CPA Trendlines

U.S. Workers’ Optimism Surfaces After Tough Year

Expectations for Better Jobs and Incomes Rise
NEW YORK, Dec 14, 2005 /PRNewswire-FirstCall via COMTEX News Network/ — Looking ahead to the new year, workers who expect their job prospects and employment situations to improve outnumber those who are uncertain or even pessimistic. Nearly half (47 percent) think their prospects will be better in 2006 than in 2005, according to a national Hudson survey. What’s more, 21 percent say they expect to earn significantly more next year, with another 42% saying they hope to earn at least a little more.

The survey also suggests that workers may be more content to stay put in 2006. Twenty-nine percent report that they have no plans to look for a new job, up from one year ago when only 22 percent made that claim. Even so, a large portion will be on the market, with 37 percent saying it is very or somewhat likely that they will actively seek new job opportunities in the new year, compared to 42 percent this time last year.

“While 2005 was a challenging year on many fronts, U.S. workers continued to show their resilience and optimism heading into the new year,” said Steve Wolfe, executive vice president, Hudson, North America. “We anticipate that 2006 will be a stronger year for worker confidence and for workers’ leverage as they seek to improve their skills and investigate new opportunities.”

2005 Hudson Employment Index(SM) Year-in-Review

This month’s optimistic view among workers tracks with the latest uptick in the Hudson Employment Index(SM) – a key measure of workers’ confidence in the employment market – and with recent reports of strengthening consumer confidence. Over the course of 2005, though, the monthly Index averaged significantly lower than it did in 2004 – 101.3 through November, compared to last year’s average of 106.2. Four out of the five measures were down on balance: personal finance ratings, personal finance outlooks, hiring expectations and layoff concerns. Only job satisfaction was up overall.

Hudson’s research showed some important trends across specific metropolitan markets and occupational sectors, including:

Metropolitan Markets

Tampa workers recorded the highest 2005 average Hudson Employment Index at 115.6, followed by Washington, D.C. (110.5). The city with the lowest average Index was New York (88.1).
Workers in Boston and Minneapolis-St. Paul had the greatest job satisfaction among the 11 cities polled, with an average of 75 percent of the workforce in both cities happy at work in 2005. Sixty-nine percent of Chicago workers were satisfied with their jobs, ranking them last overall in this category.
Atlanta-area workers’ confidence in the job market was the most closely aligned with the national average; the city’s 2005 average Index was 102.0, compared to the national average of 101.3.
While the average Index was down among workers in Dallas in 2005 compared to 2004, the city’s monthly reading surpassed the national number every month this year.
On average, 25 percent of San Francisco-area workers expected their companies to hire this year – the fewest among all metro markets surveyed.
The Philadelphia Index was among the most volatile in 2005, peaking in February at 106.0, but dropping to 80.0 in September. The Los Angeles Index was one of the most stable, remaining between 99.1 and 109.2 throughout 2005.
Occupational Sectors

The Hudson Employment Index for manufacturing workers was by far the lowest among the occupational sectors in 2005. Its annual average was 87.1, although it dropped to a low of 76.3 in September.
Accounting and finance workers were the most optimistic, with an average Index of 107.9, followed by healthcare workers at 105.3.
With more than twenty points between the highest and lowest readings, IT and manufacturing workers’ readings were more volatile than those in healthcare and accounting and finance.
Workers in the healthcare sector were the least likely to expect layoffs, with an average of just 15 percent expressing concern monthly in 2005.
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Tea Tops List of “Hot” New Niche Businesses

With the New Year right around the corner plenty of budding entrepreneurs are getting ready to launch their latest business ventures. Knowing what types of start-ups are most popular in 2006 will put you ahead of the pack in reaching out to profitable new businesses.

According to Entrepreneur Magazine, the number one hot start-up in 2006 will be the tea business. Organic teas, latte mixes, herbs, fruits and spices are steeping in opportunity. Currently tea is a $6.8 billion industry, one of the strongest beverage markets. It is projected that by 2010 the tea industry will reach $10 billion. Ultimately this niche market could prove to be quite lucrative for many business owners. One New York-based entrepreneur, who recently developed a line of bottled white teas, has projected 2005 sales of between $2 and $3 million.

The Top 10 Hot Businesses for 2006

1 Tea

2 Online Specialty Foods

3 Do-it-yourself Meal Preparation

4 One-product Restaurants

5 Chocolate Cafes

6 Shredding

7 ID-theft Prevention

8 Hosted Security Provider

9 Data Back-up

10 Surveillance Cameras

Source: Entrepreneur Magazine

What is interesting to note about the anticipated top 10 hot start-ups in 2006 is the fact that they revolve primarily around two industries: food and beverage industry and security. Much like the tea business, new businesses in the personal or business security field are projected to be very profitable. Surveillance cameras, for example, are expected to become a $4.09 billion market by 2010.

This insight offers concrete suggestions for imagery and content for hand-raising campaigns to capture growth businesses at the starting block and for micro-vertical aggregators. Since hardware, software and telecommunications suppliers play a large role in the security field, if you aren?t in one of these industries make sure you are partnering with someone who is. Finally, testimonials from some of your customers who are already in one of the hot business sectors are great way to attract others that are just starting their business.
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Ernst, KPMG Liability Caps Draw Fire From Regulators, Investors

Dec. 12 (Bloomberg) — The biggest U.S. accounting firms, including Ernst & Young LLP and KPMG LLP, have been pressing Congress for more than a decade to protect them from liability lawsuits. Now they’re taking matters into their own hands, drawing fire from government regulators and investors.

The firms are shielding themselves from financial damages over corporate scandals by requiring companies they audit to limit their right to sue. These waivers of punitive damages and jury-trial rights are tucked into audit contracts, often unnoticed by investors and corporate boards.

Five federal banking agencies say the provisions may lead to less rigorous audits, and are preparing to bar large banks from agreeing to them. Shareholders, including public-employee pension funds in Ohio and Florida, say the agreements may presage a push by the firms to curb investors’ right to sue.

“If there are liability caps on corporations, why shouldn’t there be liability caps on shareholders?” says Lynn Turner, former chief accountant for the U.S. Securities and Exchange Commission. “That will be next.”

Turner is also former chairman of the audit committee at Sun Microsystems Inc., which in September became the first company to disclose that its audit contract — with Ernst & Young, the second biggest U.S. accounting firm — requires it to submit disputes to arbitration and give up its right to punitive damages.

Deloitte & Touche LLP, the largest U.S. firm, PricewaterhouseCoopers LLP and KPMG have varying liability limits in their audit contracts. “Since they couldn’t win the litigation reform they wanted, they’ve been putting these in engagement letters,” says Arthur Bowman, whose Atlanta-based newsletter, Bowman FirstAlert, chronicles the accounting industry.

Shareholder Suits

The contract waivers also apply to trustees who take over a company in bankruptcy, and to derivative suits filed by shareholders, says Herbert Milstein, a securities lawyer at Cohen, Milstein, Hausfeld & Toll in Washington.

Client suits against auditors have become more frequent in the wake of the corporate scandals at Enron Corp., WorldCom Inc. and other companies. New York-based Cendant Corp. and Birmingham, Alabama-based HealthSouth Corp. have sued Ernst & Young, for example, in connection with accounting missteps.

While Ernst & Young says the liability waiver is a standard part of its engagement contracts, the extent of the practice is unknown because the agreements are confidential.

“It is important to note that these clauses do not in any way relate to an investor’s ability to seek damages,” says Ernst & Young spokesman Ken Kerrigan.

`Applicable Rules’

“We believe our engagement letters comply with applicable rules,” says Steven Silber, a spokesman for Pricewaterhouse. Tom Fitzgerald, a spokesman for KPMG, and Deborah Harrington, a spokeswoman for Deloitte, declined to comment.

While Congress gave accounting firms some protection in a 1995 law that scaled back securities lawsuits, the 2002 Sarbanes- Oxley corporate-governance law “increased a little bit” the potential for holding an audit firm liable, says Milstein. “Once more, the auditing firms are more concerned,” he says.

A large verdict could put a firm out of business and disrupt the capital markets, industry executives say, because only four major firms remain since the 2002 collapse of Arthur Andersen LLP in the wake of the Enron scandal. Bowman says 80 percent of all publicly traded U.S. companies use one of the four firms, all of which are based in New York.

In a Dec. 1 speech in Washington, Ernst & Young Chief Executive James Turley called on the government to protect the firms from the type of “litigation risk” that could destroy them.

`Catastrophic Risk’

“We in the profession understand and accept that there are legal liability risks inherent in the public accounting business,” Turley said. “It goes with the territory. This is a debate about uninsurable, catastrophic risk — in a word, sustainability.”

The prohibition on allowing banks to agree to waivers is being prepared by the Federal Financial Institutions Examination Council, which is made up of the Federal Reserve Board, the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

The four accounting firms and their Washington-based trade association, the American Institute of Certified Public Accountants, filed letters in June opposing the banking regulators’ proposal as unnecessary regulation. The trade group’s letter predicted higher auditing costs for financial institutions and “fewer audit firms willing to provide such audit services” if the rule is approved. The final rules are likely to be announced early next year.

Complaining to Regulators

Investors such as the AFL-CIO and the Council of Institutional Investors, a Washington-based association of pension funds, have complained about the waivers to the Securities and Exchange Commission and the Public Company Accounting Oversight Board, the five-member group that regulates the accounting profession. At issue is whether the waivers violate SEC rules designed to prevent auditors from being too close to their clients.

“These provisions are in the self-interest of the accounting industry, but they are very much not in the interest of shareholders,” says Michael Garland, a New York-based investment official at the AFL-CIO, the nation’s largest labor organization.

“They are in conflict with the spirit, if not the letter, of existing auditor-independence regulation,” says Garland, whose office works with union-sponsored investment plans that manage $400 billion in assets.

Auditor Independence

The SEC’s auditor-independence rules, which prohibit companies from indemnifying their auditors in civil suits, don’t address waivers in auditing contracts. Spokesmen for the commission and the accounting regulator say they are studying the issue.

The accounting firms aren’t backing down. Their trade association issued a draft opinion in September endorsing punitive-damage waivers and mediation requirements. The group requires its members to follow the guidance in its opinions unless they are subject to other regulations with tougher standards. The accounting trade group hopes to offer final guidance in January, says Lisa Snyder, director of its professional ethics division.

Cynthia Richson, corporate governance officer of the $68 billion Ohio Public Employees Retirement System in Columbus, says the fund withheld its vote to approve Ernst & Young as Sun Microsystems auditor after learning of the waiver in the contract. The possibility of a lawsuit plays an important role in ensuring high-quality audits, she says.

`Checks and Balances’

“In a critical system of checks and balances, you’re taking away one of the most significant checks, and you’re doing it quietly,” Richson says of the waivers.

The Florida State Board of Administration, which invests more than $130 billion, also withheld its vote on Ernst & Young’s appointment, says Mike McCauley, the Tallahassee-based board’s director of investment services and communications. The waivers are “a significant issue, and we’re going to monitor it going forward,” he says.
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Inside the Minds of the Ultra-Rich

Financial managers and advisers must first understand the affluent client or business owner to know how to serve them. See how CPAs are responding: join the new study.

by Rick Telberg

With trillions of dollars in family and family-business assets poised to change hands in the next 10 years, affluent clients and business owners are facing a need for smart financial, succession and estate planning unlike any other time in history.

CPAs and financial managers would seem to be uniquely positioned to aid this cadre of the ultra-affluent. But you can?t help them if you don?t know who they are and what they want.

The research firm of Harrison-Taylor, in conjunction with Worth magazine, has now issued an interesting new study on the super-rich, defined as possessing at least $5 million in liquidity. Most of these people are self-made millionaires, like most Americans who have made it to this level. They retain many of the same worries and hopes they had when they started out. But today they have even more to worry about. Not that anyone should worry for them; they are, after all, well insulated from falling back into the middle class. But their issues are complex ? technically, strategically, and, particularly, personally.
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Social Security? Workers Finally Getting the Message

Worker Education May Be Working.

Worried by the future of of Social Security, American workers are boosting contributions to their employer-sponsored 401(k) plans. In 2004, their contributions went from an average 8.4% to 9.9% in 2005, according to a new survey ((news release (pdf), full 71-page report (pdf)). Meanwhile, employees saving for retirement outside the workplace rose to 66% in 2005 from 58% in 2004.

In addition, more employees are rolling over their fattened retirement savings into new accounts when changing jobs, according to another analysis (pdf).

The number of employees depositing lump-sum distributions into tax-qualified savings plans doubled to 43% in 2003 from from 19% in 1993. About a quarter spent any of their lump-sum distribution on new consumption in 2003, down from 38% in 1993.

“All the education efforts of employers over the last five years are starting to pay off,” said Craig Copeland, spokesman for the Employee Benefits Research Group, authors of the 10-year Census study.

In 2006, you can expect contributions to climb further, when a federally mandated default directing employers to deposit relatively small amounts of $1,000 to $5,000 into IRAs takes effect, Copeland added. READ MORE →

From the Age of Aquarius To the Age of Responsibility

Baby Boomers Approach Age 60

from Pew Research

As the oldest of the nation?s 75 million baby boomers approach the age of 60, a Pew Research Center survey finds many are looking ahead to their own retirement while balancing a full plate of family responsibilities ? either raising minor children or providing financial and other forms of support to adult children or to aging parents.

The study contains some valuable insight and context for anyone who deals with financial planning clients or business-owners. Download the full report here (pdf). READ MORE →

CFOs Hold the Line on Employee Wages

Majority of CFOs Polled Don’t Expect to Increase Raises and Bonuses

MENLO PARK, Calif. (Robert Half International) — The majority of the nation?s employees are not expected to receive higher raises and bonuses in 2006 than they did in 2005, a new survey finds. Less than one-third (29 percent) of chief financial officers (CFOs) polled said they will give bigger salary increases in the coming year and just 20 percent anticipate boosting bonus amounts.

Question: ?For 2006, do you anticipate offering higher raises than in 2005??
Yes: 29%
No: 64%
Don?t know/no answer: 7%

Question: ?For 2006, do you anticipate offering higher bonuses than in 2005??
Yes: 20%
No: 67%
Don?t offer bonuses: 7%
Don?t know/no answer: 6%

CFOs who said they expected to increase raises and bonuses in 2006 were asked by what percentage these forms of compensation would rise. The mean responses were 5 percent for raises and 7 percent for bonuses. Rising healthcare and energy costs were blamed for the thriftiness.
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