How to account for natural capital - AGN International · 2014-11-27 · How to account for natural...

www.InternationalAccountingBulletin.comNovember 2013 Issue 531

How to account for natural capital

● Booz deal puts PwC on path to rebuilding advisory business ● Big data insight can deliver strategy

● New measures and mergers in Australia ● Regulation and fee pressure in South Africa

What price the priceless?

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editorial Advisory boardKevin mcGrath, Crowe Horwath International CEOKevin Arnold, Nexia International CEOGeoff barnes, Baker Tilly International president and CEOGraeme Gordon, Praxity executive directorstephen Jacobs, INPACT International presidentJon Lisby, Kreston International executive directorJames mendelssohn, MSI Global Alliance, executive chairman Christian mouillon, Ernst & Young global vice-chair, assuranceed nusbaum, Grant Thornton International CEOmichael reiss von Filski, Geneva Group International CEOLiza robbins, Morison International CEOmartin van roekel, BDO International CEOJean stephens, RSM International CEOrobert Tautges, HLB International CEOpauline wallace, PwC head of public policy and regulatory affairs

news

CounTrY surveYs 09-20

BearingPoint, EquaTerra, PTRM, Drivers Jonas, Übermind and Optimum Solutions are just some of the advisory businesses acquired by the four global accounting giants in recent years. To add to the list, PwC announced in October it is in discussions to acquire global consultancy Booz & Company, which would add around $1.4bn to the firm’s annual advisory revenues.

Hopes of strong, maybe even double-digit organic growth appear to have been swept away with more pragmatic business views in recent years.

The Big Four appear to be more or less fearless of the effects advisory acquisitions might have on their business models despite, only a decade ago, the Sarbanes-Oxley reg-ulation leading to a mass disposal of advi-sory capabilities of three of the Big Four firms. Since then, all firms have to some extent rebuilt their advisory capabilities or strengthened what was left of the old ones, but debates about whether to restrict the offering of non-audit services by audit firms are still very much active.

The EU is currently discussing such meas-ures and potentially creating an additional ‘blacklist of non-audit services’ and several countries around the world have raised the issue and questioned the potential conflict of interest that could arise with providing advice to an audit client.

Despite such concerns, advisory has almost started to overtake assurance rev-enues in many Big Four firms. Globally, Deloitte is currently the only firm with high-er advisory revenues than assurance, but in Australia, for example, PwC’s and EY’s assurance revenues only account for 31% and 35% of overall revenues respectively. The Big Four also vigorously argue that non-audit services and having a board skill set at

the firm only strengthens the quality of audit and the standard of service they provide. An increase in advisory investment at the Big Four is a likely response to the slowdown in growth, audit fee pressure and an increase in regulatory compliance, which seems to have halted audit services growth around the world.

The culture of ‘more for less’ has become the mantra in many countries and it appears firms are increasingly resorting to advisory work for those much-needed fees to support growth at their large international business. Advisory investments are deemed to be worth the risk for firm leaders as regulation in the market is far from decided.

IAb AwardsMany of you have been phoning and email-ing to enquire about the IAB Awards 2014, however due to some hiccups with the spon-sorship we are having to move the Awards to the second half of the year. We will update you on the changes as soon as we have some news from the sponsorship teams. The IAB team has put a lot of effort in getting the awards off the ground two years ago and we appreciate all your support and it is my hope that we can offer you a great event sometime in the autumn of 2014.

In the next issue of IAB we will reveal our Global Accountancy Power 50, a list of the top global influencers of the profession. Thank you all who have voted in the public vote round including an algorithm that kept spamming us with votes making us reach over one million votes all together (please be assured those votes will be removed).

The full l ist will be unveiled on 13 December.

Ana [email protected]

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FeATures 05-08

CommenT 04

02-03

ConTenTs

n KPMG launches data and analytics fund.

n Booz deal puts PwC on path to rebuilding advisory business.

04: AubreY JoAChIm

Former president of the Chartered Institute of Management Accountants Aubrey Joachim shares his expertise on big data and how accountants can use it to their advantage.

o5: CorporATe reporTInG

BDO UK senior audit partner James roberts explains how quantity is triumphing over quality in corporate reporting.

o6-08: nATurAL CApITAL

As natural resources become scarce, businesses may need to incorporate nature in their balance sheets.

09-13: AusTrALIA

A change of government, industry consolidation and regulatory develop-ments have made for an interesting 12 months in the Australian accounting market. paul Golden reports.

14-20: souTh AFrICA

As opportunities open up for South African firms across the continent, regulation and fee pressure are slowing domestic growth. vincent huck and Jonathan minter report.

Advice versus assurance

edITor’s LeTTerInternational Accounting Bulletin

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Subscribe to The Accountant for: • IPaccesstoourcontent.Soyourstudentscanaccessour

content campus-wide with one login

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• Trulyglobalanalysis.Wecoverarangeofstoriesfromaroundthe world, so your students get a wide perspective of the sector.

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2 y November 2013 www.InternationalAccountingBulletin.com

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IAB onLIne – novemberTop 5 articlesEY US to pay $99m to Lehman Brothers investors

PwC and global consultancy Booz & Co. to merge

RSM Tenon’s shareholders lose out

UK parliament urges government to adopt natural capital accounting

PKF Cape Town joins Grant Thornton International with merger

most retweeted articlePwC and global consultancy Booz & Co. to merge

read in 171 countries

UK 27%

US 11%

Malaysia 9%

Singapore 8%

Australia 5%

Other 40%

GLobAL

KpmG launches data and analytics fundKPMG has launched its own London-based global investment fund, KPMG Capital. The fund will invest primarily in data and analytics businesses via strategic acquisitions, technology partnerships and other data and analytics capabilities.

It will also work to develop technology consultancy in sectors such as health care, financial services, energy and telecommunications.

KPMG UK chairman Simon Collins said: “Technology isn’t following the old rules – innovation is happening in universities, in small informal businesses and through curious individuals. For a major company to harness this we have to be more agile – co-investing, sponsoring and partnering at early stages and encouraging technology entrepreneurs to be bold. ”

uK

rsm Tenon’s shareholders lose out to Lloyds banking GroupA report by RSM Tenon’s administrators Deloitte has revealed that while RSM Tenon’s creditor Lloyds Banking Group will receive £29m ($46.7m) of the £86m owed, there will be no return to shareholders.

The report revealed that Baker Tilly UK acquired RSM Tenon for an aggregate value of £30m, comprising £1m in cash for RSM Tenon’s shares, £22m to settle bank debt and £7m working capital adjustment.

Andrew Jenner from Kato Consultancy said: “Lloyds cut their losses and if they hadn’t come down to this the business would have

disappeared.”The report also revealed that on

8 October Baker Tilly UK acquired the client base of RSM Tenon PSL (a subsidiary of RSM Tenon which was not included in the pre-pack deal) for £80,000.

“The jury is now out,” Jenner said. “Baker Tilly will have a lot of issues to address, and I should hope that they thought about it and have done their due diligence before making their move.”

Among the issues that need addressing is the integration of the new staff and offices. “They will have to do some surgery to consolidate offices into one another and face properties and staff issues,” Jenner said. “There will be a fallout, because Baker Tilly UK doesn’t need the administration staff, nor do they need the partners.”

Jenner says that as a result of the acquisition Baker Tilly’s average profit distributed to partners will go down significantly. “And the higher this figure is, the more profitable the business,” he said.

us

eY us settles up with Lehman brothers investorsEY US has agreed to pay $99m to former Lehman Brothers investors who had accused the auditor of helping Lehman misstate its financial records before the bank’s collapse in 2008.

The firm said it denied all liability, but was settling the case

“to put this matter behind us” in a statement. Additionally, the firm said “Lehman’s audited financial statements clearly portrayed Lehman as what it was – a highly

leveraged entity operating in a risky and volatile industry; and Lehman’s bankruptcy was not caused by any accounting issues.”

The Lehman Brother collapse has been widely credited as the starting point of the global financial crisis that the world is still struggling with. After the collapse, investors filed a lawsuit against a number of those involved with the bank, including EY, Lehman’s auditor between 2001 and 2008.

In January 2013 the UK Financial Reporting Council said it was taking no action against EY UK, and in June 2012 the firm was also cleared by the UK Accountancy and Actuarial Board.

europe

ImF recommends independent audit of ukrainian banksAn International Monetary Fund (IMF) mission to Ukraine has recommended authorities conduct an independent audit of the country’s banks to increase confidence in the sector.

Between 17 and 29 October an IMF mission led by Nikolay Gueorgiuev visited the country to hold discussions for the 2013 Article IV Consultation and the first Post-Program Monitoring Review. Gueorgiuev said, overall, Ukraine’s economy was showing signs of improving, but considerable challenges remained.

To meet these, Gueorgiuev made a number of recommendations, including “the use of independent bank audits to ascertain asset quality and the adequacy of loan classification, provisioning, and collateral”. <

news round-up

movers & shAKers

KpmG has appointed a global Islamic finance leadership team to support its growing Islamic finance practice. The team is led by samer hijazi of KpmG uK, and features six other partners from the middle east, malaysia and south Africa. The firm said the team is intended to aid closer coordination of service teams in the development of Islamic finance products and services.

Wayne Berson has been appointed chairman of the global board of BDO International,

effective on 1 January 2014. Berson is chief executive officer of BDO USA, and previously worked as BDO USA’s Atlantic regional business line leader for assurance services. He has been a member of BDO’s board of directors since 2009 and has served as the board’s presiding member since 2010.

stephen Chipman’s (pictured) term as chief executive of Grant Thornton us has been extended

to 31 december 2014, by which time he will have worked in the role for five years. The firm said its partnership board has asked Chipman to stay on for another year as the board begins a succession process in

2014 to find and appoint his successor.

Alliott Group has elected Ken Lee as the

association’s Asia-Pacific chairman. Ken Lee heads up

Alliott Group’s Chinese member firm Lee & Lee Associates.


newsInternational Accounting Bulletin AnALYsIs/FIrm movemenTs

Grant Thornton Cape Town and PKF

Cape Town have merged, effective

from 1 January 2014. As part of the

merger, PKF Cape Town will bring

ZAR52m ($5m) in revenue, nine

partners and 120 staff to Grant

Thornton Cape Town, bringing

the firm’s revenue to R172m, with

26 partners and 318 staff. This is

the third PKF office to join Grant

Thornton International in South

Africa, following mergers with PKF’s

representatives in Johannesburg and

George.

Kreston International has added uK

firm mitchell Charlesworth to its

network. mitchell Charlesworth has

17 partners and 140 staff in offices

in Chester, Liverpool, manchester,

warrington and widnes. The firm

specialises in accounting and

advisory services.

HLB International has added

Tanzanian firm Mekonsult and Italian

firm Studio IFF Inturri Frangipane

Ferrandi to its network.

brazilian firm partwork Associados

has joined association Geneva

Group International (GGI). It has

five partners and more than 100

professional staff and its addition

gives GGI seven firms in brazil.

RSM International’s US member firm

McGladrey has agreed to acquire

substantially all of the assets of

Houston-based firm Margolis, Phipps

& Wright (MP&W). The acquisition is

expected to be completed on

2 December. As part of the deal, all

of MP&W’s 100 employees and 14

leaders are to be offered roles at

McGladrey, which will continue to use

MP&W’s existing Houston offices.

nexia International has added a

firm in egypt and saudi Arabia

to its network. middle east for

Consultation, based in Cairo, has

four partners and 80 professional

staff. Al Tala CpA in saudi Arabia

has 27 staff in offices in riyadh

and Jeddah, offering audit and

assurance, tax, zakat, outsourcing,

risk management and business

advisory services.

BKR International has admitted the

Chinese firm Jinghua CPAs Company

and Spanish firm Gesem to its

association. Beijing-based Jinghua’s

five partners and 43 staff offer

accounting, audit and consultation

services from its three offices, all in

Beijing. Alicante-based Gesem has

nine partners and a staff of 16, and

its services include tax, accounting,

audit and financial assistance.

AGn International has added

hilson Fagerlund & Keyse from

new Zealand to its network. based

in Christchurch, hFK counts five

partners and 34 staff.

FirmMovements

AdvIsorY

Booz deal puts PwC on path to rebuilding advisory business

Long gone are the days when the largest accounting firm corridors were domi-nated by accountants and auditors. Today, advisors are taking up more

and more office space at top-tier firms. PwC announced at the end of October that it is to merge with global consultancy Booz&Company, which is likely to boost PwC’s advisory fees by $1.4bn annually.

The deal is still pending approval from Booz & Company’s 300 partners, as well as regulatory approval, but, if finalised, it’s likely to boost PwC’s global revenues and perhaps enable it to recoup the title of larg-est global accounting firm from Deloitte which, this year for second time in four years, overtook PwC in the race to be the largest firm by fee income, mainly due to Deloitte’s advisory business.

For some, PwC’s announcement felt like a blast from the past as the Big Four already had strong advisory practices over a decade ago.

However, the collapse of Arthur Ander-son in the wake of the Enron scandal sent shock waves through the profession. The collapse was followed by the introduction of Sarbanes-Oxley which imposed a ban on providing IT system advisory services to audit clients. This lead the Big Four, except Deloitte, to sell of their mainly IT-based advisory businesses. As a result, in 2002 PwC sold its advisory business to technol-ogy giant IBM for just under $4bn. Since then, things have changed and instead of system advisory, firms have started to look at offering management consulting and focused on areas such as forensics, social media and big data-related services.

Booz & Company has 3,000 staff in 57 offices worldwide and specialises in man-agement consulting.

PwC global chairman Dennis Nally said: “We believe this proposed combination of Booz & Company with our existing assur-ance, advisory and tax capabilities would

create a standout professional services organisation that delivers first-class quality services to a broad range of stakeholders. In particular, it would give CEOs the opportu-nity to work with a global consulting team that could provide services from strategy development right through to execution.”

The deal comes at a time when firms are struggling to grow their business via tradi-tional service lines such as assurance and most of the Big Four have been making sig-nificant investments worldwide which are boosting their advisory capabilities.

Despite the business opportunities, the large firms are still in the spotlight due to their size and many have questioned the conflict of interest that could arise from having a large audit and advisory practice under one roof. In the EU, for example, the Parliament, Commission and Council are currently looking into imposing more restrictions on firms and services they can provide to audit clients.<


CommenT International Accounting BulletinAubreY JoAChIm

4 y www.InternationalAccountingBulletin.com

Big data and analytics have been the buzzwords of the past few years, and there’s a whole new industry emerging around

them.Since the emergence of big data,

more or less everyone has started to use it – more or less everyone else has to. Companies use analytics to seg-ment their marketing, scientists to identify correlations between lifestyle and disease, governments to foil terror-ist attacks, not-for-profits to identify potential donors, and banks to arbi-trage tiny differences in market prices.

Understanding and interpreting data is part of the role of accountants. The new technology of data capture, storage and analysis should be a gift to the accounting profession. Analytics are not only exciting in their own right: they prom-ise to reinvigorate the finance function’s role. They present accountants with a formidable opportunity to shape business strategy.

Finance professionals have traditionally been the producers of management infor-mation in respect of organisational perfor-mance. However, this information has most-ly been of a financial nature and providing a historical view of performance. This context of information provision falls typically into the definition of analysis, which is a histori-cal view of what has happened in compari-son to what was planned to happen.

variance analysisAccountants term this as variance analysis. This information is only single-plane and delves into the detail of what happened in financial outcome terms, sometimes not even answering the ‘why’.

Being able to answer the ‘why’ requires framing the single-dimension financial data against other multiple data sets such as cus-tomer, market, economic data and many more. This type of multidimensional com-parison of data can only be done using busi-ness analytics skills, management accounting

and statistical tools. In today’s dynamic busi-ness environment, business managers need much more insight if they are to deliver the strategic outcomes for their organisations and keep ahead of the competition.

The information expectations of business managers offer a significant opportunity for finance professionals to demonstrate their capabilities. However, they need to look beyond the single-plane financial perspective they’ve been focused on for so long.

It must be recognised that the financial outcome of any organisation is only a con-sequence of whatever happens in the organi-sation in the context of both internal and external circumstances.

Today these internal and external circum-stances are reflected as vast volumes of data. It’s only the application of business analytic skills, competencies, tools and techniques that can unlock significantly more business intelligence but also translate today’s big data into predictive insights.

What are the opportunities finance profes-sionals can explore in the context of big data and business analytics?

For a start, they must realise that merely looking back at what happened is insuf-ficient. They must be able to contribute to providing at least a dynamic view of

what’s happening.But even this is falling below expecta-

tions. Tomorrow’s organisations expect their finance professionals to provide predictive insights that will enable decision-makers to develop strategy and deliver strategic outcomes.

World-class finance functions see their finance professionals as business partners, getting significantly more involved in organisational strategy, from a proactive and predictive stand-point.

Getting to grips with big data and business analytics will provide finance professionals with the ideal platform to achieve a higher standing and rec-ognition as truly value-adding business

partners. In this context, finance has not rec-ognised its latent potential.

The finance function has the prerogative of cutting across all data sources across the organisation. Yet very few finance profes-sionals have exploited this position to gain and share predictive insights in respect of the organisation’s performance.

Now is the time to get involved before the opportunity is taken away from them. Finance professionals and accountants in particular must recognise that they too have a very powerful toolkit which can complement the features offered by business analytics.

What they should recognise is they must be open to the idea of transforming them-selves by looking and thinking outside the box. Big data and business analytics is an opportunity that shouldn’t be missed.

And it is not only accountants in prac-tise who can, should, or are harnessing the potential of big data. Several of the large accounting firms have made significant investments toward acquiring analytics skills as part of their advisory offering.

Additionally, as the role of the auditor and the need for a more forward looking view increases, big data might play a significant role in future developments. <

Big data insight can deliver strategy Former president of the Chartered Institute of Management Accountants Aubrey Joachim shares his expertise on big data and how accountants can use it to their advantage


FeATureInternational Accounting Bulletin CorporATe reporTInG

In recent years there’s been much talk about cutting clutter and complexity in annual reports from all sides and industry stakeholders. In the UK espe-

cially, corporate reporting has been a key issue on regulators’ and firms’ agendas.

For BDO partner James Roberts, a Bib-lical comparison proves the ideal way to show an increasing problem with the length of corporate reports. He points out that UK regional bus company The Go Ahead Group’s last annual corporate governance statement was longer than the entire Book of Genesis, which describes how God cre-ated the world and everything in it.

Roberts argues that corporate reports have become unnecessarily long and com-plicated, increasingly so over the past 20 years, as a growing number of stakeholders request more information, and improving IT systems allow companies to do so.

Part of this has come from the change in who the accounts are meant for, and Rob-erts says we have moved from a world where stakeholders included the lenders and the investors, to a world where the stakeholders include the local community, the tax depart-ment (HMRC), the government, environ-mentalists, and society in general.

This puts pressure on the breadth of reporting because, for example, oil compa-nies and local communities might place dif-ferent emphasis on the importance of carbon emissions, for example.

As a result, Roberts says: “If we’re going to continue with dual-purpose financial statements in the long term, we need to have a clear understanding of what’s going to be in them, because when they become so long, it puts pressure on them and they stop being of value to individual interest groups.” On top of this, there’s a growing “mistrust of business” exacerbated by the financial crisis, and the ensuing financial scandals.

As a result, people are less trusting of auditors. Roberts says: “A few years ago you’d come up with an answer of what your pension liability ought to be, people would

generally accept it and move on. Now people want to know the actuarial assumptions involved, the return on investment from underlying assets of the pen-sions scheme, and what varia-tions there would be in a profit and loss account should there be variations in underlying assumptions. As a result there is a lot of input data as well as a lot of output data.”

Because of all this, accounts are getting longer and more complicated, and Roberts adds that the accounting language and their format are only add-ing to the complexity.

There is also currently an “alphabet stew” of bodies issuing regulations for companies, and in some cases this is more complicated that it needs to be for the real world, he says.

Despite all these problems, Roberts argues strongly in favour of keeping single gener-al-purpose corporate reports, pointing out that “the last thing a company wants is to produce 22 different reports for 22 different interest groups.”

Looking at ways of improving reporting, Roberts suggests “there are eight or nine lit-tle things that could make it more readable and enable people to understand the story.”

Some of these are simply using a more intuitive order, and attempting to create a single story and theme throughout, “rath-er than have the chairman’s statement, the director’s report and a chief executive report, all broadly repeating one another”.

To this end, Roberts created a sample report for a fake company, Terrapinium Group, which complied with all UK laws apart from directors’ remunerations, to demonstrate how corporate reports could be structured in a much simpler fashion.

Directors’ remuneration is another exam-ple of corporate reporting becoming longer, according to Roberts, who says requiring all companies to publish executive pay in their

annual reports because of a few companies perceived to be behaving irresponsibly, is using a sledgehammer to crack a nut.

It’s also an example of an increasing trend in “the EU and the UK government of using reporting as a tool of government policy, and as a tool that’s a bit awkward”.

Despite suggesting some methods of alle-viating the growing length and complexity of reports, other problems will take longer to resolve, and will require regulatory updates.

In the UK, Roberts notes: “The Financial Reporting Council is talking about cutting clutter, and its heart is in the right place, though I would like to see some more con-crete proposals.”

He adds that integrated reporting has also brought up some important debates on who reports are for, and adds that IFRS looking at accounting principles should also help the situation. Although technology may also provide a way of alleviating the need to print off entire reports, “we’re in this awkward space between technology being developed enough so that you can almost select your own report based on your criteria, and hav-ing to print off 600 pages,” he says.

Corporate reporting is on a journey, Rob-erts concludes, and though technology may soon catch up, “we are not there yet.”<

In the beginning God’s report was shorterBDO UK senior audit partner James Roberts speaks to Jonathan minter about how quantity is triumphing over quality in corporate reporting and how a key challenges for the profession is to reverse this

6 y November 2013 www.InternationalAccountingBulletin.com6 y November 2013 www.InternationalAccountingBulletin.com

Legend has it that the Chagga tribe, which lives on the slopes of Kili-manjaro, believed the mountain was sacred.

This belief was rooted in the fact that when they tried to climb the mountain to get to the shining precious stone at the top, they would feel ill and dizzy. And if they did make it to the top, the shining precious stone would have turned into water by the time they came back down again.

Of course we now know that altitude was the cause of their illness, and what they thought to be shining precious stones was in fact snow. This legend is a good allegory for our knowledge of, and relationship with, nature, and it links to a more current debate about natural capital, and natural capital accounting (NCA).

Natural capital refers to the stock of capi-tal derived from natural resources. In other words, it refers to the elements of nature which directly benefit or underpin human well-being. NCA, in the words of the Insti-tute of Chartered Accountants of England and Wales (ICAEW) head of sustainability Richard Spencer, is “a new discipline which highlights the impact of business activities on the natural world”.

At the heart of the debate is the ques-tion of how to account for a company’s impact on nature in order to protect the natural resources which are essential to its

activities, but also to make these activities more profitable.

Or as the World Forum on Natural Capi-tal programme director Jonathan Hughes explains: “Are we using natural resources in a way that the renewing part of these resources can renew themselves quickly enough? We are running a natural capital debt that we won’t be able to pay back.”

Natural capital has been discussed, debat-ed, written about, criticised and promoted for the past 30 years, but mostly behind closed doors and in academic circles.

widening debateIn recent years the debate has widened to a global audience, due partly to the ris-ing importance given to ethics in business practice, but also because businesses have now perceived that a shortage of natural resources is an existing threat and a tremen-dous risk to the survival of their activity. As KPMG UK lead specialist in natural capital Stephanie Hime explains: “Natural capital has moved from a reputational issue to one of operational significance for businesses.”

Spencer says this shift in businesses’ per-ception was very clearly apparent at the Rio+20 United Nations Conference on Sus-tainable Development last year.“The main difference between Rio+20

and the original Rio conference in 1992 is the number of businesses that attended,”

he says. “The same ideas were discussed at both conferences, but at the original con-ference there were no businesses present, whereas last year plenty of leading busi-nesses attended.”

At the moment, NCA is at a debate stage with many initiatives independent of each other trying to bring ideas into practice.“Through the Natural Capital Commit-

tee, the UK is looking at developing NCA at state level, and therefore is one of the leaders in the debate,” says Association of Certified Chartered Accountant (ACCA) sustainabil-ity advisor Gordon Hewitt. “But a lot has also been done elsewhere through initiatives such as the Wealth Accounting and the Valu-ation of Ecosystem Services (WAVES).”

WAVES is a global partnership launched in 2010 with Botswana, Colombia, Costa Rica, Madagascar and the Philippines as the initial core implementing countries. The partnership now counts 65 countries.

Since its inception WAVES has tested the feasibility of NCA across five countries. The implementation phase in those coun-tries has now started and is expected to last four years. “Australia is also very active on the NCA

front,” Spencer says. “It’s the only country which has adopted an accounting standard with regards to natural capital.”

In 2007, Australia’s Bureau of Mete-orology set up the Water Accounting

What price the priceless?

As natural resources become scarce, businesses may need to incorporate nature in their balance sheets and financial statements by giving a price to natural assets such as air, ancient woodlands or natural habitats. vincent huck looks at the latest trend in natural capital accounting

FeATure International Accounting BulletinnATurAL CApITAL


FeATureInternational Accounting Bulletin nATurAL CApITAL


Development Committee, which two years later became the Water Accounting Stand-ards Board (WASB).

The exposure draft of the first Austral-ian Water Accounting Standard (AWAS 1) was published in 2010, followed a year later by the publication of the AWAS 2 exposure draft. Both standards were finalised in 2012.

Another major initiative in the field of NCA was launched in 2012 when The Economics of Ecosystems & Biodiversity for Business Coalition (TEEB for Busi-ness) was formed in Singapore. Among the founding organisations and supporters are the ICAEW, the Prince of Wales’s Account-ing for Sustainability Project, the Interna-tional Union for Conservation of Nature, the World Business Council for Sustain-able Development (WBCSD), The Global Reporting Initiative and the World Bank.

natural and social capital valuationTEEB for Business aims at supporting the development of methods for natural and social capital valuation in business. And herein lies the main issue around NCA: it is widely accepted that natural capital should appear in a company or a state’s accounts, but how, and in which form, is still unclear.

For many, this is where accountants have an important role to play. The debate has reached a turning point where ideas have to be put into practice, and accountants appear

to be best suited to help the process.As Climate Disclosure Standards Board

(CDSB) executive director Lois Guthrie says: “Accountants have a 100-year-plus history of accounting for money and things that businesses need to flourish.“Although accountants focused on money,

we now know it’s not the only thing com-panies needs to flourish. They have to look at things such as ecosystems, biodiversity, water, healthy soil, timber, medicine, fuel.”

This represents a challenge for business-es as NCA is still at a development stage, and there’s no single universally accepted way of incorporating natural capital into a business’s accounts.“There are no universal standards at the

moment,” says ACCA’s Hewitt, “so differ-ent groups and organisations are looking at ways of doing things, and accountants with their skills and experience should get involved in this type of thinking.”

For KPMG’s Hime, there will be two ways of including natural capital in a com-pany’s account. “One is to use environmen-tal economics modelling to estimate the cost of impact and dependencies,” she says.

“And the other is to look at current account-ing rules and apply them with natural capi-tal in mind.”

The latter is preferred by Guthrie, who believes accountants have the necessary tools to engage with natural capital. She says they should follow a four-step meth-odology. “First, natural capital has to be characterised,” she says. “Whether it’s an asset, a liability, an option or a conditional promise, unless you characterise, it’s very difficult to know where to place them in the system of accounting.”

The second step is to measure and account depending on the characterisa-tion that has been chosen. This is a tricky part that divides most stakeholders. Some believe that natural capital should be given a monetary valuation – in other words put-ting a price tag on priceless ecosystems and natural resources.

But another way to account for the extent of a business’s impact on nature would be to look at quantities such as litres or met-ric tons. “You need an underlining unit which represents the extent of the impact,” Guthrie says. “And the unit itself can be as informative as the financial value of that same unit.”

Even though putting a financial value on

natural assets is only one of the options dis-cussed, it has become the main controver-sial question around NCA.“There is some debate about the finan-

cial valuation because some say it leads to the commoditisation of nature and others believe that some things are just priceless for spiritual or historical reasons,” Hewitt says.

“All those arguments are valid, but I think it’s more dangerous not to try and quantify natural capital in monetary terms, because what we are trying to do is incorporate it in economic decisions, and it’s very hard to do that if you don’t have a comparable figure.”

The main argument for those in favour of putting a price tag on natural assets is that money is a language that businesses understand.“Monetary valuation serves a purpose as

being a language to understand the relative magnitude of different outcomes,” Guthrie at the CDSB says. “We don’t have any other language available at the moment.”

Hughes from the World Forum on Nat-ural Capital agrees, and even though he says putting a value on natural assets will always be approximate, he adds “it gives an understanding of the importance and value of these assets in a way that was invisible before, and that can now help businesses to make decisions on how to manage those assets”.

The third step, according to Guthrie, is the reporting which derives directly from the Jonathan Hughes

Richard Spencer


FeATure International Accounting BulletinnATurAL CApITAL


first two steps: characterisation, and measuring and accounting. “If you look at it in terms of

financial value or quantitative value, these are figures that can appear in a balance sheet,” ICAEW’s Spencer explains.

“But if you look at it in terms of quality, it will be in the narra-tive part of your reporting.”

Despite agreeing that finan-cial valuation of natural assets can be controversial, Hughes is against the qualitative narrative approach. “You can’t just include a cou-

ple of projects in your final report and that’s your cor-porate social responsibility ticked,” he says. “There needs to be a rooted systematic mech-anism by which you explain your relationship as a company with the environment in which you operate. It’s a much more rigorous approach than telling the nice story.”

Hughes believes this rigorous approach will be a great tool against ‘greenwashing’, the term referring to PR work used to promote the perception that an organisation’s products, aims and policies are environmentally friendly.“We are talking about an objective natu-

ral capital accounting approach where it’s much more difficult to spin the findings because, as we move towards common standards and proper auditing of the results, it will be real figures and much harder to get away with greenwash,” he says.

He’s quick to remind everyone that NCA is not a threat to businesses but an opportu-nity. “It will ensure a stable supply of natu-ral resources to run a business and minimise price volatility,” he says. “But it’s not that if you do NCA you suddenly become sustain-able. It will only enable businesses to make more informed decisions.”

This idea goes hand-in-hand with the CDSB’s Guthrie’s fourth step, which is the purpose. “To what use will this information be put? Who uses it and what will they do with it?” she asks.

Spencer agrees: “Scaling and valuing is great, but what are you going to do about it? Do we want to use this value to design new regulations, or is it to change

consumer behaviour, or to change the busi-ness model?”

An important consensus behind the idea of NCA is that it is not only about nature preservation, but also about enhancing businesses’ profits.“We have always known that we had lost

the ecological value,” Hughes says. “But what we failed to understand is that we lost the economic value as well.”

risk management and savingsACCA’s Hewitt agrees and believes more companies should start considering natural capital as they will benefit from better risk management and cost savings.

For Hime at KPMG, the purpose of NCA should be the starting point of the debate. She says the main challenge will be the choice of language. “There are several definitions of natural capital,” she says. “And each uses language that need defining too. The main challenge at the moment is that we are still in the process of getting the debate out of the academic world and putting the ideas into practice. It’s obvious accountants have a role to play in this process because they ultimately govern what goes in the

financial statement.”Another challenge, she says,

is that there are so many dif-ferent frameworks being devel-oped at the moment it creates scepticism as the message is refined.

With different actors looking at different ways to account for natural capital, and no organi-sation taking the lead in coordi-nating those efforts into build-ing a single universally recog-nised framework, it seems NCA still has a long way to go before it becomes standard practice.

But at the end of Novem-ber the first World Forum on Natural Capital will take place in Edinburgh. Hughes, as part of the organising committee, explains the primary goal of the forum is to highlight the critical obstacles and start to agree on common elements for a standard.“In a nutshell, we want the

forum to be the turning point from rhetoric to reality,” he

says. “And the really exciting thing about the forum is that it will bring together governments, NGOs, academics, business-es, accountants and conservationist.”

milestoneGuthrie says that even though the forum hasn’t taken place yet it already has been described as a milestone.

“It will be the opportunity to start estab-lishing networks and agreements,” she says.

While natural capital makes its way through a wider audience and installs itself as a necessity for business survival, Hughes suggests it will slowly become “a new mar-ket for firms to get involved in, there will be a need in the future for this service to be provided so it makes sense for firms to understand this concept”.

There is no doubt that in the dangerous act of valuing or pricing our environment, accountants will have the tough responsi-bility of keeping the balance between price and value.

But in a world increasingly looking anx-iously at the effects our actions are having on our world, the march forward of NCA would seem to be unstoppable<

Lois Guthrie


Speaking at the 2013 IMF and World Bank annual meetings, the new Aus-tralian Treasurer Joe Hockey stated that, as an open economy with a

large natural resources sector and a freely floating currency, Australia has a long history of living with external volatility.

The accounting industry has exhibited similar levels of unpredictability recently, according to many firm leaders interviewed by International Accounting Bulletin.

For example, BDO Australia national chairman Helen Argiris refers to partners

“jumping from firm to firm”. Stephen Roger, Asia-Pacific regional executive director BKR International, says there is “an identity crisis in the second tier of the profession” as a result of recent consolidation, while Greg Hayes, director of Morison International member firm Hayes Knight reckons mid-tier firms are “in a bit of a feeding frenzy”.

Last year’s IAB country report referred to mergers and acquisitions creating a “power shift”, although this doesn’t always produce the expected result, as Mark O’Connor, partner in MSI member firm Cutcher & Neale explains. “Increased merger activ-ity and consolidation of regional practices into network firms will create some chal-lenges for smaller firms,” he says “particu-larly those that may need, but cannot access, resources to complement their own.”

However, O’Connor also anticipates fur-ther consolidation due to increasing compe-tition between firms to provide a wide range of services, including those not traditionally offered by firms outside the Big Four.

Some potential retirees have decided to stay on for a few more years to get their practice into better shape for a potential future sale, says Alec Blacklaw, director of McKinley Plowman & Associates and MSI area representative for Asia-Pacific.“Other mid-tier firms have focused on

improving their lock-up days and workflow throughout,” Blacklaw says. “We anticipate there will be more mergers over the next few years as firms seek to differentiate and oth-ers bulk-up to accommodate their invest-ment in order to receive economies of scale and improved ROI.”“I wouldn’t be surprised if there’s a little

more consolidation in the middle tier, but we think much of the M&A will be driv-en by firms acquiring new capability in advisory areas,” says Robert Quant, chief executive, Grant Thornton Australia, while BDO’s Argiris believes a lack of succession planning will see the larger firms become even bigger and that smaller firms will start grouping together, using structures where they share their premises, back office and infrastructure and where members are specialised and get referrals from others.

Neil Wickenden, partner at HLB Interna-tional Australian member firm HLB Mann Judd observes that mergers have had a slightly unsettling effect on the profession, and that merged firms may have found their profitability impacted while bedding down their ‘new’ practices.“There’s no doubt [further] mergers are on

the cards with firms looking to stay in touch with the top 10,” says Ian Stone, chairman Nexia Australia. “These mergers are more likely to be local than driven by internation-al network changes. “There’s still some movement by partners

in those firms who may be unhappy with the new merged firms and this can cause disruption if two or three partners decide to leave. I also see succession issues in smaller practices as ‘baby boomer’ owners wish to find suitable replacements who can afford large goodwill payments.”

According to Marco Carlei, chairman of Moore Stephens Australia, the full impact of the 2012 mergers is yet to be felt.

However, he expects further consolidation in the mid-tier market with KPMG, EY and PwC following Deloitte’s strategy in Australia by acquiring second- and third-tier practices and developing a strong

A change of government, industry consolidation and regulatory developments have made for an interesting 12 months in the Australian accounting market. paul Golden reports

CounTrY surveYInternational Accounting Bulletin AusTrALIA

New measures and mergers down under

n AusTrALIA

top 20 fIrms – fee dAtA

rank name

Fee income (A$) Growth

1 PwC* 1,470.0 –1%

2 EY* 1,120.0 0%

3 KPMG* 1,113.0 –1%

4 Deloitte* 1,092.0 –1%

5 Crowe Horwath International

344.1 –3%

6 Grant Thornton Australia 223.0 –4%

7 RSM Bird Cameron 140.0 4%

8 Baker Tilly Pitcher Partners Melbourne

97.1 4%

9 BDO East Coast Partnership 79.6 5%

10 Hayes Knight (1) 35.4 12%

11 Hall Chadwick Sydney (2) 35.3 11%

12 Moore Stephens – Melbourne

35.1 13%

13 HLB Mann Judd Sydney 26.7 0%

14 Baker Tilly Pitcher Partners Brisbane

25.7 12%

15 Bentleys Brisbane (3) 22.4 6%

16 Baker Tilly Pitcher Partners Sydney

21.2 3%

17 Prosperity Advisors Group (4)

15.7 –4%

18 Baker Tilly Pitcher Partners Adelaide

10.6 2%

19 Gooding Partners (5) 10.0 26%

20 UHY Haines Norton Perth 9.6 9%

(e) IAB estimate; (1) Hayes Knight is a member firm of Morison International, (2) Hall Chadwick is a member firm of AGN International, (3) Bentleys is a member firm of Kreston International, (4) Prosperity Advisors Group is a member firm of IAPA (5) Gooding Partners is a member firm of DFK International. Source: International Accounting Bulletin

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AusTrALIA

consulting offering.David Tomasi, association chairman at

UHY Haines Norton, describes audit as a major driver for consolidation with regu-latory changes over the past decade – and increased review by regulators – impacting capacity within smaller firms.

Mergers have had a destabilising effect on the mid-tier, and the profession generally, claims John Brazzale, managing partner at Baker Tilly Pitcher Partners, who reckons there will probably be more consolidation as a number of global firms without repre-sentation in various states endeavour to fill the gaps.

September’s change in government is expected to deliver enhanced regulatory certainty, which may help improve eco-nomic confidence, according to Nigel Banks, director of Kreston International member firm Bentleys NSW. Banks says: “In early November, Joe Hockey outlined the govern-ment’s intentions in relation to 92 of the 96 tax-related measures announced by former governments over the past 12 years which have not been enacted. By December, he hopes to announce those changes that will not be enacted and those that will find their way into tax law. The changes will mean

our taxation advisors can more confident-ly advise clients on how best to structure their affairs in order to meet their taxation obligations.”

HLB’s Wickenden says an apparent improvement in consumer sentiment may be attributable to factors other than the change in government, such as the long period of low interest rates and the accom-panying deleveraging of household debt, the relatively strong Australian dollar, the sustained relatively low level of unem-ployment and the rising stock market and housing market.

Nigel Lafferty, partner at Alliott Group member SLS Accounting is more downbeat, suggesting an initial spurt of consumer spending post-election was short-lived, although he also expects some “sensi-ble and positive policy” to be enacted in 2014 and 2015 “which will assist business investment and also assist exporters.”

When asked what services are in greatest demand and how much competition there is for them, Morison’s Hayes refers to moder-ate levels of competition for tax advisory.“Mid-size firms are well placed as they are

able to deliver these services more cost effec-tively than the Big Four, and typically small

firms don’t have depth of capability around more specialised or complex matters. There are only a limited number of firms deliver-ing business advisory (including succession planning) on a comprehensive basis.“However, superannuation advice is a

huge growth market and while there are an increasing number of competitors, market growth is outstripping advice growth.”

At MSI, Blacklaw says demand is strong-est for value-added services such as business improvement, strategic planning, intergen-erational business transfer and succession planning/management, while O’Connor explains wealth management has been a strong driver for his business.“Services representing compliance and

advisory in business structures, investment and retirement planning have been sources of growth, says O’Connor. “Competition for compliance services is building with many low-cost/low-fee options emerging to offer competition for the traditional compli-ance role filled by public accountants.”

Grant Thornton’s Quant agrees that cli-ents are increasingly focusing on profit improvement and consolidation. “There are also structural changes in the economy led by changing technology, economic and

n AusTrALIA

Networks – fee dAtA

rank nameFee income

(A$m)Growth

rate (%)

Fee split (%)

Year-endAudit &

AccountingTax

servicesmanagement

consultingCorporate

finance

Corporate recovery/

Insolvency Litigation

support other

1 PwC* 1,470.0 –1% 31 24 - - - 45 Jun-13

2 EY* 1,120.0 0% 43 30 - - - - 27 Jun-13

3 KPMG* 1,113.0 –1% 35 19 - - - - 46 Jun-13

4 Deloitte* 1,092.0 –1% - - - - - - - May-13

5 Crowe Horwath International* 344.1 –3% 64 6 - 2 - - 28 Jun-13

6 BDO* 226.5 8% 28 46 8 5 11 2 - Jun-13

7 Grant Thornton International* 223.0 –4% 27 39 8 6 14 2 5 Jun-13

8 Baker Tilly International* 161.7 6% 33 32 10 3 12 - 9 Jun-13

9 RSM* 140.0 4% 59 12 11 2 11 - 5 Jun-13

10 Moore Stephens International* 122.5 –9% 63 15 - 2 4 - 16 Jun-13

11 HLB International* 90.8 0% 71 11 - 2 6 - 10 Jun-13

12 Nexia International* 87.3 5% 69 18 6 2 2 2 3 Jun-13

13 Kreston International* 87.1 –5% 33 31 4 1 25 - 6 Oct-12

14 UHY International* (1) 37.8 0% 53 41 5 - - 1 - Jun-13

15 PKF International* 15.3 –87% 57 42 - - - 1 - Jun-13

16 ECOVIS International* 4.6 11% 5 60 35 - - - - Jun-13

17 Reanda International* 3.2 15% 36 33 9 - - - 22 Jun-13

Total revenue/growth 6,339.0 –2%

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (e)=IAB estimate (1) UHY is represented by the association UHY Haines Norton in Australia. Source: International Accounting Bulletin

CounTrY surveYInternational Accounting Bulletin


AusTrALIA

competitive pressures. In particular, we are bullish about our recovery and reconstruc-tion capabilities, business risk, indirect tax and consulting offerings which focus on profit improvement.”

Clients are still searching for competi-tive prices, which results in firms looking at ways to improve service at a lower cost plat-form, observes Nexia’s Stone. “This could be through using new technology. There is also further interest in outsourcing some parts of service lines to countries such as India or the Philippines.”

Traditional service lines are still required, but clients expect a proactive service, mainly consulting which includes strategy, change management and profit improvement adds Carlei at Moore Stephens, who states clients are willing to entertain approaches from other firms that have these capabilities.

AT BDO, Argiris describes consulting as the key growth service in 2013 and tax compliance and business advisory as the biggest fee contributors. She says:

“Transaction-related work took a bit of a dive due to economic conditions and uncertainty in the political arena. This seems to be settling now, particularly with the change in government and renewed confidence in the economy and business arena.”

Roger at BKR refers to an increase in due

diligence work in advance of an expected upturn in the volume of IPOs in 2014. “We are receiving approaches from investment banks to encourage clients who meet the criteria to complete ‘sophisticated investor’ forms so they can be kept on file and contact-ed when these IPOs are issued,” Roger says.

According to Lafferty at Alliott Group, general business services have been in demand over the past 12 months and work-outs are in vogue. “Demand for mergers and acquisitions and due diligence gener-ally has fallen, although as economic condi-tions improve there have been small signs of

n AusTrALIA

AssoCIAtIoNs –fee dAtA

rank nameFee income

(A$m)Growth

rate (%)

Fee split (%)

Year-endAudit &

accountingTax

servicesmanagement

consultingCorporate

finance

Corporate recovery/ insolvency

Litigation support other

1 Praxity* (1) 63.6 –12% 61 12 6 4 3 - 14 n/a

2 AGN* (2) 57.0 5% 32 1 - 3 64 - - Jun-13

3 PrimeGlobal* 47.1 9% 49 26 8 2 - 1 14 May-13

4 DFK International* 45.8 12% 43 39 12 1 - - 5 Sep-12

5 BKR International* 41.2 –2% 53 32 6 - 9 - - Jun-13

6 Morison International* 35.4 12% 42 21 21 16 - - - Jun-13

7 IAPA* 33.9 0% 45 24 6 - - - 25 Jun-13

8 MGI* 30.8 23% - - - - - - - Jun-13

9 Alliott Group* 26.5 3% 67 19 6 1 2 2 3 Dec-12

10 GMN International* 24.7 5% 55 33 9 1 - 1 1 Jun-12

11 Integra International* 17.2 0% 50 35 15 - - - - Sep-13

12 MSI Global Alliance* 16.7 18% 59 23 17 - - - 1 Jun-12

13 KS International* 16.4 –5% 75 10 8 5 - - 2 Jun-13

14 INPACT Asia Pacific* 1.9 10% 67 18 2 5 - - 8 Dec-12

Total revenue/growth 458.1 4%

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Praxity’s 2013 figures do not include Mazars’ results, (2) AGN International is represented in Australia by Hall Chadwick. Source: International Accounting Bulletin

Lack of talent and interest

It has previously been suggested that migration among young professionals could leave the accounting industry in Australia with a skills shortage. However, Stephen Roger says lack of interest in audit is perhaps more of a concern.

“In common with other parts of the world there are fewer people looking to get involved in the audit aspect of the profes-sion and more interested in international tax and expatriate transfer pricing,” Roger says. “Fewer young accountants want to register as company auditors because the qualification regime is extremely onerous. The decline in registrations has levelled off, but we have a lot of older auditors who will be leaving the profession over the next decade.”

Kim Hutchinson reckons the industry faces a challenge in terms of attracting and retaining quality staff in an environ-ment of increased regulation and risk, a

view shared by David Tomasi, who says: “Providers are shrinking as regulation increases and the brain drain goes to com-peting industries. It’s my belief that expe-rienced professionals will become scarcer over the next 10 years or so, as the current crop moves towards retirement.”

While accepting it’s not easy to get good people, John Brazzale believes redundan-cies in the Big Four have freed up some good talent.

However, Tim Davidson is concerned by salary demands and the shortage of registered auditors among small to medium-level practices. He says: “Suc-cession planning is still a huge issue at this end of the market. There is a real shortage of people who want to become equity partners in firms, and the ‘goodwill practices’ are finding it increasingly dif-ficult to attract new partners and meet the retirement needs of exiting partners.” <

pick-up in this area.”The top 10 accounting firms in Australia

had a tough past 12 months with the major-ity reporting a decline in their revenue, says Geoff Kidd, international liaison partner, Crowe Horwath Australasia.“Tax and business advisory are the fastest

growing areas and all businesses are mov-ing strongly into the advisory space, Kidd says. “Merger and acquisition activity has been subdued, so corporate finance out-comes have been patchy. There’s an expec-tation that the change in government will improve business confidence, which in turn will increase business activity and demand for advisory services.”

According to David Carpenter, Cutcher & Neale partner, the most obvious fall in service has been around transactional-based services. “Not as many new products or projects are getting off the ground, there-by reducing the need for advisory services,” he says. “Mergers and acquisition activity remains strong, though.”

Kreston’s Banks says his clients are looking for a strong and meaningful rela-tionship with their advisor. “The greatest

demand is from clients who want advisory services with their accountant playing a more hands-on role in their business,” he says. “This would include wealth manage-ment advice, private office or outsourced solutions, through to developing a strategic or succession planning solution for their business.”

Competition is robust across most areas, particularly as the Big Four push into more of the middle market. That is the view of Kim Hutchinson, national chairman of RSM Bird Cameron, who adds that demand is stronger in business consulting, specialist tax areas and self-managed superannuation. On the downside, he mentions some decline in turnaround and insolvency work.

Hutchinson says: “There’s been an impact on our firm from the Big Four bidding for clients in the traditional mid-tier space, as there’s been a strong level of fee competition in the audit area and some corporate-relat-ed services, particularly for middle-market clients who have not previously been a focus for the Big Four.”

Tim Davidson, director of PrimeGlobal member Fortunity describes the short-term

prospects for the accounting profession in Australia as a continuation of tough times with ongoing pressure on fees and salary demands and the proliferation of cloud-based accounting applications which is mov-ing compliance work from the accountant to the client. “The audit profession is also struggling with ongoing fee pressure and unrealistic fee quotes, says Davidson. “Tax advisory business is still growing, as is finan-cial planning. Value-added services such as business planning are also in demand, but this is limited by clients’ ability to engage these services due to their own cost pressures.”

The use of outsourcing is increasing as cost pressures and the availability of suit-able staff continues to be an issue, he con-tinues. “Outsourcing services located in India, Vietnam and the Philippines are in strong demand, although the profession, as a whole, is still struggling to come to terms with the benefits, security of data etc.”

Baker Tilly’s Brazzale highlights com-pliance work as another area in decline as clients take work in-house, while Nexia’s Stone says reduced demand for

n AusTrALIA

Networks – stAff dAtA

rank name

Total staff Growth rate (%)

partners professional staff Administrative staff offices

2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 PwC* 5,447 5,713 –5% 428 450 - - - - 10 10

2 Deloitte* 5,240 5,306 –1% 534 520 3,742 3,805 964 981 16 16

3 KPMG* 5,103 5,340 –4% - 400 - 3,798 - 1,142 13 13

4 EY* 4,900 4,900 0% 412 405 - - - - 6 6

5 Crowe Horwath International* 2,101 2,265 –7% 232 237 1,201 1,307 668 721 80 80

6 Grant Thornton International* 1,327 1,391 –5% 138 139 931 977 258 275 6 8

7 BDO* 1,302 1,295 1% 157 156 957 984 188 155 11 12

8 Baker Tilly International* 936 926 1% 82 85 687 684 167 157 5 5

9 RSM* 827 817 1% 83 85 591 584 153 148 28 28

10 Moore Stephens International* 714 886 –19% 92 113 501 613 121 160 14 18

11 Kreston International* 611 592 3% 89 86 403 414 119 92 26 29

12 HLB International* 573 550 4% 83 77 369 362 121 111 12 11

13 Nexia International* 513 532 –4% 78 74 344 369 91 89 8 8

14 UHY International* (1) 250 252 –1% 36 35 173 179 41 38 9 10

15 PKF International* 84 175 –52% 19 30 48 120 17 25 4 5

16 ECOVIS International* 25 25 0% 3 3 19 19 3 3 1 1

17 Reanda International* 25 19 32% 8 8 8 8 9 3 2 2

Totals 29,978 30,984 –1 2,474 2,903 9,974 14,223 2,920 4,100 251 262

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (e) = IAB estimate (1) UHY is represented by the association UHY Haines Norton in Australia. Source: International Accounting Bulletin

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AusTrALIA

transactional services, corporate finance and M&A also impacts the high-level tax advice often involved in transactional work. He suggests that even with an economy showing signs of slowing, insolvency work has been surprisingly slow.

Pressure on margins for compliance and audit services is driven by clients who are now less willing to pay for the services they don’t see as value-adding, “and some irra-tionally low pricing by many of our com-petitors who seem to be buying work for whatever reason,” suggests Grant Thorn-ton’s Quant.

Demand for year-end-only preparation of financial statements is also falling, adds MSI representative Blacklaw. “Clients want more proactive and regular CEO and CFO-type support from their accountants, and are prepared to pay for it,” he adds.

Hayes at Morisons describes the health of the accounting profession in Australia as relatively good, even though a chang-ing business model is causing pressures for some firms. “The situation is not consistent across all segments of the market,” he says.

“The large firms are feeling the pressure of fee compression and some significant areas of work are contracting (mining, govern-ment contracts and a reduced amount of M&A work, although the latter is showing some signs of life).

“Smaller firms are feeling price compres-sion,” Hayes says, “but are more nimble and able to cope with change. As a general comment, the profession is struggling to achieve organic growth.”

According to Carlei at Moore Stephens, the profession is suffering from “indiges-tion” with too many practices, an ageing partner population and a skill base not meeting client expectations.“The profession is a cottage industry with

the majority of firms’ revenue under A$3m ($2.82m) and consisting of three partners or fewer,” Carlei says. “At least half of these practices consist of partners who are baby boomers who more often than not resist change. There should be further consolida-tion as there are too many firms providing compliance-only service where clients are demanding a valued-added service offering.”

He says the consolidators’ model is flawed and may pose a succession issue for practices. “The profession will experience significant changes over the next 10 years with new players entering the market, such as insurance and wealth management com-panies,” he adds.

A spokesperson for EY Australia sug-gests the firm is optimistic about business opportunities over the next 12 months and beyond, particularly in the areas of finan-cial services, mining and metals, govern-

ment, real estate, power and utilities, oil and gas, and media, telecommunications and technology.

She describes the likely long-term impact of the change of government as hard to define, although in the short term she expects the new administration to improve stability in financial markets.

BDO’s Argiris refers to greater focus on Asia-Pacific for growth – particularly China and India – and says inbound opportuni-ties will also create greater opportunities for professional firms.

She says: “The top 100 firms will con-tinue to move aggressively into new service areas outside the realm of straight audit and tax advice, including wealth manage-ment (particularly self-managed super fund advice), real estate advisory, digital consult-ing and data analytics.“We may see accounting law combinations

acting as incubators for start-up businesses and will see more specialist boutiques, focused on areas such as commercialisation of intellectual property,” she adds. “There will also be an increased number of firms that have outsourced all their back office functions.”

Baker Tilly’s Brazzale expects an increase in corporate transactions and investment by clients in their businesses and other assets towards the end of next year.<

n AusTrALIA

AssoCIAtIoNs – stAff dAtA

rank name

Total staff Growth rate (%)


2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 Praxity* (1) 406 447 –9% 57 54 265 322 84 71 5 5

2 PrimeGlobal* 336 297 13% 47 45 210 188 79 64 12 11

3 BKR International* 316 295 7% 51 41 216 214 37 36 21 16

4 DFK International* 289 294 –2% 39 37 186 192 64 65 16 16

5 MGI* 258 160 61% 33 24 176 104 49 32 10 9

6 IAPA* 215 227 –5% 30 29 98 97 87 101 9 9

7 Alliott Group* 202 183 10% 22 18 138 125 42 40 4 4

8 Morison International* 191 175 9% 28 24 136 123 27 28 6 6

9 GMN International* 183 180 2% 24 25 125 122 34 33 9 9

10 AGN International* (2) 180 171 5% 15 15 133 138 32 29 4 4

11 MSI Global Alliance* 133 118 13% 20 19 83 78 30 21 5 5

12 Integra International* 129 129 0% 19 19 84 84 26 26 4 4

13 K S International* 97 101 –4% 17 18 60 70 20 13 3 3

14 INPACT Asia Pacific* 17 17 0% 5 5 10 10 2 2 2 2

Totals 2,952 2,794 1 407 373 1,920 1,867 613 561 110 103

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included (1) Praxity’s 2013 figures do not include Mazars’ results (2) AGN International is represented in Australia by Hall Chadwick. Source: International Accounting Bulletin



AusTrALIA

COUNTRY SURVEY International Accounting Bulletin

14 � November 2013 www.InternationalAccountingBulletin.com

SOUTH AFRICA

� SOUTH AFRICA

At a glanceREVENUE

Largest by revenue: PwC, ZAR 4,013mSmallest by revenue: CPA Associates International, ZAR 11.4mHighest growth rate: Mazars, 22%Lowest growth rate: GMN International, –50%

STAFF

Largest workforce: PwC, 4,876Smallest workforce: CPA Associates International, 30Most professionals: PwC, 3,816Most partners: PwC, 283Most admin staff: PwC, 777Most offices: PwC, 22

ECONOMIC INDICATORS

GDP: ZAR 3,155.2bnGDP growth: 2.5%GDP per capita (PPP): 11,375.48Inflation (CPI): 5.6%Current Account Balance: –6.26%Budget Balance: –4.8%Unemployment rate: 25.2%Population: 51,197,000

IAB SURVEY INDICATORS

Revenue per employee: ZAR 730,107

Staff density: 2,311

Notes: Totals apply to IAB surveyed data only. This includes firms that belong to global networks and associations

Source: International Accounting Bulletin, IMF

Face of the profession twenty years onAs opportunities open up for South African firms across the continent, regulation and fee pressure are slowing domestic growth. Vincent Huck and Jonathan Minter report

Project4:Layout 1 20/11/13 14:10 Page 1

Next year, South Africa will organise its fifth general election since the end of the Apartheid regime and celebrate 20 years of democracy.

In 20 years, the rainbow nation, as the democratic South Africa has come to be known, has pushed very progressive social and political reforms based on human rights, freedom as the highest good, equality, and the tolerance of cultural, ethnic and religious difference. And in 1996 the country adopted a new constitution which is believed to be one of the most progressive in the world.

However South African businesses have been slower to pick-up on the transformations, as black professionals are still under-represented in businesses. Throughout this report ‘black’ refers to the generic South African term which includes a number of ethnic groups: black, coloured (mixed-descent), Indians, Asiatics and others. The accounting profession is no exception in that matter.

The heavily regulated framework in which South African accounting firms have to evolve is a source of concern for

professionals who believe they are at a competitive disadvantage compared to the rest of the world.

Despite a healthy and stable economy with a 2.5% growth in GDP in 2012, surveyed firm leaders describe the market as a challenging one. PwC Southern Africa chief executive officer Suresh Kana explains: “Labour strikes and mining uprising have dampened business sentiment a bit. The labour strikes in particular have increased the negative sentiment in certain industries, particularly in terms of how people perceive long-term investment.”

mostly in the blackNevertheless, most South African surveyed networks reported in the black, apart for PKF and HLB who lost firms and saw their revenues shrink. The average growth for surveyed networks this year reached 6%.

Among the Big Four, only KPMG managed double-dig it growth with ZAR2,942.4m ($291.1m) in annual revenues in the year to 30 June 2013, up 10% on the previous fiscal year.

KPMG South Africa chief executive

Moses Kgosana says that the firm’s growth comes largely from the consultancy and advisory services.

Kgosana says that the firm’s audit service line has remained flat, and he attributes this lack of results to two factors: regulation and fee pressures.

B ecause of the B lack E conomic Empowerment Act (BEE) which favours small black firms for public assignments, Kgosana says KPMG lost a lot of government audit work. “The only way for big firms to win public sector work is to partner with small black firms,” he says.

“But in terms of audit, the small black firms are able to do it on their own, so we lost the government work.”

A change to the 2008 Companies Act has also had an impact on audit. The new regulation changed the audit requirements for companies and made audits mandatory for fewer companies. RSM Betty and Dickson managing partner Brian Eaton says: “As a result a lot of the smaller clients didn’t need audit.”

Kgosana says that KPMG still managed to win more clients than they lost, but

n souTh AFrICA

Networks – fee dAtA

rank nameFee income

(ZArm)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesmanagement

consultingCorporate

finance

Corporate recovery/


support other

1 PwC* 4,013.0 4% 51 10 39 - - - - Jun-13

2 Deloitte* 3,434.0 4% 45 9 29 3 - - 14 May-13

3 KPMG* 2,942.4 10% 41 11 43 4 - - - Aug-13

4 EY* 2,270.6 8% 38 12 46 4 - - - Jun-13

5 Grant Thornton International*

481.4 15% 64 11 11 5 - 1 8 Sep-13

6 BDO* 380.6 0% 59 13 6 5 - - 17 Sep-13

7 Mazars 376.0 22% 79 10 - 3 - - 8 Aug-13

8 Nexia International* 214.9 12% 64 12 10 1 1 - 13 Jun-13

9 Moore Stephens International*

202.4 17% 65 11 9 3 - - 12 Dec-13

10 PKF International* 174.5 –45% 78 8 4 1 2 - 7 Dec-12

11 RSM* 117.9 3% 68 13 4 - - - 15 Jun-13

12 Baker Tilly International* 104.6 6% 79 7 5 - - - 9 Feb-13

13 Crowe Horwath International

89.8 –2% 53 13 11 2 - 11 9 Feb-13

14 Kreston International* 79.0 - 79 - 15 - - - 6 Oct-13

15 HLB International* 26.6 –27% 71 12 9 2 - 1 5 Dec-12

Total revenue/growth 14,907.8 6%

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not includedSource: International Accounting Bulletin



souTh AFrICA

n souTh AFrICA

AssoCIAtIoNs – fee dAtA

rank nameFee income

(ZArm)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesmanagement

consultingCorporate

finance

Corporate recovery/


support other

1 Morison International* (1) 520.0 11% 80 3 2 1 - - 14 Dec-12

2 Praxity 376.0 22% 79 10 - 3 - - 8 Aug-13

3 Primeglobal* 68.8 6% 51 17 6 2 18 - 6 May-13

4 IAPA* 60.6 18% 53 22 10 - - - 15 N/A

5 MSI Global Alliance* 52.6 0% 71 11 5 - - - 13 Jan-13

6 BKR* 52.2 –4% 72 17 7 - - - 4 Feb-13

7 MGI* 51.9 –38% - - - - - - - Jun-13

8 GMN International* 36.6 –50% 64 20 12 - - - 4 Dec-12

9 Integra International* 34.7 0% 50 25 10 5 10 - - Sep-13

10 CPA Associates International* 11.4 5% 69 11 9 - - - 11 Feb-13

Total revenue/growth 1,264.8 5%

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Morison International is represented in South Africa by SizweNtsalubaGobodo.

Source: International Accounting Bulletin

then the fee pressure was instrumental in prohibiting growth in audit.“We had to give 5% to 10% discounts to

our clients,” he says.Big Four firms lowering their fees had a

snowball effect on the mid-tier. “The overall market is not increasing and any firm that is trying to increase market share has to become more competitive and consequently we have seen greater competition from the Big Four firms,” Eaton explains.

This analysis is shared by Grant Thornton Johannesburg chief executive officer Andrew Hannington: “They [the Big Four] are lowballing because they are losing public sector work, so they are looking at the private sector for growth.”“The problem is that the Big Four has

excess capacity so they can lower their prices,” Grant Thornton South Africa national chairman Deepak Nagar says.

Advisory and taxContrary to audit, firms have seen a lot of opportunities and growth in advisory and tax.

Hannington says that because the G20 put tax at the top of the agenda, it has generated a lot of demand from their clients.

“It’s an area where we see a lot of pressure on our clients from the G20 and the regulators,” he says. “Our clients are looking for assistance, particularly in international tax and transfer pricing. So we are recruiting specialists in both those areas.”

If tax is the service line offering the most opportunities for the future, advisory is where firms have seen most of their growth in the past year, especially in the public sector. “As a big firm, if you partner with a small black firm and transfer skill and knowledge, you get a lot of government advisory work,” KPMG’s Kgosana says.“There is a lot of money coming

into South Africa for projects and therefore the government is looking for pub l i c -pr ivat e pa r t ne r sh ip s ,” Hannington says at Grant Thornton.“The interest from foreign investors

is encouraging good governance and good f inancial management on the part of the government, and that is paying off,” Hannington adds.

risk advisory and corporate legalEaton says that RSM Betty and Dickson grew considerably in risk advisory services and in corporate legal services. “Our legal department grew by 60% to 70% in the previous year,” he says.

A lot of the work in legal services came from the transaction market where RSM Betty and Dickson has seen a lot of activity.

“We have seen an increase in activity in the transaction market,” Eaton says, “both from foreign companies coming to South Africa in order to secure businesses and mergers between South African companies.”

PwC’s Kana agrees that the transaction market has got a lot busier, but says it

was mostly small transactions which happened outside South Africa. “A lot of the transactions and due diligences we have been involved with have been businesses in which investors want to invest in the rest of Africa,” he says.

Kgosana at KPMG says the transaction market has been quiet. “There haven’t been a lot of deals in South Africa, but there’s been quite a bit of activity helping our clients to set up in other African countries. It’s picking up but hasn’t been very active so far.”

regulationRegulation is another topic which brings mixed feelings to the profession. On the one hand, interviewed firm leaders told IAB they were proud of the strong regulatory environment in South Africa, and RSM’s Eaton describes the country as “top of the pile” when it comes to compliance.

South Africa requires all listed companies on the Johannesburg stock exchange to produce an integrated report. “Integrated reporting is a relatively young initiative on the global stage,” PwC’s Kana says.

“But not in South Africa; companies have embraced it more here than in the rest of the world. The IIRC framework is coming out soon and the South African contingent represented on that committee has made significant contributions because we are ahead of the curve.”

On the other hand Kana reiterates a

CounTrY surveY International Accounting BulletinsouTh AFrICA


common complaint from South African accountants: “There is a feel ing of over-regulation.”

It is in this context that the South African Minister of Finance Pravin Gordhan has commissioned a tax review committee to look at all the tax laws in the country and to try to simplify tax laws and reduce the cost of compliance for small and medium

-sized businesses. The committee’s findings are expected next year.

regulatory boardIt is also in this context that Gordhan is currently reviewing a World Bank proposal to extend the coverage of the Independent Regulatory Board for Auditors (IRBA) from its current jurisdiction of 4,500 auditors, to the wider accounting profession, which numbers around 50,000.

Although the debate about this move is still at an early stage, there isn’t much resistance on the part of the profession to the idea of a single South African regulator. And most interviewed firm leaders have been involved in discussions with the World Bank on this topic.

Hannington, for example, says Grant Thornton South Africa would “welcome” a

single entity to regulate the South African profession. “We currently have an unfair disadvantage as chartered accounting professionals as we’re regulated, while there are whole sections of the accounting profession who aren’t,” he says.

At PwC, Kana adds that the IRBA’s code is based on the International Federation of Accountants, which the South African Institute of Chartered Accountants (SAICA) has also based its code on, meaning it shouldn’t require new standards to come in for most of SAICA’s 35,000 members.

Overall, Kana argues in favour of at least looking into the regulation, pointing out the benefits of consistency of standards and the need for a good ethical framework. However he warns: “The challenge which hasn’t been resolved yet is how the regulation is going to work. Balance is important as you don’t want over-regulation.”

Conflict of interestOf more concern is the possibility of extending the Companies Act Section 90(2) to non-listed companies in 2014, which prevents firms from providing audits to clients if they also perform certain other services in an effort to separate

responsibilities of those that prepare financial statements and the auditor of those statements.

This has been known for a while, and the mid-tier firms have been preparing for it as best they can. According to Nagar at Grant Thornton: “It requires a whole rethink, and potentially a whole remodelling, of our business.” To this end lawyers and technical staff have been brought in to ensure all new legislation is complied with.

disposalsHannington adds that Grant Thornton South Africa may need to dispose of some business units as well, and that the legislation could negatively impact revenue growth over the next 12 months.

There is a concern that the extension of 90(2) may not be appropriate for clients, according to Eaton at RSM, who asks if it actually adds value for companies or just creates more burden, noting: “I’m not sure their voice has been heard and they don’t have the avenues to express their concerns.”

When IAB reported on this topic last year, Nexia SA B&T director Bashier Adam spoke of problems with interpretation around the legislation, and according to

n souTh AFrICA

Networks – stAff dAtA

rank name

Total staff Growth rate


2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 PwC* 4,876 4,683 4% 283 285 3,816 3,625 777 773 22 19

2 Deloitte* 3,837 3,777 2% 269 258 2,926 2,995 657 524 9 9

3 KPMG* 3,312 3,130 6% 253 257 2,492 2,319 567 554 11 11

4 EY* 2,524 2,244 12% 158 163 1,885 1,630 481 451 10 10

5 Grant Thornton International* 912 871 5% 97 66 606 606 209 199 10 7

6 Mazars * 746 716 4% 67 46 515 496 164 174 9 8

7 BDO* 628 731 –14% 48 65 437 521 143 145 4 4

8 Moore Stephens International* 562 533 5% 42 34 452 408 68 91 14 10

9 PKF International* 516 1,057 –51% 37 66 362 798 117 193 4 8

10 Nexia International* 457 523 –13% 42 38 321 351 94 99 12 11

11 Kreston International* 303 - N/A 23 - 204 - 76 - 4 -

12 RSM* 297 293 1% 25 26 216 209 56 58 4 4

13 Baker Tilly International* 264 262 1% 18 18 196 194 50 50 3 3

14 Crowe Horwath International* 168 198 –15% 24 24 102 134 42 40 2 2

15 HLB International* 62 81 –23% 5 6 45 51 12 24 1 2

Totals 19,464 19,099 2% 1,391 1,352 14,575 14,337 3,513 3,375 119 108

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included.Source: International Accounting Bulletin

CounTrY surveYInternational Accounting Bulletin souTh AFrICA


n souTh AFrICA

AssoCIAtIoNs – stAff dAtA

rank name

Total staff Growth rate


2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 Morison International* (1) 907 895 1% 51 55 738 748 118 92 12 11

2 Praxity 746 716 4% 67 46 515 496 164 174 9 8

3 Primeglobal* 200 198 1% 17 13 136 143 47 42 3 3

4 BKR* 153 154 –1% 11 13 114 119 28 22 3 3

5 MGI* 143 200 –29% 15 19 12 14 116 167 2 3

6 MSI Global Alliance* 134 117 15% 11 8 83 86 40 23 3 3

7 Integra International* 128 128 0% 8 8 82 82 38 38 5 5

8 IAPA* 125 115 9% 12 11 29 9 84 95 3 3

9 GMN International* 121 335 –64% 14 32 84 241 23 62 9 16

10 CPA Associates International* 30 28 7% 3 2 24- 23 3 3 1 1

Totals 2,687 2,886 –7% 209 207 1,817 1,961 661 718 50 56

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Morison International is represented in South Africa by SizweNtsalubaGobodo.


Eaton, this is still an issue in the country.He adds that the potential change both “is

and isn’t” appropriate for the SME market in South Africa, and that RSM has prepared for the provisions, meaning it shouldn’t have a “significant” impact on the firm.

Although the changes to legislation will mostly affect the mid-tier firms, which deal with SMEs, KPMG’s Kgosana still worries it will eventually impact the Big Four as well. He warns of how it is creeping in slowly, and that it could ultimately force firms, even KPMG, to stop being multidisciplinary.

He also claims that regulators are unhappy with the fact that audit firms are able to do tax and consulting, despite the fact that KPMG don’t do so for their audit clients. However he says this is just a minority view, adding “it’s still a long way off, as it’s not happening in the EU and the US.”

mandatory rotationAlthough South Africa is viewed as a leader in certain areas of regulation and reporting, there’s still a fear that events outside Africa could affect the country – specifically mandatory rotation. Kgosana states that KPMG “does not believe audit rotation will help with audit quality at all – quite the contrary.” However he worries that, as the idea of audit reform gains traction in the EU, it could filter through to Africa.

Because of the country’s history, the staffing situation in South Africa is

somewhat different. In 2003 the BEE Act was passed in an effort to redress the inequalities of Apartheid by giving previously disadvantaged groups of South African citizens economic privileges previously unavailable to them. This includes measures such as employment preference and skills developments.

Partly thanks to BEE, the number of black accountants in South Africa continues to rise, and Kana says 46-48% of PwC’s annual intake is black, while Kgosana says 40% of KPMG’s accountants are black, and the figure continues to increase.

retention problemsT he BE E has had an un intended consequence, though, according to Nagar at Grant Thornton, who believes black accountants are hard to retain. “Black students are hard to keep hold of. They are highly sought after, highly marketable, commanding good salaries from the big corporations in the public and private sector and we simply cannot match those levels of salaries,” he says.

But the BEE is not the only reason behind the challenges of staff retention. Grant Thornton’s Hannington describes staff retention as a real problem. It’s not possible to limit the liability of assurance work in South Africa, which Hannington suggests is leading to the majority of graduates wanting to go overseas, and many wanting to go into commerce.

For Kgosana at KPMG the challenges are not in the retention of staff, but in recruiting specialised professionals for its consulting business. “We have an abundance of staff for the audit side of the practice,” he says.

“but for the specialist areas of our consulting business we have had to recruit foreigners.”

At RSM Betty and Dickson, Eaton describes a lack of maths graduates. However, in general, there is a consensus that recruitment is not a real problem, despite the fact the staff numbers remained virtually flat in the country.

If BEE has had an impact in recruitment and helped some black accountants to advance their careers, it also had an impact on the structure of the market itself. Black firms have gained significance in the market and are growing fast. “There are now five or six credible black firms that are becoming significant and taking market share,” Kgosana says. “SizweNtsalubaGobodo is the biggest, but firms like Nkonki and Sekela are not far behind and they are growing fast.”

ConfidenceDespite some challenges, interviewed firm leaders agree that most firms managed to make the most of their environment and they admit they are confident about the coming months and the mid-term future.

Firm leaders agree that the main concern for the future is regulation. First, from within the country with the ongoing talks



about reforming the way the profession is regulated, but they are also aware of what is happening in Europe. “We need to watch what’s happening in the EU around audit reform,” Kgosana says. “This will hit us and we had better be prepared.”

In terms of opportunities firm leaders point out that South Africa is ideally placed geographically, politically and economically to make the most of the opportunities in the entire continent. Infrastructure is a particular sector which firm leaders expect to see bloom in the coming years in Africa.“As a megatrend, global business is

looking at Africa as a huge opportunity,” Kana says. “The average African age is very young and to have a young population is a tremendous opportunity. Young people want to live in cities and cities need every bit of infrastructure you can think of.”

He adds that it was estimated that by 2030 there will be 440 cities with over a million inhabitants in Africa.

Kgonasa agrees and reveals KPMG’s strategy for the coming month is to expand its services to neighbouring countries. The South African accounting profession expressing interest in the rest of Africa might be a symbolic turning point in the continent’s history.

Anti-apartheid activist Steven Biko, who died after being arrested by the regime’s police, once wrote: “In time, we shall be

in a position to bestow on South Africa the greatest possible gift – a more human face.” Without being oblivious to the challenges and issues the country is facing, it seems

that 20 years into their democracy South Africa has lived up to Biko’s word and the country is now ready to share its experience with the rest of the continent. <

n souTh AFrICA

FIrm movemenTs

neTworK/AssoCIATIon FIrm AddITIons, merGers & ACQuIsITIons

bdo merged: Grant Thornton Pretoria (Jan. 12). Demerged: Grant Thornton Pretoria (Dec. 12)

eY Acquired: Resolve Group (PTY) and Resolve Encounter Consulting (PTY) and Converse Consulting and Management Services (PTY) (Johannesburg)

deloitte Acquired: Venmyn Rand Proprietary and Monitor Company Group (Johannesburg, Gauteng)

Gmn International Lost: Enslins (Bethlehem and Harrismith), GBG (Somerset East), HRV (Bloemfontein), Meredith Harington (Cape Town)

Grant Thornton International merger: PKF Johannesburg, PKF George, Rebahale Johannesburg, TIS/Fintis Johanesburg Sold share in Grant Thornton Capital

hLb International Lost: HLB Marx Gore (Cape Town)

Kreston International Added: Nkonki (Johannesburg), Saxonwold (Johannesburg)

mazars Added: Grant Thornton East London, Alan H. English & Co Durban, PKF Bloemfontein, PKF Kathu, PKF Pretoria.

pKF International Limited Lost: PKF Johannesburg; PKF Gauteng (Pretoria); PKF Bloemfontein; PKF Incorporated (George)

pwC Acquired: Crest Accounting (East London, Eastern Cape Province), Sentinel (Witbank and Middelburg, Mpumalanga Province), Woest Malan Wenhold (Rustenburg, North West Province), WB Solutions (Johannesburg, Gauteng Province), Iliad Africa Trading (Johannesburg, Gauteng Province).


n souTh AFrICA

top fIrms: fee dAtA

rank Fee income (ZArm) Growth rate (%)

1 PwC 4,013.0 4

2 Deloitte 3,434.0 4

3 KPMG 2,942.4 10

4 EY 1,399.8 13

5 SizweNtsalubaGobodo (1) 520.0 11

6 Grant Thornton Johannesburg 235 74

7 BDO 380.6 0

8 Mazars 376.0 22

9 SAB&T Incorporated (2) 153.6 26

10 RSM 117.9 3

11 Nkonki (3) 79.0

12 PKF Durban 77.4 12

13 Baker Tilly Greenwoods 55.6 12

14 Horwath Leveton Boner (4) 49.7 20

15 LDP (5) 42.3 0

16 Logista (6) 32.4 9

17 Baker Tilly SVG 25.1 6

18 Baker Tilly Morrison Murray 24.0 4

19 Boake incorporated (7) 19.9 0

Notes: (1) SizweNtsalubaGobodo is a member of Morison International; (2) SAB&T Incorporated is a member of Nexia International; (3) Nkonki is a member of Kreston International; (4) Horwath Leveton Boner is a member of Crowe Horwath International. (5) LDP is a member of Prime Global; (6) Logista is a member of BKR International; (7) Boake Incorporated is a member of BKR International. Source: International Accounting Bulletin.

CounTrY surveYInternational Accounting Bulletin souTh AFrICA


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The risks of being a forensic auditor

Lawrence Moepi, director of forensic services at SizweNtsalubaGobodo, South Africa’s larg-est mid-tier firm, was shot dead outside the firm’s Johannesburg office on 18 October, in what is believed to be a pre-planned murder.

South African media reported that it is believed the 41-year-old father of two was fol-lowed to his workplace by four men in a car, and was shot as he got out of his car. Noth-ing was stolen. South African police are still looking for the suspects and investigating the reason for Moepi’s murder.

At the time of the murder, Moepi was work-ing on several investigations for Public Pro-tector Thuli Madonsela, including a report on Independent Electoral Commission (IEC) chairman Pansy Tlakula, accused of improper conduct in the multimillion-rand leasing of the IEC headquarters building in Pretoria.

Moepi was also involved in the investigation of corruption allegations against Congress of South African Trade Unions (Cosatu) general secretary Zwelinzima Vavi at the time of his death. He was reportedly leading the investi-gation into the sale of Cosatu’s old building in Braamfontein, which Vavi has been accused of mishandling. The South African Sunday Inde-pendent newspaper reported that the findings of the investigation were to be published this month, but Moepi’s death made it impossible to do so and the publication would be delayed.

Throughout his career as a forensic auditor, Moepi was involved in a number of high-profile investigations including the fraud trial of for-mer Directorate of Special Operations official Geoffrey Ledwaba, and the ‘South Africa arms deal scandal’ which carried allegations of cor-ruption at the highest levels of the state.

Before joining SizweNtsalubaGobodo, Moepi worked as an auditor for PwC South Africa forensic services.

His murder was received with shock by the profession, and highlighted the dangerous environment in which South African auditors work.

Association of Public Accounts Committees of South Africa chairman Sipho Makama told South African newspaper the Daily Dispatch that Moepi’s murder was just the tip of the ice-berg of threats directed at forensic auditors.

“It is a bigger threat to those still alive, and this might lead to the industry losing qual-ity auditors because they fear for their lives,” Makama told the Dispatch. “The public is not aware of the murky and dangerous environ-ment forensic auditors operate in.”

Independent Regulatory Board for Auditors CEO Bernard Agulhas also said that Moepi’s murder was indicative of the dangerous envi-ronment to which South African auditors are confronted.

“Clearly, from our experience there is contin-uing and increasing interference with the work of auditors and investigators,” he told Business Day TV. “We have had reports from auditors of similar threats to their lives.”

Moepi is the second South African auditor to be murdered in little over then a year. In June 2012, Andile Matshaya, an internal auditor in the national department of transport, was founded dead in his bed. The police said he had been strangled, and his family and colleagues believe his murder was related to his work.

KPMG Africa senior partner and KPMG South Africa chief executive Moses Kgosana told International Accounting Bulletin: “Law-rence’s murder is shocking. It is a difficult situation for forensic teams; it is not safe. For example, our forensic team is very careful in the assignments they choose and where they have meetings. Many forensic professionals think twice about how they go about their work; especially in the big assignments, the first question is ‘am I safe?’”

Following Moepi’s death, SizweNtsa-lubaGobodo executive chairman Nonkululeko Gobodo said in a statement: “All of our staff are extremely shocked and saddened by the news. Lawrence was an inspirational leader, and his insight, wisdom and talent will be sorely missed. Our thoughts and prayers go out to his family during this extremely difficult time.” <



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