Big 4 consulting
If you've been paying attention for awhile now, you probably noticed that Big 4 firms have built some robust advisory (read: consulting) practices. This is interesting because, not that long ago, people were pretty unhappy about the then-Big 5 putting a lot of focus on consulting. Sarbanes-Oxley came along and ended the party in 2002, but lo and behold, the music is playing again:
The Big Four accounting firms have come roaring back into the consulting field in the years after the Sarbanes-Oxley Act of 2002 forced three of them to shed their consulting units and now dominate the U.S. consulting market, according to a new report.
The Big Four grew 10.9 percent to $19.6 billion in 2015, compared to growth of 7.7 percent in the wider consulting market to nearly $55 billion, according to a new report from Source Global Research. The report found that the Big Four’s market share is now 65 percent bigger than the next-largest firm type—technology firms, that is—and is growing much faster.
“They’ve got about 35 percent of the entire U.S. consulting market share, which is extraordinary,” said Source Global Research director Edward Haigh. “That replicates what we see elsewhere as well, and their growth is higher than anybody else. They’re 10.9 percent in 2015.”
This is exciting for the Big 4 firms because they're making money hand over fist. It's also exciting for observers like me because it's inevitable that regulators will start wringing their hands about the potential for conflicts of interest between the consulting and assurance practices of these firms.
But until that happens, it's interesting to note that the story behind this report is that the Big 4, while dominating the consulting space, aren't really thought of as experts:
“There’s a certain amount of truth in the idea that they’re quite well placed in the middle,” said Haigh. “They’re soup to nuts firms from an advisory perspective. They do a bit of everything, and that’s quite useful to clients right now, even if behind that there’s still a bit of a sense amongst many clients that these guys are still accountants with a consulting division. That can be detrimental to them. Nevertheless, these are big, well established, re-established practices for them.”
I can picture it: A CFO is sitting in a tax partner's office when a "Doug from Digital" just happens to stop by, gets introduced and says, "Hey do you guys need a new dynamic online presence?" The CFO shrugs slightly while pondering the question which is Doug from Digital's opening. Next thing the CFO knows, he's leaving a message for his CMO while still sitting in the tax partner's office. Doug high-fives him and jets.
Or something like that.
Finally, some non-GAAP accounting worrying I can get behind from Adam Schwab:
The problems run deeper than the GAAP vs. non-GAAP debate. The actual problem is investor's lack of commitment to a thorough, fundamental understanding of the company. Without adequate understanding, investors will never be able to tell non-GAAP truth from fiction. There is never a hard and fast set of rules to determine the validity of GAAP exceptions. Like any set of standards, there are exceptions and situations that don't fit the model. The extreme doubters of GAAP or non-GAAP miss the point: no system is perfect. It's the investor's responsibility to determine the best representation of economic reality. Blind devotion to SEC guidance, FASB standards, or company management is a dangerous path.
Keeping a skeptical eye on GAAP is just as important as keeping one on non-GAAP. I'm probably repeating myself here, but I'd argue that it's more important. Complying with GAAP happens behind closed doors and users don't have a clue about what management has done to achieve it. Non-GAAP adjustments happen out in the open for everyone to see! Schwab writes, "[T]here are no clear cut answers on which expenses are legitimate and which are egregious." Financial reporting quality is not binary.
GAAP is not infallible. Non-GAAP is not evil. People need to embrace the chaos.
Accountants behaving badly
Back in April, investigators accused Michael Minh Nguyen, a former finance services manager for the city of Placentia, California, of embezzling $4.3 million. They had it all wrong. Now they claim it was actually closer to $4.9 million:
Prosecutors allege that Nguyen made 17 illegal wire transfers from city funds from January 2014 to April 2016 to several accounts belonging to him and others. Prosecutors initially believed the embezzlement scheme began in April 2015.
The best part of this revised timeline is the fact that Nguyen was named "employee of the quarter" in April 2014.
Previously, on Going Concern…
In other news:
- After 'Enron accounting,' California public water district's $1.5 million loan for riverfront home goes unpaid
- Proposal would clear path to CPA for foreign credential holders
- The Accounting & Financial Women’s Alliance and American Women’s Society of CPAs named Burr Pilger Mayer as the best accounting firm for women.
- Vatican shelves PwC as external auditor, keeps as consultant
- J.P. Morgan's summer reading.
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