Audit Firm: EY Ireland Managing Partner

Mike McKerr has been Managing Partner of EY Ireland since 2009, responsible for the Republic of Ireland and Northern Ireland.  During his career with the firm, he worked in the US and UK, and was a partner in EY’s M&A division.

EY REPORTED STRONG GROWTH IN THE YEAR TO JUNE 2015. TO WHAT FACTORS DO YOU ATTRIBUTE THIS OUT-PERFORMANCE?

Posting more than 33% growth in the last two years is a significant achievement, and we are very pleased that it’s all been organic growth. The momentum in our business today is down to our long-term investment strategy and the decisions we took during the downturn. For example, we did not make any redundancies but increased market activity and upskilled our people to work across new areas. This strategy has certainly paid off, and over the last two years we have admitted 14 new partners and have recruited top talent across experienced and graduate hires.

We continue to see robust growth in our core audit services in addition to strong demand for broader assurance services, including Data Analytics and Fraud Investigation and Dispute Services (FIDS), which grew more than 40% in FY15.  Based on the latest transparency reports, EY is now the second largest audit and assurance business in Ireland.

Change continues to be a key focus for our domestic and international clients, driven by both the need to control costs and remain competitive, but also to ignite growth and penetrate new markets.  We invested heavily in new areas including Data Analytics, Assurance, Centres of Excellence and Performance Improvement.

The PI team in Advisory led by Frank O’Dea, continues to grow due to an increase in demand for business transformation, process improvement and IT change management services. The PI team alone now employ over 200 people working across public and private sector clients, improving key business functions to achieve significant and sustainable improvement in enterprise-level performance.

But our success is about much more than financial results. It is also about our people, who continue to deliver exceptional client service. EY has a leading people culture and a transformational approach to developing talent. The firm continues to accelerate investment across the organisation and intend to acquire additional new office space in a number of Irish locations over the coming months to cater for their growing numbers.

By focusing on our people agenda, we have been able to create real momentum both inside and outside the organisation. It’s a virtuous circle – we enable them to deliver exceptional service, which strengthens our client relationships, helps us to capture market share, and this growth creates career opportunities for our people.

EY IS DOING PARTICULARLY WELL WITH AUDIT WINS. WHAT’S THE REASON FOR THAT? WHAT’S YOUR VIEW ON PROPOSALS FOR STATUTORY ROTATION OF AUDITORS?

EY had several fantastic audit wins in FY15, which reflects the significant investment made globally and locally to innovate our audit service through the use of analytical tools. Collectively our Audit and other Assurance services grew 16% in FY15, driven by excellent performance across our core Audit business, Fraud Investigation and Dispute Services and Data Analytics.  We will continue to invest in these areas.

Regulatory change, particularly audit rotation, will continue to alter the audit market for some years to come and we believe innovation and data analytics solutions will be in increasing demand.

European legislation on audit reform enacted in April 2014 will come into force in Ireland from June 2016 in the form of a new EU regulation and amendments to the existing EU Audit Directive on statutory audit. The objective of the reform measures is to ensure the objectivity and independence of auditors and includes the requirements for the mandatory rotation of audit firms on public interest entities.

These significant audit reforms will affect the auditing profession, the entities we audit and our relationships with our clients and the regulatory authorities who supervise us. We have actively engaged on these changes with the legislators and regulatory authorities, including making submissions to reflect the views of EY Ireland.

We are committed to supporting regulatory change which is appropriately proportionate for financial statement preparers and their auditors, and which ultimately strengthens public confidence in the audit model. EY Ireland will therefore continue to support regulatory change that enhances stakeholder confidence.

EY IS A BIG 4 FIRM THAT MULTINATIONALS GO TO. HOW CAN IRISH SMES BENEFIT FROM USING YOUR SERVICES TOO, AND CAN THEY AFFORD IT?

Critical to our market leading growth in Ireland is combining our global strength together with deep local connections in each of our offices across Ireland.  Our ability to collaborate internationally helps both multinational and entrepreneurial clients expand across borders.

While FDI can be a critical enabler of growth, it is equally important to help Irish companies become global players in their own right. The EY Entrepreneur Of The Year programme is the leading business award in Ireland and represents a unique business development and support network opportunity for entrepreneurs across the island of Ireland.

Our annual EOY CEO retreat is designed to take entrepreneurs out of their comfort zone and challenge them to think differently about their business.  Attendees are given the opportunity to expand their leadership skills, forge links to new markets and develop their own successful strategy for growth in addition to developing an invaluable network of peers.

Change continues to be a key focus for EY clients of all sizes, driven by both a need to control costs and remain competitive, and to ignite growth and penetrate new markets.

The diversity of our service offering and international reach means that we have a broad spectrum of experience to offer indigenous and multinationals alike. In this way, we can transfer our expertise of working with large multinationals to Irish SMEs, focusing on improving key business functions to achieve significant and sustainable improvement in enterprise-level performance.

STABLE GOVERNMENT SINCE 2011 IS ONE FACTOR CREDITED FOR RENEWED BUSINESS CONFIDENCE. IS THIS ISSUE OVER-STATED, OR IS STABLE GOVERNMENT REALLY THAT IMPORTANT FOR ECONOMIC GROWTH GOING FORWARD?

A number of factors have contributed to the economic growth that Ireland has enjoyed in recent years – among them is confidence and having a stable government in place. Having a stable economic environment has helped to reassure both Irish firms and external investors that it is safe to invest, takes risks and pursue new opportunities. During 2016, we expect to see a strengthening domestic economy, and continued export growth further enhance business confidence.

Late last year, we carried out a survey with our EOY community.  The survey shows that over half of the entrepreneurs surveyed have conducted business with other members of the EOY community, demonstrating the importance of professional networks in creating a supportive climate for doing business in Ireland. Furthermore, a skilled and educated workforce, low corporation tax rates and government support were listed as the biggest enablers to doing business in Ireland.

It therefore vital for government, industry and academia to understand the specific challenges facing entrepreneurs and to collaborate to solve problems, address legislative and cultural barriers to success, and together shape the future of entrepreneurship in 

Ireland.

Reference: 

http://goo.gl/vbMiYn

Audit Firm: Regulation of Audit Firms in UK

The Companies Act 2006 of United Kingdom provides powers to bodies known as Recognised Supervisory Bodies (RSBs) to register and supervise auditors. The RSBs are:

• The Institute of Chartered Accountants of Scotland
• Chartered Accountants Ireland
• The Institute of Chartered Accountants in England and Wales
• The Association of Chartered Certified Accountants
• The Association of Authorised Public Accountants

The regulatory system of RSBs involves the following:

• Registration processes
• Monitoring
• Investigation and discipline

The RSBs are also subject to independent oversight.  The Financial Reporting Council (FRC) has statutory powers delegated to it by Government for the recognition, supervision and de-recognition of the RSBs.  The FRC conducts regular inspection visits to the RSBs to ensure that their responsibilities are being discharged appropriately.  The FRC also has the power to sanction RSBs. In addition to the quality assurance and monitoring undertaken by the RSBs, the Audit Quality Review (AQR) team of the FRC has the responsibility for the monitoring of the audits of all listed and other major public entities. 

The FRC operates an independent disciplinary scheme for accountants and accountancy in the UK. The Accountancy Scheme operates independently of the professional bodies. The FRC deals with cases of potential misconduct which raise or appear to raise important issues affecting the public interest in the UK. All other cases of potential misconduct continue to be dealt with by the professional bodies above.  The FRC Conduct Committee has oversight over the operation of the disciplinary arrangements. The Conduct Committee’s responsibilities in this regard include:

• Operating independent disciplinary Schemes for the investigation of cases which raise or appear to raise important issues affecting the public interest in the UK; and
• Where appropriate, bringing disciplinary proceedings against those whose conduct appears to have fallen short of the standard reasonably to be expected of members or member firms of the relevant professional body.
• Keeping under review the working of the Schemes and the supporting Regulations to ensure that they are operating effectively; and
• Regular publicity for the FRC’s disciplinary activities and achievements as appropriate.

Additional Thoughts

Compliance with local laws and regulations is a matter of utmost care for the audit firms. The audit firms should abide by all the laws and regulations in order to gain the trust of the authorities and the general public.

Reference:      http://goo.gl/1XOfUS

http://goo.gl/7wWT0q

Audit Firm: US PCAOB regulation of US Audit Firms

The Public Company Accounting Oversight Board (PCAOB) is a private-sector, nonprofit corporation established by the U.S. Congress to oversee the audits of public companies in United States in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports. In U.S in early 2000, when the Enron and WorldCom Scandal came to surface, the congress felt the need for more strict regulations for the audit firms and thus promulgated the Sarbanes Oxley Act on July 30, 2002. This act mandated the formation of PCAOB to oversee the audit of public companies that are subject to the securities laws, in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports for companies the securities of which are sold to, and held by public investors.

Before the Sarbanes-Oxley Act of 2002, the audit profession was self-regulated in U.S., but after its promulgation, it required that auditors of U.S. public companies be subject to external and independent oversight for the first time in history. In passing this Act, Congress sought to restore investor confidence and address serious gaps in the U.S. regulatory framework that were identified through the financial scandals of 2001-2002. The PCAOB comprises of five members, including the Chairman and are appointed to staggered five-year terms by the Securities and Exchange Commission (SEC).

The PCAOB has five primary responsibilities:

·         Registration of public accounting firms (including non-US firms) that audit public companies (including non-US issuers) trading in US securities markets;

·         Inspections of registered public accounting firms;

·         Establishment of auditing and related attestation, quality control, ethics, and independence standards for registered public accounting firms; and

·         Investigation and discipline of registered public accounting firms and their associated persons for violations of specified laws or professional standards.

·         Enforcing compliance with Sarbanes-Oxley Act.

Additional Thoughts

Although the Sarbanes-Oxley Act, through establishment of PCAOB, introduced much strict regulations for the audit profession, but the WorldCom and Enron scandal alongwith the dissolution of the then big five firm Arthur Andersen which was found guilty of fudging Enron accounts, brought a great disrepute for the profession. Audit firms need to develop a sense of self-regulation and high ethical standards so that the investors and public in general endow trust upon the profession.

Reference: https://goo.gl/YU1dgc

                  https://goo.gl/mpKGaX

Audit News Briefing: 7 July 2016

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

July 7, 2016

CPAPracticeAdvisor.com

Financial Execs Struggle To Measure and Mitigate Risks

Accounting and Audit segment of CPA Practice Advisor highlighted this struggle through managing editor Isaac M. O’Bannon.

Basis: New Survey conducted by Grant Thornton LLP. Accounting and Business Consultancy, which states – Almost two-thirds of executives or 64% see strategic risk as a highly significant threat to their organizations compared to other types of risk – including compliance risk, operational risk and financial risk.

Among the important audit issues highlighted are as follows:

·         21% of organizations don’t rate third parties by the risks they pose, and nearly half or 41% don’t audit any of their third parties.

·         For departments involved in GRC activities, 43% of executives cite skill shortages in audit departments, while 38% cite skill shortages in operations leadership/management departments.

Please follow link for details: http://www.cpapracticeadvisor.com/news/12229007/financial-execs-struggle-to-measure-and-mitigate-risks

July 5, 2016

Australian Financial Review

The Big Four firms are now more technology than accounting

AFR data editor Edmund Tadros recently raised the concern that fast-growing areas of consulting, technology and digital services have already outpaced the companies’ original accounting roots. “Only one in five partners appointed to PricewaterhouseCoopers, Deloitte, EY and KPMG in the past year were in the traditional businesses of audit and assurance,” he said.

According to Lynn Kraus, the head of markets at EY Oceania: “Over the last two years, the acquisitions that the big four firms have been making are hugely different to four or five years ago … At EY, we've made six acquisitions over 24 months, all with a lens for this whole concept for digital and cyber skills.”

Please follow link for details: http://www.afr.com/business/accounting/the-big-four-firms-now-more-technology-than-accounting-20160701-gpwsd7

June 30, 2016

AccountancyAge

One in 20 audit firms quit as market evolves

June 2016 Key Facts and Trends in the Accounting Profession

By Financial Reporting Council (FRC.org.uk)

https://www.frc.org.uk/Our-Work/Publications/Professional-Oversight/Key-Facts-and-Trends-2016.pdf

This is the FRC (watchdog) publication report which head editor Kevin Reed have recently featured in Accountancy Age. It indicated considerable changes in the accounting profession, particularly in the field of audit — 304 practices have dropped their audit licence since December 2014. Taking into account that in 2004, there were 9,950 that are into UK’s accounting profession – it extensively decreased to 6,331 or a 4.6% fall.

Please follow link for details: https://www.accountancyage.com/2016/06/30/one-in-20-audit-firms-quit-as-market-evolves/

June 27, 2016

The Straits Times

Audit sector 'can benefit from opportunities tech brings'

Singapore-based English daily broadsheet newspaper featured the important role of technology in the accounting profession. Deputy Prime Minister Tharman Shanmugaratnam said, "The audit sector is one which can leverage new technologies to develop new capabilities in advanced audit analytics." This is during his opening address at Deloitte University Asia Pacific in Amara Sanctuary Resort in Sentosa, a centre set up by the Big Four accounting firm to groom employees into leaders.

Please follow link for details: http://www.straitstimes.com/business/companies-markets/audit-sector-can-benefit-from-opportunities-tech-brings

Audit Firm: Impact of Brexit on Audit Firms in UK & Europe

On June 23, 2016, the UK voted to leave the European Union (EU) voluntarily. Amid the highest turnout at a UK-wide vote since 1992, with a 70% turnout rate, the Leave campaign received 52% of the referendum, compared to 48% received by the Remain campaign. The particulars of how the UK will leave the EU will be the subject of negotiations for at least the next two years.

Economists anticipate market and currency instability in the short-term, but the longer term implications will depend heavily on the details of how the UK unravels its participation in the EU. Economists are also anticipating several years of uncertainty, and uncertainty typically does not indicate positive signs for financial markets or economic indicators. Uncertainty among businesses would see a brake applied to investment and deal-making, which would hit one among the most lucrative of areas for accounting practitioners – transactional services market.

From one perspective, for the accountancy sector, the EU is maybe less important as the share of revenue generated by clients in other EU countries is just 4.2%. However, as key major companies and banks might relocate from London to Frankfurt in near future – this will mean a lot less money for accounting firms, but there may be a recovery later.

British relationships with the IASB, which lay outside the EU will remain unchanged. As the UK has always been a keen proponent of IFRS, thus it is unlikely that there would be any retreat to British accounting standards after Brexit. One more area on which accountants are focused are the potential tax implications. Taxation has remained a policy area over which EU member states retain close control. Now after the Brexit vote, EU laws on direct and indirect taxation will cease to apply within the UK, and Britain will regain the right to vary its VAT and excise duty rates beyond the restrictions imposed by EU legislation.

Workload is likely to increase for audit firms due to Brexit but their lucrative value-added services offerings may suffer as a result. Auditors would struggle to provide high-value advice to their clients, instead having to focus on technical questions borne out of the UK leaving the EU.

Additional Thoughts

Nobody can predict with certainty what is going to happen after the Brexit. It is an extraordinary event and determined by many unknown factors. The audit firms should consider what it will look like in the future and should assess their client base. To secure the longevity of the practice, audit firms need to ensure that their client base is well spread. 

References:

http://goo.gl/BV4xGs

http://goo.gl/e85sOH

Audit Firm: PwC Chairman Interview

Petra Justenhoven recently sat down in Frankfurt with Dennis Nally, Chairman of PricewaterhouseCoopers International Limited, to get his views on a range of issues and events related to the past year. 

Petra: Dennis, as people look through the 2015 Global Annual Review, despite some challenges, it seems like it was a very successful year for PwC.

Dennis: Overall, it was a very strong performance for PwC. The environment that we are dealing with today is challenging – whether it’s the global economy, the geopolitical issues, or the stiff competition. PwC performed really well with revenue growth of 10% putting us over the US$35 billion mark for the first time. We’ve got great momentum going into FY16, with much to build on. There’s a lot to be proud of across the PwC network.

Petra: You mention solid growth overall – do specific areas stand out?

Dennis: 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%.

And when I look across the globe there are a lot of positives. I start with the US, the largest firm in our network, revenues up by an impressive 10%; our UK firm, a robust performance, up 9%; South America a strong result in a very challenging region – up 8%.

Growth in the Eurozone is challenging, as you well know, but I look at practices such as Italy up 11%, Germany 8% and France 6%, doing well in a very difficult marketplace

China is going through a lot of adjustments to its economy but our firm, the largest of all professional services firms in China, grew 8%.

And India, the fastest growing firm in the PwC network, up 17%.

And so, as I say, it gives us much to build upon as we head into FY16.

Petra: Coming back to Europe, you know that here the regulators are focused on audit, and even more on tax advice. What kind of impact does that have on PwC?

Dennis: Well, the regulatory environment continues to be very challenging, not just for us but for our clients. One of our biggest challenges is that the regulatory environment is not always aligned in all parts of the world. Also, the movement to mandatory firm rotation here in Europe is going to generate significant change for everyone – not only for the profession, but also for our clients as they implement the new rules.

Having the highest quality audits is the key to success and the foundation of our brand. Whilst we support reforms that will enhance audit quality, we don’t believe that mandatory firm rotation is going to achieve this. But the rules are the rules, and we will work with our clients to deal with these changes, whilst ensuring our quality remains of the highest standard.

As for tax reform, I think everyone agrees that in many cases tax regulations were written many years ago for a different type of global economy.

So we need tax rules that are really fit for purpose. With PwC having the largest tax practice in the world, we feel that it is a part of our responsibility to engage in that debate and to share our points of view and perspectives. And, of course, we’ll do so. But it is a challenge.

Petra: Eighteen months ago, PwC made history with our largest acquisition, Booz & Company, now known as Strategy&. How has that progressed?

Dennis: Without question it’s an incredibly strong move for PwC. The marketplace is continually telling us that the need to move from just providing advice to really dealing with solutions is an absolute must. The capabilities that Strategy& has brought into PwC allow us to do that.

But this is not just about advisory. The whole notion of going from strategy to concrete solutions is applicable to our assurance business and our tax practice. So we are very excited about Strategy&. We are well on our way to making this transaction a real success for PwC across the world.

Petra: In addition to acquisitions, PwC continues to develop joint business ventures and alliances – the most recent being with Google. Can you talk about that?

Dennis: Yes it’s a great point Petra, because I would say whether it’s Google or some of our other alliances with Oracle or Microsoft, we need to think about new ways of doing business.

The idea that as a professional services network we would house all of those capabilities within PwC is a model that’s really outdated.

We are working with Google in a number of areas, like cyber security, to co-create solutions for our clients. We bring in the content, they bring in the technology. So you can expect more of those types of arrangements in the future.

Petra: You just mentioned technology driving client services. What does technology mean for us?

Dennis: The whole issue of technology is clearly one of the most significant megatrends that we’ve seen. It’s transforming everything – whether it’s the digitalisation of business or the use of big data.

We have an important role to play in terms of how we help our clients, and obviously the alliances that we talked about will help facilitate that. But if this is disrupting our clients’ businesses, it’s going to disrupt PwC’s business as well. So we now think about the use of technology in a very different way, to provide better, more efficient services across the whole PwC network. Our aspiration is to become much more of a technology-enabled organisation.

Petra: You’ve talked about the focus on technology, but we are a people business.

Let’s step into the shoes of our future colleagues. So what would you say to persuade potential employees to join PwC?

Dennis: The world is such a dynamic place today – there are so many tremendous opportunities out there to help clients – it’s an exciting time to be part of a professional services network, and particularly PwC – so come join us!

I think PwC is unique because of our special focus on talent – not only attracting the best and brightest but how we help develop their careers, and give them the right kinds of experiences.

I like to say we help them build their résumé, we help them build their balance sheets. What we want to do is help individuals set goals that meet their needs, their timetable and their aspirations.

We want them to be part of a culture that allows everyone to succeed.

Petra: Has anything changed in terms of the kinds of people or skills we are looking for?

Dennis: Well, obviously the world is changing pretty rapidly, and so our talent needs to keep up with that. I talk about the necessity of every one of our people continually reinventing themselves and having a focus on progressing their own careers. We have talked a lot about technology, and having the ability to continually adapt to new technologies will be, I think, a real skill for the future.

But the world is so complex today, we need people who know how to work with teams, people who know how to collaborate, and who know how to listen. The whole issue of diversity and being able to work with different people with different backgrounds and cultures is a critical skill set. We help our people develop these skills and capabilities – that’s why I think it’s so exciting to be a part of PwC today.

Petra: You’ve mentioned diversity and I know PwC is involved in many programmes promoting diversity. Just this year we saw PwC joining a UN initiative called HeForShe. Could you talk about what we are doing in this area?

Dennis: I’m absolutely convinced that when we bring people together from different backgrounds – whether it’s gender or diverse types of capabilities – there is no question that the quality of our thought process is significantly enhanced. And so creating an environment where all of our people feel that they can make a contribution and that we value that contribution is critical for us.

We think HeForShe is a unique way to approach the diversity agenda – getting men across the PwC network to think about the issue of gender diversity in a different way. Sometimes I get a little frustrated that we are not making as much progress as we want to on the gender diversity issue, but PwC has a real focus on it – starting from the very top.

Petra: Many organisations are deliberating over their purpose. How would you define the Purpose of PwC?

Dennis: Given the world that we are operating in today, I believe every institution needs to have a clearly defined and articulated purpose.

For PwC, it’s about building trust in society and solving important problems. It starts with a fundamental premise that as an organisation that is over 160 years old and that’s providing substantial comfort to the capital markets, we believe we have an important role to help build trust in our society.

Secondly, there are some pretty challenging and difficult issues out there and resolving those problems is a real focal point for PwC.

A good example is our work in Norway to help develop a new clinical pathway for patients with acute stroke.

I see Purpose as our guiding light, who we are and what we are trying to get accomplished.

Petra: What do you think PwC will look like in 10 years, in 2025?

Dennis: Well, 2025 may be a little bit of a stretch – the world is moving so quickly. But we all know this global economy is so interconnected today, and to me that presents a lot of exciting opportunities. So at PwC we need to continue to evolve to deal with those issues and challenges.

That includes becoming much more of a technology-enabled organisation, and continuing to anticipate the solutions our clients will need in this ever-evolving business environment.

That translates into a lot of opportunities for all of our people, and to me that’s really the exciting part of the journey to 2025.

Petra: One last question before we close.

You will step down as the Global Chairman next year. Is there any final thought you would like to share?

Dennis: Well, first off I have a lot to do here over the next eight months or so, and I’m very much focused on what we are trying to achieve within the PwC network. But as I mentioned at the outset, we have a fabulous foundation to build upon, and I’m really excited about the momentum that we have in terms of what we are doing for clients and other stakeholders, and where we are trying to take the PwC network.

And I would sum up by saying it’s just a tremendous time to be in professional services and, more importantly, to be a part of PwC – it’s a chance to make a contribution that is value added and to really make a difference as you shape your career.

Petra: That’s a great message. Dennis, many thanks for your time and for sharing these insights with us.

Dennis: Thanks, great to be with you Petra.

Reference:

Text:  http://www.pwc.com/gx/en/about/global-annual-review-2015/chairmans-interview.html

Image: http://www.pwc.com/gx/en/about/leadership/dennis-nally.html