Professional Services Monitor: Today

KPMG says that it is targeting 3,000 campus recruits for its audit and advisory practices in the US, according to NewYorkBusiness.Com article.

To reach its goal in a tight job market, the Park Avenue firm is rolling out new pilot programs to attract the brightest college graduates in accounting and finance. Perks include training in Madrid, auditing contests with cash prices, free trips to New York City and four week internship postings to KPMG offices around the world.
“It’s becoming more and more competitive every day,” says Manny Fernandez, KPMG’s national managing partner of campus recruiting. The headcount of Mr. Fernandez’s division dedicated to hiring off college campuses has increased 50% to 120 over the past two years.

To put that 3,000 candidate target number in perspective, that represents 14% of KPMG’s total US headcount. That illustrates a key challenge professional services—fulfulling the need for large numbers of skilled people in an industry with ever growing demands for services while trying to keep the people it already has.

According to the Associated Press, the Russian Finance Ministry has renewed PricewaterhouseCoopers’ license for another five years. In March, PwC was fined in conjunction with its work for Russian company Yukos, and it appeared at the time that the Finance Ministry may not renew the firm’s license.
PricewaterhouseCoopers is the largest auditor in Russia, and audits many other large and high profile Russian companies.

Links: BusinessWeek, “PWC’s Russian license extended”

We are in the midst of the busy March to May proxy season, during which companies with a November or December fiscal year-end file their proxy statements. Beginning in 2001, proxy statements have been the document in which companies disclose how much they are paying their audit firm. Ames Research Group has been tracking and processing these fees disclosures from the beginning.
We are about 1,100 filings into the 2007 season, with enough data in hand to take a preliminary look at some trends. Somewhat surprisingly, average fiscal 2006 fees are up from 2005 for all Big Four firms.

Every firm, including non-Big Four firms taken as a whole, has an average increase of about 4%. Ernst & Young doubles every other firm with a more than 9% increase. In terms of total fees, PricewaterhouseCoopers has totaled $1.4 billion. The Big Four’s total fees represent nearly 98% of all fees disclosed. In other words, non-Big Four firms received only 2% of the total fees in this group of companies.

To be clear, the population of company represented here is only preliminary. We analyzed 1,100 US fees disclosures for fiscal year-ends in November and December 2006. Excluded are companies with a different auditor between FY 2006 and 2005, and those including fiscal-year transition periods, or where some other substantial ambiguity exists in the fees disclosure.

For some perspective, read some of our earlier posts on the subject of audit fees, “A Summary of Professional Fees” and “ARGI Data Shows Audit Fees Fell in FY2005″.

The PCAOB has proposed new standards for restatements, which would require auditor to distinguish between restatements due to errors and those due to changes in accounting principles.

The Public Company Accounting Oversight Board voted unanimously to circulate the proposal for public comment. The proposal would require auditors to include an explanatory paragraph in a report outlining whether a restatement reflected a change in an accounting principle or an error correction, according to Keith Wilson, PCAOB’s associate chief auditor.

“This is really intended to be an alert,” he said at a board meeting.

The proposal would still need to be approved by SEC and PCAOB before taking effect.

That financial restatements are explicitly disclosed at all is still relatively new. The SEC’s “Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date” took effect in August 2004 and created a new 8K item, 4.02, “Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.” Prior to that, restatements were made on 10Ks or 10Qs and press releases, but there was no formal disclosure at the time a company identified the need to restate earnings. The 8K requirement made identifying restatements much easier.

However, under current standards, 8K Item 4.02′s must be filed whether the restatement is due to some sort of mistake or malfeasance, or due to a change in accounting principals out of company’s control. In other words, the current system might tend to taint all restating companies. The PCAOB’s new proposal will provide additional and official granularity that filers will certainly appreciate.

Practice Problem or Political Problem?

MosNews.com reports that the Moscow Arbitration Court found that PwC violated professional standards in auditing Yukos and must pay a $480,000 fine.

According to the Kommersant, the full text of the court decision, prepared March 27, harshly criticizes PricewaterhouseCoopers for its participation in illegal tax evasion activities and accuses the company of siding with Yukos officials to “intentionally deceive shareholders by providing them with unreliable information.”
PricewaterhouseCoopers’ press service issued a statement at the time, saying that the audits were conducted “in full conformity with professional standards and current legislation.” The company said the court ruling was unsubstantiated and based on a fundamentally different understanding of an auditor’s role and functions.

PwC’s current Russian’s audit license expires May 20, and the adverse ruling in the Yukos tax case may provide the Russian Finance Ministry grounds for not renewing the firm’s license.

PwC audits several other large Russian companies, including Gazprom, Tatneft and Sberbank.

CFO.com reviews a Government Accountability Office audit of the SEC’s own internal controls. While the SEC improved 2005 to 2006, but new problems were found.

To be sure, by 2006 the SEC had fixed 58 of the 71 weaknesses in its internal controls that the GAO had found in its 2005 audit. Besides the 13 lingering flaws, 15 new weaknesses were found. The SEC corrected 11 of thee new problems during the course of the review and successfully passed its audit last September.

The GAO said that the SEC has been lax in implementing its own policies and procedures and has not been effective in systems testing. Specifically cited problems included applications connected to both the Internet and the SEC internal network; weak database user passwords; and poorly security at physical locations.