The Financial Reporting Council (FRC) has just published its audit quality inspection reports for the 6 largest auditing companies in the UK. The job of the FRC’s Audit Quality Review (AQR) team is to monitor the quality of the audit work of those UK audit firms that audit public interest and large entities.
The AQR team have been busy over the last year and have now released lengthy reports for BDO, Deloitte, EY, Grant Thornton, KPMG and PwC.
Overall, the quality of the audits has improved during the last year with the number of audits that required “significant improvements” dropping from 10 to 2 for the Big 4. There were no audits that required significant improvements at BDO or Grant Thornton.
Unfortunately for KPMG though, they were the company that undertook the two audits that were highlighted by the FRC as needing significant improvements.
The FRC reviewed 22 KPMG audits and out of those there were 2 that required significant improvements.
The first one involved a change of systems and a 3rd party IT provider. The FRC identified that the KPMG audit team did not “design and perform procedures to obtain sufficient audit evidence in response to the migration risk”.
In the second audit where there were problems the FRC highlighted that insufficient audit work had been performed in relation to revenue and inventory.
Details of the scope of the reviews can be found here and are the full reports on the individual companies are on the following links:
Do you have children? Have they ever told you a lie? Even a small teeny weeny lie?
Well, if they have then although you may not be particularly pleased with them, it may actually mean that they have good memories and excellent thinking skills.
Psychologists at the University of Sheffield tested 135 children and found that those children that lied performed much better than the honest children in the group.
The children in the study were aged between 6 and 7 years old and during the study they were given a trivia game. The answers to the trivia game were on the back of the card which they had been given. Initially, each child was in a room accompanied by one of the researchers but the researcher then left the child alone with the card with the answer on the back.
Before leaving the room the researcher told the children not to look at the answer but what the children didn’t know was that when they were alone in the room there were hidden cameras which were monitoring whether they would look at the answers on the back.
25% of the group subsequently cheated and looked at the answers on the back of their cards but claimed that they hadn’t cheated when the researcher returned to the room.
At a later stage, all of the children had to perform a separate memory test and the research found that the children who had lied performed significantly better than those children who didn’t lie.
Dr Tracy Alloway, project lead from the University of North Florida was also involved in the research and said that “this research shows that thought processes, specifically verbal working memory, are important to complex social interactions like lying because the children needed to juggle multiple pieces of information while keeping the researcher’s perspective in mind”.
This has got me thinking as a lot of the readers of this blog are accountants or studying to be accountants.
“Thought processes”, “verbal working memory”, “juggling multiple pieces of information” and “keeping other people’s perspective in mind” are all skills which many accountants need.
Does this mean that you would make a good accountant if you were a good liar when you were a child?
Whatever your answer is, I’m not sure I would believe you…
https://www.theexpgroup.com/wp-content/uploads/2016/02/Young-accountant.jpg7691361Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2016-01-21 13:00:252016-01-21 13:00:25Would a good liar make a good accountant?
Is this a clever way to improve productivity or a big brother surveillance system creeping into corporate life?
Humanyze, a technology company, produces devices which monitor the activity of employees and one of the more well known companies that has used it recently is Deloitte in Canada where volunteers in their St John’s, Newfoundland office wore the devices which are like oversized ID cards.
According to Humanyze their “social sensing platform” uses a variety of sensors and is capable of capturing face-to-face interactions, extracting social signals from speech and body movement, and measuring the proximity and relative location of users.
They combine these with other data sources such as electronic communications, objective productivity metrics, and spatial analysis to provide insights on how complex work gets done in the modern organization.
CBC Canada reported that the Deloitte team in Newfoundland were changing from a traditional cubicle office layout to an open concept space and the Humanyze badges were used to measure how well employees were performing in the new layout.
The participation by the Deloitte staff was optional and they were provided with contracts that made them the owners of the data.
All the information was collected anonymously and the employees were given personalised dashboards that showed their performance benchmarked against their colleagues.
Silvia Gonzalez-Zamora, an analytics leader at Deloitte said that “The minute that you get the report that you’re not speaking enough and that you don’t show leadership, immediately, the next day, you change your behaviour. It’s powerful to see how people want to display better behaviours or the behaviours that you’re moving them towards.”
So, is this a clever use of technology or the first step towards big brother monitoring?
Either way, I guess it may help identify the office winner of the “who spends the most time in the toilet award”…
https://www.theexpgroup.com/wp-content/uploads/2015/10/trendy_office.jpg8441500Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2015-10-08 16:12:222015-10-08 16:12:22Improving productivity or big brother surveillance?
How much holiday would you take in a year if your boss said you could take as much as you liked?
If it were me, I’d become a virtual stranger in the office given the number of days I would be lounging about on holiday.
In reality though the few companies who are offering their staff unlimited time off are actually finding that their employees are taking fewer days holiday when they are given the option of taking as many days off as they like.
Bloomberg has reported that Grant Thornton, the 6th largest accounting firm in the US has just announced that they will be offering their US staff unlimited time off.
GT has launched a video of some of their staff being told the news and perhaps unsurprisingly they seem happy (possibly also, a little unsure as to whether the person behind the video camera had been drinking and was making the whole thing up…)
Bloomberg reports that When it comes to the Big 4 accounting firms in the US, KPMG LLP offers a maximum of 30 days, Deloitte LLP has a maximum 35 days and PwC has a maximum of 22 for management level staff, according to the companies. EY has a minimum of 15 days with additional days added with years of service.
GT though are no doubt hoping their new holiday policy will make them a more attractive employer and Pamela Harless, chief people and culture officer for GT said “This is a modern move for an industry where these types of benefits aren’t really common”. GT are “convinced it will help us to be far more attractive in retaining talent as well as attracting talent.”
What is perhaps surprising though is that for the very small percentage of companies who already offer their employees unlimited holiday entitlement, their experience has been that the number of days taken as holiday as actually fallen since unlimited time off was introduced!
Haje Jan Kamps, the founder of Triggertrap identified this problem and highlighted that “Because we weren’t explicitly tracking, people felt guilty about taking time off. It also turns out that there was a difference in the patterns for how people took time off: Some were taking a week here and a week there, but others were just taking the odd day.
The problem with the latter is that it seemed like they were always away. That’s OK, of course, but if other members of the team feel as if someone’s taking the piss, that’s bad for morale all around.”
In summary though, an interesting development for GT and well done to them for launching such an initiative with the aim of incentivising and motivating their staff.
One interesting final question though – if you could take as much time out of the office as holiday without it affecting your career prospects, how much would you take?
https://www.theexpgroup.com/wp-content/uploads/2015/10/office_holiday.jpg8451500Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2015-10-05 15:51:092015-10-05 15:51:09How much would you really take?
She is the first female boss of a major accountancy company in the UK and Sacha Romanovitch is doing things differently.
At 47, Sacha who heads up Grant Thornton in the UK is one of the youngest leaders of a major City firm and has certainly got some innovative views in terms of how she plans to run Grant Thornton.
She has just announced a profit share scheme for the whole business which could boost salaries by 25%. She will oversee a “shared enterprise” scheme which will allow future profits to be shared between all of its 4,500 staff instead of being restricted to the most senior staff.
Ms Romanovitch was quoted as saying “The benchmark that we are working to is that in great organisations that do this, it ends up being between 10 and 25 per cent of a person’s salary. That is what they can potentially earn as a profit share. John Lewis [a prestigious UK department store] does it, Arup [an engineering firm] is the other one that does it really well.”
She has also announced plans to “crowd source” new business ideas and to consider allowing lower ranked staff to join board meetings.
In a move which will no doubt endear her to the team at Grant Thornton she has also agreed to cap her own salary. She has stated that her salary will be limited to a maximum of 20 times the average salary in the company.
This is an admirable move, especially when you consider that bosses of FTSE 100 firms (the largest 100 stock exchange quoted companies in the UK) have on average a salary which is 149 times the average salary in their respective firms.
In a recent newspaper interview Ms Romanovitch, who is a married mother of two and who works from home in the beautiful county of Devon on Fridays, said she was a fan of social media and thinks firms that restrict staff use of social media are wrong.
She said “A lot of firms don’t let their people use social media because they’re worried that they will say something they shouldn’t.
I find that a bit scary. I employ great people. If I was worried that they were going to say something on social media that they shouldn’t, I’d question whether I should employ them at all.”
Congratulations on a great start Sacha and if you’re interested, the marvellous photo of Sacha at the top of this article is from her twitter page which can be found here.
https://www.theexpgroup.com/wp-content/uploads/2015/07/Sacha-Romanovitch.png6971239Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2015-07-01 09:57:152015-07-01 09:57:15A very forward thinking leader...
It’s a great life being an auditor. You visit your clients and can ask as many questions as you like.
After all, your job is to confirm the accounts are showing a “true and fair view” or to be more precise, your job according to “International Standard on Auditing (ISA) 700, Forming an Opinion and Reporting on Financial Statements”, is to “form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.”
So, that’s the job of the auditors.
Who checks the quality of the audits though?
In the UK, the Financial Reporting Council (FRC) undertakes annual quality inspections of the largest auditing firms in the UK including Deloitte, EY, KPMG, pwc and a number of mid tier firms.
The latest annual report has been released and whilst there has been an improvement in the performance compared to previous years with 67% of all audits inspected in 2014/15 being assessed as either good or only requiring limited improvements, 33% of the audits inspected fell below the highest standards set by the accounting regulator and were classified as either requiring improvements or significant improvements.
Let’s just pause there for a moment.
What this is saying is that one in every three audits undertaken by the leading accounting companies in the UK have been classified as needing improvements or even worse, needing significant improvements.
Three of the more common issues identified in the report were:
Insufficient scepticism in challenging the appropriateness of assumptions in key areas of audit judgement such as impairment testing and property valuations.
Insufficient or inappropriate procedures being performed. This is common to many areas including revenue recognition.
The failure to adequately identify the threats and related safeguards to auditor independence and to appropriately communicate these to audit committees.
The FRC do however appear to be trying to improve things and have introduced various initiatives.
For example, they now “require firms to develop action plans to address the weaknesses identified in individual audit engagements and firm-wide procedures”. In conjunction with the development of these action plans they now require firms to undertake a detailed rootcause analysis of the factors contributing to the issues arising from the inspections and those action plans together with the related analyses will then be subject to follow-up inspections.
Cathy is the first female CEO of a major accounting firm in the US. She’s been appointed as the leader of Deloitte’s 65,000 US employees and it sends a great message about equal opportunities.
It’s a fantastic achievement so many congratulations.
There’s an interesting interview with Cathy in the Washington Post.
The interview highlights some nice facts. For example, when Cathy first started at Deloitte in 1986 only 7% of Deloitte partners and principals were women. Fast forward to 2015 and women now make up about 25% of the partners in the firm. There is still a way to go until it’s 50% but it is certainly heading in the right direction.
However, probably the most interesting fact that came out of the interview was her admission that she made up stories so that she could get out of work to spend some time with her kids:
“I used to make up stories if I had to leave early for something related to my kids. I learned my lesson, because a woman who left the firm actually shared that she was leaving because she didn’t have kids yet, she wasn’t even married, but she saw people like me and didn’t want to be like that—always working.”
A very honest interview by Cathy and of course, she doesn’t make up stories any more. She’s the CEO so she can leave whenever she wants to…
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2015-04-05 00:30:532015-04-05 00:30:53Deloitte's new US CEO used to make up stories to leave early.
Do you grab a bite to eat and head back to your desk to continue working (or at least pretend to work whilst playing on the internet)?
Do you grab some fresh air outside the office to recharge your batteries?
A recent initiative between the app based taxi service Uber and an animal rescue organisation has resulted in what I think would be a fantastic way to spend your lunch break and also to recharge your batteries.
You can get a kitten delivered to your office for 15 minutes between midday and 4 pm.
Yes, a real live cute fluffy kitten!
What a great way to de-stress the office – adorable kittens arrive for 15 minutes of playtime in the office.
The kitten visit costs approximately £20 and they can be ordered vie Uber’s app. All the proceeds go to the animal rescue centre.
Everyone here in the office was getting excited when they heard the news but sadly the service isn’t currently available in the UK (at the moment it is only available in Australia and America).
I think it’s a brilliant idea though – it can help de-stress the office, the cat’s rescue centre gets additional revenue and if you happen to fall in love with the kitten the kitten may well find it’s new “forever home” rather than have to stay at the cat’s rescue centre.
It also has an added benefit if you happen to dislike a colleague in your office who is allergic to cats…
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2015-02-12 21:04:542015-02-12 21:04:54Would you like to do this at lunchtime?
Different types of organisations have different rules regarding the disclosure of pay details of senior executives.
If you are a director of a quoted company in the UK, details of your remuneration package must be shown in the published annual report.
If you’re a partner in a professional services firm on the other hand then there isn’t such a disclosure requirement.
A recent report called Cheques and the City (a great play on names and would sound familiar to those of you who are fans of the American television sitcom starring Sarah Jessica Parker) by the High Pay Centre has provided more information about the leading Accounting and Law firms in the UK.
The report is an interesting read and some of the points raised are:
– approximately 1,400 of the 4,500 equity partners from the Big 4 and the 5 leading law firms were paid over £1m in the UK last year (there are roughly 11,000 people in the UK with incomes of more than £1m so this means that 13% of the individuals in the UK with income greater than £1m were from the top accounting and law firms).
– The senior partners at PwC, Deloitte and KPMG were each paid £3.6m, £2.7m and £2.4m respectively last year (there was no news on how much the senior partner of EY received last year but I think it’s safe to say he should have enough money to buy a coffee on the way to the office).
– The Big 4 are responsible for auditing 99% of the FTSE 100 and 96% of the FTSE 350 (the largest 100 and 350 quoted companies in the UK).
– The type of work undertaken by each of the Big 4 was as follows (figures shown are £m):
For those of you good with figures you’ll notice from the above table that KPMG is far ahead of the others in terms of the proportion of consulting work they undertake compared to audit and tax work (more than 50% of KPMG’s revenue was from consulting compared to just over 20% at PwC).
The Cheques and the City report can be found here.
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2014-12-11 15:55:532014-12-11 15:55:53How much does a Big 4 partner earn?
Well it seems like an EY partner was working late with a client and it was more than the audit files that they were reviewing.
New York stock exchange quoted Ventas Inc has announced that it has removed EY as their auditor due to an “inappropriate personal relationship” between a (now former) EY partner and Ventas’s (now former) Chief Accounting Officer and Controller, Robert Brehl.
It looks like discussing the audit files wasn’t exciting enough for both of them and one thing led to another and before you could say “prudence concept” they were ripping each other’s clothes off having inappropriate personal relationships.
Now, as any self-respecting finance professional will know, a core characteristic of auditing should be “independence”.
[Words deleted so as not to upset people of a sensitive nature] with the Chief Accounting Officer when you’re an audit partner is clearly not a characteristic of independence.
KPMG have now replaced EY as the auditors of Ventas and my guess is that both the ex-EY partner and Mr Brehl will soon get a reminder of what independence means as if they are married their husband/wife will soon be independent of them.
https://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.png00Stevehttps://www.theexpgroup.com/wp-content/uploads/2018/06/styleguide-EXP-4.pngSteve2014-08-05 11:49:412014-08-05 11:49:41This EY partner has been a bit naughty.
The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.