Audit Firm: Big4 Financial Performance 2015

The Big Four firms have recently announced their results for the fiscal year 2015. PwC has retaken number one spot from Deloitte as the world’s largest firm by revenue. KPMG is yet to announce its results.

A brief overview of the performance of these firms in comparison with the previous year is as follows.

PwC

PwC has recorded a global annual revenue increase of 10% to $35.4bn (£23.34bn), which represents its strongest growth in 10 years. Consulting now accounts for more than 30% of PwC’s total revenues after growing 18% to $11.2bn during the 2015 fiscal year. This was boosted by the acquisition of Strategy& (formerly Booz & Company) in April 2014. Revenues in PwC’s auditing division grew more slowly, rising 6.2 per cent to $15.2bn in a year marred by the profit misstatement scandal at Tesco, a PwC audit client.

According to Dennis Nally, Chairman of PricewaterhouseCoopers International Limited,

“As we look at the results for the last 12 months, all of our lines of service showed really positive growth – led by Advisory which is up 18%, Tax up 7% and our Assurance business notwithstanding some really difficult competitive market pressures – up 6%.”

DELOITTE

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries.

Deloitte member firms (Deloitte) reported aggregate revenues of US$35.2 billion for the fiscal year ended 31 May 2015 (FY15), representing 7.6 percent growth in local currency terms.

EY

EY announced combined global revenues of US$28.7b for its financial year ended 30 June 2015. This represents an 11.6% increase over financial year (FY) 2014 revenues in local currency, outpacing FY14 growth (which had increased by 6.8% over FY13).

All of EY’s service lines continued to grow in FY15 ahead of their FY14 growth: Advisory grew 17.6% (vs. 14.4% growth in FY14); Assurance 8.1% (vs. 4.5% in FY14); Transaction Advisory Services (TAS) 15.5% (vs. 6.5% in FY14); and Tax 10.3% (vs. 4.3% in FY14).

In FY15, EY headcount reached 212,000 globally – an all-time high.

A graphical representation of the performance of these three firms is shown for comparison purpose.

Head Count Graph

 Revenue Graph

KPMG

KPMG is due to report its 2015 results in December. KPMG International Cooperative ("KPMG International") is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. We are presenting here KPMG’s 2014 and 2013 performance comparison.

The KPMG network delivered strong growth and recorded-high revenues of USD24.8 billion for the 2014 fiscal year, an increase of 6.3 percent in local currency terms over the prior year (2013), recording growth across Audit, Tax and Advisory.

Head Count Graph

Revenue Graph

References:

• http://www.pwc.com/gx/en/about-pwc/global-annual-review-2015/campaign-site/pwc-global-annual-review-2015.pdf
• http://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/gx-gr15-summary-final.pdf
• http://www.ey.com/GL/en/Newsroom/News-releases/news-ey-reports-2015-global-revenues-up-eleven-point-six-percent
• https://home.kpmg.com/xx/en/home/media/press-releases/2014/12/kpmg-delivers-strong-growth.html

i-Monday: From Amateur Photographer to Inspiration

Brandon Stanton grew up in a suburb of Atlanta. He had got degree of history from the University of Georgia. His first job was serving as a bond trader in Chicago back in 2006. After few years, he was totally sliding away off his career. He decided to try something different. He bought professional camera at first and wandered the streets to catch exquisite moments. He is now author of 3 Best Selling books.

 “Humans of New York” is an amazing story, and it’s a story that could not have happened ten years ago. Without social media, I’d probably just be a quirky amateur photographer with a hard drive full of photos. I’d be cold-calling respected publications, begging for a feature. I may have even quit by now. Instead, I’ve discovered a daily audience of nearly a million people. Or should I say they discovered me.I don’t want to “cash out” or “monetize” HONY [Humans of New York]. I like to say it publicly because I want my audience to keep me on mission. HONY print sales have raised nearly $500,000 for charity in the past six months. I want to further monetize the site for nonprofit ventures. I honestly want to “give” HONY to New York in some way”.

“I Just Have Changed the World’s Sight”, 

Brandon Stanton

Information reference: This was excerpted from the taken blog “30 Under 30” from “Times Magazine” and an online interview taken in 2013.

Picture reference: www.johnstepper.com

Week-End: Work Smart

They say you can do anything if you just work hard. Well, they’re wrong.

Here are seven tips to help you work more efficiently and more productively without expending any additional effort—here’s how to work smarter, not harder:

• Walk away - Breaks can actually make you more productive.
•  Recognize and eliminate distractions.
• Ignore low-priority items.
• Create routine habits.
• Work in chunks.
• “Multitask” - Try to fill the empty spaces with productive work.
• Work around your strengths and weaknesses.

By: Larry Alton

http://www.success.com/article/7-shortcuts-to-work-smarter-not-harder

Audit News Briefing: 19 November 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

November 18, 2015

SBWire

Global IT Spending by Audit Firms Is Expected to Reach over USD 5 Billion Dollars in Revenues by 2019: ResearchMoz

Press Release: Technavios market research analysts predict the global IT spending by audit firms will witness a steady growth face, reaching over USD 5 billion dollars in revenues by 2019. The audit market is highly concentrated and dominated by the big four firms, including Deloitte, E&Y, KPMG, and PwC. But, mandatory auditor tendering and rotation reforms by various regulators across the globe had led to the entry of several audit firms in this market. Big Four firms are slowly losing their market share as these firms further intensify the competition. Also, audit services are highly regulated and commoditized, thereby reducing differentiation opportunities for audit firms. It is leading to the increased adoption of information technology by audit firms to provide differentiation in their offerings. Please follow link for details: http://www.sbwire.com/press-releases/industry-analysis/global-it-spending-by-audit-fi/release-642397.htm?utm_source=djournal&utm_medium=feed&utm_campaign=distribution

ResearchMoz latest research report is entitled "Global IT Spending by Audit Firms 2015-2019: Industry Research, Analysis, Shares, Size, Trends, Growth, Survey, Forecast".

November 17, 2015

CivilSociety.co.uk Finance

Audit firms 'missed fundamental risks' of Kids Company model, say MPs

Bernard Jenkin MP, chair of the Public Administration and Constitutional Affairs Committee said: The auditors missed the “fundamental risk” that Kids Company operated a “high risk model” of committing almost all its funding to helping its client. This should have been “taken more seriously”. This was the major issue pointed out when MPs have criticised auditors PwC, PKF Littlejohn and Kingston Smith for not scrutinising Kids Company properly and missing key indicators during their dealings with the charity before it folded. Please follow link for details: http://www.civilsociety.co.uk/finance/news/content/20782/audit_firms_missed_fundemental_risks_at_kids_company_say_mps

November 17, 2015

MarketWatch

Big Four audit quality can differ widely — even at the same firm

Board member, Lewis H. Ferguson of the Public Company Accounting Oversight Board (PCAOB) and chair of the global public policy committee working group of the International Forum of Independent Audit Regulators (IFIAR) – at MarketWatch – recently discussed about the significant roles of PCAOB as projected by the U.S. Congress and IFIAR in determining cross-border aspects of audits.

He emphasized that: “It would be a mistake to presume that an audit firm’s inspection results in the United States necessarily speak to the quality of its global network. There can be a real difference among audit deficiency findings for the firms in the United States and what we see at their affiliates around the globe.” In conclusion, “While these inspection results are not a scorecard or a stand-alone measure of audit quality, they do reflect differences in the inspection results among audit firms and in different countries. They may well represent differences in audit quality among firms. At the least, they reflect that each firm’s global network also faces different auditing challenges.”

Please follow link for details: http://www.marketwatch.com/story/big-four-audit-quality-can-differ-widely-even-at-the-same-firm-2015-11-17

Audit Method: Testing Revenue

Audit-is-cool continues to supply auditors with information on different topics of audit methodology. This week we provide most popular procedures to provide assurance on financial statement line "Revenue".

TEST OF CONTROLS

• Make a selection of sales transactions from independent source records e.g. shipping records, delivery orders, purchase orders etc.
• Test the completeness of source records by ensuring their numerical sequences.
• Check that sales data is input only once and is subject to validation.
• Access to sales system is restricted by user ID and password.
• Check that prices are charged in accordance with the approved price list.
• Check that the quantity discounts are in accordance with the approved limits.

ANALYTICAL PROCEDURES

• Have the client prepare a comparative monthly analysis of sales by product line, division or other business segment, including gross sales, returns and allowances and discounts. Verify the clerical accuracy of the analysis.
• Perform analytical procedures on sales by developing an expected amount of sales based on prior year’s figures or current period economic conditions and then comparing it with actual amount. Any significant differences should be enquired into and corroborated.

TEST OF DETAILS

• Have the client reconcile totals for gross sales and sales deductions to the general ledger control accounts.
• Verify the sales invoices and check that the customer name, product description and quantities and price are mentioned on the invoice and compare it with the description of sales order.
• Review applicable sales invoices and shipping documents to determine the accuracy and validity of each selected sales transaction and sales tax charged thereof, if applicable.
• Document the criteria for selection of sales invoices for verification purposes and ensure that sample is representative both for volume and amount of transaction.
• Scan the sales journal to check whether there is any duplication of sales invoice numbers or gap in the sequence of invoice numbers to identify invoices cancelled, if any.
• Review significant sales returns and credit memos issued during the period as well as subsequent to the balance sheet date to determine whether they were properly authorized and recorded in the proper period.
• Discuss with appropriate client’s personnel the existence of significant uncertainties at the time
• of sales, if any, like recoverability, warranty and other obligations, price protection agreement or revenue limitation.
• Make a selection of transactions from recorded sales and shipping records for prior and after period-end and ensure proper cut-off.
• Ensure that all sales in foreign currencies are translated using exchange rate prevailing at the date of sale (a rate that approximates the actual rate for example, weekly / monthly average is also acceptable).
• Consider reasonableness of revenue by multiplying the number of units with the average selling price.
• Determine that the accounting policies and methods of revenue recognition are appropriate and are applied consistently.

Audit Firm: FIFA scandal

The Fédération Internationale de Football Association (FIFA) is an association governed by Swiss law founded in 1904 and based in Zurich. It has 209 member associations and its goal, enshrined in its Statutes, is the constant improvement of football.

KPMG was appointed as the auditor of FIFA in 1999; a year after Sepp Blatter (the ex-president of FIFA) took charge of the FIFA president office. KPMG began auditing FIFA’s accounts and they have had the contract ever since.

Recently a scandal of corruption and bribery emerged in the Football Body. The US Department of Justice has indicted a total of 14 current and former FIFA officials and associates on charges of "rampant, systemic, and deep-rooted" corruption following a major inquiry by the Federal Bureau of Investigation (FBI).The US indictment alleged that US and South American sports marketing executives paid and agreed to pay "well over $150m" in bribes and other illegal payments to obtain lucrative media and marketing rights to international football tournaments. That does not include other possible alleged corruption around the world.

According to FIFA 2014 Annual Report, all member associations and confederations have to provide FIFA with an audited financial statement every year. Additionally, FIFA arranges a central audit of 40 member associations and one confederation each year through its statutory auditors KPMG to verify that all financial assistance payments are in compliance with the FAP (Financial Assistance Programme) Regulation.

The question arise that why the auditor of FIFA, KPMG Switzerland not been able to ask pertinent questions about the corruption and bribery issues going on in the football body. After when the issue became public, a review of the audit work performed by KPMG Switzerland has begun and it is going to be conducted in consultation with KPMG International.

Additional Thoughts

Audit firms should stay skeptical about any mismanagement going on in the organization which they are auditing. If the detection of fraud doesn’t come under the purview of a statutory audit they can still ask the organization for conducting a forensic audit if they consider any allege fraud matter material enough. Management letter of weakness can be used as an effective tool for communicating with those charged with governance and advising them of any particular control weaknesses the auditors have identified during the audit, and suggestions to remedy these.

Week-End: Work-Life Balance

Achieving an optimal work life balance is something every professional look up to and auditors are no different. It is important for improving productivity, building and maintaining strong relationships and stress management for a lasting life.

Here are few tips from some of the busy executives about achieving work life balance. Enjoy these tips for a better work life balance.

Audit News Briefing: 12 November 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

November 11, 2015

Accountancy Age

ICAEW granted local audit regulatory powers

The Financial Reporting Council's (FRC) granted to the Institute of Chartered Accountants in England and Wales (ICAEW) a Recognized Supervisory Body (RSB) status for local audit.

ICAEW Executive Director Vernon Soare said: "There is more scrutiny than ever on how public money is spent. Local audits promote confidence in the financial management of local bodies which provide vital services to their communities. The firms on the public audit register will have gone through a rigorous and thorough process to make sure they provide a high quality audit service."

Please follow link for details: http://www.accountancyage.com/aa/news/2434257/icaew-granted-local-audit-regulatory-powers

November 11, 2015

Accountancy Live

BIS offers sensible approach to complex EU Audit Directive

Auditor Regulation Consultation – coverage: mandatory audit firm rotation regime; and new restrictions on provision of non-audit services by auditors of PIEs.

The Department for Business, Innovation and Skills (BIS) confirms: The Financial Reporting Council (FRC) will be appointed as the single competent authority for regulation of UK audit; ‘10+10’ approach to maximum duration of an audit appointment; and proposed three-year grace period in applying the cap on non-audit services.

The consultation closes on 9 December 2015.

Please follow link for details: https://www.accountancylive.com/bis-offers-sensible-approach-complex-eu-audit-directive

November 10, 2015

Wall Street Journal

U.K.’s Serious Fraud Office Drops Case Against Olympus Corp., Gyrus Group

High-profile accounting scandal began from an expose in 2011by then ousted Olympus CEO Michael Woodford. Now, Britain’s Serious Fraud Office (SFO) has dropped its two-year case against Japan’s Olympus Corporation and U.K. subsidiary Gyrus Group Ltd., which it had charged with making misleading statements to auditors.

Please follow link for details: http://www.wsj.com/articles/u-k-s-serious-fraud-office-drops-case-against-olympus-corp-gyrus-group-1447163983

November 9, 2015

Accounting Today

IOSCO Backs Transparency Reports for Audit Firms

The Report: Transparency of Firms that Audit Public Companies.

Firm governance and elements of their system of quality control – these are the audit firm practices to be transparent about, as recommended by IOSCO. The worldwide association of national securities regulatory commissions noted that transparency reporting can foster internal introspection and discipline within audit firms and may encourage audit firms to sharpen their focus on audit quality, which would be of benefit to investors and other stakeholders.

Please follow link for details: http://www.accountingtoday.com/news/audit-accounting/iosco-backs-transparency-reports-for-audit-firms-76360-1.html

Audit Method: Sampling

Audit sampling as defined by ISA 530 is “The application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.”

The means available to the auditor for selecting items for testing are;

• Selecting all items (100% examination)
• Selecting specific items; and
• Audit Sampling

Audit sampling can be applied using either non-statistical or statistical sampling approaches.

Statistical approach has the following characteristics:

• Random selection of the sample items; and
• The use of probability theory to evaluate sample results, including measurement of sampling risk.

 A sampling approach which does not possess the above characteristics is called non-statistical sampling.

Steps in planning the sample are as follows:

• Determining the objectives of the test;
• Defining what errors or deviation are being sought;
• Identifying the population and sampling units; and
• Deciding the size of the sample.

Generally, larger the size of the sample, the more it will be representative of a population. Many audit firms would like to standardize the size of sample based on general and specific risk factors. Errors increase the imprecision of results from sampling. Therefore, if they are expected, a larger sample size is required. Finally in evaluating misstatements, the auditor, should exclude ‘anomalous’ error(s) which are misstatement or deviation that are demonstrably not representative of misstatements or deviations in a population from his projected misstatements. However, such errors may be considered when evaluating all misstatements within the sample and auditors shall obtain sufficient appropriate audit evidence to corroborate the fact that an error or deviation is anomalous.

Practice

Auditors need to consider the specific objectives to be achieved and the combination of audit procedures that is most likely to achieve those objectives. Audit sampling is applicable to both tests of control and substantive procedures.

Audit Firm: Governance Code

The market for large audits in the UK is dominated by four firms and the risk of the withdrawal of a major firm is a matter of continuing concern to the UK Financial Reporting Council (FRC) and many others. In January 2010 the FRC and Institute of Chartered Accountants in England and Wales (ICAEW) published the Audit Firm Governance Code.

It is applicable to those firms that audit more than 20 listed companies and it is applicable from financial years beginning on or after 1 June 2010. The Code currently applies to seven audit firms that together audit about 95% of the companies listed on the Main Market of the London Stock Exchange. For these firms, the code sets a benchmark for good governance which other audit firms may wish to voluntarily adopt in full or in part. It also codifies much existing good practice and links to matters that audit firms must comply with as regulated professional partnerships.

The seven firms to which the code currently applies are:

• Baker Tilly LLP
• BDO LLP
• Deloitte LLP
• Ernst & Young LLP
• Grant Thornton LLP
• KPMG LLP
• PricewaterhouseCoopers LLP

The Code is designed to play four major roles:

• enhance the stature of firms as highly visible exemplars of best practice governance;
• enrich firms’ transparency reports;
• encourage changes in governance which improve the way that firms are run; and
• strengthen the regulatory regime by achieving transparent and effective governance without disproportionate regulation.

The FRC monitors the extent to which these firms comply with the Code. Regular reviews are conducted by FRC to check compliance by firms with all the provisions of the code.

Additional Thoughts

High quality corporate governance is mandatory to foster investment in the economy. Audit firms play the role of watchdogs in the economy and it is essential for them to implement sound governance practices within their own organizations. The Code in this regard will help the audit firms by more sharply defining the public interest, particularly by explicitly recognizing the importance of audit quality.

Audit News Briefing: 6 November 2015

Audit-is-cool is pleased to accumulate and provide its readers with the news on audit and related topics:

November 3, 2015

Accountancy Age

EU's plan gives opportunity to restore audit confidence

The Financial Reporting Council's (FRC) recent panel discussion: 'Enhancing justifiable confidence in audit through implementation of the EU Audit Regulation and Directive'.

FRC CEO Stephen Haddrill highlighted that the new legislation gave the profession the opportunity to "make sure the public can have confidence in the regulatory regime" while also ensuring that it implements the standards that underscore "the independence of the auditor and the auditor's freedom from influence from the company that they are auditing".

Please follow link for details: http://www.accountancyage.com/aa/news/2433138/eus-plan-gives-opportunity-to-restore-audit-confidence

October 29, 2015

Accountancy Age

Auditors to be hit with increased FRC levy demands as government funding ends

The government cuts all funding to the Financial Reporting Council (FRC) from 2016. While it provided funding of £2.7m since 2009 – currently, it contributes just £250,000. This is half the figure from the previous two years.

The FRC intends to consult the relevant accountancy bodies and major audit firms, on the ways and amounts needed to secure additional contributions to fund its expanded remit and plug the funding gap caused by the government.

The shortfall emerged as the FRC announced its 2016/19 strategy outlining its priorities for the next three years.

Please follow link for details: http://www.accountancyage.com/aa/analysis/2432613/auditors-to-be-hit-with-increased-frc-levy-demands-as-government-funding-ends

October 19, 2015

Accounting Web

U.S.: PCAOB Urges Auditors to Be Better at Assessing Risk

“Significant Priority” – this is how the Public Company Accounting Oversight Board (PCAOB) is urging audit firms to make in reviewing and improving their risk assessment processes.

“The procedures required by these (board’s risk assessment) standards underlie the entire audit process, including the procedures that the auditor performs to support the opinion expressed in the auditor’s report,” the U.S. audit regulator states in October 15 report. “For that reason, noncompliance with these standards can have serious implications for the audit of internal control over financial reporting or the audit of the financial statements and may affect whether the auditor performs enough work to support the auditor’s opinion.”

Notable examples of common deficiencies under those auditing standards include:

• Failing to perform substantive procedures specifically responsive to fraud risks and other significant risks identified.
• Not evaluating the accuracy and completeness of financial statement disclosures.
• Not testing the accuracy and completeness of information produced by the company.

Please follow link for details: http://www.accountingweb.com/aa/auditing/pcaob-urges-auditors-to-be-better-at-assessing-risk

Audit Firm: Recruitment

Are you a recent accounting graduate and want to get hired at any of the big accounting firms? Here are some tips that will prove to be helpful in your search.

Curriculum Vitae: An employer will first meet you on paper through your CV. Prepare a good professional CV that defines your career goal, your education, past experience (if any) and your skills and expertise. CV is a marketing tool for a job seeker and you should use that tool to the greatest effect.

Cover Letter: The purpose of constructing an effective cover letter is to demonstrate your suitability for an organization by identifying how your past academic background and employment make you a top candidate.

Interview: Before going for the interview research the firm and understand the organization and job description. Dress appropriately for the interview, generally this means business professional dress. As it is rightly said that your energy introduces you even before you speak so try to make a good first impression on the interviewer. Ask some intelligent questions during the interview when asked about having any questions from your research conducted earlier on about the company.

Follow up: After the interview send an email to the employer and thanks them for the interview opportunity. This will not only enhance your image as a good communicator but will also ensure that the employer keeps you in the queue for potential selection. 

Some of the key soft skills that employers these days are looking for are:

• Problem solving and analytical thinking
• Initiative and drive
• Team player
• Communication skills (written and verbal)

Some of the key technical skills employers look for in young graduates aspiring to join the auditing profession are:

• Financial accounting and reporting
• Tax strategy, planning and control 
• Risk management and internal control
• IT Skills

Additional Thoughts

Some very useful information can be obtained from the websites of the big Four firms about their recruitment process and policies.

• EY
• PWC
• Deloitte
• KPMG

Audit Method: Fraud

Accounting fraud has long been the buzzword in the industry due to its wider and deeper implications on the company, industry and the economy at large. Window dressing is a term used in accounting for presenting financial statements in such a manner that disguise the actual financial transactions and present them in a more favorable way. According to PWC Economic crime survey the five most commonly reported types of economic crimes are asset misappropriation, procurement fraud, bribery and corruption, cybercrime and accounting fraud.

Auditors are required to keep themselves up to date about all these fraudulent practices and should apply professional skepticism while conducting the audit of financial statements.

ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements addresses all the issues which an auditor has to deal with while conducting the audit. Under ISA-240, auditors are now required to evaluate the effectiveness of an entity’s risk management framework (internal control) in preventing misstatements whether through fraud or otherwise, in all audits. Furthermore, auditors are now required to be more proactive in their search for fraud. The auditor is responsible for maintaining an attitude of professional skepticism throughout the audit, recognizing the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor’s past experience of the honesty and integrity of the entity’s management and those charged with the governance. An overriding requirement of ISA 240 is that auditors are aware of the possibility of there being misstatements due to fraud.

The objectives of the auditor are:

a) To identify and assess the risks of material misstatement of the financial statements due to fraud;

b) To obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and

c) To respond appropriately to fraud or suspected fraud identified during the audit.

The ISA, however, recognize the fact that owing to inherent limitation of an audit, there is an unavoidable risk that some material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs.

Practice

 Misstatements in the financial statements can arise from either fraud or error. The distinguishing factor between fraud and error is whether the action that results in the misstatement of the financial statements is intentional or unintentional. In planning the audit, auditors must be alert to the possibility of fraud and assess the risk that fraud might occur. The auditor shall treat those assessed risks of material misstatement due to fraud as significant risks and accordingly, the auditor shall obtain an understanding of the entity’s related controls, including control activities, relevant to such risks.