Archives for March 2014

MF Global Sues PwC for Malpractice

The administrator of MF Global Holdings Ltd.’s bankruptcy plan has filed a $1 billion suit against New York-based PwC US (FY12 gross revenue of $10.2 billion), alleging the firm’s accounting advice helped cause MF’s 2011 collapse, according to The Wall Street Journal.

Officials in charge of MF Global’s liquidation said PwC gave “flatly erroneous” advice on how to account for the European sovereign debt that led MF Global into bankruptcy.

“This case arises out of PwC’s extraordinary and egregious professional malpractice and negligence in its role as the longtime outside auditors and accounting experts for MF Global,” says lawyers in court papers filed March 28 in U.S. District Court in Manhattan. MF is seeking “no less” than $1 billion each for professional malpractice and breach of contract, and not less than $10.9 million in unjust enrichment, and is demanding a jury trial, the Journal reported.

Lawyers said PwC “incorrectly and negligently” advised MF Global to account for so-called repo-to-maturity transactions as sales, immediately allowing MF to book revenue on the transactions.

PwC spokeswoman Caroline Nolan says, “During the two-and-a-half years since the collapse of MF Global, the repo-to-maturity accounting that is the subject of today’s complaint has been examined by trustees, regulators and a congressional committee. None of them has found that the accounting for those transactions was incorrect. PwC is disappointed that this meritless claim has been brought.”

MF Global collapsed in November 2011, after then-Chief Executive Jon S. Corzine’s big investment in the European sovereign debt came to light. In its lawsuit, MF said it would not have taken on the huge risk if it had received sound advice. Corzine, former governor and U.S. senator from New Jersey, is still facing multiple lawsuits related to the brokerage firm’s collapse.

The Advisory Board Announces Leadership Change

Rebecca Ryan

Rebecca Ryan

Rebecca Ryan will be leaving her position as partner of The Advisory Board to pursue other opportunities. Ryan was admitted to partner of The Advisory Board in 2009. Her team was responsible for helping clients develop and retain their high potential talent and analyze trends that impact firms.

“The future of cities is my passion,” says Ryan. ”This transition enables me to put a larger share of my focus there. I will miss the guys, my partners, but TAB is in great shape and will continue to provide cutting edge thought leadership to the accounting profession.”

Gary Shamis, MP of The Advisory Board, says, “Rebecca’s energy will be missed, but we know she’ll remain a close friend of The Advisory Board and we wish her the very best in her next chapter.”

IPA Most Recommended Consultant to Retire

Tim Michel

Tim Michel

Tim Michel, founder of Michel Consulting Group, will be retiring after 40 years in the profession. Michel was a 2012 INSIDE Public Accounting Most Recommended Consultant.

Michel’s experience includes 35 years in firm leadership, including MP at New Philadelphia, Ohio-based Rea & Associates (FY12 net revenue of $31.2 million). Upon leaving Rea & Associates, Michel founded his own consulting group to assist firms and MPs in overcoming obstacles and focus on opportunities to increase growth and profitability.

“I have found it very rewarding, both in the work I have been doing and the great people I met in the numerous firms I worked with,” says Michel about his time at Michel Consulting Group. “I do express my sincere thanks for the trust you have placed in me.”

PrimeGlobal Welcomes Katz, Sapper & Miller

PrimeGlobal is pleased to announce that Indianapolis-based Katz, Sapper & Miller (FY12 net revenue of $49.2 million), an IPA Best of the Best  and IPA 100 firm, is the newest member firm to join the association’s North American Region.

Founded in 1942, Katz, Sapper & Miller (KSM) has more than 260 employees and offices in Indianapolis, Fort Wayne, Ind., and New York City. KSM was named one of the “Best of the Best” accounting firms in the nation by INSIDE Public Accounting and has been recognized by the Indiana Chamber of Commerce as one of the “Best Places to Work in Indiana” for nine consecutive years.

“PrimeGlobal member firms and their clients will reap immediate benefits from the knowledge and expertise in a wide range of industries which Katz, Sapper & Miller can share around the world, from healthcare to real estate and a dozen more,” says Michelle Arnold, PrimeGlobal chief regional officer, North America.

“Our firm is thrilled to join PrimeGlobal,” says Jamie Ellis, chief of operations and finance with KSM. “KSM’s membership with PrimeGlobal will enhance our ability to service our clients with multiple locations in the U.S. and abroad. We look forward to accessing the many services and programs that PrimeGlobal offers to its member firms.”Katz Sapper Miller

Firms in the News: March 26

Appelrouth, Farah & Co. Expands to Puerto Rico

Miami-based Appelrouth, Farah & Co. has announced its expansion with the opening of an office in Puerto Rico. The opening marks the fourth location for the firm.

“The opening of our Puerto Rico location allows us to better serve our clients in South and Central America and the Caribbean,” says Stewart Appelrouth, co-founder of Appelrouth, Farah & Co.

“Our international taxation division serves a growing number of clients who have business interests that span the globe. We help them navigate complicated international business transactions and international taxation by providing them with global resources and reach, whether they’re a foreign company expanding into the U.S. or an outbound expansion by a U.S. business,” says Carlos Farah, co-founder of Appelrouth, Farah & Co.

 

MNP Shakes Up Rankings in Canada

Calgary-based MNP LLP has moved into Canada’s top six firms, ahead of Toronto-based BDO LLP, according to The Bottom Line. The result of this shake-up may be good for the industry, according to observers.

“The Big 4 can certainly benefit from some more competition and society benefits from having a larger number of credible large firms in existence,” says Len Brooks, director of business ethics and accounting at the University of Toronto.

Dan Thornton, an accounting professor at Queen’s School of Business says, “The academic literature indicates that audit firm size is positively associated with audit quality because big firms have economies of scale in mobilizing auditing and accounting skills and are motivated to do better work as they grow because they have more and more to lose from audit failures.”

The two firms themselves don’t see this as much ado about anything. BDO CEO Keith Farlinger says, “Actually, we expected it — MNP had great growth last year, along with a lot of mergers.”

“This has never been about size,” says Daryl Ritchie, MNP CEO. “It’s about creating something unique. Moving up another spot in the rankings is really nice but that’s not our focus. This has happened as a result of who and what we are.”

In an era of consolidation in Canada’s accounting profession, with larger firms acquiring smaller accounting firms as well as specialty service boutiques, MNP is undoubtedly the merger king. Last year alone, MNP brought six firms into the fold, adding about 30 partners and 125 professional staff. The acquisitions also continued to broaden MNP’s footprint in Ontario, with four mergers taking place last year.

People in the News: March 26

UHY Admits Mirando as Partner

Ralph Mirando

Ralph Mirando

Chicago-based UHY LLP (FY12 net revenue of $188.3 million) admitted Ralph Mirando as partner.

Based in the firm’s New York City office, Mirando began his new role in March after serving the firm in various capacities over the past 12 years, most recently as a tax principal.

“He brings exceptional value to our clients and has decades of experience in the areas of tax planning, gift and estate taxation, as well as retirement and charitable planning,” says Michael Mahoney, CEO, UHY Advisors New York.

Mirando, who works primarily with high-net-worth individuals and small businesses, has been a New York City tax professional for more than three decades.

“I’m excited to take on an expanded role at UHY – one of the most well-respected firms in the accounting industry,” says Mirando. “I look forward to continuing to work with my established clients, as well as developing new relationships in the years to come.”

 

Apple Growth Partners Names New CEO

Akron, Ohio-based Apple Growth Partners (AGP) (FY12 net revenue of $10.9 million) has named Harold Gaar as its CEO. In this role, Gaar leads the strategic growth of the firm and is responsible for all business operations. He is also available to advise clients on a range of business matters.

A longtime resident of Dallas, Gaar served as MP of Dallas-based Travis Wolff (FY12 net revenue of $18.7 million) for eight years. Prior to that he worked for the Belo Corporation, a publicly traded media company headquartered in Dallas, where he served as a corporate officer and a vice president of marketing and sales at The Dallas Morning News, Belo’s largest operating company.

“I’ve known Harold through our CPA alliance for years and most recently as he served on our board of advisors. I admired the job he did growing Travis Wolff and am thrilled he chose to join Apple Growth Partners as our CEO. He brings a wealth of experience, operational and marketing knowledge to the position,” says Dave Gaino, chairman of Apple Growth Partners.

 

IPA Most Recommended Consultant to Retire

Tim Michel

Tim Michel

Tim Michel, founder of Michel Consulting Group, will be retiring after 40 years in the profession. Michel was a 2012 INSIDE Public Accounting Most Recommended Consultant.

Michel’s experience includes 35 years in firm leadership, including MP at New Philadelphia, Ohio-based Rea & Associates (FY12 net revenue of $31.2 million). Upon leaving Rea & Associates, Michel founded his own consulting group to assist firms and MPs in overcoming obstacles and focus on opportunities to increase growth and profitability.

“I have found it very rewarding, both in the work I have been doing and the great people I met in the numerous firms I worked with,” says Michel about his time at Michel Consulting Group. “I do express my sincere thanks for the trust you have placed in me.”

 

Habif, Arogeti & Wynne Admits Two Partners

Habif, Arogeti & Wynne, LLP (HA&W) (FY12 net revenue of $60.3 million) of Atlanta, admitted Dan Murphy and Jeffrey Winland as partners at the firm.

Murphy has more than 14 years serving clients in the real estate industry. Murphy consults with clients in the areas of rental real estate taxation, construction contractor taxation, complex partnership taxation and Section 1031.

Winland is a real estate industry tax partner with expertise in all facets of tax and business service to residential, commercial and related real estate product types.

 

Baker Newman Noyes Admits Chatto as Director of Audit Practice

Carl Chatto

Carl Chatto

Portland, Maine-based Baker Newman Noyes (FY12 net revenue of $27.7 million) admitted partner Carl Chatto as director of the firm’s audit practice effective Jan. 1. Chatto, who has been with the firm since its founding in 1995, will oversee the firm’s audit practice across its four offices.

“Our audit practice has experienced significant growth and development over the past few years, in terms of people, technology and processes. Audit services provide a vital benefit for many companies, and I’m looking forward to both supporting and leading our more than 70 audit professionals as they continue to provide high quality service to our diverse client base,” says Chatto.

Chatto specializes in providing audit and consulting services to a broad range of public and non-public clients.

 

Scott and Company Admits Knause as Partner

Columbia, S.C.-based Scott and Company LLC admitted Terry Knause as a partner with the firm. Knause will provide a wide range of accounting and auditing services to companies primarily concentrated in the manufacturing, food processing, retail, restaurant and distribution/wholesale industries.

Knause joins Scott and Company’s assurance and advisory services team and brings extensive experience in mergers and acquisitions of both closely held and publicly traded companies, in serving organizations with global operations, and in working with portfolio companies owned by private equity investors.

 

The Advisory Board Announces Leadership Change

Rebecca Ryan

Rebecca Ryan

Rebecca Ryan will be leaving her position as partner of The Advisory Board to pursue other opportunities. Ryan was admitted to partner of The Advisory Board in 2009. Her team was responsible for helping clients develop and retain their high potential talent and analyze trends that impact firms.

“The future of cities is my passion,” says Ryan. ”This transition enables me to put a larger share of my focus there. I will miss the guys, my partners, but TAB is in great shape and will continue to provide cutting edge thought leadership to the accounting profession.”

Gary Shamis, MP of The Advisory Board, says, “Rebecca’s energy will be missed, but we know she’ll remain a close friend of The Advisory Board and we wish her the very best in her next chapter.”

 

Armanino Admits New Partners

San Ramon, Calif.-based Armanino LLP (FY12 net revenue of $99.8 million) admitted Theresa Brown, Ricardo Martinez and Jeremy Sucharski as partners of the firm.

“We are pleased to see Theresa, Ricardo and Jeremy promoted to partner, and I join the rest of the partners in congratulating them on this milestone,” says Andy Armanino, MP. “By being ranked as one of the fastest growing firms by INSIDE Public Accounting, we have had the advantage of being able to grow our leadership in-house and promote from within.”

Brown, who has been with Armanino since 2005, has more than 25 years of experience in management consulting and accounting leadership roles. She focuses on recommending comprehensive solutions to the range of challenges faced by the CFO organization. Before being named partner, she served as a senior manager and director.

Martinez, a member of the Armanino team since 2010, has over 15 years of experience conducting audit and advisory services, including a career-long focus on technical accounting.

Sucharski has been with Armanino since 2004 and has over 12 years of experience delivering financial and IT assurance services in a variety of industries including software, manufacturing and consumer and packaged goods. As the governance, risk and compliance practice leader, he focuses the team on delivery of service that balances cost compliance with the value it adds to a client’s organization.

Consultant Article: CEB Global

Companies That Fail To Retain High-Potential Employees Groom Top Leaders For The Competition

More than two-thirds of organizations are investing in the wrong employees; Organizations must reinvigorate high-potential programs to build and maintain strong talent pipelines

CEB Global

CEB Global

CEB Global, a member-based advisory company, has revealed that more than two-thirds of companies are misidentifying their high-potential employees (HiPos) jeopardizing long-term corporate performance. This failure drives true HiPos – those who demonstrate the attributes to be successful future leaders – to pursue positions with potentially competitive organizations willing to invest in their development. In order to keep top talent in-house and maximize bottom-line results, companies must re-evaluate and reinvigorate their HiPo programs.

Major corporations spend an average of $3 million every year on leadership and development programs for HiPo employees, but 55% of these employees will turn over in a five-year period, resulting in wasted dollars and an insufficient leadership bench. The inability to establish a strong, diverse leadership pipeline impairs bottom-line performance since organizations with weak leadership generate roughly half the revenue and profit growth as those with strong leadership.

“There is mounting pressure on companies to realize the value of any talent investment made, especially HiPo programs which deliver future leaders for the business. Too often resources, training and career opportunities are directed at employees who lack the aspiration, engagement or ability to be effective at the next level. This misidentification is preventing those with the strongest potential from reaching senior roles and could restrict an organization’s future productivity, innovation and performance,” says Eugene Burke, chief science and analytics officer, CEB.

Companies can expect to improve the success of their programs more than 10-fold by correctly identifying HiPos and engaging them with the right training and development. Not only are they well positioned to groom employees for senior leadership positions, but will also strengthen talent pipelines and reduce flight risk for the business longer term.

Insights from a decade of research sampling 6.6 million people and more than 100 Fortune 500 HR leaders suggest that companies can improve the caliber of leaders and create incentives for HiPos to stay by applying a four-pronged approach:

  • Redefine “potential.” Adopt a clearer definition that accounts for the key attributes employees need to have in order to rise to more senior roles: the desire to assume senior positions (aspiration), manage and lead others effectively (ability), as well as having the commitment to realize their career goals with their current employer (engagement).
  • Measure potential objectively. Rather than relying solely on subjective manager nominations or evaluation, organizations should adopt a systematic process for identifying HiPo talent through objective talent assessment and evaluation.
  • Ask for commitment in return for career opportunities. Proactively evaluate engagement and act to mitigate flight risk among HiPo employees by evaluating their engagement today and their longer-term commitment to the organization in the future.
  • Create differentiated development experiences. Typical HiPo programs provide opportunities for incremental skill building but fail to prepare HiPo employees for realistic future roles. The best organizations help HiPos learn new skills, but also apply existing skills in different roles by exposing them to high-impact development experiences.

To learn more about how to increase the return on HiPo programs download “Improving the Odds of Success for High-Potential Programs.”

PCAOB Reports On Second-Tier Firms, Improvements Made, But Still High Failure Rate

The PCAOB says Chicago-based Crowe Horwath (FY13 net revenue of $599 million) failed to properly audit half of the audits that inspectors studied in their 2012 inspections.

The board’s recently published 2012 inspection report on Crowe says inspectors selected 12 audits for the annual review and found deficiencies that are significant enough to call failures in six of them. That’s an improvement over the firm’s earlier failure rates – 62% in both 2011 and 2010.

It also improves Crowe’s standing among the major firms that are inspected annually by the PCAOB. Since 2009, Crowe has had the highest failure rate of the Big 4 and second-tier firms, which audit the vast majority of U.S. public companies. For the 2012 inspection cycle, Chicago-based Grant Thornton (FY12 net revenue of $1.2 billion) and Chicago-based BDO USA (FY13 net revenue of $683 million) turned in higher failure rates, at 65% and 55% respectively. McGladrey’s 2012 report is the only report for the major firms that is not yet published.

The PCAOB says Crowe failed in four of the six deficient audits to adequately check internal controls over financial reporting, a common theme throughout inspection reports among the major firms. In two cases, Crowe failed to properly respond to risks of material misstatement, inspectors said, while the firm recorded one failure each in auditing estimates, sampling, and identifying and assessing risks of material misstatement.

In a letter attached to the inspection findings, Crowe offered no objection to the findings and says it has taken appropriate follow-up measures related to each of the criticisms. “While we are pleased that we improved from the previous two years, we are still not satisfied with the results and are using this constructive criticism to make improvements in processes and procedures,” says Rick Ueltschy, MP of Crowe Horwath, in a prepared statement. “We continue to revise and expand our audit procedures and training, and are always taking steps to improve our audit quality. We welcome the input from the PCAOB.”

Guest Article: Accountants Advisory Group

Creating a Competitive Advantage Through Innovation

By Joseph A. Tarasco

Joe Tarasco

Joe Tarasco

Firms continue to experience significant compe­tition in traditional commodity-driven services; yet, few are attacking the marketplace with the new and innovative services necessary to survive. In fact, many accounting firms have been providing the same services to the same geographic areas for years— resulting in very little growth. As competition intensi­fies, traditional compliance services are quickly com­moditizing, causing firms to primarily compete on fees. This is taking its toll on profitability and, therefore, forcing firms to come up with new survival strategies such as joining forces with other firms (e.g., through an mergers and acquisitions [M&A]). Because traditional local practices are then forced to compete with much larger firms, many need to rethink their service model and how they position themselves in the marketplace.

Service Offering Strategies

One way for a firm to stand out from the competi­tion is to develop solutions-oriented specialty services in growing niches and become noted experts in those niches. Another way for firms to stand out is to bundle existing services and market them under one label (i.e., family office practice, litigation support, or personal financial business management), or promote bundled solutions to clients rather than present clients with a long list of individual services.

Here are some examples of new and innovative ser­vices that firms can provide to their clients:

  • LGBT services. These services are for same-sex mar­riage couples in the areas of tax compliance or fi­nancial estate planning, customized to deal with complex state-by-state laws. Currently, 25 states al­low same-sex couples to file a joint state income tax return and this number is growing. These services are excellent examples of bundling new services with a firm’s existing technical expertise and addressing the needs of a new and growing marketplace.
  • Divorce advisory services. These services include having a certified divorce financial analyst on staff to assist in pre-divorce planning, needs analysis, and goal-setting planning and implementation. According to Jennifer Baker, Psy. D., of the For­est Institute of Professional Psychology, 50% of first marriages, 67% of second mar­riages, and 74% of third marriages end in di­vorce. Divorce attorneys can be a significant refer­ral source for these clients.
  • Risk advisory services. These services provide infor­mation technology assurance and compliance ser­vices in areas, including Statement on Standards for Attestation Engagements (SSAE) No. 16, Re­porting on Controls and a Service Organization, Service Organization Control (SOC) audits, and HIPPA/HITECH compliance.
  • Medical marijuana business owner services. These ser­vices address a newly created marketplace with new issues and problems (e.g., best practices for proper compliance in areas of taxation and financial regu­lations for city, county, state, and federal govern­ment). They include consulting on entity selection issues depending on state law and interpretation and IRS Code Section 280E (i.e., expenditures in connection with the sale of federal illegal drugs).
  • Economic claims and disaster recovery services. These services target individuals and businesses, includ­ing monitoring and oversight services to govern­mental entities and agencies that are required to show accountability for relief or compensation funds provided by the federal government or the private sector.
  • Outsourced corporate development services. These ser­vices range from researching and identifying M&A transactions for clients to closing the acquisition.
  • Comprehensive workforce management services. These services include employee assessments, hu­man resources management, benefits, and insur­ance.

Suggestions for Gathering Innovative Ideas

Where does innovation come from? Innovation starts with ideas from partners, staff, clients, or referral sourc­es (e.g., attorneys, bankers, or insurance professionals). Taking these ideas from planning to implementation requires several steps, including: research; design; mar­keting; and delivering the final product.

Suggested ways for gathering new and innovative ser­vice ideas include the following:

  • Review competitors’ brochures describing their ser­vices and specializations;
  • Discuss with bankers and attorneys which special services they believe are needed by businesses in your area;
  • Review business newsletters, trade periodicals, and chambers of commerce publications for business growth trends and industry problems;
  • Solicit ideas from clients and non-clients through surveys or focused meetings;
  • Engage an outside marketing consultant to per­form a market research study; and
  • Request that partners and staff provide suggestions and perform research.

When firms offer new services to clients, they in­crease their exposure to a broader base of prospective clients and referrals, which can expand their network, thus leading to additional growth in traditional service areas. One way for a firm to expand its services is to merge with or acquire a company to combine/replace products to answer the needs in the marketplace.

There is a fundamental shift in the playing field as marketplace needs and demands change and consolida­tion reshapes the landscape. It is time to play the game to win. Develop a contemporary marketing strategy that targets segments in the marketplace that are un­derserved, but require value-added services.

While the mainstream accounting firms may be slow to adapt, there are firms around the country aggressively carving out opportunities for new kinds of engagements that the marketplace is ready to em­brace. In focusing on nontraditional examples, this article does not set out to diminish the need and im­portance of traditional services, but rather to add to firm’s service offerings and to complement and en­hance existing services.

Click here to read the full article.

Mergers: March 19

Two Massachusetts Firms Merge

Two Worcester, Mass., firms Bollus Lynch and Kashuk, Bourgault, Kittredge & Frustaci (KBKF) have merged.

Bollus Lynch MP Michael Bollus says that KBKF fit Bollus’ values and culture. Bollus professionals are particularly fond of KBKF’s client-focused approach and established place in the community.

Bollus says KBKF clients should expect a seamless transition into Bollus Lynch. “The merger of our practices brings additional depth and bench strength to Bollus Lynch, which will allow us to add additional value to our clients.”

KBKF partners Edward Kittredge, Edward Bourgault and Nancy Meehan — as well as four staff — will join Bollus Lynch.

 

Annapolis Firm Announces Merger With Sole Practitioner

Lombardo Wagner and Co. LLC of Annapolis, Md., announced the merger of their firm with the practice of Allen Ayers, who has operated an accounting practice in Easton, Md., for more than 20 years as a sole practitioner and more recently with another firm.

The newly merged firm will operate under the name Lombardo Wagner Ayers and Co.

LWA operates as a 15-person, full-service accounting, tax and business consulting firm. Services include both commercial enterprises and nonprofit organizations including audits, reviews and compilations of client financial statements as well as a broad variety of tax services.