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.
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Tags: auditing, auditors, deloitte & touche, partner
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Comments (34)
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.
Audit partners do not make $900K a year. A few firm leaders in NYC may, but that is it. Consulting partners target $300K/year and often have a more profitable book of business than do audit partners.
They do validate the performance of the company through testing. Will it catch all fraud? No. Does it help keep 90% of companies within the bounds of GAAP? Yes.
If audit partners at Big 4 are selling their souls for less than $300k, there is definitely something wrong with them.
Fred-
I do know that SOME Audit Partners at D&T make more than 900k/year, and I do know that MOST Consulting Partners make more than 300k/year. In fact, the replies on this board are incorrect in stating that there is a ‘target’ monetary amount. Partnership at D&T is focuses around ‘units’ or ‘unit values’. After a Partner ‘buys-in’, they are awarded a number of units. Each year, instead of raises, Partners are given additional unit values. The targets that the Partnership makes are around the value of 1 unit. The past several years, the target has been $1,000.
The point is, once you become Partner, you are in a sense at the bottom of the totem pole. Equity increases as you spend additional years at the Partnership level- this is why it is incorrect saying that a single monetary value is targeted for all Partners- because all are at different equity levels.
Another thing to note- as of several years ago, the Partnership is spread across all D&T entities. Therefore, Partners in Audit with the same amount of units as Partners in Consulting will make the same amount of money. This makes sense because clients cannot hire the same firm to Audit and Consult- this obviously created a sense of competition among the entities. That has since changed.
I would generalize to say that new Partners make around 175 – 250k. Partners that have spent about 20 years (at Partner level) make around 1 million. Regional and national Partners make between 1.2-1.5 million. It might sound like a lot, but remember that they are in the highest tax bracket, they do not have 401(k)s, they pay for their own health insurance, etc.
Partnership is very complicated in D&T and it takes a lot of hard work to get there. If you don’t love the work, it is probably not worth it. Do something you love and be happy.
This position takes a lot of rigorous work to come to and the pay level is deserved.
I stumbled on this article entirely by accident. I read through it with some passing interest, and two things struck me. The ‘about the author’ seemed to suggest a very accomplished individual that knew what she was talking about. Someone with more than 100 articles clearly had to know something, if not a lot! However, when I read the article itself it was beyond naive. It showed resentment versus any professional opinion based on logic or facts. I’m not an auditor but I have been in the business world long enough to separate doomsayers from rational practitioners. Another year to go before the author’s prediction runs out. Normally I’d not spend any time commenting on such frivolous articles but once in a while it’s worth pointing out how irrational people are and make claims they are ill-suited to make.
Hi David – Thanks for your lovely comments. I’m not sure what resentment you’re feeling? I don’t resent the Big 4 or their partners. I think they stink, plain and simple, and their usefulness to the business world is long gone. They don’t deserve to exist, and they add little value, but they will continue to exist because there is a lot of money on the line. Sadly, my prediction was wrong. They won’t be gone. There’s too much money at stake.
David – it’s an unsustainable model. I doubt Tracy claims to be psychic (I’ve read no such claim) but no one seems to want to take her up on the argument about the (lack of) value of an audit. And there’s a lot going on right now that will kill talent in the firms. So it’s not if, but when …
I have a few comments/corrections to this article. (1) The buy-in for partners and my firm (Big 4) is $1,000,000 which is loaned to the partner and they pay back over 3 or 4 years. (2) The business model is not unsustainable. As long as there are investors, large companies will need to assure current and potential investors of the company’s financial status. The Big 4 offer a service that no local or regional firm can offer. (3) Right now, large corporations are hiring which means their Big 4 auditors need more auditors to conduct the engagements. The downturn in the economy has hurt the local and regional firms the most because the businesses that were most affected by the recession were the local and regional companies. I have spoken/interviewed with many local and regional firms and they all say the same thing. (4) The more regulation the federal government imposes on companies and citizens, the more business the Big 4 will have. It is a simple fact that Sarbanes-Oxley was one of the biggest drivers of Big 4 hiring/growth.
You said Big 4 will be gone in 3 years. That was in 2008. It is 2011, and from what i see they all exist. Its funny, Big 4 add no value and are stupid? Your absolutely right. Lets trust wallstreet to maintain and report their financial transactions to us john-doe investors. Thats a much better idea and demostrates how much knowledge you have.
Jake – If you read the comments, you see I later said I was wrong about them being gone because there’s too much money in it for them to go away. Audits add no value. I did not say we should just trust Wall Street and what they report. But I did say that audits aren’t the answer.
Tracy, while i do not agree with your statement that àudits add no value, i appreciate the response.
If they are not the answer, what do you propose, or what framework to do you propose on how to make sure that public companies report their financial statements in accordance with GAAP
Jake – I think audits are fine for checking the numbers and adherence to GAAP. It’s the fraud and manipulation of numbers that audits cannot and do not address. That is only going to be addressed by companies being proactive in searching for fraud. It starts with the board of directors, who must demand integrity from all employees. Then they must engage consultants to do work aimed at uncovering whether or not there has been fraud or manipulation of the numbers.
Hi Tracy
I am confused as to what you want then. If audits are not designed to catch fraud, i totally agree with that, then are you saying auditors are not needed if their not fraud experts? I understand you are a fraud specialist and know a lot about fraud. However, i am sure than many shareholders are quite interested in getting comfort over the fact that companies are reporting earnings and financial results appropriately. Not sure every shareholder has fraud on their mind.
If i was a bank and gave a loan to ABC co. with a covenant that the debt to equity ratio was X, i would need comfort from an auditor that this ratio is properly reported. I do not think the first thing that would come to my mind is “is there fraud at ABC company”
Audits are what they are. They check the math and the application of GAAP. They find errors. They do not find fraud with any great regularity and so they cannot be relied upon for such.
I have never said that audits are not “needed.” I would not use them for anything myself, but if other users of financial statements want or need them to be done, then that is their choice.
What I think is important is for everyone to be honest about what audits do. (And probably more importantly, what they do not do.)
Any auditor or audit company will NEVER claim to be fraud experts, or will never claim they can detect fraud. That is the job of persons such as yourselves, who are brought in to detect such issues. Unlike yourself who feels that audits are useless and pointless, i respect what you add to society. Instead of pointing out what you DON’T do, i respect what you actually DO.
The fact that you state that you would not use audits yourself, demonstrates that you are clearly biased against them because your job is that of detecting frauds, and audits do not do this. Hence in your eyes, what the point of audits if they do not detect fraud? Just because they do not, does not mean others feel the same way. I would be scared if you provided financial advice or accounting advice to any company in your capacity as a CPA.
And another thing, some GAAP mistakes can be pretty big. Bigger then fraud issues which i get the feeling you feel is the only issue on stakeholders’ minds. You should wake up and realize that fraud is ONE of the concerns of stakeholders, not the only one. I am 100% sure than if a company applied the wrong revenue recognition principle to inflate revenue by 100 million, investors would be more pissed off.
I am not “biased against audits.” I am simply a realist who is in touch with how little value they provide. The fact that I won’t rely on audits is not simply because I’m a fraud investigator and because audits don’t detect fraud. That is the main reason, but it is also based on the fact that I know what audits do and do not do in addition to the fraud issue. Indeed, I am well versed in financial and accounting issues, and it is my knowledge of these issues as a whole that makes me unlikely to rely on audits for much.
I have never stated that fraud is the only concern for stakeholders. However, fraud is my specialty and so that is what I write about here.