CPA Trendlines

The Little Guys Doing Large Audits

AUGUST 22, 2005

NEWS: ANALYSIS & COMMENTARY

Cheaper, more attentive second-tier firms are scoring clients off the Big Four

When the board of directors of Hercules Inc. (HPC ), a $2 billion Wilmington (Del.) chemicals company, decided earlier this year to reconsider who should audit their books, they took bids from three of the Big Four accounting firms. The incumbent auditor, PricewaterhouseCoopers (PWC), was among those competing. That the big firms would be in the running for Hercules’ account is not a surprise. It has operations scattered throughout the U.S., Europe, and Asia.

But when the bidding ended, the winner was a name you might not expect: BDO Seidman. One of the “Tier Two” accounting firms, BDO booked just $365 million in U.S. revenue in 2004, vs. PWC’s $6 billion. And with 25,000 employees around the world, compared with PWC’s 112,000-person network, it can’t match its rival’s manpower. Still, BDO convinced Hercules’ board that it could make decisions faster and that its chemical industry experience would help it do a good job at a good price. “There was a sense that we would be important to BDO, that there will be top management attention if we have problems,” says John K. Wulff, Hercules’ nonexecutive chairman.

For years, the big international accounting firms — PWC, Ernst & Young, Deloitte & Touche, and KPMG — had a lock on companies with $1 billion in sales or more. But more and more of these companies are now eyeing the four second-tier firms, especially Grant Thornton, the fifth largest with more than $700 million in revenue last year, and BDO at No. 6. Reasons vary. Many companies, like Hercules, initiate a shift in a search for better service, a lower bill, or both.

In other cases, though, big accounting firms are resigning because they need their manpower to focus on their largest, most profitable clients. The requirements of the Sarbanes-Oxley Act have increased the number of hours required for a typical audit by more than 30%, and there is a shortage of qualified auditors to take up the slack. The Big Four, says Jonathan Hamilton, editor of the Public Accounting Report, “had to shed clients that in a perfect world they would like to keep.”

The result: According to proxy advisory firm Glass, Lewis & Co., 238 companies with revenues of $100 million-plus switched auditors in 2004, up from 115 in 2003. The winners have been the second-tier firms. But within that group, none has outdone BDO. According to Glass Lewis, BDO gained 71 new clients in 2004, after factoring in gains and defections. Grant Thornton, McGladrey & Pullen (No. 7), and Crowe Group (No. 8) gained 46 such clients combined.

All of the Big Four, meanwhile, posted significant net losses in their client rosters. Not every company, of course, is a good candidate for a second-tier auditor. Companies with worldwide operations still need the Big Four’s unparalleled geographical coverage. “That’s why General Motors is not in the picture for us,” says BDO Chief Executive Jack Weisbaum.

Among the second-tier, what sets BDO apart? For one thing, the firm has deep expertise in areas such as shipping, retail, and apparel. That has helped it do a better job of holding onto existing clients than other second-tier firms. BDO gained 109 new clients and lost 38 last year, while Grant Thornton gained 80 and lost 63.

QUALITY GROWTH
Both BDO and Grant Thornton are growing well. On Aug. 15, BDO will report $440 million in U.S. revenue for its fiscal year ended June 30, a 21% increase over last year’s $365 million. Grant Thornton’s revenue climbed more than 30% last year and is likely to be up close to 30% again in 2005. Edward E. Nusbaum, Grant’s CEO, says the firm has won 50 new public company clients so far this year.

Historically, one of the top reasons the BDOs of the world could never capture the large-cap market was the objections of analysts and investment bankers who argued that a Big Four auditor was important to investor confidence. So when Hercules made its move, Chairman Wulff says that managers worried they might hear boos from Wall Street. But that hasn’t happened. One cheerleader is Deutsche Bank (DB ) analyst David Begleiter, who raves that “it’s positive, actually. It’s saving a lot of money.”

By Nanette Byrnes in New York
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Small Business Savvy: Reaching Key Big Business Decision Makers

By Janis Pettit
As a solo entrepreneur or small business owner, one of our key challenges can be reaching key decision makers in larger companies. Getting to the right person who can seal the deal can be a frustrating experience, especially if you don?t have a game plan. Here are three ways to connect with the right people.

Cold Calling

In this age of voice mail, reaching prospects by phone has become more difficult. Cold calling will most likely reap stronger results if you?re trying to reach small business owners, where connecting with the owner by phone is more likely, but with persistence you can reach corporate managers as well. There are several important steps you need to take to get results from cold calling?

Make sure you write a phone script that, in 30 seconds, will convey what you do and what benefit similar customers have gained from your service. This is essential. You?re phone script must answer the prospect?s question, ?what?s in it for me??

Practice your phone script until it feels natural and fits your communication style.

Make sure it conveys your excitement about your offering.

When you get the right person on the phone, tell them you have some exciting information for them and would they be able to give you 30 seconds to share it.

End your script with an intriguing piece of information, specific product results that are impressive, or a question that will make them want to know more.

Be persistent. Keep calling at different times of the day until you get the prospect on the phone. Leaving a message is rarely successful, but if you can?t ever catch the person on the phone, you can always give it a try.

When you get a prospect on the phone, ask their permission to have 30 seconds of their time. When the 30 seconds are up, ask their permission to continue.

Also, script how you?ll respond to the different possible responses you?re likely to receive from the prospect. For example, if the prospect says they?re not sure they want to meet with you, what will you say?

If the prospect allows you to continue past 30 seconds, tell them you?ll be in their area on a certain day and ask if you could meet with them for 20 minutes to continue the conversation.

Remember that if you?re calling targeted prospects, it?s just a numbers game. Call enough people and you?ll make some appointments. Make enough appointments and you?ll close some sales. Calculating the call to appointments to sales ratio is important in determining if cold calling is working for you.

Warm Calling

You probably have a database of customers and a network of other professionals. Put a simple request out to your database telling them that you have some exciting information, pertinent articles or new products or services and you need to connect with, for example, operations managers in mid-level companies. Ask if anyone knows someone that they could connect you with that fits that category. Offer them a reward, gift certificate or coupon if you feel they need an incentive. If possible, see if they will arrange an introduction by calling or e-mailing this person to let them know about you. Then contact these ?warm? leads. They?ll be much more likely to respond to your communication. To make this work, you must be very clear about what type of person you need to meet. Saying that you need to meet corporate managers, for example, is much too broad. Those in your database also need to feel that you will not make them look bad or take advantage of their contact, so you need to be clear about why you want to meet these types of people.

Focused Networking

If you were an operations or mid-level manager, where would you hang out in your free time? What business and social organizations would you join? What speakers or topics would motivate you to attend a meeting?

If you can answer these questions, you can plan to attend the same meetings or socialize in the same places. There are many swim and golf clubs, for example, that are frequented by corporate executives. Even telling people at church about what you do and who you?d like to meet can yield results. Every industry has it?s own professional organization and most of them welcome guests.

Volunteer to work on a committee.

Offer to speak to one of these groups on a relevant topic.

Offer gift certificates to be used in a drawing at an organizational meeting.

Focused networking means using your networking time in places where you can connect with your target customer or others who can connect you with your target customer. Before you attend even one focused networking meeting, be sure to have a one or two sentence description of what you do and what problems you solve. Make it intriguing, so people want to know more. Is focused networking a quick fix? Nope. It takes time to build relationships. But once you get started, if you gain a few happy customers in the group, chances are they?ll be a ripple effect and you?ll find your business being recommended to others regularly. In addition, you may connect with some people who can become sources for your warm calling campaign.

As a small business owner, it?s important to develop a network of other business owners so you can support each other and share contacts. Consider developing a six month strategy that includes all of these approaches. Be very, very specific about the type of prospect you?re looking for. Track your results so you learn how your time is best spent. I guarantee that six months from now you?ll be looking at some very positive results!

Copyright 2004, Janis Pettit

__________

Janis Pettit, Team Member of Solo-E.com and President of SmarTrack , specializes in improving profit and productivity through small business marketing and growth consulting, business coaching, workshops and tele-classes. As well as owning 4 successful businesses over the last 18 years, Janis hosted her own TV business talk show. Her articles have been published locally and internationally. Janis can be reached at 919-562-2280. _________

***** Find more articles like this at http://www.Solo-E.com ? Keeping Solo Entrepreneurs Juiced in Business and in Life. Our team of Solo Entrepreneurs are comprised of small business experts who support others in finding business success with the flexibility and freedom to have a life, too. Network with other freelancers, self-employed and Solo Entrepreneurs in our forums, enjoy our articles and newsletter, and find other online training opportunities. *****

Article Source: http://EzineArticles.com/

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Losing purchase (accounting)by Robert Willens

Posted 02:50 EST, 12, Aug 2005

In connection with its persistent efforts to “harmonize” accounting principles wherever possible, the Financial Accounting Standards Board has proposed to alter the manner in which business combinations are accounted for. It, in conjunction with its international counterpart, the International Accounting Standards Board, has issued an exposure draft entitled “Business Combinations” that will replace, should it be adopted, FASB Statement No. 141. Several rather radical changes in the manner in which business combinations are accounted for animate the exposure draft.

In general, the exposure draft provides that all business combinations shall be accounted for by applying a method entitled the “acquisition method.” Thus, the venerable term “purchase method” (of accounting for a business combination) will be expunged.

In the acquisition method, a business combination is defined as a transaction or event in which an acquirer obtains control of one or more businesses. The exposure draft acknowledges that an acquirer may obtain control of an acquiree without a transaction involving the acquirer ? for example, if the acquiree redeems a sufficient amount of its stock (from shareholders other than the acquirer) to place the acquirer in control of the acquiree or where there is a lapse of minority veto rights that, previously, prevented the acquirer from exercising control over the acquiree.

The heart of the exposure draft is its discussion of the acquisition method of accounting for a business combination. Under this method, the acquirer measures and recognizes the acquiree, as a whole, and the assets acquired and liabilities assumed, at their fair-market values as of the acquisition date. The draft provides that the acquisition method entails four distinct steps:

? Identify the acquirer. In a business combination effected through an exchange of equity interests, the entity that issues the equity securities is, normally, the acquirer. However, the exposure draft acknowledges the notion of “reverse acquisitions”; transactions in which the issuing entity is, in fact, the acquiree. Further, in a business combination effected through the exchange of equity interests, the acquirer is, generally, the entity whose owners retained or received the largest portion of the voting rights and, in cases where this guideline is not decisive in determining the identity of the acquirer, the exposure draft goes on to say that the acquirer, “all things being equal,” is the entity that pays a premium.

? Determine the acquisition date. This date is, generally, the “closing” date: the date on which the acquirer transfers the consideration, acquires the assets and assumes the acquiree’s liabilities.

? Measure the fair-market value of the acquiree. The acquirer shall measure the fair-market value of the acquiree, as a whole, as of the acquisition date. For this purpose, the consideration transferred on the acquisition date is presumed to be the fair-market value of the acquirer’s interest in the acquiree. The consideration transferred consists of the acquisition-date fair value of the assets transferred and liabilities assumed as well as the equity interests that are issued and the acquisition-date fair-market value of any noncontrolling equity investment in the acquiree that the acquirer owned immediately before the acquisition date.

In a departure from the purchase method of accounting, the acquisition-date fair value of contingent consideration is also considered to be part of the consideration transferred and, in cases where the contingent consideration is properly classified as a liability and such liability is not within the scope of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” the contingent consideration shall, after its initial recognition, be measured at fair value with changes in such fair value recognized in income.

Moreover, the excess of the fair value over the carrying amount of the noncontrolling equity owned immediately before the acquisition date shall be recognized in income in the period in which the acquisition date falls. This, too, is a departure from previous accounting conventions. Importantly, costs that are incurred “in connection with the business combination” (including legal fees, accounting fees, consulting fees and banking fees) are not part of the consideration transferred and, hence, must be accounted for separately. In virtually every case, these fees will be charged to expense in the period in which the acquisition date falls.

? The acquirer shall then measure and recognize, as of the acquisition date, the assets acquired and the liabilities assumed. The identifiable assets (including “in-process R&D”) and liabilities assumed shall be measured at fair-market value and recognized separately from goodwill. For this purpose, an asset is identifiable when it is either “separable” or it arises from contractual or other legal rights. The often-criticized practice of capitalizing costs associated with restructuring or exit activities is summarily eliminated: To the extent those costs do not meet the recognition criteria in FASB Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (they rarely will), such costs will not be regarded as liabilities and, therefore, will be recognized separately from the business combination. These costs, therefore, will be expensed, in the post-combination financial statements, as they are incurred. The acquirer shall measure and recognize goodwill, as of the acquisition date, using the “residual” method ? goodwill, therefore, will equal the excess of the fair-market value of the acquiree as a whole over the net amount of the identifiable assets acquired and liabilities assumed. Goodwill shall not be amortized but, instead, shall be “tested,” no less frequently than annually, for “impairment.” What if the acquisition-date fair-market value of the acquirer’s interest in the acquiree is greater than the consideration transferred? How does one account for such a bargain purchase? The excess, in those rare instances where one exists, is first applied to reduce goodwill and, once goodwill is reduced to zero, any remaining excess (of acquisition date fair value over the consideration transferred) shall be recognized as a gain.

This exposure draft, should it be adopted, shall apply to business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after December 15, 2006. Until that time, FASB Statement No. 141 remains in full force and effect.

Robert Willens is a tax and accounting specialist at Lehman Brothers Inc. He is also an adjunct professor of finance at Columbia Business School.

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Grant Thornton LLP Leads All U.S. Accounting Firms in New Public Audits for First Six Months of 2005

Tuesday August 16, 9:13 am ET

CHICAGO–(BUSINESS WIRE)–Aug. 16, 2005–Grant Thornton LLP, the U.S. member firm of Grant Thornton International, one of the six global accounting organizations, led all U.S. accounting firms in new SEC audit work for the first six months of 2005.
Grant Thornton LLP picked up 50 new SEC audit companies, of which only nine were resignations by another firm, the lowest percentage for the U.S. member firms of the six global accounting organizations. Grant Thornton LLP placed second during the same time period for the least amount of new SEC audit work in which the previous auditor identified “red flag” issues with the company.
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IG: Risks overshadow IRS modernization successes

http://www.gcn.com/vol1_no1/daily-updates/36691-1.html

By Mary Mosquera
GCN Staff

The IRS still wrestles with meeting long-term cost and schedule estimates and with managing its programs, although it successfully deployed business system modernization projects in the past year and met short-term deadlines, according to the Office of the Treasury Inspector General for Tax Administration (TIGTA).

TIGTA today released its annual report on IRS business systems modernization.

Weaknesses continue in critical program management and system development processes, such as requirements and contract management, software testing and security controls. ?BSM project accomplishments did not include all intended capabilities, were not delivered on schedule and exceeded proposed costs,? the report said.

The IRS has taken on more responsibilities this year by assuming the role of systems integrator from its prime contractor, Computer Sciences Corp. Many of the program management issues are related to this transition, said TIGTA, which conducted its review from January through May.

?We remain cautious about looking forward based on [fiscal] 2004 results, due to uncertainties related to BSM roles and responsibilities and the challenges facing the IRS that could affect future accomplishments,? said Pamela Gardiner, deputy inspector general for audit.

On the positive side, the IRS has developed the infrastructure to support its modernization projects, including an enterprise architecture that encompasses all IRS business units, processes, programs and operations and provides details to help guide current and future modernization initiatives. It has taken steps to improve program management, such as establishing individual requirements and release management offices, which are developing guidelines and processes to support their components.

The IRS in its response said the schedule delays and cost increases this past year were due to factors beyond its control, such as additional requirements and congressional delays in passing legislation and budget cuts. ?We are very confident that we have the management focus and discipline in place to ensure that we are ?doing things right? as opposed to ?doing things fast,? such as exiting milestones prematurely,? said IRS CIO Todd Grams in a letter to TIGTA.

TIGTA spotlighted the same primary challenges the IRS and its contractors must meet that it has cited the past three fiscal years:
Implementing planned improvements in key management processes and committing the necessary resources
Managing the increasing complexity and risks of the BSM program
Maintaining the continuity of strategic direction with experienced leadership
Ensuring contractor performance and accountability are effectively managed. READ MORE →

“AICPA Insider” Marks 4th Anniversary

Circulation of the AICPA’s official weekly e-newsletter has grown to 170,000 from 10,000 since launching in August 2001.

From the AICPA Insider

The original Insider launch team remains on board today: Editorial Director Rick Telberg; Publisher/GM Hank Berkowitz; Producer Betty Yuan; and Advertising Director Tom Greve. “Thanks to our dedicated readers, staff and sponsors, the Insider continues to evolve as a highly anticipated weekly dialog between the Institute and its members,” notes Berkowitz.

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Undergraduate recruitment

In search of the ideal employer

Aug 18th 2005
From The Economist print edition

Students are in demand again and becoming increasingly choosy

COME September, the campuses of America will be swarming not just with returning undergraduates, but also with employers set on signing up the most able 10% of them. ?We are seeing a far more competitive market for talent,? says Steve Canale, a recruitment manager at General Electric (GE). Students who recently could have expected two or three offers in their final year are now getting as many as five. To gain a competitive edge, firms are arriving ever earlier on campus with their recruitment caravans. They are also starting to look at (and select) summer interns more as potential full-time employees than as mere seasonal extra hands: 60% of GE’s graduate recruits in America this year, for instance, will come from its crop of more than 2,000 interns. Many interns will have employment contracts in their pockets before they even return for their final year of study.

Firms are working harder to polish their image in the eyes of undergraduates. Some have staff who do little but tour campuses throughout the year, keeping the firm’s name in front of both faculty and students, and promoting their ?employer brand?. GE focuses on 38 universities where it actively promotes itself as an employer. PricewaterhouseCoopers (PWC), an accounting firm, targets 200 universities and gives a partner responsibility for each. PWC says that each of these partners spends up to 200 hours a year ?building relationships on campus?.

That particular investment seems to have paid off. Each year Universum, an employer-branding consultant, asks some 30,000 American students to name their ideal employer. In this year’s survey, published recently, PWC came second (up from 4th in 2004), topped only by BMW (see table). Yet the German carmaker, which knocked Microsoft off the top spot, steers clear of campuses, relying for its popularity, says Universum, on the ?coolness? of its products.

Students, it seems, are heavily influenced in their choice of ideal employer by their perception of that employer’s products and services. Soaring up this year’s list were Apple Computer (from 41st to 13th) and the Federal Bureau of Investigation (from 138th to 10th). The success of Apple’s cool iPod has had a powerful effect on the firm’s ability to recruit top undergraduates. Likewise, the positive portrayal of the FBI in some recent films and TV shows has allegedly helped with recruitment.

The accounting firms say that the fall of Enron and Arthur Andersen has done their recruitment no harm: instead, they claim, it has made students realise that accounting is not mere number-crunching, but also involves moral judgments. The ?Big Four? accounting firms are all among this year’s top 15 ideal employers.

Undergraduates now do much of their research into future employment online. There seems to be a close correlation between their choice of ideal employer and their choice of most impressive website?where PWC, Microsoft and Ernst & Young win gold, silver and bronze respectively.

Even so, some top firms think they still appreciate the personal touch, and are sending their most senior executives to campuses to meet students and to give speeches. ?The top attracts the top,? says Claudia Tattanelli, boss of Universum in America. Jeffrey Immelt, GE’s chief executive, is a keen on-campus speaker and has visited six leading universities in the past year. In the process, he may have shaken hands with one of his successors.

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“I found this want ad…”

… writes Warren Hennigan from Santa Ana, Calif.

“…in the bi-monthly newsletter from the local chapter of our CA Society of CPA’s. What is this world coming to?”

SENIOR TAX ACCOUNTANT?Are you looking
for a workplace where family values and
Biblical principles are part of the culture?
XXXXXX & Co. in Santa Ana seeks tax
accountant with a minimum of four years?
public accounting experience. E-mail
r?sum? to xxx.xxxxxx@xxxx.com or fax
to (714) 543-xxxx.

So Harvey Goldstein writes back…

Warren:
What’s the matter with that?
We pray after each tax return we prepare.
:-)

Harvey
www.slgg.com
www.upyourcashflow.com READ MORE →

Intuit Doubles Down on Accountants

New and Enhanced Programs Aim to Solve Accountants? Most Critical Needs

News Release from Intuit

MOUNTAIN VIEW, Calif., – Aug. 18, 2005 ? Intuit? Inc. (Nasdaq: INTU) today announced that it?s increasing its committment to accountants by rolling out a series of new and enhanced programs. From free technical support for QuickBooks ProAdvisors? and a new accountant-dedicated support team to free in-person training seminars in 80 cities, the company has amassed one the industry?s most comprehensive programs for accountants. READ MORE →

Benefits: The New Weapon in the Battle for Staff

Fringe benefits are fringes no more: Today they play a vital role in the competitive landscape for talent.

by Rick Telberg
for the AICPA Career Insider

The accounting and finance profession is clearly struggling mightily to address chronic staff shortages and work/life balance issues. As a result, benefits packages seem to be gaining increased importance in the battle for talent and competitive advantage.

[RELATED REPORT: "STAFFING: Which Benefits Matter Most"]

To be sure, employers in the tax, accounting and finance fields face hiring pressures little different from those found in other industries. And the attitudes of CPAs are hardly unique to the CPA profession. The employment situation is a national, perhaps global, situation, requiring broad new economic and social policy initiatives.

Until that day comes, however, businesses and employees alike will be facing the same issues. The winners in this struggle will gain a competitive advantage in a market where even the slightest advantage can be significant. READ MORE →