audit
Founder of Trump Media’s Ex-Auditor Faces CPA License Loss [Bloomberg Tax]
The founder of an audit firm that was branded as a “massive fraud” by the SEC risks losing his certified public accounting license, a punishment that would prevent his firm, BF Borgers CPA PC, from performing external audits or certain complex tax returns. Colorado accounting regulators on Wednesday voted to refer the firm and its founder, Benjamin Borgers, to the state’s attorney general for CPA revocation, a spokesperson for the state’s Department of Regulatory Agencies said. Borgers may also voluntarily surrender his license, the board said.
Earlier:
The SEC Just Charged Trump Media’s Spelling-Challenged Auditor with “Massive Fraud”
SEC approves tougher rules targeting auditor ‘negligence’ [CFO Dive]
The new standard drew “no” votes from two of the five SEC commissioners, both Republicans. “This change is neither consistent with the requirements of the securities laws nor necessary or appropriate in the public interest or for the protection of investors,” Commissioner Hester Peirce said in astatement before the vote. The update “could have the unintended consequence of lowering audit quality and could worsen the trend toward fewer talented individuals entering the audit profession,” she said.
Prepping for the internal audit, CFO ‘inflection’ point [CFO Dive] Faced with a complex regulatory environment, new technologies, cybersecurity challenges, and an ongoing shortage of talent, today’s internal audit leaders are as swamped as any CFO. Much like the finance chief, today’s internal auditors have also seen their traditional roles morph away from just crunching numbers to being asked a key question: “What’s coming next?” said Andrew Struthers-Kennedy, global leader of Protiviti’s internal audit and financial advisory practice.
International
PH seen struggling with shortage of accountants [Philippine Daily Inquirer]
We were unable to find a verified reputable source to this so take it with a grain of salt. We do know the Philippines is approaching an accountant shortage of some kind, for now it mainly affects their own firms and businessness, not the American, British, and Australian accounting firms that are using this talent.
The Philippines is experiencing a shortage in accountants, a predicament that will likely worsen given the declining number of students taking accounting-related courses coupled with other emerging trends that seem to be taking a chunk out of the talent pool of traditional accounting firms. Marvin Galang, co-founder of financial mobile app built for freelancers called Beppo, said on Friday that they found alarming the results of a survey showing that there is a 41-percent decline in student enrolment in local accounting programs. “Subsequently, we also saw a decline of 35 percent in the number of [certified public accountant] examinees from 2019 to 2023,” Galang said during a conference focused on the local accounting industry.
Kelly Partners furthers its US exposure with new partnership [Accounting Times]
Kelly Partners Group (KPG) and FRSCPA, a Florida based company, announced the beginning of their partnership through executed agreements, based on a purchase price of AUD$7.6 million. FRSCPA is a public accounting firm “committed to providing its clients with high quality, professional accounting, tax and consulting services in a manner that incorporates sound professional business and personal ethics”. A wholly owned subsidiary of KPG will acquire 50.1 per cent of the business, with the remaining 49.9 per cent held by all four existing equity partners of the business under KPG’s partner-owner driver model.
Talent
Is your firm looking to hire accountants or auditors to fill remote roles? Check out this week’s top candidates from Accountingfly. Here’s a sample of a great candidate ready to start as soon as you are:
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- Certifications: EA
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- Federal, SALT and payroll tax preparation and review
- Full cycle accounting services
- Client niches: SMBs, Healthcare, Medical Practices, Publishing, Nonprofits
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Top Remote Accountants of the Week | August 22, 2024
Firm Watch
MHM Changes Name to CBIZ CPAs P.C. [Mayer Hoffman McCann] Mayer Hoffman McCann P.C. (MHM), based in Kansas City, Mo., announced today that it is changing its name to CBIZ CPAs P.C., effective immediately. CBIZ CPAs P.C. (CBIZ CPAs) is an independent CPA firm with 35 offices nationwide that provides audit, review and attest services, and works closely with CBIZ, a leading national provider of financial, insurance and advisory services, but is a separate legal entity.
Private Equity
The rise of private equity in accounting: Not just for large firms anymore [Thomson Reuters] Private equity (PE) firms typically invest in businesses with the goal of enhancing the value of the business (and thus the investment of the PE firm) over a period of time before exiting through a sale or public offering. Historically, PE investment was concentrated in certain select industries such as technology, healthcare, and manufacturing. Over the past decade, however, there has been a marked increase in PE interest in professional services, including tax & accounting firms. In fact, August 2021 is seen as the landmark year of PE firms’ splash into the accounting sector with the announcement by TowerBrook Capital Partners that it was investing in EisnerAmper, a 3,000-employee global tax & accounting firm. In less than three years, PE firms have bought stakes in five of the top 26 accounting firms, and this trend is predicted to continue, which can be attributed to a few key factors.
Big 4
Deloitte: Enterprises Face Gen AI Scaling Challenges [Technology Magazine]
The survey, based on responses from 2,770 director to C-suite level executives across 14 countries, shows that while organisations are committing more resources to Gen AI, they are struggling with scaling and demonstrating value. The report, The State of Generative AI in the Enterprise: Now Decides Next, finds that 67% of respondents are increasing their Gen AI investments due to perceived value. However, this commitment is offset by obstacles including data quality issues, investment costs and regulatory uncertainties. Jim Rowan, Applied AI leader at Deloitte Consulting LLP, states: “We have arrived at a pivotal moment for Generative AI, balancing leaders’ high expectations with challenges such as data quality, investment costs, effective measurement and an evolving regulatory landscape.”
Deloitte Legal Research Platform ‘Moonlit’ Spins Out [Artificial Lawyer]
Amsterdam-based Moonlit, a genAI legal research platform, has spun out of Big Four firm Deloitte to go its own way and compete in the legal data market with a focus on the EU. Dirk-Jan van den Broek, Co-Founder of the now independent Moonlit, who is a class action lawyer and also the founder of another legal tech company, ClaimShare, told Artificial Lawyer the business had spun out because ‘case law and legislation research and analysis are not a core business for Deloitte and Moonlit will thrive better as an independent tool’. They have also received fresh investment, including from Curiosity VC. Van den Broek told this site he could not reveal the amount, but added that ‘we can disclose that Deloitte is a launch partner and supporter of the platform’.
PwC loses major client Bank of China amid regulatory probe [Reuters]
Auditor PwC has lost its largest mainland China-listed client, Bank of China, to rival EY, adding to an exodus of clientele amid a regulatory investigation into its work on troubled property developer China Evergrande Group. State-owned Bank of China had as recently as March stated plans to reappoint PwC as its auditor for 2024 but in a filing late on Monday said it plans to appoint EY. The decision will be submitted for shareholder approval, it said. PwC, once the leading auditing firm in China, declined to comment.
KPMG’s Andrew Yates in his bonus era [Financial Review]
In quieter moments, you reckon this country’s big four consultants and accountants rue the day they first learned the name Peter Collins? PwC’s tax-leaking wrecking ball swung into his firm, but it’s the second-order damage that means things will never be quite the same in the professional services game. Take the recent necessary and embarrassing public discourse about the take-home pay of its top strivers. Particularly those exposed to advising government and lining their pockets with taxpayer dollars. Some are doing better than others in opening the kimono. This month, KPMG put out its 2024 Impact Plan. It’s one for the true-believers, running to some 76 pages, full of wise-sounding jargon and vague ambition. But on page 22, the firm proudly announces it’s the “first Australian Big 4 partnership” to promise to publish executive pay every year. It’s anonymised and in bands, but baby steps. Good for KPMG. That’s except the chief executive’s pay. KPMG’s report shows Andrew Yates took home $2.47 million in FY23 and $2.44m in FY24.
Tax
The reality of Kamala Harris’ plan to tax unrealized capital gains [Axios]
Silicon Valley was burning up the socials this week, after learning that Kamala Harris has tacitly endorsed a tax on unrealized capital gains. Lots of what was shared was inaccurate. Reality check: This only would impact a small subset of America’s wealthiest people, and most tech founders and investors would be spared. What to know: Harris didn’t release a new tax plan. Instead, her campaign said it agrees with a series of items in President Biden’s last budget proposal, the most relevant of which were nonstarters in Congress and didn’t become law. This includes the new tax on unrealized capital gains.
There Is No Kamala Harris Golf Tax—But Maybe There Should Be One [Forbes]
There has been much made on social media in the last twenty-four hours of a supposed proposal by the Harris administration for a 20% excise tax on all things related to golf. As with so many things on the internet, it appears to have no basis in fact and originates from aparody account on Twitter/X. However, golf courses carry with them myriad externalities, the cost of which are born by society writ large: from environmental impacts like water consumption, chemical fertilizer runoff, habitat disruption and soil degradation to waste generation and the taking up of valuable real estate. While the Harris administration may have no plans to implement a golf tax—it may not be a bad idea.
Google Gets Tax Deduction for Most of California Journalism Deal [Bloomberg Tax]
Most of the $242.5 million Google agreed to spend on journalism initiatives and artificial intelligence in California to avoid possible taxes or fees will be tax deductible. Alphabet Inc.’s Google committed to spend that much over five years to boost journalism in California under an agreement reached this week with Assemblymember Buffy Wicks (D). Of that, $130 million is meant for a journalism fund hosted by the University of California, Berkeley Graduate School of Journalism.
No tax on tips fires up Nevada hospitality workers: ‘I want that!’ [The Guardian]
Kristine serves gamblers playing countertop video poker screens at the center bar of Las Vegas’s Ellis Island casino. She declines to share her last name for privacy reasons, but is not timid about her support for Donald Trump when asked about his campaign promise to end federal taxation on tips. “I want that!” Kristine says as she fulfills co*cktail waitresses’ orders. “Our tip compliance is too high. They take so much from our paycheck.” Tip compliance – the tax process for expected earnings from tips – has become a political football in Nevada, with federal lawmakers from both parties piling in to co-sponsor bills or present their vision for how tax exemption for tips should work.
Owner of North Carolina High Performance Car Business Pleads Guilty to Employment Tax Crime [Department of Justice]
North Carolina businessman George William Taylor Jr. of Wilmington pled guilty today to not paying more than $2 million in employment taxes and not filing employment tax returns. According to court documents and statements made in court, Taylor, owned and operated National Speed, a high-performance automotive services business. As the chairman and president of National Speed, Taylor was responsible for withholding Social Security, Medicare, and income taxes from employees’ wages and paying those taxes to the IRS. From 2014 through 2021, Taylor withheld the taxes, but did not pay those withholdings over to the IRS, nor did he file the necessary employment tax returns. During the same period, he also did not pay the employer’s share of those taxes to the IRS. In total, Taylor caused a tax loss to the IRS of $2,272,072.
Phil Liberatore, CPA and IRS Advocate, Reports IRS Shortcomings in Addressing Identity Theft and Backlogs [EIN Presswire]
Phil Liberatore, CPA and IRS advocate, says the Internal Revenue Service (IRS) is failing to assist victims of identity theft with receiving their tax refunds. This is according to a new report from National Taxpayer Advocate Erin Collins. The midyear report, released recently, also highlights concerns over misleading statistics regarding the IRS’s phone call response rates. “The delays in resolving identity theft cases are unacceptable,” said Liberatore. “Taxpayers who are victims of identity theft are already going through a stressful experience. To then have to wait nearly two years for resolution adds unnecessary hardship. The IRS needs to prioritize these cases to restore trust in the system.”
Municipal Messes
Mayor Frank Brocato gives perplexing audit update [Alabama Today]
For months, the City of Hoover has attempted to hide the details of its ongoing forensic audit while evading questions about its annual audit. At the August 05, 2024 city council meeting, Mayor Frank Brocato read a statement about the status of the two audits. The forensic audit was first reported only after it came up during an unrelated hearing. On the one hand, the mayor sought to downplay the need for the forensic audit, saying that under his watch, the city has “consistently received clean audit opinions.” On the other hand, the mayor stressed that there were concerns so worthwhile that the city brought in the additional accounting firm and that the current CFO, Jennifer Cornett, and her team continue to address the problems. The Mayor explained, “several of them have already been addressed. Mrs. Cornett and her staff are working long hours to correct the others.”
