Profession benefits from Spain’s quixotic struggle xxxxx · Worldspreads, a UK company registered...
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www.InternationalAccountingBulletin.com May 2013 Issue 525 xxxxx xxxxx ● Juri gives the green light for audit reform proposals ● Sustainability survey: The real heroes of sustainability ● Turkey survey: Not so prosperous on the Bosphorus Profession benefits from Spain’s quixotic struggle
Transcript of Profession benefits from Spain’s quixotic struggle xxxxx · Worldspreads, a UK company registered...
www.InternationalAccountingBulletin.comMay 2013 Issue 525
xxxxx
xxxxx
● Juri gives the green light for audit reform proposals ● Sustainability survey: The real heroes of sustainability
● Turkey survey: Not so prosperous on the Bosphorus
Profession benefits from Spain’s quixotic struggle
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edIToR’s LeTTeRInternational Accounting Bulletin
editorial Advisory BoardFrank Arford, Crowe Horwath International CEOKevin Arnold, Nexia International executive directorGeoff Barnes, Baker Tilly International president and CEOGraeme Gordon, Praxity executive directorstephen Jacobs, INPACT International presidentJon Lisby, Kreston International executive director James Mendelssohn, MSI Global Alliance CEOchristian Mouillon, Ernst & Young global vice-chair, assurance ed nusbaum, Grant Thornton International CEOMichael Reiss von Filski, Geneva Group International CEOLiza Robbins, Morison International CEOMartin van Roekel, BDO International CEOJean stephens, RSM International CEORobert Tautges, HLB International CEOpauline wallace, PwC head of public policy and regulatory affairs
conTenTsnews 02-03
■ Juri green lights audit reform proposals.
■ Mid-tier begin withdrawal from Iran.
10-15: spAIn
Spain’s economic turmoil has gone a long way in shaking up the Spanish profession and while firms return to growth, the struggle is not over yet as concerns in relation to the price and value of audit increase. carlos Martin Tornero reports.
16-20: TuRKeY
A boom in audit services was anticipated in Turkey just 12 months ago, but the thresh-olds determined by the recently-introduced Commercial Code have dashed these hopes. Consequently, tax services continue to dominate with more than 50% of the mar-ket, as Ana Gyorkos reports.
counTRY suRveYs 10-20
Usually I am the silent partner in put-ting together the IAB editor’s letter with Ana, but this time I wanted to start off with a few words of thanks
to our subscribers. At the start of June I will be moving on to
a new challenge after five years at Timetric (formerly VRL), making this the last edition of IAB that I will have the pleasure of being involved in.
It’s been a privilege to get to know the world of accounting, and to meet some of the driving forces behind the profession – I’m only sorry I didn’t have longer to get stuck into the task.
It’s clear that the present represents an opportunity for pivotal change in the way that networks and associations interact with the world of business, and I am enormously grateful for the time you have spent sharing your views and information with IAB so we can track and analyse the industry’s move-ments.
Needless to say, there’s going to be no shortage of further work for us. Having worked alongside Ana for the past four years and especially over the last 12 months, I have no doubt she will excel in the role of IAB edi-tor, and as chair of our Advisory Board, as she continues to work with you.
On that note, I shall hand over to her. I wish you all great success, and hope we get the chance to cross paths again in future.
Fred crawley [email protected]
Being responsible Thank you for the encouraging words Fred. I’m looking forward to the new challenge and engaging more closely with the Advi-sory Board in helping identify the key issues among networks and associations.
Increasingly financial institutions and business are being told to be more “responsi-ble”, not only towards their shareholders, but towards the general public and the taxpayer. High-risk taking and purely profit-driven actions have been frowned upon since the financial crisis and, as public opinion shifts, being accountable and transparent is increas-ingly important.
But how about the long-term responsibility of a business?
The IAB and its sister publication The Accountant conducted a sustainability sur-vey among accounting firms and profession-al bodies, looking at the role of the profes-sion in steering businesses towards sustain-ability and CSR reporting. Many say clients still consider such activities a “luxury”, and with very few quick financial gains of such actions, clients are not prioritising CSR activities.
While the role of the accountant is primar-ily financial, there is a shift in the profession’s role towards CSR.
CSR reporting is being placed on account-ing training curriculums, firms are looking to grow their sustainability service offering, and initiatives such as integrated reporting are being pushed by global bodies such as the International Integrated Reporting Coun-cil. Whether this change is happening fast enough is a valid question; however, in the past five years we’ve seen some major chang-es in the push to make financial institutions and business more responsible and the pro-fession might need to brace itself for greater demand for CSR as the corporate landscape is increasingly susceptible to change. The full survey report is on pages 4 to 9.
Changes at the IAB
04-09: susTAInABILITY suRveY
The trend towards sustainability report-ing has grown in the past three years, albeit slowly, as the market demands more transparency from the business world. nicola Maher reports on the accounting profession’s role in support-ing those companies and pushing the agenda.
FeATuRe 04-09
Give your students a business perspective of the world of accounting. Give your students access to content they can trust. Give your students the edge. Subscribe to The Accountant
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A subscription to The Accountant is the ideal accompaniment to an accountancy course of study. Including exclusive features and interviews with major figures in the accountancy sector, The Accountant will help your students to understand the real-world implications of the theory they are learning, and help improve their employability in a competitive jobs market. A weekly newswire gives you regular updates of all the big stories, while IP access means students can view our content anywhere with access to the student portal.
Subscribe to The Accountant for: • IPaccesstoourcontent.Soyourstudentscanaccessour
content campus-wide with one login
• Contentyoucantrust.Wehave125yearsofexperiencedelivering accountancy news.
• Trulyglobalanalysis.Wecoverarangeofstoriesfromaroundthe world, so your students get a wide perspective of the sector.
SIGN UP FOR THE FREE NEWSWIREGet free weekly updates and free content. Sign up here:
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DON’T mISS OUT. Subscribe to The Accountant today. Contact our subscriptions team on +44(0)20 7563 5688 or email us at [email protected] to find out more.
2 y May 2013 www.InternationalAccountingBulletin.com
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IAB onLIne – MAY
Top 5 articles
Juri green lights audit reform proposals
Mid-tier begin withdrawal from Iran
KPMG UK acquires advisory firm Makinson Cowell
PKF International appoints London firm as its UK member
Accountants’ top lawyers in use of social media
Most re-tweeted article
FRC to investigate KPMG UK
Read in 158 countries
AppoInTMenT
pKF International appoints London firm as its uK memberPKF International is to appoint London firm Littlejohn as its UK member firm, following the loss of PKF UK in a merger with BDO UK.
Littlejohn is a smaller London-based practice with 32 partners.
The firm is currently a member of PrimeGlobal and is to terminate its membership with the association in June 2013.
Once the firm formally joins PKF International it will rebrand to PKF Littlejohn.
PKF International was left with the gap in UK membership after the network’s founding member PKF UK decided to merge with BDO UK and take on membership with BDO International.
AcQuIsITIon
KpMG uK acquires advisory firm Makinson cowellKPMG UK has acquired European equity markets advisory firm Makinson Cowell.
Makinson Cowell helps the boards of UK and European companies build relationships with institutional equity investors.
KPMG UK chairman Simon Collins said the acquisition is relatively small for the firm, but is an “important transaction”.
Makinson Cowell is to keep its brand, which is not usually the case with Big Four acquisitions.
Makinson Cowell partner and co-founder Bob Cowell said the move will “underwrite the independent model which has characterised our business from the outset and preserve our brand for the future”.
socIAL MedIA
deloitte is first for social mediaDeloitte is the UK accountancy firm making the most effective use of social media, according to a report published by Living Group.
Ernst & Young was ranked second, PwC third, with mid-tier firms BDO and Grant Thornton coming fourth and fifth respectively.
Living Group rated the social media output of leading UK accountancy firms using key criteria including influence, brand presence, brand content, twitter frequency and response.
The research revealed that UK accounting firms generally appreciate the core social media channels as part of their public relations and communication strategies.
The findings also correspond to the results of last year’s International Accountancy Bulletin social media survey in which
Deloitte, E&Y and PwC also made the best impression regarding successful communication via Facebook and Twitter.
LeGAL
e&Y sued over trading company auditCollapsed financial markets trading business Worldspreads has filed a lawsuit against its auditor, Ernst & Young (E&Y).
According to the The Irish Times, Worldspreads, a UK company registered in Ireland, claims E&Y was negligent in carrying out its services and obligations to the company in connection with audits between 2007 and 2011.
The company said it could not continue to trade after a shortfall, which may exceed £22m, was allowed to grow over a number of years in its client account balances.
Worldspreads said the shortfall meant it was unable to comply with UK Financial Service Authority regulations, leading to its board putting the company into special administration in March 2012.
E&Y denied the allegations in a statement saying: ”Ernst & Young do not accept that we are liable for any losses suffered by Worldspreads or any related party and we will vigorously defend any proceedings.”
news Round-up
MoveRs & shAKeRspwc uK has appointed former
KpMG uK partner neil sherlock
(pictured) as the firm’s
head of reputational
strategy.sherlock
spent 25 years
at KpMG and
in the past
15 months
worked as a
special adviser
to deputy prime
Minister nick clegg. pwc
uK chairman Ian powell said
sherlock will play a key role in
managing the firm’s engagement
with external stakeholders, “to
ensure we continue to
build our reputation
across the
communities in
which we work
and live”.
Crowe Horwath
US has elected Joe
Macina as audit partner
in its New York office.
Macina was previously a partner
with KPMG and brings 18 years’
experience with
audit and advisory
services to Crowe Horwath.
Arnaud debray has been
appointed vice-president
of the conseil supérieur de
l’ordre des experts-comptables
(csoec – the national Institute
of chartered Accountants).
debray, who is currently the
director of accounting firm Axe
conseils expertise, a praxity
International member firm, will
work alongside csoec president
Joseph Zorgniotti.
May 2013 y 3www.InternationalAccountingBulletin.com
newsInternational Accounting Bulletin news AnALYsIs
Juri gives the green light for audit reform proposalsMembers of the European Parliament Com-mittee on Legal Affairs (Juri) have approved the directive and regulation document on European audit reform proposals, giving the green light for negotiations with the European Council.
One of the key points of the document is the suggested mandatory audit firm rota-tion every 14 years. However, a last minute addition to the document states that if the audit is shared, a comprehensive assessment of the audit engagement is to be performed by the audit committee or a public tendering process will be carried out. The longest time for an audit engagement can be 25 years.
In its original audit reform document, the European Commission proposed strict caps on non-audit services, which could have had drastic consequences for some of the larger accounting networks. But controver-sially, the Juri document doesn’t limit the provision of non-audit services, which some might perceive as a win for the Big Four.
The Juri document states that as long as these services are approved by the audit committee, “and the statutory auditor or audit firm is itself satisfied that provision of those services does not pose a threat to the independence of the statutory audi-tor or audit firm” they can be offered to the audit client.
The Juri’s rapporteur on the audit reform Sajjad Karim said: “I have said at the
beginning that maintaining the status quo was not an option and we stuck to that. The report is a compromise and not everyone got what they wanted, but the outcome is a step towards a better audit market.”
Karim said the proposals are not about strict intervention, but about changing mindsets. “It’s a move to nudge the market in the opposite direction of the European Commission’s heavy-handed approach, initially proposed,” he added.
Karim said the audit reform document was not an easy brief and that it is para-mount for the Parliament and the Council to go through a period of consolidation now.“We feel the Parliament is going into the
negotiations strong,” he said.One of the most outspoken members of
the Juri committee and a big supporter of mandatory rotation and joint audits, Span-ish MEP Masip Hidalgo told the Interna-tional Accounting Bulletin: “We have lost today, but if the ballot would have taken place last week we could have won by one vote on some of the key changes.”“Twenty-five years is an eternity in terms
of audit rotation. There won’t be restric-tions for non-audit services either and the proposal to encourage joint audits has been dismissed. The Big Four have given a blow to the reform of a market in need of competition.”
PwC UK head of regulatory affairs and
public policy Pauline Wallace said many of the proposals are “sensible and will improve the effectiveness of the draft legislation and enhance its impact on audit quality”.“However there are a number of meas-
ures, such as mandatory firm rotation, that are counterproductive to audit quality and need to be looked at further. Manda-tory firm rotation damages audit quality, reduces choice and competition, increases costs for business and takes decision-making away from audit committees and shareholders. This will have a negative impact on European business, particularly listed small and medium-size companies which should be the engine of Europe’s growth,” Wallace said.
Grant Thornton International welcomed the document and said Juri has gone some way to address investor concerns about long auditor tenure at large companies by recom-mending a maximum period of 14 years.“We would expect that quality assess-
ment and regular tendering should form a critical part of the appointment process with a maximum tenure of 14 years, and should not be retained by EU member states as valid grounds for extending maximum tenure.”
The Juri vote signals the start of the negotiations on the final regulation docu-ment with the European Council, which are now able to begin.
Mid-tier begin withdrawal from IranNetworks Grant Thornton International, RSM and Crowe Horwath International have all severed ties with their Iran member firms, following mounting pressure from US lobby group United Against Nuclear Iran (UANI) to exit the country.
UANI has already successfully lobbied the Big Four to leave Iran, leaving only mid-tier players in the market.
Grant Thornton International issued a statement saying it is no longer working with correspondent firm Rymand & Co.
“We want to reassure dynamic businesses in the Middle East that we will continue to work with them in helping unlock their potential for growth through our mem-ber firms in the region, and through our 35,000 Grant Thornton people working
in more than 100 countries globally,” the statement said.
Last month UANI wrote to the network’s chairman Ed Nusbaum, saying: “The UANI believes that as the international commu-nity is working to economically isolate Iran in response to the regime’s illicit nuclear activities, the provision of accounting, auditing and other professional services by these accounting networks and asso-ciations is a boon to the Iranian economy and facilitates international commerce in Iran, often by creating a veneer of credibil-ity and transparency that encourages for-eign investment.”
RSM also confirmed it had terminated its relationship with Dayarayan Audit-ing & Financial Services, the networks
correspondent firm in Tehran, effec-tive from the end of April.
R S M c h i e f e x e c u t i v e Jean Stephens said: “We have made this decision because of the increased level of sanctions on Iran and rising concern about the country’s political leadership. We agree with and support the work of UANI.”
One of the pressure group’s main argu-ments is that international networks operat-ing in Iran should not tender for US govern-ment contracts while profiting from their Iran operations. For many this is likely the biggest reason for withdrawal. For exam-ple, KPMG, which was the last of the Big Four to leave the country in 2010, had US government contracts worth $1.2bn at the time, according to UANI.
Sustainability reporting is becoming more commonplace within the global business world and not just because some regulation requires companies
to report on non-financial information, but because the market is demanding it. Govern-ments, investors and consumers want more transparency and accountability from busi-nesses about their economic, environmental and social impacts.
The demand is coming not just from mature markets like the UK, US and Aus-tralia but also from emerging and developing economies such as Brazil, China and India.
The interest from developing countries stems from the need for foreign invest-ment. They know reporting corporate social responsibility (CSR) or environmen-tal, social and governance (ESG) informa-tion leads to evidence of good governance,
meaning better investment prospects. The issue is whether those countries can afford to upgrade systems to capture and assure the right data or not.
Previous notions that reporting such infor-mation is a ‘PR exercise’ to score positive corporate citizen ‘points’ is diminishing and in its place a realisation has developed of the genuine business benefit of reporting CSR or ESG information to investors and the wider stakeholder community.
And it is the accountant and chief financial officers who are increasingly being seen as the ones with the most influence on compa-nies choosing to report it.
In the past year, World Business Council for Sustainable Development president Peter Bakker went a step farther telling the audi-ence at the United Nations Conference on Sustainable Development in Rio de Janeiro (Rio+20) that “accountants will save the world”, because they are well positioned to encourage businesses to help tackle some of the planet’s toughest problems, such as global warming and diminishing natural resources.
On the back of all this, accounting net-works and firms are seeing increasing demand for sustainability services around the world, albeit rather slowly.
Professional accounting bodies are also stepping up the level of training they offer on the subject of sustainability whether
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Yes, but we shouldbe doing more
No, it is the responsibilityof government
No, it is the responsibilityof the market
No, but I don’t know wherethe responsibility lies
0 3 6 9 12 15
Yes
No, and the government shouldbe doing more to push this issue
I don’t know wherethe responsibility lies
■ do You ThInK IT Is The ResponsIBILITY oF The AccounTInG pRoFessIon To push The susTAInABILITY/csR RepoRTInG AGendA?
Source: IAB Sustainability Survey
The real heroes of sustainabilityThe trend towards sustainability reporting has grown in the past three years, albeit slowly, as the market demands more transparency from the business world. nicola Maher reports on the accounting profession’s role in supporting those companies and pushing the agenda
FeATuRe International Accounting BulletinsusTAInABILITY suRveY
May 2013 y 5www.InternationalAccountingBulletin.com
FeATuReInternational Accounting Bulletin susTAInABILITY suRveY
0
20
40
60
80
100
Demand is
growing slowly
Demand is
growing quickly
%
■ how wouLd You RATe The deMAnd FoR susTAInABILITY/csR seRvIces In YouR ReGIon?
Source: IAB Sustainability Survey
New legislation47.37%
New legislationor international
climate agreement23.68%
NGO, govtor clientpressure15.79%
Risk of physicalimpact of
climate change(flooding etc.)
7.89%
Pressure on supplies and
commodities, and price volatility
5.26%
■ whAT do You ThInK Is, oR expecT To Be, dRIvInG deMAnd FoR susTAInABILITY/csR seRvIces In YouR ReGIon?
Source: IAB Sustainability Survey
it is built into qualification modules, a separate module altogether, a separate cer-tificate course or through continuing profes-sional development (CPD) and continuing professional education (CPE) workshops and seminars.
Role of accountantsThe Accountant (TA) and sister publication the International Accounting Bulletin (IAB) surveyed the global accounting profession to gauge opinion on sustainability and found a
substantial 37% of respondents believe the responsibility of pushing the sustainability/CSR reporting agenda lies with the account-ing profession, while 18% think the profes-sion should actually be doing more to push it.
As the role of the accountant has evolved to become more strategic within the finance function and central to the decision-making of a business it is evident accountants have an important part to play in building the case for companies to report on their CSR/ESG.
Institute of Chartered Accountants in Eng-land and Wales (ICAEW) head of sustainabil-ity Richard Spencer says: “Finance directors are probably number two on the board after the chief executive and they tend to own the strategy. What they do is fundamental to the decision-making within a business. There-fore, they can take a leading role in building information around the environmental and social impacts and opportunities into the decision-making of the business.”
Spencer says there is a shift away from see-ing accountants as “passive recorders of past events” towards becoming “active decision-makers recasting the rules of business”.
“Also the question should not be: “If this is how we do business, what is it we should do about the environment and society?”. That’s the wrong way round. We should be asking: “Given the limits that we face both in society and the environment, what should we do about the business model?”. That is,
shifting it from an operational question to a strategic one.”
US Institute of Management Account-ants (IMA) president and chief executive Jeff Thomson agrees, adding the role of the management accountant is making sure the company is a “good citizen and does its part from a CSR perspective, while also having a responsibility to connect sustainability to the strategy story”.
Ernst & Young (E&Y) US climate change and sustainability services practice group partner Brendan LeBlanc says what is impor-tant to the shareholder and wider stakehold-ers, “whose wellbeing is impacted by a busi-ness’s operation”, is not simply financial performance, but also non-financial perfor-mance.
“It is risk management and setting goals and then reporting against those goals – then the natural evolution of that project is com-panies becoming smarter about what buoys their stock price,” LeBlanc explains.
“It stands to reason that (after this is explained and stakeholder engagement com-mences) clients will become interested in developing credible and informed goals and credible informed reporting. This can then be reported to market and their progress meas-ured.”
KPMG UK head of sustainability Vincent Neate also agrees accountants should be pushing the agenda but does not think “eve-rything necessarily has to be accounted for in the way that an accountant would account for it”.
“As well as accountants applying their lens of accuracy, completeness and reliability to the numbers, I think they are also increasing-ly going to get involved in investment deci-sions and incorporating sustainability into investment decision-making,” he remarks.
“Some of the most interesting work we have been doing is around energy. Looking at what is happening in the world of ‘green’ and then seeing how you can feed that infor-mation into your investment appraisal model around energy purchasing, around nego-tiation of power purchase agreements, and around how you go about balancing between renewable and non-renewable sources of energy?”
embed sustainabilityAssociation of Chartered Certified Account-ants (ACCA) sustainability advisor Gordon Hewitt thinks accountants are awake to the
6 y May 2013 www.InternationalAccountingBulletin.com
FeATuRe International Accounting BulletinsusTAInABILITY suRveY
necessity of these services and accounting firms and networks have begun to “embed sustainability through different lines of ser-vice – assurance, tax, advisory and corporate finance – to start thinking about it and to think about how they can create products and services to meet their clients’ needs”.
Neate says KPMG’s sustainability practice, which has about 500 climate change and sustainability staff worldwide, tries to help clients think about how they can add value through CSR.
He says: “I think across the board the things that people do in the world of sustain-ability, the examples of actual value-adding activities, are quite few and far between, so our practice tries to help people think: ‘If I am going to engage stakeholders, how do I do that in a way that is going to drive busi-ness performance?’ and ‘If I’m going to assess the issues that are material to my business, how do I do that in a way that drives busi-ness performance?’.
“If I think about carbon, how do I do it in a way that links to where I get my energy from, how I use that energy, and how is it going to drive my business performance?”.
E&Y currently has a multidisciplinary team of about 700 sustainability staff glob-ally with a third of those in the Americas. Le Blanc says the US firm mainly provides assurance around non-financial information to “pre-emptively counteract claims of green-washing” and then within that “we cover the journey from pre-assurance and assurance readiness”.
“Another service in demand is helping a business understand and value environmen-tal and social risks,” continues Le Blanc. “This helps people who perform enterprise risk management assessments, where they rank and rate risk, to make strategic deci-sions. Also helping companies to quantify some of these risks previously thought to be opaque or future-oriented, but which are now being seen as more immanent because of extreme weather events and droughts.”
It’s fair to say the Big Four accounting firms initially had a monopoly on the provi-sion of these services, as the number of large publicly listed clients they serve far outweighs the mid-tier accounting market’s share. How-ever, as the business case for sustainabil-ity reporting becomes clearer, demand from mid-tier accounting firm and network clients has also grown. On the back of this, some mid-tier networks including Grant Thornton
International and BDO International have launched sustainability practices.
BDO sustainability and CSR partner Hen-ning Drager says the network is in the midst of consolidating its practice, instead of these services being offered only by certain mem-ber firms. However, he says the lack of leg-islation covering CSR has meant growth of the practice has been slower than hoped. The other issue, he adds, is companies still seeing sustainability-related services as a luxury.
“We want to make sure our clients glob-
ally get the opportunity to see the tangible financial, social and environmental value of adopting our sustainability services,” Drager says.
Another challenge has been competition, he notes, “not only from the Big Four who are very well resourced and work via a very top-down centralised approach, but also more and more through boutique provid-ers”.
“The way we look at it, we really have to be ‘on our game’ to compete against others who are very well resourced and who have an even bigger global reach than we do. We see it as an opportunity to increase our tailor-made offerings and hopefully also supply the supply chain into these big companies who have been upsold by the Big Four, because the whole procurement and supply chain aspects are becoming more and more promi-nent,” Drager says.
The services BDO is seeing a big demand
for are strategic analysis and action planning – looking at how sustainability fits with the current business model, what the main posi-tives and negative impacts are, and how they can be unearthed, mitigated and adopted to an advantage.
“That’s something we see very clearly here in the Ukraine, because we are raising aware-ness first and foremost and it always starts with the question of where an organisation wants to go, followed by how sustainability services can help them get there,” Drager says. “This is followed by metric develop-ment. Such as what is your impact? Is it car-bon, is it water, is it foot printing? How can you use the best practice methods that are in the market to really quantify your impact?”
slow but growingAccording to the TA/IAB survey, 93% of respondents describe the global demand for sustainability/CSR services as “growing slowly”, which is also the most common description given at a regional level.
Neate agrees, adding the demand for KPMG’s CSR services across Europe is grow-ing, but is price sensitive. “From a commer-cial perspective we are very confident that demand is going to continue to rise and we have seen it rise considerably over the past three years,” he says.
However, he notes, there are countries where there is “more appetite and drive”.
“For example, the Netherlands, Italy to some extent, Germany, Switzerland and Spain, and this is partly to do with regula-tion, partly to do with the size of company involved, and partly to do with cultural his-tories, so a variety of drivers,” Neate says.
“There is also appetite in other countries where it is early days and therefore a bit more exploratory. In developing economies in the Eastern Block there is certainly a lot more interest around sustainability, what it means, and ‘do I need to worry about it or don’t I?’ Outside Europe, it’s the same story. Massive increases in demand in Australia, big demand in China and a lot of the East, as well as South Africa, and South America such as in Brazil, Chile, Peru and Colombia.”
KPMG’s, BDO’s and E&Y’s sustainabil-ity services clients are mostly publicly listed companies from the fast-moving consumer goods, extractive and transport industries, and financial services sectors.
Those sectors where demand is coming from, Neate says, are not surprising: “It’s
“I think across the board the things that people do in the world of sustainability, the examples of actual value-adding activities, are quite few and far between, so our practice tries to help people think: ‘If I am going to engage stakeholders, how do I do that in a way that is going to drive business performance?’ and ‘If I am going to assess the issues that are material to my business how do I do that in a way that drives business performance?”Vincent Neate, KPMG UK head of sustainability
May 2013 y 7www.InternationalAccountingBulletin.com
FeATuReInternational Accounting Bulletin susTAInABILITY suRveY
YesYes, but this isunlikely due to
heavy sector variation
Only ifthere were
industry-specific
standards
No
■ wouLd You LIKe To see one seT oF GLoBAL susTAInABILITY AccounTInG sTAndARds cReATed?
Source: IAB Sustainability Survey
■ susTAInABILITY And sTAFFInG
Source: IAB Sustainability Survey
How many full-time staff work in your sustainability practice?(outer ring)
Under 50
100-250
500-800
800-1,000
Less than 1%
1-3%
10% or more
How much of your total revenue comes from sustainability/CSR services? (inner ring)
not rocket science. You know that anybody in a manufacturing business is going to be concerned about energy price stability and security, what to do with their waste, and what’s happening in their supply chain. Therefore, our engagement with them tends to be whichever issues top their agenda and is relevant to them because it is a huge com-ponent of their operations.”
However, he says what is surprising is the growing interest from some smaller clients, particularly in Central and Eastern Europe for these services.
Le Blanc adds in the US there are a multi-tude of smaller non-publicly listed companies that are pioneers in the sustainability move-ment.
“They are those mid-market really mission-driven companies founded upon some social benefit or environmental initia-tive, but that also happen to make a product or deliver a service to make a profit. But their raison d’être is inextricably linked to some social or environmental benefit or cause,” he notes.
A resource challengeA major concern for the accounting profes-sion is resources and the need to balance growing client demand with the right skilled people with the right knowledge.
These practices need to strike a balance of having, for example, enough consultants with expert knowledge of water consump-tion or climate change, and accountants,
auditors or tax experts with deep financial knowledge.
Le Blanc says a challenge for E&Y has been bringing people in who are not account-ants.
“We are an accounting and consulting firm foremost. We are trying to get these non-financial teams assimilated and talking with accountants who have the relationships with our big clients, to explain and educate what sustainability services we provide and why they are so important,” he remarks.
Le Blanc adds E&Y has attempted to iden-tify and bring in deep skill sets to ensure the firm covers the whole spectrum of issues included in a sustainability report, including the type of goals its clients want to set.
“To be an expert in, for example, water, waste, chemicals, health or safety, it is then unusual also to have a deep knowledge of corporate governance, or diversity, or of human rights in relation to working condi-tions in different places around the world.”
ICAEW’s Spencer thinks professional ser-vice firms may find, as they scale up their sustainability practices, a shortage of skilled practitioners, but the professional account-ing bodies have been improving their qualifi-cations to ease this.
This is indicative of survey results in which 77% of respondents said sustainability/CSR reporting is currently a part of their national/ international institutes’ syllabus, with 31% offering a separate certificate on the subject.
Spencer says in the past three years ICAEW
reviewed its qualification to make sure sustainability is picked up.
“We decided very clearly there should not be a separate sustainability module for exact-ly the same reason that we said there should not be a separate ethics module, because we believe ethics and sustainability should lead into everything that you do,” he remarks.
The right skillsHowever, the ICAEW takes the view it is not
training people to be sustainability experts.“We are training people to be accountants.
There are four aspects around training: skills – abstract transferable skills that you would expect an accounting professional to have, such as analysis, strategic type skills and scepticism. Secondly, knowledge, which is content. The first aspect teaches you how to think and the second supplies you with raw information. The third and fourth are experi-ence and behaviour – behaving in an ethical and proper manner within your profession,” Spencer explains.
He adds, sustainability is now picked up throughout all the exams and courses as part of ICAEW’s qualification.
“For the rest of their careers it is up to accountants to ensure they have the right knowledge to do their job successfully. If they are working in the field of sustainability then they need to build that expertise,” he says.
Thomson says for a couple of decades IMA has been teaching the balanced scorecard and has increased the material on sustainability
8 y May 2013 www.InternationalAccountingBulletin.com
FeATuRe International Accounting BulletinsusTAInABILITY suRveY
0
3
6
9
12
15
Advisory
Assurance
■ seRvIces And secToRs
Source: IAB Sustainability Survey
Due diligenceM&A support and
due diligenceRisk management
and valuation
Tax
0 3 6 9 12 15
Assurance anddisclosure
Carbon footprinting
Policy andprocess development
Financing solutions
Due diligence
M&A support anddue diligence
Risk managementand valuation
Stretegy and support
0 2 4 6 8 10
Assurance anddisclosure
Financing solutions
Financial services
Automotive
Retail and consumer
Banking andcapital markets
0 3 6 9 12 15
Energy, utilitiesand mining
of the two service lines below, which does your
organisation provide more in relation to csR
sustainability?
which of these specific sustainability/csR services
does your organisation provide?
(please select as many as necessary)
which three services offer the biggest revenue growth
opportunities for your organisation?
From which three client sectors do you see the most
demand for sustainability/csR services currently,
or expect the most growth in the future?
in its curriculum. In April, the institute also launched a separate sustainability certificate course.
Thomson comments: “I think professional accounting bodies play a role in educating accountants on this subject. Companies also play a role and, if they are big enough, can build-in their own training, complemented by an accounting association. Academia also has a role and an obligation in terms of creating a curriculum which produces well rounded professionals who can then produce well rounded performance measures of an enterprise.
“We need not only to train people inside companies on the CFO role of assurance, internal controls and risk management, but also influence the academic curriculum to begin discussion about these ESG CSR type measures.”
ACCA’s Hewitt is pro having a separate module on sustainability, but similarly to ICAEW, the institute’s qualification current-ly doesn’t have one and instead covers the subject to some degree throughout all course modules.
Hewitt says in the future he would like to create some optional training, such as a sepa-rate certificate partnering with an organisa-tion such as the Global Reporting Initiative (GRI), to give students and qualified mem-bers an introduction to sustainability.
US Sustainability Accounting Standards Board (SASB) founder and executive direc-tor Jean Rogers says the board is also work-ing on providing CPE training on the subject in the US.
“Marisa Mackay, our associate director of education services is looking at becoming accredited to be able to offer the CPE cred-its,” Rogers notes.
Regulatory conundrumMandating companies to report on their non-financial information through regula-tion and legislation is a double-edged sword. For accounting firms it’s good for profits, but even they agree there is a fine line between what’s good for business and disclosure over-load and boilerplate or tick-box disclosure.
Spencer describes the situation as “tricky”, because “mandating doesn’t necessarily lead to better corporate behaviour”.
“Instead it might simply lead to boilerplate disclosure. Therefore, I think in all forms of reporting we need to ask ourselves: what is it for and what is the best way of achieving
the behavioural change we are seeking? This may not necessarily be through disclosure at all. Disclosure won’t necessarily produce good practise,” he warns.
“If we are going to mandate reporting it needs to be about its purpose and what it is going to achieve. There is also a challenge about how early on you mandate. Once you have mandated reporting you then have to provide guidance and then you have killed off any innovation around reporting.”
Thomson says in the US a company’s approach is still very much “let’s learn and develop ideas on how best to integrate the strategy story for investors, let’s understand what investors are really asking for, and lets understand what the cost benefit are of inte-grating financial and non-financial measures of success are.”
“In the US in particular there is much more litigation with respect to getting the results wrong, beyond a certain level of assurance.
I think, US CFO, CEOs and boards will ask direct questions about cost benefit and who is asking for what, and to what end, espe-cially the investor community,” he notes.
However, the movement towards mandat-ing the reporting of certain types of sustaina-bility information has been growing globally. For example, in South Africa the Johannes-burg Stock Exchange now requires all listed companies to produce an integrated report, which, put simply, is one report contain-ing financial and non-financial information linked to a company’s strategy and perfor-mance.
In the US, the SEC has voluntary disclo-sure on things like environmental risk factors on the back of the Dodd-Frank Act; and in Europe, the European Commission recently adopted a directive on non-financial report-ing to toughen disclosure requirements for companies in extractive industries across the region and their subsidiaries around
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FeATuReInternational Accounting Bulletin susTAInABILITY suRveY
■ pAsT And FuTuRe
Source: IAB Sustainability Survey
0
1
2
3
4
5
6
7
8
Less
than 1% 1-5%
12-15%
16-20%
6-11%
Over 20%
how much has demand for sustainability
services increased at your organisation in the past
five years?
how much do you expect your sustainability practice
to grow in terms of staff and revenue in the next five
years?
0
1
2
3
4
5
Less
than 1% 1-5%
12-15%
16-20%
6-11%
Over 20%
the world. The UK government also recently issued
draft regulation outlining the requirements for listed companies to report on their green-house gas emission levels. Meanwhile at the Rio+20 conference last year, a group of governments including Brazil, South Africa, Denmark and France supported Paragraph 47, which acknowledges the importance of corporate sustainability reporting and states they will “encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sus-tainability information into their reporting cycle”.
which organisations?The majority (70%) of respondents to the survey agree only large public or private companies or public interest entities with a minimum of $1bn in annual revenue should be mandatorily required to produce a sus-tainability report. However, interestingly, more than half (53%) felt small public com-panies with less than $50m in annual rev-enues should also be required to report.
The majority of leaders we spoke to think organisations with a material reason to report, such as supply chain risks, should be reporting whether it’s a mandatory require-ment or not.
In terms of environmental issues, Spencer says there are three stages of risk that should lead to a company reporting: “First, where
nature is having a big impact on you. For example, if you are a garment manufacturer and the cotton crop fails in India. If the Indi-an government then bans the export of cot-ton, pushing up the price of rayon and poly-ester, that’s going to have a massive impact on your business. Similarly, what happens if there’s another drought in Middle America this year? What happens if the wheat crop fails in India this year? These are going to have big impacts on you.
“Secondly, there are the more remote risks, which, for example, could be about water in Australia. What happens if the government in that country starts charging us for water? Thirdly, there is a remoter risk, which is the one we are all worried about – businesses’ impact on the environment. If you don’t look after the resources you depend on, and those now include the environment, your resilience is undermined and eventually you will get into difficulties.”
One of the other considerations being debated is whether there should be one set of global sustainability accounting stand-ards created. Just under half (47%) of survey respondents think there should be, although 29% felt it’s unlikely to happen due to heavy sector variation, with 21% only wanting them if they were industry-specific.
“Certain countries might not want them because they are developing their own stand-ards. I think rather than standardisation it should be harmonisation. So they are all built
upon the same foundation. You do want comparability because for multinational companies operating in lots of different ter-ritories having to report under different sets of standards can be tricky,” Hewitt notes.
Spencer agrees there is merit in people reporting in the same way. “But I think you just get back to the usefulness of information always.”
Thomson prefers guidance over standards: “I think having global frameworks and guid-ance is very helpful, but then it needs to be applied in a way that it is sensitive to the tar-get and the culture around the world.”
There are a number of frameworks and guidance being produced to help companies account for their sustainability information. For example, the GRI guides, the fourth instalment of which is due at the end of May, the Organization for Economic Co-opera-tion and Development guide, or the United Nations Commission on Sustainable Devel-opment guide.
Integrated reporting the way forwardNeate thinks everyone should “get behind the International Integrated Reporting Coun-cil’s (IIRC) integrated reporting framework and push it to move faster”.
“We need good-quality business reporting across the spectrum of financial and non-financial information that stakeholders want to know about for business performance. And we need that to be governed by sensible rules about what goes in and what doesn’t go in, how you do it, how you come up with the data, and how that all gets published and audited and so on,” he explains. “I think the IIRC is best placed for that to happen and I really would like collaboration on one initia-tive rather than work on so many different ones.”
BDO’s Henning agrees and adds the IIRC’s integrated reporting framework is the “best bet” for taking a global view of sus-tainability.
There’s no doubt the momentum behind sustainability reporting will continue to build as business catches up with the market and realises the benefit of reporting such infor-mation. It’s also fair to say that accountants, who are very likely to have the ear of the most important decision-makers within an organisation, are perfectly placed to continue to push the sustainability accounting agenda and ultimately, as Bakker once said, help ‘save the world’.<
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■ spAIn
At a glanceRevenue
Most revenue: Deloitte, €501mLeast revenue: Key Will Group, €0.5mhighest growth: DFK International, 19%Lowest growth: Integra Intr./EuraAudit Intr. -36%
sTAFF
Largest workforce: Deloitte, 4,769smallest workforce: UC&CS Global, 20Most partners: Deloitte, 178Most offices: PrimeGlobal, 23
econoMIc IndIcAToRs
Gdp: €1.0tr ($1.4tr)Gdp growth: -1.4% Gdp per capita (ppp): $30,557Inflation (cpI): 2.4%Budget Balance: -10.3% of GDPunemployment rate: 27.2% population: 46m
IAB suRveRY IndIcAToRs
Revenue per employee: €103,500staff density: 1 accountant per 2,313 ppl
Notes: Totals apply to IAB surveyed data only. This includes firms that belong to global networks and associations
Source: International Accounting Bulletin, IMF
Profession benefits from Spain’s quixotic struggleSpain’s economic turmoil has gone a long way in shaking up the Spanish profession and while firms return to growth, the struggle is not over yet as concerns in relation to the price and value of audit increase. carlos Martin Tornero reports
“Take care, sir, those over there are not giants but windmills.” Those are the famous words of Sancho Panza, Don Quixote’s
companion, before the misguided knight engages in a joust with imaginary rampant behemoths in La Mancha.a.
Miguel de Cervantes’ novel was published in 1605 during the Spanish Golden Age, at a time when Spain was the world’s strongest empire.
More than four centuries on, the country is at the height of a severe economic crisis. So it’s no wonder, in the last fiscal year, Span-ish accounting firms had to strive, as never before, not to end up, like Don Quixote, tilt-ing at windmills.
Since the credit crunch hit Spain in 2008, its economy hasn’t been able to pick up. Heavily dependant on the real estate sector’s bonanza, the Spanish economy broke with a 15-year trend of continued GDP growth and contracted 3.7% in 2009 and 1.4% in 2012.
The country’s financial sector, trapped by the bursting housing bubble, has failed to get back on its feet, and last year, the government had to ask the European Union for a €40bn bail-out package to shore up its banks.
Its bloated regional and local adminis-trations are also over-indebted and central government has intensified spending cuts to reduce the budget deficit. All this is happen-ing much to the dismay of its citizens who feel enraged by the country’s 27% employ-ment rate and let down by a once-reliable welfare state, now slimmed by increased austerity measures.
In blackDespite the economic downturn, Spanish accounting firms surveyed by IAB achieved 2% average growth in fiscal year 2012.
Spain’s economic woes have led, on average, to 55 companies closing for busi-ness every day for the past four years, and accounting firms have had to devote addi-
tional resources to cope with challenging work from troubled clients. At the same time, they have provided a wealth of non-audit services closely connected to Spain’s adverse business cycle, making up for the lack of opportunities in a depressed audit market.
The Big Four firms have led the profes-sion’s growth, earning €1,564.2m ($2,014m) in fees in 2012, up 4% on 2011, and taking 76% overall market share. Deloitte retained its position as market leader, reporting annu-al revenues of €501m in the year to 31 May 2012, up 5% on the previous year.
Deloitte partner responsible for audit, risk and transactions Germán de la Fuente says the growth in audit comes from two new cli-ents, the IBEX 35-listed companies Inditex and Abengoa.
“At a time of tough competition among firms and increased complexity in audit reviews, we need to spend more time and energy to uphold audit quality. But in the end the effort pays off,” he says.
Deloitte has also grown inorganically by hiring talent in key areas such as debt adviso-ry services, bankruptcy and forensic. “Unfor-tunately, the worse the economic situation for a country is, the more countercyclical services are demanded,” De la Fuente says.
PwC, the second-largest firm in Spain, saw its revenues climb by 4% to €463.4m in the year to 30 June 2012.
PwC’s lead audit partner Javier Lapastora says: “There’s been a significant increase in the actual time devoted to audit work. This, however, doesn’t mean more billing hours, but we can’t afford to compromise the qual-ity of our audit work,”
PwC’s growth stemmed from other service lines more in demand, such us risk manage-ment and international business advisory. While audit work remained flat in terms of new clients, one of the main drivers for PwC’s growth has been its strategy division. The firm invested last year in this service line, aimed at providing the sort of services ren-
dered by large global consultancy firms.KPMG maintained its spot as the third Big
Four firm, earning €321.8m in the year to 31 September 2012. Meanwhile, Ernst & Young (E&Y) managed to increase its revenues by 4%, to €278m, in the year to 30 June 2012.
“These results reflect the consolidation of our audit practice and an improvement of the legal division, which focused on tax adviso-ry, restructuring and bankruptcy,” the firm’s president José Miguel Andrés says.
Among the mid-tier, combined earnings fell by 4% to €357.6m, with mid-tier firm
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revenues amounting to 17% of market share among IAB surveyed firms.
Nevertheless, 2012 was a good year for Baker Tilly International and RSM Gassó, which reported double-digit growth of 18% and 14% respectively.
RSM Gassó managing partner Jaume Car-reras says the growth is partly due to the acquisition of a practice in Barcelona, but also attributable to the firm’s performance in non-audit services such as tax and consult-ing.
“We have diversified our service lines so that we don’t rely only on audit. We’ve focused on transaction support and invested considerably in risk management and due diligence services for prospective investors in Spanish companies,” Carreras says.
Kreston International member firm Iberau-dit Kreston improved its market position by taking over from Nexia International as the twelfth-largest network in Spain.
The firm’s president Mercè Martí says Iberaudit reaped the benefits of being a
member of Kreston International and says the firm is ready to harness every opportu-nity for growth that even a distressed market such as Spain’s can offer.
“Outsourcing and consulting services have been our drivers for growth,” he says. “The audit market is tough per se, and on top of that, some of our clients filed for bankruptcy or entered into administration. However, we have won former clients from bigger firms.”
At BDO, the largest mid-tier firm, revenues dropped by 5%, mainly due to a change in strategy. In 2012, BDO in Spain decided to consolidate some if its operation, resulting in closing some offices and restructuring inter-nally.
BDO Spain chief executive Alfonso Oso-rio says despite this adjustment, 2012 has been a reasonably good year and expects to strike back with a 5% growth in 2013. “We increased the number of our audit clients, but fee pressure didn’t let us take advantage of this improvement,” he says. “Our strongest areas were financial and risk advisory ser-
vices as we were commissioned by Spain’s bank restructuring fund (FROB) to oversee the winding-up and rationalisation of Span-ish building societies.”
BDO, as well as Grant Thornton in Spain, were named monitor trustees by the Euro-pean Commission to supervise the funds that the European Stability Mechanism gave to Spanish bailed-out banks.
Grant Thornton Spain, the sixth-largest firm, saw revenues decrease by 9% from €64m to €58.4m in the year to 31 August 2012. The firm’s managing partner José María Fernández says the drop in revenues is due to the divestment in less strategic advi-sory services.
“We have grown in all services lines, including audit as we treasure a portfolio of loyal clients who perceive the value of our audit work,” Fernández says.
“However, we’ve abandoned some servic-es in consultancy and focus more on others that could help clients weather the crisis.”
Key service lines for Grant Thornton
■ spAIn
networks- fee dAtA
Rank nameFee income
(€m)Growth
rate (%)
Fee split (%)
Year-endAudit &
AccountingTax
servicesManagement
consultingcorporate
finance
corporate Recovery/ Insolvency
Litigation support other
1 Deloitte* 501.0 5% 47 14 31 8 - - - May-12
2 PwC*(1) 463.4 4% 40 28 32 - - - - Jun-12
3 KPMG*(2) 321.8 1% 49 29 22 - - - - Sep-12
4 Ernst & Young* 278.0 4% 59 24 9 8 - - - Jun-12
5 BDO* 85.1 -5% 48 35 5 12 - - - Aug-12
6 Grant Thornton International* 58.4 -9% 35 16 44 5 - - - Aug-12
7 Auren* 50.1 -3% 31 43 24 2 - - - Aug-12
8 Mazars* 30.8 7% 52 34 14 - - - - Aug-12
9 Moore Stephens International* 26.2 9% 67 33 - - - - - Dec-12
10 Crowe Horwath International* 26.2 -3% 32 36 28 4 - - - Aug-12
11 PKF International(3) 21.7 -6% 43 28 2 2 2 - 23 Jun-12
12 Kreston International*(4) 14.1 1% 24 36 26 14 - - - Oct-12
13 Nexia International* 13.6 -34% 45 15 3 4 13 5 16 Jun-12
14 RSM*(5) 9.0 14% 62 24 6 6 1 1 - Dec-12
15 Baker Tilly International* 8.0 18% 51 10 9 8 2 5 15 Aug-12
16 Rödl & Partner* 6.5 3% - - - - - - - Dec-12
17 HLB International* 4.6 -6% 61 20 - 2 - 4 13 Jul-12
18 ECOVIS International* 3.3 5% 75 15 - - - - 10 Dec-12
Total revenue/growth 1,921.8 2%
Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) PwC reports tax and legal services together. Management consulting includes advisory (transactions services and consulting services); (2) KPMG includes risk related services in audit and accounting fee income. Tax and legal services are reported together. Management consulting figure represents KPMG advisory services; (3) PKF International’s member in Spain is PKF Attest. Included are €2.5m ins fees from correspondent firms ; (4) Kreston International’s member in Spain is Iberaudit Kreston; (5) RSM’s member in Spain is RSM Gassó. Source: International Accounting Bulletin
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■ spAIn
AssocIAtIons – fee dAtA
Rank nameFee income
(€m)Growth
rate (%)
Fee split (%)
Year-endAudit &
accountingTax
servicesManagement
consultingcorporate
finance
corporate recovery/ insolvency
Litigation support other
1 Antea* 50.1 -3% 31 43 24 2 - - - Aug-12
2 Praxity* 30.8 7% 52 34 14 - - - - n/a
3 PrimeGlobal* 7.8 6% 44 26 10 8 6 3 4 May-12
4 DFK International* 7.0 19% 90 3 2 - 2 3 - Sep-12
5 MSI Global Alliance* 6.4 8% 46 26 28 - - - - Aug-12
6 GMN International* 6.1 0% - - - - - - - Dec-12
7 INPACT* 4.7 -4% 43 45 9 1 - - 2 Dec-11
8 Integra International* 4.5 -36% 65 25 10 - - - - Dec-12
9 Morison International* 3.9 8% 35 29 10 1 - - 25 Dec-12
10 UC&CS Global* 3.0 8% 50 - - - - - 50 Dec-12
11 MGI* 2.9 10% - - - - - - - Jun-12
12 CPAAI* 2.7 -10% 62 12 15 - - - 11 Sep-12
13 IAPA* 2.1 110% 38 25 7 - - 5 25 Dec-12
14 A.C.E.E.* 2.0 -5% 23 - - - - 23 54 Dec-12
15 EuraAudit Intr.* 1.4 -36% 78 - 14 - - 8 - Sep-12
16 Key Will Group* 0.5 -4% 30 10 10 - - - 50 Dec-12
Total revenue/growth 135.9 0%
Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin
■ poTenTIAL spAnIsh LocAL GoveRnMenT AudITs TendeRed To The pRIvATe secToR
Notes: The chart represents a total of 1,314 municipalities with over 5,000 inhabitants Source: Instituto Nacional de Estadístic
6
554
361
147
107
8257
5,001-10,000
10,001-20,000
20,001-30,000
30,001-50,000
50,001-100,000
100,001-500,000
500,000+
have been M&A and restructuring. “M&A activity slowed down during the crisis, but we’ve seen the first signs of recovery. At the moment, Spain sparks the interest of inves-
tors who are willing to stay ahead of the game,” says Fernandez.
Associations, with flat revenues, took 7% of market share earning a combined €135.9m in fees in 2012. In the lead with €50.1m in revenues is Antea, an interna-tional alliance of firms founded by the Auren network in 2008. Auren is also an affiliate member of the International Federation of Accountant’s Forum of Firms.
Despite a 3% drop in revenues in the year to 31 August 2012, Antea chairman Antoni Gómez is positive about the association’s per-formance in light of fiscal year 2012 being one of the toughest since the crisis began.
“We’ve lost audit clients just because they filed for bankruptcy, and winning them back as their insolvency administrators or liqui-dators,” Gómez says. “It’s true that this has reinforced our bankruptcy division, but it is a bit of a ‘short-term gain and long term pain’ situation”.
challangesA stubborn recession killing businesses on a daily basis, low audit prices and an addition-al heavy discounting demand coming from troubled businesses is putting severe pressure
on audit services.When it comes to tender participation,
PwC’s Lapastora says he knows very well where to draw the line and adds
“I prefer to do less work of better quality, rather than being a leader at the expense of reducing fees”.
Deloitte’s De la Fuente says the market is fiercely competitive and points out: “I reckon this is more of a euphemism for ‘low fees’. But let’s be clear, audit quality does not appear as if by magic.
At a time when stakeholders have great expectations in audit reports, we end up spending more time and providing deeper analysis at the same cost.”
Antea’s Gómez says this is an unstoppable tendency that jeopardises the profession in many ways.
“Shrinking audit fees lead to freezing wages and fewer reward packages for our employees. We face losing our talent if we cannot recognise their work with an appro-priate salary rise,” he says.
The average price of an audit was €69.85 an hour in 2011, according to figures from the Instituto de Contabilidad y Auditoria de Cuentas (ICAC), the profession’s regulator.
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■ spAIn
networks – stAff dAtA
Rank name
Total staff Growth rate (%)
partners professional staff Administrative staff offices
2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
1 Deloitte* 4,769 4,502 6% 178 166 4,042 3,805 549 531 20 20
2 PwC* 3,903 3,768 4% 169 152 3,229 3,103 505 513 20 20
3 KPMG* 2,565 2,550 1% 145 150 2,225 2,196 195 204 16 16
4 Ernst & Young* 2,120 2,052 3% 109 105 1,676 1,606 335 341 14 14
5 BDO* 993 1,054 -6% 43 51 910 946 40 57 15 16
6 Auren* 675 688 -2% 49 49 577 589 49 50 15 14
7 Grant Thornton International* 598 612 -2% 33 35 540 550 25 27 10 10
8 Moore Stephens International* 379 344 10% 79 70 245 221 55 53 13 11
9 Mazars* 363 342 6% 31 30 299 279 33 33 7 7
10 PKF International 330 337 -2% 46 47 251 252 33 38 13 14
11 Kreston International* 329 330 0% 29 27 220 218 80 85 13 13
12 Crowe Horwath International* 298 310 -4% 39 40 193 201 66 69 16 13
13 Nexia International* 192 247 -22% 33 42 132 166 25 39 8 11
14 RSM* 191 181 6% 20 21 142 131 29 29 10 11
15 Baker Tilly International* 95 80 19% 15 11 73 63 7 6 6 6
16 HLB International* 62 68 -9% 6 5 48 54 8 10 4 3
17 Rödl & Partner* 57 57 0% 15 15 30 30 12 12 2 2
18 ECOVIS International* 52 52 0% 5 5 31 31 16 16 2 2
Totals 17,971 17,574 2% 1,044 1,021 14,863 14,441 2,062 2,113 204 203
Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin
Grant Thornton’s Fernández says before the crisis fees were already low compared to other EU countries.
“This downtrend does not bring any good, either for firms or for clients. There is a real danger for the profession if fees continue to plummet.”
RSM Gassó’s Carrera says he has come across cases where fees for the audit work of a parent company in Spain are the same as for a ten-time smaller subsidiary in another EU country. “If I were born again I’d become an auditor in the UK or Germany,” he jokes.
In February a Financial Times editorial said these were times when “nearly all [Span-ish] institutions, from the monarchy to the judiciary, exhibit signs of rot”.
The paper was talking about an illegal party financing scandal in which the ruling Popular Party (PP) is entangled. PP’s former treasurer Luis Bárcenas allegedly made ille-gal payments to party leaders including the prime minister, Mariano Rajoy, who denies the accusations.
In a separate ongoing court case, a judge
found out that Bárcenas is the holder of an undeclared Swiss bank account worth €22m, whose origin is under investigation.
To make things worse, King Juan Carlos’s son-in-law is facing corruption charges. The Duke of Palma, Iñaki Urdangarín, is accused of embezzling public funds via a company where the king’s daughter sat as part of the management. Although initially named as a suspect in the investigation, the court sus-pended the charges against her for lack of evidence.
Increased transparency Against this backdrop, Spaniards are demanding greater transparency and accountability. There have been several initiatives attempting to do so, such as the Instituto de Censores Jurados de Cuen-tas de España (ICJCE), one of the audi-tors’ professional bodies, asking for local governments to be externally audited. Currently, local governments are audited by institutions in charge of overseeing the public
sector’s accounts, which are overstretched and lack resources due to increased spending cuts. Hence the ICJCE tabled an amendment to the transparency bill in parliament which is currently under discussion to ensure audits of municipalities with more than 5,000 inhabit-ants are tendered to the private sector.
“The challenge of transparency not only affects the private sector. People who want to know how their taxes are spent are calling for enhanced transparency in the whole pub-lic sector,” ICJCE president Rafael Cámara says.
“It’s a pressing need if we want to be in line with Europe. Municipalities must be subject to reviews and ensure their budget spending complies with public laws,” PwC’s Lapastora says.
“So far only local governments that have issued debt must be audited. That’s the case in Barcelona and we are currently revising the city’s accounts, but only because the debt agreement requires the services of an external auditor,” Lapastora adds.
RSM Gassó’s Carrera says at a time when
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spAIn
■ spAIn
FIRM MoveMenTs
neTwoRK/AssocIATIon FIRM AddITIons, MeRGeRs & AcQuIsITIons
Bdo Added: Tecum (Valencia); Quota Auditores (Navarra)
deloitte Added: Daemon Quest (Madrid and Barcelona) and a cybersecurity team
euraAudit International Merger: both Activa Auditoria & Consultoria (Barcelona) are now one sole office
GMn International Merger: The GMN International member firm merged with Audria and as a consequence became members of Nexia but continued an involvement with GMNI as a correspondent member.
IApA Lost: Altair Consultores (Valencia)
Integra Intenational Added: Lumenis Auditoria y Consultoria (Barcelona); Lost: Charman Auditores (Bilbao)
nexia International Lost: Pedrosa Lagos (various cities)
pKF International Lost: exclusive correspondent firm Tecum (Valencia)
RsM Added: Abgl (Barcelona)
Source: International Accounting Bulletin
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top Independent fIrMs – AudIt revenue
Rank Firm Fee income (€m)
1 Eudita 5.1
2 ACR 3.3
3 Uniaudit Oliver Camps 2.2
4 Busquets Economistas Auditores
2.0
5 Gabinete Tecnico de Auditoria y Consultoria
1.4
6 Adade 1.1
7 Forward Economics 1.0
8 Pont Mestres 1.0
9 JDA 0.4
Source: Expansion and Grupo 20
some municipalities struggle even to pay their electricity bill, any future law should be accompanied by a proper budgetary alloca-tion to pay for external audit services.
Deloitte’s De la Fuente says the proposed legislative change would open relevant busi-
ness opportunities, and not just for the Big Four. In Spain small and medium-sized munic-ipalities abound and that could make a good match with a non-Big Four’s cost structure. Market structure As in most European countries the gap between the Big Four and the mid-tier is wide.
In Spain, the smallest of the Big Four, E&Y, has a 13% market share, while the largest mid-tier firm BDO has just 4%.
On the back of BDO’s merger with PKF in UK, Osorio says a game-changer would hap-pen if a number of international networks stepped forward and merged internationally. “Mergers country-by-county are very impor-tant, but a transnational integration between two or three key players would signal a clear message to the global market that they can play hard in the big league,” Osorio says.
He acknowledges that Grant Thornton Spain, Mazars or PKF Spain would make a good match with BDO.
“The four of us have a recognisable inter-national reach. There have been some talks between us, but talk is all it is – informal dis-cussions, nothing serious on the table as yet.”
The other factor contributing to the divide between Big Four and mid-tier firms are, according to Osorio, certain systemic barri-ers to free competition backed by the regula-tory environment.
“I’m talking about restrictive clauses in tenders, that judging by their terms are tai-lored for Big Four firms,” Osorio says.
“This way, from the very outset, we are excluded from the tender process and cannot bid for audit work or other operations that we could undertake.”
Iberaudit Kreston’s Martí, who is also the president of the Grupo 20, an industry group representing smaller and mid-tier firms, shares Osorio’s views and adds: “I don’t understand why rating agencies assign better rates to companies if a Big Four firm signs off on the accounts.
In the case of Iberaudit Kreston, we have successfully passed nine inspections con-ducted by our regulator [ICAC] and we have never been given a sanction. What else do we need to do?”
challenges The crisis has significantly changed the play-ing field for accounting firms as the technical complexity of audit work is increasing.
PwC’s Lapastora says that prior to the cri-sis auditors with five or six years’ experience had only worked on less complex audits. “As the crisis struck, we had to train those auditors so that they were prepared for the more challenging audits that resulted,” he explains.
“Hence, none of the banks we have audit-ed have been nationalised or have had any problems so far. I’m afraid our competitors cannot say the same.”
One of the most notorious state-rescued banks is Bankia, which was created in 2010 as a result of the merger of seven major cajas or building societies.
Some commentators see the collapse of Bankia as the foremost reason why the government had to request a bail-out from Europe.
Bankia came under the spotlight when Deloitte refused to sign off its accounts. The case has led to lengthy litigation.
Deloitte’s De la Fuente says the firms is “at ease” with the work on Bankia.
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■ spAIn
AssocIAtIons – stAff dAtA
Rank name
Total staff Growth rate (%)
partners professional staff Administrative staff offices
2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
1 Antea* 675 688 -2% 49 49 577 589 49 50 15 14
2 Praxity* 363 342 6% 31 30 299 279 33 33 7 7
3 PrimeGlobal* 148 153 -3% 19 20 102 107 27 26 23 25
4 DFK International* 112 105 7% 20 19 82 77 10 9 7 7
5 INPACT* 77 78 -1% 23 22 43 45 11 11 7 7
6 GMN International* 74 74 0% 11 11 58 58 5 5 6 6
7 MGI* 68 68 0% 6 6 48 48 14 14 7 7
8 Integra International* 66 82 -20% 13 16 36 60 17 6 6 8
9 MSI Global Alliance 63 70 -10% 5 5 54 60 4 5 2 2
10 Morison International* 58 51 14% 16 15 37 32 5 4 2 2
11 Key Will Group* 57 57 0% 4 4 46 46 12 12 2 2
12 CPAAI* 49 49 0% 14 14 23 23 12 12 2 2
13 IAPA* 34 23 48% 4 2 22 12 8 9 3 2
14 ACEE* 26 29 -10% 6 7 14 17 6 5 2 4
15 EuraAudit International* 20 42 -52% 5 8 13 34 2 3 1 2
16 UC&CS Global* 20 20 0% 2 2 15 15 3 3 1 1
Totals 1,910 1,931 -1% 228 230 1,469 1,502 218 207 93 98
Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin
“The auditor on the assignment could not certify that the company’s accounts for 2011 gave a true and fair view of the financial situ-ation. We refused to sign off the audit report and, as a matter of fact, this rang alarm bells over Bankia’s financial statements,” he adds.
Role of the auditorAnother big case in the media this year
has been that of Pescanova, a multinational fish producer listed on the Spanish Stock Exchange.
Its board is under investigation over alleged charges of accounting fraud which could have led to debt worth €1.5bn. BDO, the auditor, has been caught in litigation crossfire between stakeholders and the com-pany’s management.
In the ongoing insolvency proceedings, the board has been replaced by Deloitte as administrator, while KPMG is undertaking a forensic investigation, including issues such as why Pescanova’s president allegedly
secretly sold a 14.4 % stake in Pescanova before filing for insolvency.
“BDO is one of the many aggrieved par-ties in this mess. We did our work following high-quality audit standards,” Osorio says.
As Grant Thornton’s Fernández points out, the crisis has exposed a wide expecta-tion gap in relating to the role of the audi-tor. “There’s an ongoing debate on where the profession should stand to meet the expecta-tions of stakeholders and investors,” he says.
Antea’s Gómez suggests auditors should take the bullet for this expectation gap and says: “The markets don’t understand our audit reports and society has no clue of what our role is about. It’s clear that we are doing something wrong.”
Deloitte’s De la Fuente says the audit report of the future should correct these shortcomings and talks about a report that would capture not only the photo finish of the year-end, but explain the highlights of the whole fiscal year.
Many business leaders interviewed for this report agreed that, at a time of high mar-ket volatility, it’s rather difficult to foresee the financial feasibility of companies in the audit report. Many said they are not “for-tune-tellers”; others said they don’t have a “magic wand” with which they could detect fraud or mismanagement within companies. At times, BDO’s Osorio says, auditors feel like scapegoats for a company’s collapse because there is a widespread perception that an audit is the panacea or the cure for all ills.
Don Quixote claimed he knew by heart the ingredients of a magic healing which could cure any wound.
Rather than the Balsam of Fierabras, as the magic potion was known, the battered Span-ish economy seems much more in need of the accounting profession.
At times like these, auditors are called to play a vital role in restoring market trust as the struggle in the Spanish audit market con-tinues<
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A year ago Turkish mid-tier firms were expecting a surge of audit service demand generated by the introduct ion of the new
Commercial Code, which would mandate audits for most Turkish companies. Surprisingly this didn’t happen and the Code’s thresholds for companies requiring a mandatory audit, which was unveiled towards the end of the year, was set very high and dreams of booming audit services and lucrative margins soon became a distant dream.
While the audit market failed to boom Turkish mid-tier firms still managed to generate double-digit growth, 17% on average among International Accounting Bulletin surveyed mid-tier firms. Tax services remained the core service line for firms, as tax certification work is more commonplace than audits for Turkish companies, and it’s more lucrative.
There have also been some opportunities in advisory as demand for transaction support increases.
IAB only surveys mid-tier firms in Turkey as the Big Four refuse to participate for the time being.
commercial code bubble burstsT he i nt roduc t ion of t he Tu rk i sh Commercial Code was expected to bring the number of companies requiring an audit to 300,000, which would have been a significant increase from the 2,000 companies requiring an audit before the introduction of the Code. Some thought 300,000 was optimistic, but according to firm leaders speaking to the IAB no one expected the threshold to be as high as it is, resulting in very little change to the audit landscape.
Companies that require an independent audit in Turkey must meet two of the following criteria: revenue higher than TRY200m ($110m); balance sheet assets higher than TRY150m; and employing
more than 500 people. Capital market companies are subject to an audit regardless of the criteria.
Baker Ti l ly Gürel i par tner Sinan Gü re l i says t hat a lo t more was expected of the Code.
“From the expected 300,000 companies to be subject to a mandatory audit under the Code, regulation which passed through parliament a few months ago led to that number being only about 2,500,” he said.
Gü re l i b e l i eve s t he govern ment decided to opt for a more gradual approach with the Code.
“I think the thinking behind it was to start slowly,” he said. “Plus, if all 300,000 companies were subject to an audit as expected, there may have been some staff shortages among auditors in the industry. The number of people with good knowledge and experience of IFRS is a bit limited. And, having 200,000 to 300,000 companies waiting to be audited, with an insufficient workforce could have been challenging.”
BDO Turkey managing partner Haluk Kaptanoglu bel ieves the number of companies requiring an audit under the new code is too small and, although he didn’t expect 300,000, he did expect the threshold to be a lot lower than it is at the moment.
“For sure, the threshold will be reduced in due course. A lot of things have been put into place in a similar way in the past in Turkey,” Kaptanoglu says.
“I think that with the Code people are becoming more aware about the importance of audits. We’re seeing more companies, outside the threshold, looking for an audit.”
RSM member firm RSM KapitalKarden partner Lokman Ketenci says that despite the disappointments of the Commercial Code the Turkish audit market still has plenty of scope for future growth.
“We think the market will grow for audits and in five or ten years I think we are likely to see a three times bigger audit market,” he says.
For firms in most countries audit and accounting services are dominant, bringing in over half of all fees earned. The situation in Turkey, however, is somewhat different with audit and accounting earning just 33% of all fees among IAB surveyed firms. While income from audit and accounting services has been increasing slowly, the market is still small, and as the Commercial Code has failed to increase the number of audited companies, the bulk of firms’ income has to come from tax work.
Not so prosperous on the BosphorusA boom in audit services was anticipated in Turkey just 12 months ago, but the thresholds determined by the recently-introduced Commercial Code have dashed these hopes. Consequently, tax services continue to dominate with over 50% of the market, as Ana Gyorkos reports
■ TuRKeY
At a glanceRevenue
Most revenue: Baker Tilly Intr., TRY31.1m Least revenue: MGI, 0.6mhighest growth: HLB Intr., 118%Lowest growth: EuraAudit, -80%
sTAFF
Largest workforce: Crowe Horwath, 305smallest workforce: GMN Intr., 14Most partners: Crowe Horwath Intr., 57Most offices: Crowe Horawth Intr./Nexia Intr., 10
econoMIc IndIcAToRs
Gdp: TRY1.4tr ($794bn)Gdp growth: 2.6%Gdp per capita (ppp): $15,001Inflation (cpI): 8.9%current Account Balance: -5.9% of GDPunemployment rate: 9.2%population: 75m
IAB suRveRY IndIcAToRs
Revenue per employee: TRY109,739staff density: 1 accountant per 30,060ppl
Notes: Totals apply to IAB surveyed data only. This includes firms belonging to global networks and associations
Source: International Accounting Bulletin, IMF
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Not so prosperous on the Bosphorus And, for audit and accounting services to flourish Turkish businesses need to modernise and increase awareness and knowledge of the importance of consistent and diligent accounting.
Ketenci says Turkish companies are still very conservative and yet to modernise.
“There are a lot of companies that don’t
know what a balance sheet is. They don’t understand that the financial statement is interesting for a third party,” he explains.
“Awareness is slowly changing and these traditional companies are slowly transforming and learning. We are assisting in helping them understand the importance of financial statements.”
Güreli says another issue in accounting is the loose definition of “independent accountants”, who work at companies that are not subject to mandatory audit of their accounts.
“For a long time we’ve had the concept of an independent accountant for a business, “ he explains. “But there have
■ TuRKeY
networks – fee dAtA
Rank nameFee income
(TRYm)Growth
rate (%)
Fee split (%)
Year-endAudit &
accountingTax
servicesMgmt
consultingcorporate
finance
corporate recovery/ insolvency
Litigation support other
1 Baker Tilly International* 31.1 17% 25 67 5 - - - 3 Jun-12
2 Crowe Horwath International* 29.0 2% 24 58 9 7 - - 2 Dec-12
3 Nexia International* 28.6 5% 22 66 6 - - - 6 Jun-12
4 Mazars* 25.3 14% 43 57 - - - - - Aug-12
5 BDO* 23.4 49% 26 63 4 1 1 5 Dec-12
6 Grant Thornton Internataional*
18.7 23% 61 29 6 - - - 4 Dec-12
7 Kreston International* 12.7 12% 38 51 5 6 - - - Oct-12
8 PKF International* 12.2 77% 6 89 3 2 - - - Jun-12
9 Moore Stephens International* 8.6 23% 36 39 - 5 - - 20 Dec-12
10 RSM* 7.2 36% 18 65 7 - 10 Dec-12
11 ECOVIS International* 6.8 15% 28 49 10 6 7 - Dec-12
12 HLB International* 2.4 118% 33 29 11 15 5 - 7 Dec-12
Total revenue/growth 206.0 7%
Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin
■ TuRKeY
AssocIAtIons – fee dAtA
Rank nameFee income
(TRYm)Growth
rate (%)
Fee split (%)
Year-endAudit &
accountingTax
servicesMgmt
consultingcorporate
finance
corporate recovery/ insolvency
Litigation support other
1 Praxity* 25.2 14% 43 57 - n/a
2 PrimeGlobal* 16.7 -1% 45 38 3 11 0 - 3 May-12
3 CPA Associates International* 7.0 4% 10 90 - - - - - Dec-12
4 IAPA* 5.0 32% 42 36 9 8 1 2 2 n/a
5 Morison International* 3.4 31% 6 50 3 - - - 41 Dec-12
6 KEY WILL Group* 2.9 - 41 41 5 3 - 2 8 Dec-12
7 Integra International* 2.3 0% 50 25 25 - - - - Dec-12
8 MSI Global Alliance* 2.2 57% 55 10 23 9 3 - - Dec-12
9 GMN International* 0.9 - 10 90 - - - - - Dec-12
10 EuraAudit International* 0.9 -80% 70 - 13 12 5 - - Dec-12
11 AGN International* 0.7 17% 27 64 - - - - 9 Oct-12
12 MGI* 0.6 0% - - - - - - - Jun-12
Total revenue/growth 67.8 8%
Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin
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been no special requirements about the qualification of these people acting as independent accountants. When writing the new Commercial Code, the idea behind it was that people who have insufficient knowledge of accounting – such as, for example a fisherman, who could technically be those ‘accountants’ – would not be allowed, and that only qualified accountants can act as such,” he says.
“But the Code hasn’t made those changes, though the Ministry of Trade and Customs is expected to issue new regulation about this definition. We expect to see some guidelines from the Ministry about who can be an independent accountant for these companies that don’t fall under the mandatory audit category, but, so as far as we have heard, independent accountants under the new guidelines won’t have to be CPAs, but they might have to be people from the Ministry,” he adds.
corporate governance changesDespite the disappointments in audit, the new Turkish Commercial Code introduces some key corporate governance changes for companies in order to make them more competitive in the global market. Changes include amendments to the legal structure of companies, organisation,
accounting, budgeting infrastructure and corporate governance. The changes mainly affect listed companies.
The Code also introduces an audit oversight body, which, according to Güreli, is similar to the US Public Company Accounting Oversight Board (PCAOB).
“This is a new accounting and standards oversight board, which will oversee firms and the profession. In my opinion this is a good thing, but they will only shadow firms that audit the companies that are required to have mandatory audits,” he explains.
Crowe Horwath Turkey International liaison partner Elvan Karakus says there is slight lack of clarity about this new body.
“Our work is compliant with its requirements, but there’s no clarity about what exactly is happening and how common these oversight inspections will be,” she adds.
Price competition is nothing new for Turkish firms and, especially in audit, fee reductions are intensifying.
Ketenci says there is a lot of pressure coming from the bigger firms, which have the capacity to reduce their prices in order to gain new clients.
“We are seeing very low fees,” Güreli says.“There are cases where a company with
revenues of $200m is paying $10,000
or $15,000 in independent audit fees. I think fees need to be regulated and set independently.”
Despite its small audit market, Turkey has seven-year mandatory rotat ion rules in place with a cooling-off period of three years.
In previous years firm leaders have linked rotation to decreasing fees, but Güreli says rotation is not the only reason for reduced fees.
“First, not many companies are subject to rotation each year. Fees are being reduced because people are trying to capture more and more market share,” he says.
■ TuRKeY
networks – stAff dAtA
Rank name
Total staff Growth rate (%)
partners professional staff Administrative staff offices
2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
1 Crowe Horwath International* 305 297 3% 57 55 203 201 45 41 10 11
2 Nexia International* 280 229 22% 37 43 214 156 29 30 10 10
3 Baker Tilly International* 247 213 16% 18 15 205 180 24 18 5 5
4 Mazars* 229 216 6% 23 20 206 196 36 33 3 3
5 BDO* 156 103 51% 14 9 120 77 22 17 3 3
6 Grant Thornton International* 134 124 8% 9 10 105 99 105 99 3 3
7 PKF International* 110 70 57% 20 20 81 43 9 7 3 3
8 Kreston International* 92 88 5% 9 8 75 72 8 8 3 3
9 ECOVIS International* 69 56 23% 15 15 38 31 16 10 2 2
10 Moore Stephens International* 66 57 16% 9 9 48 40 9 8 4 3
11 HLB International* 37 23 61% 10 7 18 13 9 3 4 4
12 RSM* 36 42 -14% 8 9 27 29 1 4 3 4
Totals 1,761 1,518 16% 229 220 1,340 1,137 313 278 53 54
Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin
PWC1,350 staff
5 offices
Ernst &Young
900 staff4 offices
Deloitte900 staff2 offices
KPMG600 staff3 offices
■ BIG FouR FIRMs In TuRKeY BY sTAFF And oFFIces
Source: International Accounting Bulletin
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“Unfortunately, all this low pricing is harming firms and benefiting clients.”
However, rotation also presents an opportunity according to Kaptanoglu, especially to gain some of the Big Four’s smaller clients, which have to rotate.
Tax services account for more than 50% of all fees earned among IAB surveyed mid-tier players.
In Turkey tax certification services has become a profitable business and so-called sworn-in CPAs (SIC) are highly in demand. According to Güreli a SIC is a CPA, who has more than 10 years working experience and has passed the SIC exam.
The SICs are then allowed to carry out tax certification work and submit their final report to the government certifying that a certain company is compliant with tax laws and pays the right amount of tax. According to Güreli, SICs were introduced a couple of decades ago in response to the lack of tax inspectors. They are like auditors, appointed and paid for by the company, but they act independently and are jointly liable for the final report.
“Even for the Big Four, tax certification aud i t s a r e t h e p r i m a r y r e ve nu e source,” says Güreli.
“ SICs audit quarterly, as companies need
to submit tax declarations each quarter, and we have to ensure that the submission is as accurate as possible and, at the end of the year, we write a tax certification report which we submit to the government. You are doing this work on the government’s behalf and present your finding in the report.
“Despite hav ing th is repor t , the companies are not exempt from government tax inspections, but it makes it less likely and also gives more comfort to the government,” Güreli adds.
Tax certification and advisoryKarakus says that for Crowe Horwath’s umbrella firms in Turkey it has been a year of more of the same, as tax certification and tax advisory work remain the top-performing services.
Kaptanoglu says that BDO has seen some work in relation to VAT services and complex VAT refund processes. Additionally, there might be some changes to the tax laws, he says, adding that there are drafts in relation to personal and corporate tax, and if those changes are put in place there might be some additional work.
“Any potential changes in the tax laws really depend on the government’s agenda,”
Kaptanoglu says.“For example the gift and inheritance
tax might get abolished and, instead, something will be put in the new income tax law. We could also see the introduction of the capital gains tax. Currently we do not have it as we tax capital gains by grade of corporate income tax,” he explains.
A l l f i rm leaders speaking to the IAB noted an increase in transactions support services.
“Transac t ion suppor t work has increased, because of more private equity investment as well as large development projects,” says Karakus. FDIs have been increasing and we have also seen increased M&A activity among SMEs.”
“One of the other factors that has led to increased advisory demand is the privatisation of state-owned companies. T he se compan ie s need as s i s t ance with building corporate structures, r isk management and management consulting in general.”
Karakus also says that she expects Turkish firms to get bigger and increasingly look for international partners.
Gürel i a lso sees opportunit ies in transactions support work as foreign investment into Turkey grows due to its
■ TuRKeY
AssocIAtIons – stAff dAtA
Rank name
Total staff Growth rate (%)
partners professional staff Administrative staff offices
2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
1 Praxity* 229 216 6% 10 8 219 208 36 33 3 3
2 PrimeGlobal* 157 169 -7% 37 34 99 113 21 22 9 9
3 AGN International* 64 77 -17% 20 23 37 46 7 8 7 9
4 IAPA* 63 48 31% 16 14 34 26 13 8 4 4
5 CPA Associates International* 52 47 11% 5 5 38 34 8 8 2 2
6 Morison International* 34 34 0% 3 3 27 26 4 5 1 2
7 MGI* 29 28 4% 5 5 16 16 8 7 2 2
8 KEY WILL Group* 27 - - 3 - 6 - 3 - 1 -
9 EuraAudit International* 25 63 -60% 9 7 10 55 4 6 4 3
10 Integra International* 24 24 0% 3 3 18 18 3 3 2 2
11 MSI Global Alliance* 16 12 33% 3 3 12 8 1 1 1 1
12 GMN International* 14 16 -13% 2 3 10 10 2 3 2 2
Totals 734 734 10% 116 108 526 560 110 104 38 39
Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin
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Financial News Publishing Ltd, 2012Registered in the UK No 6931627ISSN 0265-0223
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stable economy and low interest rates.“I think M&A in the next three to four
years will pick up a lot. Additionally, internal control systems work is also expected to increase , especia l ly as people start realising that the process of an internal audit is as important as an independent audit.”
BDO’s Kaptanoglu says that compared to other service lines, advisory is not bringing in large sums.
“We mainly do tax advisory work, some management consulting work and some corporate finance work,” he adds.
Trends and peopleWith 17% average growth in 2012, firm leaders are optimistic growth will continue. However, they are cautiously optimistic about exactly what the future holds, especially as the economy experiences a slight slowdown.
“Last year Turkey had a small growth, of 2% or 2.2%, but the year before it was around 8% or 8.5%, so there is a real lag,” says Kaptanoglu.
“Consequently, this year should not be a very good, but I’m still optimistic.”
Regardless of what’s to come, BDO Turkey increased its revenues by 49% to TRY23.4m in the year to 31 December 2012 as a result of two mergers, EVS and Asset, in 2012. In general, Turkish accounting f i rms seem reluctant to consolidate and many prefer to stick to having a smaller practice.
“In the Turkish market it is not a great environment for M&A as people want to keep their small practices,” Karakus says.
Güreli agrees and says many firms prefer to keep to their name and brand and that there isn’t much interest in mergers among firms.
However, this all might change as the Turkish securities authority contemplates introducing a requirement which could see firms carrying out larger client audits required to have at least 12 auditors or professional staff working at the firm.
This, if implemented, could have some repercussions on the market’s structure as certain smaller firms might start looking for M&A opportunities. Aside from fee pressure the second most commonly mentioned challenge in the Turkish market is the lack of skilled staff and retention of the workforce.
high staff turnoverKaptanoglu says it ’s easy to attract new recruits especially for entry-level graduate roles. However the firm’s staff turnover is high.
“We mainly lose our people to the Big Four or industry. We offer extensive training at our firm, which makes our staff very attractive to the Big Four,” he adds.
Güreli says the firm has to work hard to create a good working atmosphere as well as offer good salaries in order to keep the best people.
As the profession slowly adjusts to the idea there won’t be a sudden boom in demand for audit services, there are still plenty of untapped opportunities, especially as Turkish business continues to evolve and look to compete on the global stage. <
■ TuRKeY
FIRM MoveMenTs
neTwoRK/AssocIATIon FIRM AddITIons, MeRGeRs & AcQuIsITIons
IApA Added: Med YMM Bagimsiz Denetim
euraAudit International Lost: Balikli Audit & Korfez (Izmir)
Bdo Merger: with EVC and Asset
praxity Added: Yed Tepe Ba Imsiz Denet M
pKF International Added: PKF Aday, Istanbul (joined after PKFI year-end); PKF Sun, Izmir (promoted from correspondent to full-member firm after year-end)Lost: Legal Yonet (exclusive correspondent), Istanbul (left after PKFI year-end)
Source: International Accounting Bulletin
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