Deloitte & Touche: It’s good to be partner.
There are many things wrong with the Big 4 accounting firms, and I predict that within 3 years (probably less) they will all be gone. But the partners are going to stay on the gravy train as long as they can.
Make no mistake: Being partner at a Big 4 isn’t easy. It takes a lot of hard work and bieng a yes man on the way up. Then there’s the buy-in of over $400k. And the partners never really know how secure their positions are, what with liability from audit failures constantly an issue.
But with risk comes reward, and at Deloitte & Touche, there is a reward for partners. Francine McKenna at Re: The Auditors has sources within the big firms, and gets plenty of traffic when she writes about layoffs there.
One of Francine’s sources gave her the scoop on the essential pay freeze that rank and file are getting:
This past month, our region was told that the growth of the non-consulting practices was slow, behind schedule. We were told that our region was the worst performing in the whole nation. The Regional OMP stood up on a pedestal and informed us all that, although we would be getting some raises this year, we should be prepared for “far less” than last year (last year’s were between 4 – 8%). Obviously this has many upset. However, given the “tough” times, many were willing to accept it.
Yet that apparently wasn’t completely true, as partners and directors in the region got an email from headquarters about their “best year ever” and the fat bonuses they could expect.
Well, those of us that were privy to the email were breathless when we noticed that the congratulations was given the region’s partners on the “best year ever!”
The average partner salary was almost US$1 million!
So on the one hand, we are being told that there won’t be any AIP bonuses, and that we should expect lower raises than we have seen in the past 5 years but then we find out that the partners had their best year ever.
Can you say busted? There are college graduates lining up to be a part of these firms because the names still command attention on the resume. But they should be prepared to be abused and they should know that their jobs aren’t stable.
This comes at a time when mid-sized firms are dying for new talent, and they’re willing to decent salary and benefits as well as some work/life balance. Young accounting majors, you’ll be much better off looking for a job with the mid-sized firms.
Why do you feel that the Big Four will be gone within three years?
I assume you are assuming the IRS will finally “nail them” for tax shelter scams from the past?
Mike Sylvester, CPA/ABV
Hi Mike – I actually don’t think it will be the IRS that is their undoing. I think it will be more a factor of audit malpractice and shareholder lawsuits. Nothing has changed all that much since the days of Enron, other than the firms make a lot more money because of Sarbanes-Oxley work. They have not substantively improved the process of auditing, nor have they been more careful to ensure independence and the integrity of financial statements. Watch them all meet a fate similar to that of my former firm, Arthur Andersen.
Wow.
That is a bold predition.
Most lawsuits take a long time to come to completion; however, I do expect that they will be involved in a lot of lawsuits. I especially think that is true due to the fact that many more companies are going out of business.
Mike Sylvester, CPA/ABV
I know a non-partner upper level manager that received his usual, 5-figure, bonus this year, as did the staff that reports to him.
The Deloitte partners have a targeted earnings level of $900,000. They will do many things to accomplish this, including keeping bonuses, etc. from staff. I once had a Midwest PIC tell me, “its MY MONEY”. Anyway, most of them are on their second or third spouses. Many of them see their kids only when the kids need a few bucks. I once knew a partner who carried a picture of his kids with “Priorities” below the picture; he must have looked at it when he worked from 6am to 10pm – it was clear to everyone where his true priorities were and remain.
Your prediction that all the Big 4 will be gone in 3 years is one of the dumbest things I have read in a while. Do you even work in a Big 4 firm? And I don’t mean 10-15 years ago. There have been a lot of changes since the pre-Enron days, including an increased focus on audit quality. With peer and PCAOB reviews occurring each year, there is a heightened sense of oversight across the board. Your fear mongering is absurd and irresponsible. I do not disagree with the other points raised in your article. I believe partners are continuing to do well at the expense of staff – less people doing the same amount of work, lower bonuses, lower raises, etc.
Thanks for your insightful comments Charles. The peer reviews and PCAOB are worth little. This is the fox guarding the henhouse. Having auditors decide if auditors are doing enough? That’s just silly and ineffective. And unfortunately, there is a perception of this “heightened sense of oversight” that you mention, but that is not demonstrated by the cold hard facts. Audits do little to ensure quality financial reporting.
Tracy – I would not go as far as saying audits do “little to ensure quality financial reporting”. I think the simple fact that companies have to be audited makes them more apt to apply with financial reporting guidelines. Are audits foolproof? Absolutely not! There are always going to be Enron’s, WorldCom’s, Tyco’s, Adelphia’s, etc. But while these dominate the news, these are just a very small, minute portion of audits performed. My parting question to you is – what’s the alternative? If there were no auditors – people who understand financial reporting – who would oversee the financial reporting at large corporations? I think one can see the results of loose regulation when they take a look at what happened after deregulation in the mortgage industry. Would you like to see something similar in terms of financial reporting across all industries?
Charles – You may not go so far as to say that, but I will and I do! Audits do not prevent and detect fraud. There is a perception that somehow audits ensure proper financial reporting, but I disagree.
Tracy – detecting fraud is one objective of an audit. I agree it is hard, although not always impossible, for an audit to detect major fraudulent financial reporting; however, I also believe audits ensure proper financial reporting in other regards. Most financial reporting errors are not done intentionally and are not the result of fraud. I think your argument is very weak and baseless because you choose to use the terms “fraud” and “[improper] financial reporting” interchangeably, which is absolutely incorrect.
If Christy Controller does not know how to properly account for stock option grants under FAS 123(R), and uses the incorrect method, then that is improper financial reporting. It is not fraudulent, rather the result of a lack of knowledge. I think, or at least hope, audits capture these kinds of errors. Like I said previously, audits are not foolproof, but what is the alternative?
Detecting fraud is not an objective of audits. In fact, the responsibility to detect fraud is disclaimed over and over by the auditors. I didn’t use fraud and improper financial reporting interchangeably. (You’ll note those words are actually used in two separate sentences.) Yes, audits can and do detect errors with regularity. Audits rarely detect fraud, and are not designed to do so.
Tracy – First, the fact that you do not use the two phrases in the same sentence does not mean you are not using the terms interchangeably.
I understand you are a Forensic Accounting “expert”, and you probably feel your line of work is more valuable than that of a mere auditor, but you still have not answered my question, which I’ll ask for a third time: What is the alternative to requiring company’s to undergo audits? Would you rather companies report whatever they want to report with no oversight whatsoever?
Also, please show me an audit opinion from a Big 4 firm that specifically says “our audits are not designed, nor are we responsible for detecting fraud”. Most that I have read state they are planned and performed to “obtain reasonable assurance about whether the financial statements are free of material misstatement.”
Charles – Once again, I didn’t use the words interchangeably. That was your incorrect interpretation of what I wrote.
I don’t know what the alternative is to audits, but I still feel that audits are ineffective in many ways.
The opinions themselves don’t disclaim the auditors’ responsibility to find fraud. Their engagement letters do. And the management representation letters that they require clients to sign do.
Tracy – You previously said “Detecting fraud is not an objective of audits.” That is absolutely incorrect. Detecting material misstatements is the main objective of an audit, no matter how it occurs – fraud included. Again, audits are not foolproof; however, that does not mean they do not attempt to reveal and correct errors stemming from fraud, or other circumstances.
Your outlandish statements are very typical – you make accusations without backing them up with how they should be changed. If you were a Staff person on my job, I’d tell you to figure out at least one solution before wasting my time with some ridiculous statement.
If audits are pointless, am I correct to assume you are advocating that they should not be required for public companies? Do you really believe we should all put our pencils down (or our laptops away) right now and forget about issuing audit reports for FY 2008?
Charles – Why so angry? While “detecting material misstatements” is an objective of an audit, the auditors specifically disclaim responsibility for finding fraud. I’m not sure what you’re confused about in this regard.
I’ve not made “accusations.” I’ve made statements of opinion and fact about audits and how little value they provide. Knowing facts and having opinions about audits doesn’t require me to tell you what else should be done to clean up financial reporting.
Never assume anything in regard to me. Thanks for participating.
Charles – The fact that you work at PriceWaterhouse Coopers in the audit division and you don’t know what audits are (and are not) designed to do is troubling.
Tracy – I am not angry, and I do in fact understand audits – I am questioning your understanding of the audit process. I really do not understand why you are trying to “out” where I work. Yes, I do work for a Big 4 firm, and have for quite some time – whether it is PwC or one of the other 3 is not the point as my comments do not reflect the position of my firm, nor do I wish that they would be associated with it. These are my personal thoughts and opinions, which like you, I am entitled to. The fact of the matter is, you made statements (not based on any facts that you have presented), and I am challenging your statements – maybe my writing comes across more angrily than intended – but that does not dismiss the point of what I am trying to get at, which is if audits are pointless, what’s the alternative? What would happen if there were no audits? What would companies do if there was no accountability? Clearly you have chosen not to address those questions, which is certainly your prerogative. Thank you for the discussion – sorry we have to agree to disagree. This was an interesting article/discussion nonetheless.
Not based on any facts? The fact is that audits may be aimed at “detecting material misstatements”, but that audit firms disclaim responsibility for finding fraud. Audits are not designed or carried out in such a way as to detect fraud, although on occasion they do find fraud.
I don’t suggest that there should be no accountability, and I don’t have a solution to replace audits. I just want the general public to have a better understanding of what audits are, and of what little benefits they actually provide.