Mid-tier chase the big players · Final call to register for the Singapore Accountancy Convention...

www.InternationalAccountingBulletin.comJune 2014 Issue 538

Strategies in Italy as recession eases

● China’s accounting wars ● Standard-setters agree on revenue recognition ● Transformation of the profession in Myanmar

● Germany country survey

Mid-tier chase the big players

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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 chairmanChristian 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

As the FIFA World Cup craze sweeps the globe most of us engage in conversation with friends, partners and colleagues about the games, tactics, team strengths, strate-gies, defensive tactics, and debate about whether players were really offside etc...

Just like winning football teams, suc-cessful businesses owe a lot to teamwork, respecting and working around the rules, following strategy, and having the ‘guts’ to make decisive moves towards that win-ning target/goal. And in the current mar-ket, having the courage and confidence to invest during uncertain times, to undergo a merger or acquisition, to rebrand, or to do whatever feels like it will set an organisation apart from the competition, is key.

This is not a time to fall asleep on the job, as from both the Big Four and mid-tier the competition is tough and everyone is look-ing for that X Factor that sets them apart. In football that might be your team’s star striker or midfielder, but for accounting networks it’s more and more about unique expertise coupled with excellent client service.

For EY, the past year has been about building a brand and the trust of its clients and stakeholders, mainly employees. While many jokes have been made about it losing its ampersand, and becoming the Big Four firm with the shortest name, its tagline seems to have been well accepted, and the values built around the brand well received

Another important factor is the rules. Most changes to business or sports rules are rarely welcomed; however the match must go on. And the same will happen in the accountancy market as the EU audit reform changes sweep through. The reform is likely to affect the way large firms conduct their audit and advisory business, however the investment into advisory has been ongoing by firms. With PwC’s acquisition of Booz & Company being the largest such deal in recent months and the consequent creation of the somewhat oddly branded Strategy& (no, we haven’t made a typo) the rest of the Big Four have continued making smaller

deals. For example KPMG has gone on some sort of a shopping spree lately ranging from social media companies to an analyt-ics solutions business. And it’s not just the Big Four – the top 10 mid-tier networks arena is becoming increasingly competitive and only the fittest will survive.

While PKF International seems to be working towards building back its interna-tional network after the many goals other networks have tucked into the back of its net, questions remain open about Baker Tilly International’s next move now its UK firm is to join RSM. And with RSM, now bolstered by a strong UK firm, the ques-tion is open about its branding of the new member or network itself. The drama and surprise moves are probably far from over in the accountancy market as well as the World Cup and there may be some unlikely-at-first-glance champions to emerge.

Fair playIn this month’s edition you can read the insightful Germany survey (page 15 to 20) and how the case of tax-evading foot-ball club chief and World Cup winner Uli Hoeness led to the government initiated programme encouraging people to admit to their questionable tax affairs. Earlier this year Hoeness was convicted of evad-ing €27m in tax and given a red card in the form of a three-and-a-half year strech in prison. The case was followed by thousands taking up the government’s offer to come clean about their tax affairs in return from immunity from prosecution. While this is far from a cheap exercise for evaders, for many it’s far more appealing than years spent staring at the walls of a prison cell. Perhaps such actions taken by the German tax authorities could be considered else-where. However, without having made an example of Hoeness the question whether so many would have come forward remains to be answered.

Ana [email protected]

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02-04

ConTenTs

■ Argentinean profession battles surprising rotation rules

■ EY compelled by court to handover audit work to Hong Kong’s regulator

edITor’s LeTTerInternational Accounting Bulletin

FeATures 06-08

CounTrY surveYs 09-20

o6: MYAnMAr

New democracy releases the pressure.

09-14: ITALY

Prrofessional services firms in Italy are gearing up to fight for whatever new business the recovery may bring, as Isabella Grotto reports.

15-20: GerMAnY

Despite its economic success, changes in regulation and an ageing profession are sources of concern for the country’s accounting firms. vincent huck reports.

CoMMenTs 05

o5:ChInese TuG oF wAr

Professor Paul Gillis of Peking University reflects on the struggle to regulate the auditors of China’s overseas-listed companies.

o7-08: revenue reCoGnITIon

The new revenue recognition standard has been generally well received, although it might represent the beginning of the end rather than the end of the beginning of the wider convergence project.

for the accountancy profession, brought to you by the national accountancy body.

Final call to register for the Singapore Accountancy Convention 2014!Don't miss out on this rare opportunity to hear from and network with esteemed speakers and panellists,

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Applicable for Productivity and Innovation Credit (PIC) scheme. For more details, please refer to IRAS.

30 JUL 8.00am - 12.30pm ISCA Ethics Forum 1.00pm - 6.00pm ISCA Integrated Reporting Forum

31 JUL 7.30am - 5.15pm ISCA Accounting Conference

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IAB onLIne – JuneTop 5 articlesEY compelled by court to handover audit work to Hong Kong’s regulator

Deloitte UK appoints 65 partners and promises staff investment

UK FRC files formal complaint against two Baker Tilly auditors

Argentinean profession battles surprising rotation rules

AGN appoints former Grant Thornton International partner as CEO

Most retweeted articleEY compelled by court to handover audit work to Hong Kong’s regulator

read in 160countriesUK 30%

US 11%

Hong Kong 6%

Malaysia 5%

Sinapore 4%

Rest of the world 44%

us

Bain Capital sues eY over alleged investment adviceBain Capital Partners, a global private equity company, along with 10 of its subsidiaries has filed a complaint with a US court against EY for alleged fraud and unfair and deceptive trade practices. In May 2010, Bain Capital Partners claims to have invested $60m in Lilliput Kidswear, an Indian children’s clothing company, on the advice of EY and based on false financial statements audited and certified by EY, according to Reuters who gained access to a copy of the lawsuit.

In September 2011, while Bain Capital Partners had initiated the process to take Lilliput Kidswear to an initial public offering (IPO), the private equity company was alerted by a whistle-blower that the revenue of the Indian business might have been inflated and the IPO was halted for the allegation to be investigated.

Bain Capital Partners and 10 other subsidiaries now claim the investment is “rendered worthless”, according to the lawsuit document seen by Reuters, and they are bringing the action against EY for

“fraud, aiding and abetting fraud, negligent misrepresentation, and unfair and deceptive trade practices based on EY’s involvement in the scheme to defraud Bain,” Reuters reported.

An EY spokesperson said: “These allegations of wrongdoing are baseless and EY will vigorously

defend this matter.”

uK

FrC files complaint against two Baker Tilly auditorsThe UK Financial Reporting Council (FRC) has delivered a disciplinary Formal Complaint against two Baker Tilly UK auditors for alleged unethical conduct in the audit of electrical car manufacturer Tanfield Group.

An independent disciplinary tribunal will be appointed to hear the Formal Complaint against Baker Tilly UK office managing partners Richard King, a member of the Institute of Chartered Accountant in England and Wales, and Steven Railton, a member of the Association of Chartered Certified Accountants.

The Formal Complaint comes four years after the initial investigation by the Accountancy and Actuarial Discipline Board over Baker Tilly UK’s audit of the 2007 and 2008 financial statements of Tanfield Group. The complaint concerns the audit of significant balance sheet items in the 2007 financial statements and alleges that King and Railton’s conduct “fell significantly short of the standards reasonably to be expected”.

ArGenTInA

Argentinian profession battles rotation rulesThe accountancy profession in Argentina has teamed up in an attempt to convince the

government to change audit rules introduced last year by the national regulator, CNV (Comision Nacional de Valores), which introduces audit firm rotation every three years and mandatory partner rotation every two years for the country’s public companies.

SMS Latinoamerica president Pablo San Martin said the decision by the regulator last September surprised everyone from firms, professional bodies, issuers and public companies. San Martin believes the changes, likely to come into effect in 2016, pose a serious danger to audit quality.

He said: “Both professional organisations, the Institute of Buenos Aires (Consejo Profesional de Ciencias Economicas de la Ciudad Autonoma de Buenos Aires) and the National Federation (Federacion Argentina de Consejos Profesionales) received no answer from the regulator to several requests for a dialogue on the incoming changes”.

Despite the profession banding together – from small firms to the biggest in the country – in an attempt to start a dialogue with the regulator, public companies seem to have had more success. San Martin says there have been indications that the CNV is speaking with public company representatives, who are lobbying against the changes.

He also added the hope is that the regulator might reconsider and look at what the EU has done in terms of mandatory rotation. <

news round-up

Movers & shAKers

AGn International has appointed Malcolm ward as the association’s chief executive. ward has more than 30 years’ experience in the profession and has previously worked as the Grant Thornton uK London office managing partner, as well as Grant Thornton International Asia-pacific leader. ward succeeds nicholas Blake, who retired at the end of May after 18 years as the association’s chief executive.

Baker Tilly UK has appointed David

Gwilliam as chief operating officer.

In his new position, Gwilliam will

head the firm’s international services proposition within the RSM International network.

PwC us has appointed 180 partners across all service lines of its partnership.The admission includes 69 partners in assurance, 49 in tax, 61 in advisory and one in internal firm services. The newly admitted partners also include the promotion of 23 professionals from the firm’s san Francisco and silicon valley offices, effective 1 July 2014.

Deloitte UK has announced

its largest number of partner

promotions in 10 years with the

appointments of 65 new partners,

effective on 1 June.

Deloitte UK chief executive and

senior partner David Sproul said

these promotions reflected the

firm’s investment in the potential

of a growing economy.

Bdo uK has promoted 14 of its senior staff to the role of partner, effective from 5 July. The promotions were a response to the uK’s economic recovery and a consequence of last year’s merger with pKF uK, Bdo uK said in a statement.


newsInternational Accounting Bulletin AnALYsIs

Hong Kong regulator rules EY should handover audit workHong Kong’s Court of First Instance has ruled that EY should handover the audit work of former China-based client Stand-ard Waters to the city-state’s Securities and Futures Commission (SFC).

Standard Waters, a Mainland China privately-owned company, had applied for listing to the Stock Exchange of Hong Kong (SEHK) in November 2009.

SEHK’s rules require privately owned companies listed in Hong Kong to have a local certified public accountant (CPA) sign-ing their audit reports.

EY was the reporting accountant and auditor for Standard Waters until March 2010, when it resigned and the Chinese com-pany didn’t proceed further with its listing application.

The SFC requested EY to submit the audit working papers and accounting records of Standard Waters, but the auditor argued these documents were held in its Mainland joint venture partner EY Hua Ming’s office.

EY also maintained it couldn’t produce those documents due to China’s secrecy laws, which wouldn’t allow the auditor to hand-over state-sensitive information to a foreign regulator.

In a statement EY said it will review care-fully the court’s judgment to decide whether or not it appeals the decision.

Peking University professor of practice Paul Gillis wrote in his blog that it was ques-

tionable whether EY could be the principal accountant as it outsourced the entire audit to EY Hua Ming.“Instead, the Mainland affiliate should

have been the reporting accountant. But that wouldn’t work under Hong Kong rules,” Gillis wrote.

Foreign auditors banCoincidentally, the Chinese Ministry of Finance has recently launched a consultation aimed at preventing foreign auditors from carrying out the audits of Mainland Chinese companies.

If the proposals are passed into law, Hong Kong and overseas CPA practices would have to partner with one of the top 100 China CPA practices in order to audit overseas-listed Chinese enterprises.

As Gillis pointed out, that is what EY has done regarding Standard Waters.

The proposed rules would also affect overseas-listed companies, irrespective of their place of incorporation, with operating entities in China.

In particular, the proposals could affect the foreign auditors of all red chip and H-share companies that do not engage a local partner firm, according to the Hong Kong Institute of Certified Public Account-ants (HKICPA).

Red chip companies are enterprises that are incorporated outside the Mainland, con-trolled by Mainland Government entities

and listed on the SEHK.H-share companies are companies incor-

porated in Mainland China and whose list-ings in Hong Kong are approved by the China Securities Regulatory Commission.“The proposals would have far-reaching

business and regulatory consequences on the Hong Kong accounting profession and financial market,” HKICPA said.

The institute added that access to work-ing papers prepared by Mainland CPA firms

“would become a bigger issue” in clear ref-erence to Chinese authorities’ reluctance to cooperate with foreign regulators on cross-border audit inspections.

The SFC said at the beginning of the legal proceedings in August 2012 it had consult-ed the relevant Mainland authorities about access to the documents and that both were

“continuing to work closely together in rela-tion to this issue”.

Gillis, however, expressed surprise about the lack of cooperation agreements between the SFC and the Chinese regulator, in tune with the one struck by the US Public Com-pany Accounting Oversight Board and its Chinese counterpart.“Chinese regulators might have been

reluctant to give up any turf for fear that the precedent would work against them with the SEC [...] Nevertheless, it seems highly unlikely the SFC will be seeing any Main-land audit working papers,” Gillis wrote.<

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news worLd

Grant Thornton International is to retain its philippines member firm punongbayan & Araullo, after it emerged that the proposed merger between the firm and deloitte southeast Asia, navarro Amper & Co. has been called off.

HLB International has added Polish firm GetSix Group, Spanish firm TMH Eduardo Molina & Asociados/Molina Asesores and Honduran firm Alfaro y Asociados to its network.

GetSix Group in Poland has 70 staff across three offices and provides accounting and advisory services. The new Polish firm joins HLB’s two existing Polish firms M2 Audyt and HLB Sarnowski & Wisniewski. TMH Eduardo Molina & Asociados/Molina Asesores and its 60 staff is based in offices in Marbella and Malaga. In Honduras, Alfaro y

Asociados, is based in Tegucigalpa

and offers audit, tax and advisory

services.

Geneva Group International (GGI)has added east African firm Innovex to its association.

Innovex is head quartered in the Tanzanian city of dar el salaam, and also has offices in Kenya and rwanda. GGI also added us firm Brock, schechter & polakoff in June.

Crowe Horwath International has

added Indian firm LeapRidge Advisors

to its network.

LeapRidge Advisors specialises

in tax, management consulting,

assurance and transaction support

services. The firm has 40 staff and

nine partners.

With the addition Crowe Horwath

International now has 37 partners

and 320 staff throughout India.

rsM International has added the former Moore stephens panama firm to its network.

The firm will be branded as rsM panama and it’s the network’s first full member firm in the country. rsM panama has 50 staff working out of the panama City office.

International association Antea has added firms in Italy, Australia, Singapore, Dubai, Bolivia and Egypt.

KpMG portugal has announced the planned acquisition of business process management technology provider sAFIrA Consultadoria em Imformatica. headquartered in Lisbon, sAFIrA builds business process management and operational decision management software for large multinationals.

sAFIrA reported €10.9m ($14.8m) total revenue in 2013, 75% of which came from international markets. The company employs 175 IT professionals.

In Armenia, ASATRYANS, a new

international firm has opened its

doors and its deputy chief executive

Albert Asatryan says the 30 staff-

strong firm is looking to build a

network of firms in Ukraine, Georgia

and Russia.

ASATRYANS was initially set up last

year by a group of internationally

certified accountants looking to

serve international organisations, as

well as to assist domestic clients to

“think globally”. The firm offers audit

and accounting, tax, and advisory

services from its offices in the

Armenian capital Yerevan.<

FirmMovements

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CoMMenTInternational Accounting Bulletin pAuL GILLIs

Investors have been pummeled by a seemingly unending run of account-ing scandals with overseas-listed Chi-nese companies. Short selling research

firms spawned a new industry attacking Chinese companies for problems real and imagined and found ways to profit regard-less of whether the allegations were ulti-mately proven to be true. Auditors came under fire for failing to catch these alleged frauds and regulators were criticised for not effectively regulating the sector. US and Hong Kong regulators clashed with their China counterparts putting the overseas listings of Chinese companies at risk.

The US Securities and Exchange Com-mission (SEC) sprung into action with a task force focused on Chinese frauds. The task force ran into a roadblock trying to get information from China. Sarbanes-Oxley requires auditors to cooperate with the SEC, so they were asked to turn over work-ing papers on suspected frauds to the SEC. The auditors refused because China does not permit audit working papers to leave China or to be given to foreign regulators. The SEC filed charges, and last February an SEC administrative trial judge banned China’s Big Four firms from practise for six months. The firms have appealed, briefs are not due until December, and final resolution seems some distance away.

The US Public Company Accounting Oversight Board (PCAOB) has been negoti-ating with China for more than a decade for permission to inspect Chinese accounting firms that audit US-listed companies. China blocked PCAOB inspectors from coming to China (or to Hong Kong to look at Chinese audits) because China considers allowing foreign regulators to enforce foreign laws against Chinese persons on Chinese soil to impinge China’s national sovereignty. The PCAOB did finally reach an agreement to

obtain selected documents in connection with investigations, but the PCAOB’s main mandate, inspections, remains blocked.

Soon the problem spread to Hong Kong. Hong Kong’s securities regulator, the Securities and Futures Commission (SFC) sued a Hong Kong Big Four firm after it refused to turn over working papers on a failed initial public offering. The Big Four firm said it had outsourced the audit to its Mainland affiliate which would not give it permission to release the papers to the SFC. The SFC won the case, and the judge has ordered the firm to turn over the papers by 20 July.

new rulesChina has hardened its position. The Min-istry of Finance (MOF) recently announced proposed rules to require overseas auditors of overseas-listed Chinese companies to use a top-tier Chinese accounting firm to do all audit work in China. The proposed rule presents few problems for the Big Four, since they already use their Mainland affili-ate for most work on the Mainland. But for the many small US and Hong Kong firms that audit smaller overseas-listed Chinese companies, the new rules may put them out of business.

The proposed MOF rules cut two ways. By requiring all audit work on the Main-land to be done by Mainland firms China ensures that state secrets will not be leaked to foreign regulators by overseas CPA firms. But the MOF is also seizing regulatory con-trol over the audits of overseas-listed Chi-nese companies, helping to fill what has been a regulatory hole. MOF had not been regulating the audits of most overseas-listed Chinese companies, yet it had blocked for-eign regulators from filling the gap.

The move by MOF to capture regulatory control of the auditors of overseas-listed

Chinese companies strengthens its hand in arguments with US and Hong Kong regula-tors. China has reached regulatory equiva-lency with the EU, which means that EU accounting regulators can treat the work of Chinese regulators as if it were their own. China wants the US and Hong Kong to accept regulatory equivalency also. China is now promising to regulate the audit of overseas-listed Chinese companies and it wants the US and Hong Kong to back off.

regulatory equalityUS regulators do not buy into the concept of regulatory equivalency. The PCAOB has insisted on no less than joint inspections, with the PCAOB and local examiners work-ing side-by-side. The MOF proposal might facilitate that, since it requires Chinese audi-tors of overseas-listed companies to com-ply with foreign requirements. That could facilitate an agreement between the PCOAB and the MOF to allow the PCAOB to “ride along” on inspections to make certain both domestic and foreign rules are followed.

For the SEC and SFC, however, the pros-pects of an agreement appear bleak. US-China relations are particularly tense at present, and Hong Kong’s relationship with the Mainland is strained over issues of uni-versal suffrage.

The issues will no doubt be negotiated at the July strategic and economic dialogue between the US and China in Beijing. Fail-ing a diplomatic solution, the SEC ban may ultimately come into effect. While the firms will be punished, it’s their clients who will face the brunt of the pain.

If the clients cannot find auditors they face delisting from the US exchanges. Delisted companies may end up in Hong Kong, but only if Hong Kong regulators accept the Mainland’s views on the limits of their authority. <

China’s accounting warsprofessor paul Gillis, professor of practice at Peking University reflects on the struggle to regulate the auditors of China’s overseas listed companies


FeATure International Accounting BulletinMYAnMAr

New democracy releases the pressureAfter five decades of isolation and military rule, the Republic of the Union of Myanmar has launched a political transition to civilian democracy and freer trade, whetting the appetite of businesses and the accounting profession to enter the country, vincent huck reports

Following Myanmar’s 2010 general election the country has seen an influx of foreign businesses quickly followed by the accounting profession.

In 2013, the Institute of Chartered Accountant of England and Wales (ICAEW) and the Association of Chartered Certified Accountants (ACCA) signed Memoranda of Understanding with the Myanmar Institute of Certified Public Accountants (MICPA). And in 2014 the ACCA opened an office in Myanmar.

Also, in the past few months, all of the Big Four firms, as well as some mid-tier firms have established partnerships or re-opened their offices in the country.

MICPA steering committee member and Myanmar Accountancy Council member U Maw Than believes this is an encouraging sign for the future. “Accounting firms and global accounting bodies perceive Myanmar is opening up and believe it’s not going to backtrack,” he says. “They see good oppor-tunities giving advice and counselling their clients overseas to invest in Myanmar.”

In 1960, Burma as it was then known, had the same income per capita as South Korea at about $160, Than continues. “The University of Rangoon was the best institute of learning in Asia.”

Military coupIn 1962 a military junta seized power through a coup and nationalised nearly all aspects of society. The country became inward-looking and for decades was cut off from the rest of the world.

The ICAEW head of international capac-ity building Mark Campbell says that as a result the Burmese accountancy profes-sion hasn’t really changed since then. The government is in control of the profession and during military rule accountants and auditors were not given a lot of freedom to develop, Campbell explains. “Only one uni-versity was allowed to put forward students, and there were only 100 students entering the course each year for 50 students qualify-ing at the other end of the course,” he says.

The accounting profession is now follow-

ing the country’s evolution and has entered into an evolution of its own. From Septem-ber 2013 to March 2014, the ICAEW has been leading a capacity building project to help the Myanmar accounting profession in its transformation.

“We produced a report on the account-ancy landscape in Myanmar, a strategic plan to transform the profession, which was well received by the auditor general’s office and we did a lot of training in international standards,” Campbell says.

The ICAEW also made a lot of propos-als to strengthen the audit profession and the regulation of audit, Campbell continues. “This is a major issue in Myanmar as the country is at the bottom of the transparency index.”

CorruptionIn 2013, Myanmar ranked as the 157th most corrupt country of the 177 countries included in the Corruption Perceptions Index published by Transparency Interna-tional. If this figure is alarming, it also rep-resents a big improvement from the previous year’s ranking where Myanmar came out as the 172nd most corrupt country out of 174 countries.

Campbell says that a number of the pro-posals put forward by the ICAEW’s stra-tegic plan to transform the Myanma pro-fession were picked up by the Office of the Auditor General of the Union (OAG).

“Most notably the quota of students allowed to enter the academic pathway has been increased from 100 to 600,” he says. “The OAG has also put through a revised accountancy law which will go in front of parliament in the next few months; there is a real commitment to change.”

Campbell says the profession, which is dominated by women, is quite old in aver-age age with most of the profession aged over 50. “One of the challenges is that for a long time English wasn’t allowed to be used and older people find it difficult to learn now,” he says.

Than of MICPA, who is also a member of the Chartered Institute of Management

Accountants, agrees: “The challenges com-ing along will not only be competences but also communication skills, especially in English, IT, internet facilities and other soft skills that need to be developed,” he says.

While the ICAEW project ended in March, the Commonwealth renewed the funding for further months. “Moving on to the next stage, which is starting right about now, we are going to help develop a com-pletely new qualification for Myanmar,” Campbell says. “And then we’ll help in the implementation phase of the new qualifica-tion.”

The best way to describe what’s happen-ing in Myanmar at the moment is to com-pare it to releasing the pressure from a pres-sure cooker, according to Campbell.

“I’m not quite sure if I expressed the enor-mous unfolding opportunities in Myan-mar,” he says. “But it comes to show that in the past few months almost all of the leaders from the neighbouring countries, also from the West and, remarkably, the US, have visited Myanmar with a very large trade delegation.”

Legislation requiredDespite high expectations and changes already taking place, Campbell believes that Myanmar has reached the point where it needs a change in legislation “to really make a difference”.

Than is optimistic about his country’s future, as well as for the accounting pro-fession. Asked how he saw the Myanma accounting profession in 10 years, he replies that in the 50 years of Myanmar’s isolation, the world has become a village where socie-ties are interconnected.

“Therefore, I believe, with developments in technology, increased networks, receptive of free ideas and open minds, the account-ing profession in Myanmar would have enough time in five-to-ten-years to recover from setbacks and develop,” he says.

“Accountants play an important role in the transition, and they should broaden their minds towards building a modern developed society.” <


FeATureInternational Accounting Bulletin revenue reCoGnITIon

After receiving more than 1,600 com-ment letters and hosting hundreds of outreach meetings with external parties, the International Account-

ing Standards Board (IASB) and the Finan-cial Accounting Standards Board (FASB) have finally settled on a converged standard for revenue recognition.

IFRS 15 Revenue from Contracts with Customers will come into force for annual reporting periods beginning after 15 December 2016 for public organisa-tions and 12 months later for non-public companies and organisations, although the latter can choose to apply the standard from 15 December 2016.

This means implementation will start fully 14 years after the two organisations started working on a project to clarify how and when to record sales as revenue – a process that has been at the heart of many high-profile cases of corporate corruption.

An IASB spokesperson suggests that most companies will not see a major differ-ence in the way they are required to report revenue.“The nature and extent of the changes will vary between companies and industries because of the diversity in existing revenue recognition practices,” he says.

“However, those changes are necessary in order to move from revenue recognition requirements that have weaknesses and inconsistencies to a comprehensive frame-work that will result in economically simi-lar transactions being accounted for on a consistent basis across different companies, industries and capital markets.”

The IASB spokesperson observes that pre-vious disclosure requirements in IFRS and US GAAP often resulted in information that

was inadequate for users to understand a company’s revenues and the judgements and estimates made by the company in recognis-ing those revenues. In particular, users were concerned that the revenue information dis-closed in the financial statements was often formulaic or ‘boilerplate’ in nature.

The spokesperson said: “In addition, the new standard specifically requires entities to disclose the judgements they have made in applying its requirements, both in terms of the timing of revenue recognition and the amounts recognised. By improving compara-bility of revenue recognition practices across companies, industries and capital markets, the new standard will mean that there is less scope to present investors with mislead-ing information.”

IT updatesThe IASB spokesperson accepts that some entities may need to update their IT systems as a result of the new standard to capture data for additional judgements, estimates and disclosures – a view shared by the FASB, which says preparers should be aware of areas outside financial statements that may be affected by a change in revenue. In addi-tion to IT systems, these areas include debt covenants, compensation arrangements, tax reporting and sales contracts.

A spokesperson for the FASB adds that while there will be an initial investment in transitioning to the new standard, once an organisation establishes its accounting sys-tems and its personnel have been trained and adapted, the ongoing application should not be significantly different to current revenue guidance.

In fact, he suggests that for organisations

that operate in more than one sector there may be some easing as the consistent frame-work would apply to revenue transactions rather than the current situation, where revenue guidance tends to be industry spe-cific. In other words, while every company will experience a major change in process in terms of how they recognise revenue, some may end up with the same result.

restatingThere has been discussion over the extent to which companies will restate prior years’ revenue in light of the new standard. The FASB spokesperson explains that companies can opt for full retrospective application to each prior period presented.“However, the cumulative effect of the change on prior peri-ods could be reported in the period of initial application, with disclosures of the amount by which each financial statement line item is affected in the current reporting period.”

When asked whether there will be a major change in the way sales agreements are structured, Eddy James, technical manager at the Institute of Chartered Accountants for England and Wales financial reporting fac-ulty says that in some cases, the process of reviewing contracts to identify separate per-formance obligations, allocating the trans-action price to these obligations and deter-mining when and how they are satisfied will require a significant amount of work.

“The standard may also have implica-tions for information systems, processes and internal controls, while contracts, bonus plans and other arrangements may need reviewing,” says James. “Stakehold-ers will also want to know how the new standard will affect the financial results of

Standards converge after mass consultationThe new standard on the recognition of revenue from contracts with customers has been generally well received, although it might represent the beginning of the end rather than the end of the beginning of the wider convergence project. paul Golden reports


FeATure International Accounting Bulletinrevenue reCoGnITIon

the business and whether there may be any economic impacts.”

He says it’s conceivable some businesses might seek to affect the accounting outcome by restructuring sales agreements, but sug-gests that doing so is likely to be easier said than done due to the principles-based nature of the standard. There will also generally be sound commercial reasons underpinning the existing contractual terms.

According to James, opinion is divided on the merits of the standard’s increased disclosure requirements. “These additional disclosures are designed to help users bet-ter understand the nature, amount, timing and uncertainty of revenues and cash flow from contracts with customers,” he says. “While many investors and other users of financial statements will welcome the addi-tional transparency, others may hold up the lengthy list of new requirements as another example of disclosure overload.”

An entity can choose whether to apply the standard retrospectively to each prior period presented, or retrospectively accord-ing to an alternative transition method that requires the cumulative effect of applying the standard to be recognised in the year of initial application but does not require restatement of comparative periods.

There are also a number of optional practical expedients relating to contracts that were completed before the date of initial application of IFRS 15 that can be applied on first-time adoption. But what-ever options are taken up, James observes that restating prior year numbers could involve a lot of work.

He says there are several reasons why it has taken so long to reach agreement on revenue recognition. “Previous US GAAP and IFRS requirements had very differ-ent approaches to revenue recognition, so it was therefore perhaps inevitable that it would take some time to find a common approach that would be satisfactory not only to both boards, but also to their respec-tive stakeholders,” says James.

Earlier drafts of the standard were criti-cised roundly for being difficult to apply in practice. In particular, ICAEW and other commentators felt that the guidance on accounting for services and multiple ele-ment arrangements lacked clarity.

James says: “Following extensive consul-tation and redeliberations, many of these wrinkles appear to have been ironed out,

meaning that the final standard appears to be both conceptually sound and opera-tional in practice. However, just how suc-cessful the boards have been in this endeav-our will only become clear once the hard work of applying the standard in practice is well under way.”

The IASB says it will continue to work with the FASB on the lease accounting con-vergence project, but James is not convinced the agreement will create new impetus for standards convergence. “Although this project has resulted in an almost complet-ed converged standard, other joint IASB-FASB projects have not fared so well,” he says. “The boards have decided to go their separate ways on certain key elements of the financial instruments project – including, critically, loan-loss provisioning – and the conundrum that is lease accounting seems as interminable as ever. But perhaps we should not be too disheartened at these fail-ures, as they stem in part from a determina-tion at the IASB to complete these impor-tant projects as soon as possible and to put quality ahead of convergence which, in our view, is a good thing.”

Andrew Watchman, global head of IFRS at Grant Thornton International agrees that IFRS 15 may turn out to be the high water mark for the bilateral convergence model.

“Even with leasing – the highest profile of the open joint projects – a converged out-come now looks increasingly unlikely,” says Watchman. “However, developing a fully-converged standard in such a fundamental area as revenue recognition is a huge task and the boards did the right thing in not rushing it. The project team also undertook an extensive programme of outreach, which is commendable but takes time. Looking ahead we are already moving into a more inclusive phase of multilateral collaboration in place of bilateral convergence.”

He believes it’s unlikely that sales agree-ments will be subject to wholesale changes, although some companies may seize the opportunity to clarify any terms that are unclear or ambiguous.

“More generally, the impact on a com-pany’s top line will depend a great deal on how it applied the existing IFRS standards. The amount and timing of revenue for busi-nesses with only simple sales arrangements might be unaffected, but the accounting for more complex transactions – such as multi-ple deliverables, sales incentives, contingent

pricing arrangements or financing – will be affected to varying degrees.”

Since several of the key judgements and assessments need to be made upfront, such as analysing a company’s contracts into separate performance obligations, Watch-man recommends companies involve their auditors at an early stage.

He says: “Legal advice may be needed in some areas, such as when and whether a right to payment is unconditional. Com-panies facing a complex implementation may well engage consultants to assist with identifying and implementing any necessary changes to accounting and financial report-ing applications and related systems.”

Costs incurred in acquiring a contract will come under the scope of the new stand-ard and as a result will be capitalisable and recovered through the profit and loss state-ment over the term of the contract, explains Tom Quinn, UK partner and team leader accounting consulting services at PwC.

“Any company operating in an indus-try where sales commission is common-place could expect to see a change in its accounting practises and the same applies to a business that offers cus-tomer incentives,” Quinn says.

He describes the new standard as pro-viding much more guidance for investors. “The quantum of disclosure should lead to a degree of transparency that does not cur-rently exist. Investors should end up having more information at their disposal to evalu-ate whether they are getting a clear posi-tion on the business and where judgments are being made.”

According to Quinn, IT consultants and legal advisors will play a vital role in imple-menting the standard. The latter will be particularly involved in evaluating implied promises (such as the suggestion by a soft-ware sales agent that an update to a piece of software is imminent) across jurisdic-tions and whether they are equivalent to a contractual promise. Another legal issue to consider is whether an arrangement with a counterparty that results in revenue is a collaborative arrangement rather than a sale to a customer. “From the IT perspec-tive, in order to predict future purchase price a company will require data that is qualita-tively sound,” Quinn concludes. “Variable pricing will require strong evidence of pre-dictability and this prediction will have to be updated at every balance sheet.” <

CounTrY surveYInternational Accounting Bulletin ITALY


■ ITALY

At a glancerevenue

Most revenue: KPMG, €450.7mLeast revenue: ACEE, €0.3mhighest growth: Moore Stephens International, 302%Lowest growth: Kreston International, –43%

sTAFF

Largest workforce: KPMG, 3,624smallest workforce: ACEE, 4Most partners: Deloitte, 175Most offices: BDO, 29

eConoMIC IndICATors

national Gdp: €1.5trnnational Gdp growth: –1.6%Inflation (CpI): 1.9%Current account balance: 0.3% of GDPunemployment rate: 12%population: 60,997,000

IAB surverY IndICATors

revenue per employee: €119,962staff density: 1 accountant per 3,702

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

source: International Accounting Bulletin, IMF

Mid-tier poised to challenge the TitansBattered and bruised, Italy still bears the marks of its prolonged recession. And as the first signs of optimism appear, professional services firms in the country are gearing up to fight for whatever new business the recovery may bring, Isabella Grotto reports

At the turn of the first millennium and all the way to the fifteenth cen-tury, Italy was well-known for its patchwork of city-states, independ-

ent, largely autonomous and varying in size. Feuding, power-brokering and the forging and dissolving of strategic alliances could spell either survival or ruin for any, but par-ticularly so for smaller players, forced to contend with both their mid-sized peers and giants like Florence, Verona, Milan and the maritime republics.

However, while in many ways suspended in a powder keg of diplomacy perennially teetering on the brink of war, Italy’s city-states also famously fostered exceptional commercial development and innovation,

and are widely credited with providing fer-tile ground for the subsequent Renaissance.

The same tension between the bid for dominance and the focus on innovation and quality is echoed today throughout the coun-try’s accounting industry. While the biggest players hold onto their power through the crisis, rising competitiveness in the market leaves smaller entities desperately jostling for their place in the sun. At the same time, changes in national and international regu-lation, shifting conditions in both domestic and foreign markets and rising pressure on fees all contribute their own set of challenges to Italian firms.

Speaking to some of the country’s most influential players, it is clear that the


CounTrY surveY International Accounting BulletinITALY

■ ITALY

NETWORKS – FEE DATA

rank name ConsoBFee income

(€m)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/

Insolvency Litigation

support other

1 KPMG* 450.7 2% 34 13 43 4 - 1 4 n/a

2 PwC* 414.0 5% 57 16 27 - - - - Jun-13

3 EY* (e) 379.0 4% - - - - - - - Jun-13

4 Deloitte* 333.6 4% 43 17 30 7 1 1 1 May-13

5 BDO* 47.0 3% 42 7 - 7 - 1 43 Aug-13

6 Mazars* 38.2 9% 73 17 5 5 - - - Aug-13

7Grant Thornton International* (1)

30.2 20% 59 18 6 4 2 2 9 n/a

8Crowe Horwath International*

24.7 18% - - - - - - - Dec-13

9Moore Stephens International*

22.5 302% 13 83 1 1 - - 2 Dec-13

10 RSM International* 17.4 –3% 44 22 15 2 - - 17 Dec-13

11 Nexia International* 17.2 17% 39 48 - 3 6 3 - Jun-13

12 Baker Tilly International* 16.9 5% 84 7 - 3 1 - 5 Dec-13

13 Rödl & Partner* 16.5 –9% 22 14 - 41 3 8 12 Dec-13

14 PKF International* 14.1 –5% 46 45 6 2 - - 1 Jun-13

15 HLB International* 13.9 6% 30 26 8 2 3 5 26 Dec-13

16 ECOVIS International* 6.5 –8% 28 23 8 29 7 5 - Dec-13

17 Kreston International* 4.3 –43% 48 14 17 8 1 0 12 Oct-13

18 UHY International* 2.5 7% 31 65 4 - - - - Dec-13

Total revenue/growth 1,849.3 5%

Notes: CONSOB denotes an individual firm or a netowrk/association with at least one member firm that is licensed to audit CONSOB-listed companies. (1) Bernoni Grant Thornton year-end is 31 December 2013 and Ria Grant Thornton year end is 31 August 2013. *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

Italian professional services industry differs in many ways from its European counter-parts. First, a legislative anomaly means that all certified accountants are also auditors. This gives rise to the presence of auditing practices under the designation of account-ancy firms, and there is a split existing between audit firms which are exclusively involved with auditing, and accounting prac-tices that provide a fuller range of services.

In particular, this split manifests itself pri-marily in large discrepancies in size. While audit firms such as the Big Four and some of the larger mid-tier players employ hun-dreds, sometimes thousands, of staff, small accountancy ‘studios’ hold an average of 10-15 employees.

The quantity of audit carried out by indi-vidual practitioners or audit boards (Italy’s famed ‘collegi sindacali’), rather than firms, makes for an exceptionally competitive mid-dle market and with such an abundance of small players in an increasingly cut-throat

market, competition can swiftly become deadly. Indeed, there are signs that consoli-dation or specialisation may increasingly become an inescapable choice for many.

Another peculiarity of the Italian system is the complexity of its regulatory environ-ment. Frequent government changes, cou-pled with a notoriously slow and bureau-cratic legislative process, mean change can be both sluggish and fleeting. Instability in the political sphere itself also poses a signifi-cant obstacle, discouraging foreign inves-tors and fostering insecurity among domes-tic businesses concerned about unclear and unpredictably changing policy in vital mat-ters such as labour and taxation.

Corruption also remains a serious and widely recognised problem and continues to have a strongly negative effect on busi-ness within the country. Internationally, the threat of fraud greatly increases risk and adds to the lack of appeal for valuable foreign investment. Nationally, it is by no

means rare for doubts to be cast over the legitimacy of contracts and the honesty of tenders, particularly in the public sector, con-tributing to a widespread sense of frustration and bitterness among the country’s financial elite.

All these aspects have done and continue to do little to help Italy shake off the fogs of financial crisis which still engulf it. Despite seeing the first signs of recovery, growth in the Peninsula remains weak, and with unem-ployment hitting a five-year high this year, the country is still far from putting its woes behind it.

However, speaking to some of the lead-ers of Italy’s professional services industry, there appears to be some cause for cautious optimism.

Paolo Scelsi, international liaison partner and managing partner of BDO Italy, says: “We are seeing an increase in the AIM Italia (the Italian SME stock exchange market). We have about 16 companies waiting for


CounTrY surveYInternational Accounting Bulletin ITALY

■ ITALY

ASSOCIATIONS – FEE DATA

rank name ConsoBFee income

(€m)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/


support other

1 Praxity* 41.3 8% 70 19 6 5 - - - N/A

2 PrimeGlobal* 15.0 –21% 30 24 17 5 6 7 11 May-13

3 INPACT International* 13.9 –2% 31 27 16 6 7 6 6 Dec-12

4 AGN International* 11.0 –12% 38 51 - - - - 11 Oct-13

5 Integra International* 8.6 68% 50 35 15 - - - - Mar-14

6 DFK International* 7.3 –17% 31 32 6 19 1 3 8 Dec-13

7 BKR International* 6.8 1% 24 41 - - - - 35 Dec-13

8 IAPA* 5.8 –8% 19 15 16 8 26 2 14 N/A

9 MSI Global Alliance* 5.3 8% 43 20 - - 3 8 27 Dec-13

10 Morison International* 5.1 8% 32 16 9 17 6 13 7 Dec-13

11 CPAAI* (1) 3.2 –5% 10 30 - - 10 20 30 Dec-13

12 MGI* 2.3 –20% - - - - - - - Jun-13

13 GMN International* 0.8 –9% 35 27 10 15 7 2 4 Dec-13

14 EuraAudit International* 0.7 –7% 45 15 30 0 0 0 10 Jun-13

15 A.C.E.E.* 0.3 –14% 79 - - - - 21 - Dec-13

Total revenue/growth 127.2 –1%

Notes: CONSOB denotes an individual firm or a netowrk/association with at least one member firm that is licensed to audit CONSOB-listed companies. *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) CPAAI total fee income is for one of the association’s two firms in Italy.


the opportune moment to list, and this is a really good sign.” He adds that BDO has helped list “six or seven” companies, with an equivalent number being supported through the same process by other advisors and audit firms. “There is certain revitalisation in that respect and I think this is a good sign.” Scelsi says.

Among the participants in this year’s survey, overall revenue among networks for 2013 totalled €1.4bn ($1.9bn), mark-ing a 10% decrease on the previous year’s figures. However, performance remained strong among the Big Four who saw their average fee income increase by over 15% to €399.5m. Among the country’s networks, total revenue fell 1% to €129.8m.

AssuranceDespite contributing a mere 5% to the firm’s 11% growth last year, “audit has seen a slight recovery in growth”, according to Donato Iacovone, managing partner for Italy, Spain and Portugal at EY.

He adds that an increase in initial public offerings also led to an increase in audit-related services, such as due diligence, and that some demand is coming from clients seeking assistance in the implementation of

IFRS. Overall, he explains, demand remains highly qualitative and centred primarily on “international initiatives and/or projects.”

Stefano Azzolari, audit partner for KPMG, adds: “From the audit point of view, on one hand there’s been a decrease in budget review work, so audit in the strictest sense, but on the other we’ve noticed an increased need among businesses for other services, such as assurance, which are expanding.”

Simone Del Bianco, president of Mazars Italy, says audit remains a strong point for the company. In particular, he believes one of the reasons for Mazars’ success lies in its ability to act as a challenger to the Big Four. He says: “The industry looks positively on the accession of challengers and thanks to being in sixth position within the country Mazars can benefit from the chance to par-ticipate in tenders normally reserved for the Big Four firms and a handful of smaller ones.

“As we are the biggest of the small- medium firms [IAB ranks Mazars as the second-largest mid-tier firm], this acts in our favour. In a sense the market has singled us out as the challenger to the Big Four in Italy, and thanks to this we have maintained our performance despite the significant pressures currently facing Italy’s audit industry.”

Competitor BDO confirms the growth in audit. Scelsi says: “If we add everything up, the BDO network in Italy has seen about a 3% increase. We think this growth consti-tutes an excellent result, as it comes during a moment of ongoing crisis which everyone is suffering. If we take audit alone, the result is even better, as we are around 4.5%”.

Meanwhile, among the smaller asso-ciations competition remains unrelenting, but continues to reward high performers. Giorgio De Giorgi, director of PrimeGlobal member Studio De Giorgi, says his business has benefited from consistent growth since 2011, adding: “From my point of view, 2014 has got off to a good start.”

He admits the professional services mar-ket for smaller players in Italy can be merci-less, but argues that those who manage to keep afloat stand to benefit even more as a consequence.

Fee pressure Adding to the market’s competitiveness, one challenge acknowledged throughout by pro-fessional services firms of all sizes in Italy is that of a damaging pressure on fees.

Speaking from EY’s perspective, Iacovone says that although fee pressure is letting up

CounTrY surveY International Accounting Bulletin


ITALY

■ ITALY

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 KPMG* 3,624 3,550 2% 165 163 2,977 2,899 482 488 28 28

2 PwC* 3,386 3,118 9% 136 136 2,689 2,453 561 529 21 21

3 Deloitte* 3,161 2,874 10% 175 168 2679 2442 307 264 19 19

4 EY* (e) 2,112 2,031 4% - - - - - - - 16

5 BDO* 462 497 –7% 39 39 391 426 32 32 29 28

6 Moore Stephens International* 379 96 295% 66 23 266 62 47 11 22 14

7 Mazars* 362 358 1% 25 21 281 286 56 51 10 10

8 Grant Thornton International* 359 297 21% 27 25 288 232 44 40 24 23

9 Crowe Horwath International* 187 165 13% 28 23 154 138 5 4 4 4

10 HLB International* 174 153 14% 46 42 57 46 71 65 15 12

11 Baker Tilly International* 151 147 3% 22 22 105 100 24 25 11 10

12 Nexia International* 142 130 9% 20 19 81 76 41 35 10 5

13 PKF International* 141 176 –20% 22 20 98 133 21 23 13 14

14 RSM International* 174 166 5% 24 24 111 106 39 36 9 10

15 Rödl & Partner* 157 151 4% 14 13 126 121 17 17 4 4

16 Kreston International* 85 125 –32% 18 18 47 86 20 21 9 9

17 ECOVIS International* 73 75 –3% 10 10 53 55 10 10 3 3

18 UHY International* 25 25 0% 5 5 18 18 2 2 3 3

Totals 15,154 14,134 7% 842 771 10,421 9,679 1,779 1,653 234 233

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

for the firm, he believes price stabilisation will remain a concern through 2014, and warns: “Firms like EY, and others as well, are trying to mediate between the pressure on fees and maintaining the necessary quality, and this means we cannot go below today’s prices if we want to guarantee quality and comply with what the regulator says.”

In the mid-tier arena, BDO’s Scelsi con-firms that with prices per hour hovering around €40-50, “the market is suffering con-siderable price pressure, renewals are occur-ring at lower and lower prices. This decrease in margins is both significant and, I believe, dangerous.”

Del Bianco says that although Mazars is “bucking the trend slightly”, over the past three-to-four years fees have seen a fall which he estimates at around 30-40%.

This decrease, he argues, has the added effect of making firms increasingly wary: “Nowadays there is an extremely critical analysis of the risk posed by clients and this could be a route to restoring fees, because as soon as the offering levels fall on the part of

auditors we are likely to witness a return to higher fees.

“However this process has only just begun. With some clients, either you provide the service at a certain figure or it isn’t worth it because the risk is too high.”

reduction in tariff and feesMario Fantechi, managing partner of Moors Rowland Associati, confirms the pressure on fees is “ongoing”, adding: “Auditing is increasingly becoming more of a commodity and less of a personal service. As a conse-quence, every audit tender witnesses a reduc-tion in tariffs and fees.”

However, he believes a fall in quality is less likely, thanks to the existence of control sys-tems both internal and external to the Italian system, and adds: “Italy is ahead of other countries, primarily because here contracts are up for renewal every three years, and can thus be put to tender, which is something that does not happen in other parts of the world.”

“From this point of view Italy is ahead of

other countries that have never experienced as heavy a fee pressure as exists in our mar-ket.”

If the outlook of audit seems to lack promise, across the Peninsula tax looks to be largely on the up, mainly thanks to its professional service providers’ ability to spe-cialise.

Azzolari says that for KPMG it has been key to specialise in niches in tax services in order to increase competitiveness.

Moors Rowland’s Fantechi says the abil-ity of the company’s dedicated three busi-ness units to “carve out a specific role for themselves” has been key to the service line’s success. He explains: “Without this spe-cialisation you remain a generalist and are sure to be penalised by the current market conditions.”

Del Bianco confirms tax has been a “very positive” service line for Mazars as well, with organic and external growth capable of compensating slightly for the fee pressure on its audit service line.

He adds: “Over the past few years we have

CounTrY surveYInternational Accounting Bulletin


ITALY

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ASSOCIATIONS – STAFF DATA

rank name

Total staff Growth rate (%)


2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 Praxity* 400 447 –11% 29 25 313 369 58 53 13 13

2 PrimeGlobal* 195 266 –27% 52 68 71 96 72 102 20 25

3 INPACT International* 135 148 –9% 29 30 74 87 32 31 16 13

4 AGN International* 114 114 0% 31 31 61 61 22 22 6 6

5 MSI Global Alliance* 73 80 –9% 11 11 31 38 31 31 4 4

6 DFK International* 67 85 –21% 18 24 27 27 22 34 8 9

7 Morison International* 66 70 –6% 19 20 34 36 13 14 5 6

8 IAPA* 54 62 –13% 10 11 13 21 31 30 4 7

9 Integra International* 54 45 20% 14 13 24 20 16 12 6 4

10 BKR International* 49 49 0% 4 4 37 37 8 8 1 1

11 MGI* 45 48 –6% 11 14 18 17 16 17 5 7

12 CPAAI* 37 50 –26% 5 5 15 25 17 20 2 3

13 GMN International* 18 23 –22% 4 4 8 13 6 6 4 3

14 EuraAudit International* 11 14 –21% 4 4 4 7 3 3 4 4

15 A.C.E.E* 4 5 –14% 1 1 1 1 2 3 1 2

Totals 1,322 1,506 –12% 242 265 731 855 349 386 99 107

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

carried out several minor operations aimed at external growth, so we are definitely pleased by our tax line’s performance.”

PrimeGlobal’s De Giorgi adds that as far as his growing tax service line is concerned, compliance has been a particularly strong performer. “This is because Italian compli-ance is particularly complex,” he explains. “Foreign investors are always concerned with acting in accordance with legislation and want to be assisted, guided and sup-ported in ensuring that is the case, without running further risks in addition to the nec-essary financial ones.”

At Mazars Del Bianco also says: “Two types of project within tax that are thriving the most nowadays are transfer pricing and expatriates, he says, adding they “will defi-nitely continue to grow” in the future.

EY’s Iacovone agrees saying: “I would say over the past four-to-five years transfer pric-ing has increased 25-30% annually as a busi-ness, mostly because the companies we serve are almost all international and global and always have the biggest issues with transfer pricing, on both VAT and IVA, on indirect tax, and on international tax services in gen-eral as well, but also with expatriates. These are all services which have seen significant

growth for us.”Regulatory changes also have an impact,

as De Giorgi at PrimeGlobal explains, and the recent introduction of incentive checks on transfer pricing within the Italian tax sys-tem has made transfer pricing “one of the most important topics on the table”.

“Many government authorities, including the Italian one, have somehow awakened to the importance of transfer pricing and are now taking an active interest in the issue,” De Giorgi explains, but adds that a shift in demand is also partly responsible.

“Ten years ago no one even knew the meaning of transfer pricing, or it was exclu-sively an issue of interest to big corporations; now it interests even the smaller player or the supplier who owns a branch in Romania, or buys goods in Moldova, or sells its products in China,” De Giorgi says. “So the problem has descended slightly from the Olympus it previously occupied and is slowly widening to everyone in the industry.”

AdvisoryLike tax, advisory business has also ben-efited from the increasing move away from audit.

At almost 20%, EY’s transaction advisory

services contributed the most to the firm’s overall growth last year. Iacovone adds: “I think the services set to attract the most investment in the future are still advisory and, partly, transaction advisory services, and I also think tax and some speciality practices linked to audit.”

For Mazars, Del Bianco says: “The main advisory activity is still debt, both in terms of restructuring and in terms of renegotia-tion. On one hand that is positive, because it means there’s work to do, but on the other it also shows the Italian market still has situa-tions that require solving.”

Moreover, as foreign investor interest in the Italian market shows the first signs of picking up, Del Bianco says the transaction market “is witnessing a recovery, maybe also in part because a lot of the businesses in the Italian market have much more afford-able prices compared to a few years ago”, a sign which he sees as indicative of continued growth in the area in 2014.

Iacovone confirms the same increase has been witnessed by EY, whose outlook in the respect is optimistic: “Growth in purely M&A has picked up in the last seven or eight months, and we expect that to continue next year as well. We expect this new trend in

CounTrY surveY International Accounting BulletinITALY


■ ITALY

FIrM MoveMenTs

neTworK/AssoCIATIon FIrM AddITIons, MerGers & ACQuIsITIons

Baker Tilly International Mergers: Baker Tilly Revisa: Bompani Audit (Rome and Florence) and Iter Audit (Brescia and Rome)

Crowe horwath International Added: International Hotel and Tourism Advisors (Rome)

dFK International Lost: One firm (Bologna)

Grant Thornton International Ltd

Merger: Ria Grant Thornton S.p.A. merged with TickMark S.p.A. (an audit company with offices in Milan, Bergamo, Novara, Turin and Rome).

hLB International Added: Noda - Studio IFF - (Brescia)

IApA Lost: Studio Borio (Florence)

MAZArs Added: Revisionitalia S.r.l. (Brescia, Lombardy)

MGI Lost: La Rosa & Partners, (Milan)

Moore stephens International*

Added: Synergia Consulting Group (Alba, Ancona, Catania, Firenze, Genoa, Milan, Modena, Naples, Rome, Torino, Traviso, Verona), DF Audit S.p.A. (Padua) Lost: Prauditing, (Verona & Vincenza)

rsM International Added: RSM ITALY Capital Markets (Milan)


extraordinary services such as mergers and acquisitions to continue for the rest of the year.”

Free from some of the fee pressure instead placed on audit, Azzolari confirms the rise in both transaction services and debt restruc-turing for KPMG’s advisory branch. “We have seen a recovery beginning in 2013 and continuing into the start of 2014,” he says.

recruitment Despite some agreement across the board on channel performance, recruitment trends remain a significant divergence point, and medium-sized firms find themselves facing a lack of turnover compared to the Big Four and even some of the smaller firms.

Despite remaining a strong recruitment channel, according to Mazars’ Del Bianco, “the turnover which is usual for audit firms has stopped a bit; this is a consequence of a struggling market”. However, “Italian firms are set to initiate a strong hiring campaign in September, so they are still a strong channel compared to other businesses, so that is posi-tive from that point of view.”

BDO’s Scelsi confirms the fall in turno-ver: “We’re still hiring new people, but only small amounts. The fact is the situation is still highly static, there’s no turnover, growth is limited and for this reason hiring figures remain rather stable and don’t display sig-nificant growth.”

Conversely, EY’s Iacovone says: “I believe one of the reasons behind our growth this year, and the one before, is that we never stopped investing [in personnel], not even in 2009 and 2010.”

Indeed, “What is becoming increasingly important for us nowadays are the chang-es and generational impacts which hiring new people every year brings,” Iacovone explains, adding that EY is currently under-taking a lot of work with universities in Italy to help not only recruit talent, but retain the best employees once they enter the company.

Increasing personnel is far from a large-firm prerogative. At PrimeGlobal, thanks to the recent increase in business, De Giorgi says his studio has also been able to increase personnel numbers.

european regulationIn a market still rife with uncertainty, what might come as a surprise is the serenity with which new European regulation has been met across the board.

EY’s Iacovone explains: “We don’t fore-see the new regulation impacting Italy sig-nificantly.”

His sentiment is echoed by Fantechi at Moors Rowland Associati, who says of the regulation: “Italy is relatively ahead as far as things like rotation are concerned. Public interest assignments in Italy cannot last more than nine years; it has always been this way, it isn’t new to us.”

As such, he says: “We won’t witness sig-nificant issues [in the integration of the new EU legislation with existing Italian regula-tion], precisely thanks to the fact that we have taken these factors on board ages ago.”

Italy’s role as a precursor for legisla-tive development is also referenced by Del Bianco at Mazars, but while agreeing that the regulation itself is unlikely to cause dis-

ruption in the Italian market, he describes it nonetheless as “an important milestone”.

He explains: “There are innovative ele-ments which aim is to change the market, because the European community’s motiva-tion in intervening so heavily in legislation lay in making the accountancy market in Europe more competitive.”

The same stress on competition is reflect-ed in the whispers of consolidation aired by some of the market’s mid-sized firms.

Del Bianco says: “The market will prob-ably view some consolidation very positively, precisely because it has reached some impor-tant thresholds. So everyone is speaking to everyone and naturally we have to wait and see if they materialise or if they come to fruition.”

One thing is for certain, he says: “The market is moving and there is the impression that the smallest players are disappearing or are consolidating into more significant sizes in a market which is still more responsive to larger players.”

The same thought is made explicit by Scelsi: “I believe if we are to offset the Big Four hegemony in Italy there has to be inte-gration, at least between two medium-sized firms. So we are trying to find a chance to agree on a similar integration.”

From BDO’s point of view, he adds: “We have to position ourselves in fifth position nationally, while also placing a significant enough distance between ourselves and other firms to become the alternative to the Big Four, because otherwise we’ll continue to suffer their fee pressure.”

Thus medium-sized firms’ desire to escape the strain of shrinking fees and challenge the titans in their industry has been stirred by recent shifts, both in the market and in regu-lation, and the particularities of Italy’s sys-tem might just make it possible for them to do so. As many in the industry gear up for a new fiscal year, the fate of Italy’s professional services industry rests in the balance. In 1454 the Peace of Lodi put an end to the fight for dominance through the imposition of a bal-ance of power which paved the way for the Italian Renaissance, but not before years of internecine conflict had succeeded in entirely reshaping the peninsula’s political landscape.

Similarly, regulatory changes and building pressures certainly have the potential to rejig the Italian market. What remains to be seen is what nature of Renaissance such a shift might herald. <

CounTrY surveYInternational Accounting Bulletin GerMAnY


When far-right and eurosceptic polit-ical parties seized unprecedented victories in the European election last month, German chancellor

Angela Merkel said the best response was to boost economic growth and jobs.

Merkel was well aware that if Germany hadn’t bounced back from the financial crisis with revitalised export industries and record low unemployment her party, the Christian Democratic Union (CDU), might have suf-fered the same fate as governing political parties in neighbouring countries, such as the French Socialist party which came third in the election and the Conservatives, leading

a coalition in the UK, which came second.Instead the CDU won the European elec-

tions in Germany despite recording its worst result in the history of European parliamen-tary elections. Amazingly, Merkel and the CDU won the election thanks to an econom-ic success, of which they are only partially the architects.

Outside Germany, the country’s economic success is often attributed to labour market reforms and/or fiscal conservatism, with Merkel often described in the rest of Europe as the captain who guided the German ship through the storm.

However, while attending the American Institute of Certified Public Accountants (AICPA) first European Summit in Frankfurt last month, the International Accounting Bulletin came to realise that the perception within Germany is slightly different.

In the extensive literature dedicated to the German economic recovery the role of trade unions is often overlooked. But as a Ger-man AICPA member told IAB: “They were instrumental in our economic stability.”

In a paper entitled Inside the German Miracle. How trade unions shape the future of industrial working conditions, Gabi Schil-ling from Duisburg-Essen University and German Trade Union Confederation North Rhine-Westphalia executive board member Achim Vanselow explain that before and during the crisis the unions developed a wide range of activities far beyond the scope of traditional trade union practices.

“The focus of these activities can be described as a proactive approach, which aims to develop strategies for innovative and sustainable solutions for future production and working conditions,” they say.

In a report entitled Trade Unions in Germany by Heiner Dribbusch and Peter Birke published in May 2012, the authors described how German trade unions played an important role in negotiating various col-lective agreements involving flexible work-ing hours, job security and financial conces-sions on the part of employees in an effort to enhance job security. In other words German businesses granted job security to skilled

workers in return for labour concessions. Consequently, this increased productivity while reducing costs and offered businesses the necessary flexibility in decision-making through the crisis.

Another factor in Germany’s economic recovery, which featured in the IAB 2013 Germany country survey, is the success story of Germany’s family-owned small and medium-sized enterprises, the so-called Mit-telstand companies.

Rödl & Partner managing partner Martin Wambach explains: “Mittelstand companies adapt very quickly to the changing environ-ment. They certainly felt the effect of the crisis on their turnover, and had to cut their staff, but in the end they were still productive and they recover very quickly.”

“Within two years of the crisis they had recovered and started making more money than they used to make before the crisis,” he continues.

As reported in last year’s survey the grow-ing importance of Mittelstand companies has shaped the accounting market as SMEs require a wider range of services that go beyond classic audit work.

Consequently, accounting networks and associations have been made to adopt a more multidisciplinary approach to business. This trend has intensified in the past year and according to interviewed firm leaders it will continue to be the norm for the year ahead.

In 2013, German surveyed accounting net-works maintained the 5% growth achieved during 2012. The Big Four firms earned a combined €4.7bn ($6.5bn) in fees, up 5% from 2012. While mid-tier firms grew 3%, with €1.6bn earned in fees during fiscal year 2013.

Although there were no significant chang-es in the rankings for the top four firms, it’s worth noticing that the third-largest network in Germany, EY, closed in on second-place KPMG. In 2012, KPMG ranked second with €49m more in revenue than EY, but in 2013, the gap shrank to only €8.7m.

EY reported 10% growth in revenues to €1,271.9m in the year to 30 June 2013, while KPMG reported a 6% growth in

Profession prospers in Europe’s powerhouseWhile the rest of Europe looks enviously at the German economy hoping to emulate its economic success, changes in regulation and an ageing profession are sources of concern for the country’s accounting firms. vincent huck reports

■ GerMAnY

At a glancerevenue

Most revenue: PwC, €1,515.0m Least revenue: Abacus, €1.9mhighest growth: Antea, 38%Lowest growth: ACEE, –36%

sTAFF

Largest workforce: PwC, 9,299smallest workforce: Abacus, 18Most partners: KPMG, 543Most offices: ECOVIS, 141

eConoMIC IndICATors

national Gdp: €2.7trnnational Gdp growth: 0.6%Gdp per capita (ppp): $39,993Inflation (CpI): 1.6%Current account balance: 1.1% of GDPunemployment rate: 5.6%population: 81,753,000

IAB surveY IndICATors

revenue per employee: €117,261staff density: 1 accountant per 853 peoplenotes: Totals apply to IAB surveyed data only. This includes firms that belong to global networks and associations

source: International Accounting Bulletin, IMF

CounTrY surveY International Accounting BulletinGerMAnY


revenues to €1,280.6m in the year to Sep-tember 2013.

PwC retained its position as market leader with a reported 1% growth in revenue, while Deloitte trails behind the rest of the Big Four with a total fee income of €682.4m in the year to 31 May 2013.

Deloitte audit partner Heiner Kompen-hans says his firm’s growth was driven by consulting and tax services as the audit ser-vice lines remained flat in fiscal year 2013. “In audit there was some fee pressure and we worked on new audit wins of two large banks which drove hours, but not necessar-ily revenues,” he says.

Kompenhans attributes the strong pres-sure on fees in Germany’s audit market to the duopoly of KPMG and PwC, which cut their prices in an effort to keep market share.

In the mid-tier, Baker Tilly International fee income decreased by 11% to €82.4m in the year to 31 December 2013. The network attributed this decline to the loss of member firm Abstoß & Wolters OHG.

At Baker Tilly Roelfs, partner Claus-Michael Allmendinger gives a similar analy-sis of the audit market in the past year as Deloitte’s Kompenhans. While his firm saw some additional work in audit, it didn’t translate into revenues.

“Fee pressure is one of the biggest issues we have in Germany,” he says. “It’s mainly present in the public sector which is a very hard sector to enter as some competitors are just dropping their fees – in some cases the situation is crazy.”

Allmendinger admits Baker Tilly Roelfs had to turn down some engagements in the past year due to low fees requested by cli-ents. But his is not the only firm in this situ-ation as all surveyed firm leaders admitted they had to turn down engagements in the past year.

At Rödl & Partner, Wambach links the fee pressure to the Big Four’s strategies. “The Big Four are not so strong in Germany and they have very aggressive strategies to reach higher growth,” he says.

Increasingly, Big Four firms, as well the mid-tier, see tremendous opportunities in gaining attractive Mittelstand clients, which are currently audited mainly by small firms, Wambach continues. “And one way to attract them is to lower the fees.”

A tough audit market combined with successful SMEs seeking tax and advisory services has led firms investment in these areas. When asked how their tax services performed in past years the Hoeness effect is repeatedly mentioned by firm leaders.

Former FC Bayern München president Uli Hoeness was imprisoned for three and a half years earlier this year for evading €27m ($36.8m) in tax through a secret Swiss bank account. In response to the Hoeness case, thousands of tax dodgers took advantage of a government offer to come clean about their tax status, in return for immunity from pros-ecution, which brought in a lot of work for accounting firms. “You can really describe it as a wave of people showing up and trying to open their old tax files in order not to be

■ GerMAnY

NETWORKS – FEE DATA

rank nameFee income

(€m)Growth

rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/


support other

1 PwC* 1,515.0 1% 44 29 23 - - - 4 Jun-13

2 KPMG* 1,280.6 6% 42 27 - - - - 31 Sep-13

3 EY* 1,271.9 10% 36 35 - - - - 29 Jun-13

4 Deloitte* 682.4 5% 35 26 26 13 - - - May-13

5 Nexia International* 216.2 4% 38 29 16 4 2 6 6 Jun-13

6 BDO* 199.0 2% 52 34 4 4 2 2 2 Jun-13

7 Moore Stephens International* 192.4 6% 46 30 2 14 1 1 6 Dec-13

8 Rödl & Partner* 160.9 5% 30 24 11 - - - 35 Dec-13

9 HLB International* 147.5 21% 44 34 - - - - 22 Dec-13

10 ECOVIS International* 128.9 7% 44 33 12 3 4 3 1 Dec-13

11 PKF International* 127.6 3% 58 29 8 - - - 5 Dec-13

12 RSM International* 111.0 0% 44 42 1 1 1 - 11 Dec-13

13 Grant Thornton* 83.6 –4% 42 37 3 12 1 2 3 30-Sep

14 Baker Tilly International* 82.4 –11% 28 27 - - 27 - 18 Dec-13

15 Crowe Horwath International* 41.0 4% 45 34 13 5 2 - 1 Dec-13

16 Kreston International* 40.3 –2% 41 40 3 16 - - - Oct-13

17 Mazars* 33.5 –4% 54 33 6 7 - - - Aug-13

18 AUREN* 15.3 5% 76 18 6 - - - - Dec-13

19 Reanda International (1) 5.6 2% 34 32 4 - - - 30 Dec-13

Total revenue/growth 6,335.0 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) Reanda International fee income is from a correspondant member firm.




prosecuted and to get away with minor pun-ishments,” Wambach says.

Allmendinger says that as a result of the Hoeness effect most of the work was in tax consulting rather then actual tax compli-ance. He says that another area of tax which has seen a lot of activity in the past year is transfer pricing.

For Nexia International chairman and DHPG partner Norbert Neu this comes from the fact that the tax authority is more and more savvy in transfer pricing. “In the past they were not very familiar with this stuff and were not very well trained, but this has changed dramatically,” he says. “They now know what they’re talking about and under-stand the technology, therefore the require-ments for businesses are greater.”

In 2013, Nexia International retained its ranking as the fifth-largest network in Ger-many with total revenue of €216.2m in the year to 30 June 2013, growing by 4% com-pared to the previous year.

Neu attributes his firm’s growth to its mul-tidisciplinary approach. “Among the servic-

es we offer is insolvency which is a bit unu-sual in Germany and that’s an area where we have seen significant growth,” he says.

In advisory, another service which was highly sought after by clients was valuation, according to Neu. He reveals that DHPG set up a new small team to deal especially with valuation work.

At Baker Tilly Roelfs, Allmendinger shares a similar experience: “We are listed in sev-eral courts and we have a team of 40 people working in valuation. We are more and more recognised for this service and as a result we are winning big clients.”

Baker Tilly Roefls has also been quite active in the transaction market and in 2012 the firm put in place a dedicated team in this area. It took a few months to settle, accord-ing to Allmendinger, but by the second half of 2013 it had recorded 3% growth com-pared to 0% in the previous year.

At Rödl & Partner, the transaction market played an important part in the firm’s over-all growth. “We provided assistance in 220 transactions in the last year,” says Wambach.

“This had a strong impact on our figures.”The firm is confident this trend will con-

tinue in 2014, as it published an M&A study earlier this year on German family-owned companies. The study concluded that Mit-telstand are using strategic company acqui-sitions to expand in Germany and selected international markets.

“75% of the experts questioned by Rödl & Partner expect an increase in M&A activi-ties of German companies, or for it to remain at a high level as it is now,” the survey reads.

For the coming years, all interviewed firm leaders agree the German market will con-tinue to offer great opportunities for firms. Tax and advisory will remain the best per-forming service line, they predict, while audit will continue to be a challenging area.

But firm leaders’ enthusiasm is moderated by the recently adopted EU audit reform and the uncertainties its adoption still carries.

For the members of the European Parlia-ment the job is done; the EU audit reform first proposed four years ago has gone through all the legal procedures and is now

■ GerMAnY

ASSOCIATIONS – FEE DATA

rank

Fee income (€m)

Growth rate

Fee split (%)

Year-endAudit &

AccountingTax

servicesManagement

consultingCorporate

finance

Corporate recovery/


support other

1 PrimeGlobal* 102.0 –2% 36 37 10 3 2 3 9 May-13

2 Praxity* 93.3 16% 51 37 4 5 3 - - n/a

3 AGN International* 81.0 9% 55 38 - - - - 7 n/a

4 DFK International* 50.0 –8% 24 38 1 2 1 28 6 Dec-13

5 BKR International* 48.6 –9% 49 37 8 - - - 6 Dec-13

6 Morison International* 46.2 16% 48 31 7 2 6 5 1 Dec-13

7 ANTEA* 36.2 38% 48 30 7 1 - 3 11 Dec-13

8 IAPA* 34.3 2% 45 40 5 2 2 - 6 Dec-13

9 MGI* 32.7 11% - - - - - - - Jun-13

10 Alliott Group* 27.4 14% 59 19 17 - - - 5 Dec-13

11 GMN International* 22.7 2% 47 42 1 5 - 5 - Dec-13

12 MSI Global Alliance* 19.4 16% 46 15 - 13 12 - 14 Dec-13

13 Integra International* 17.0 2% 45 35 20 - - - - Mar-14

14 INPACT International* 13.4 –1% 27 45 27 - - - 1 Dec-12

15 CPAAI* (1) 4.2 9% 19 77 4 - - - - Dec-13

16 EuraAudit International* 3.7 23% 45 46 7 - - - 2 Dec-13

17 A.C.E.E.* 2.7 –36% 72 28 - - - - - Dec-13

18 Abacus Worldwide* 1.9 0% 46 40 2 5 5 0 2 Dec-13

Total revenue/growth 637.0 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 included. (1) CPAAI total fee income is for one of the association’s two firms in Germany




inscribed in European law. But for the mem-ber states, large corporates and audit firms this is only the beginning.

The reform will take a few years to be implemented in the 28 EU jurisdictions and it will probably take longer for businesses and the accounting profession to grasp the changes it implies.

No surprise then that in Germany, a founding member of the EU, the largest economy in the union and the world’s third largest economy, EU audit reform is on everyone’s mind. German Certified Public Accountants Society (GCPAS) chairman Alex Spiess confirmed that in the past year, EU audit reform has been at the centre of all discussions.

“The EU audit reform wasn’t very well received in Germany, especially the first pro-posals included in Michel Barnier’s green paper,” he says. Both national institutes, the German Chamber of Public Account-ants (Wirtschaftsprüferkammer or WPK) and the Institute of Public Auditors in

Germany (Institut der Wirtschaftsprüfer in Deutschland or IDW), lobbied hard at European level to amend Barnier’s proposal, according to Spiess.

“Barnier’s proposals weren’t adapted to the market needs,” Spiess says. “But it’s clear that we still needed a change in regu-lation, so I believe that the final version of the reform which was approved is a good compromise.”

However member states will have leeway in implementing key measures of the reform and the German profession, like its counter-parts in the other EU states, is wary of how its government will implement the new rules.

“For example, one of the options offered to EU member states by the audit reform is to choose whether or not to ban tax services to audit clients,” Spiess explains. “In Ger-many it has always been allowed to offer tax services alongside audit services, so I’m hoping the government in implementing the reform won’t change it.”

The Big Four firms were also very active in

lobbying the reform as Deloitte’s Kompen-hans explains: “We along with the other large networks tried to prevent mandatory audit rotation as we think it will not improve quality. We believe it puts additional burden on clients and audit firms and we don’t see the restrictions on non-audit services to audit clients as useful.”

Nevertheless, Kompenhans believes Deloitte will benefit from the reform as it will offer some opportunities for the firm.

For Rödl & Partner’s Wambach lobby-ing against the EU audit reform by the Ger-man profession and other stakeholders all across Europe was so effective that “Barnier couldn’t achieve the aim he wanted and in the end we don’t see a great change in the audit market”.

Wambach says there will be a limited amount of audit rotation as large enterprises will just switch from one member of the Big Four to another.

“But the restriction on non-audit services to audit client is the main measure of interest

■ GerMAnY

NETWORKS – STAFF DATA

rank name



2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 PwC* 9,299 9,302 0% 499 489 7,159 7,147 1,641 1,666 28 28

2 KPMG* 9,094 8,797 3% 543 551 6,461 6,311 2,090 1,935 25 25

3 EY* 7,920 7,389 7% 465 463 5,747 5,234 1,708 1,692 22 22

4 Deloitte* 5,259 4,838 9% 279 261 3,890 3,595 1,090 982 16 17

5 Moore Stephens International* 1,985 2,244 –12% 188 195 1,504 1,584 293 465 61 61

6 Nexia International* 1,853 1,790 4% 189 190 1,292 1,238 372 362 41 42

7 BDO* 1,807 1,776 2% 142 139 1,268 1,235 397 402 26 27

8 Rödl & Partner* 1,650 1,600 3% 205 182 1,270 1,248 175 170 23 23

9 ECOVIS International* 1,561 1,541 1% 189 188 1,250 1,233 122 120 141 139

10 HLB International* 1,388 1,262 10% 183 172 982 866 223 224 33 41

11 PKF International* 1,373 1,222 12% 81 83 1,054 945 238 194 28 28

12 RSM International* 1,051 1,143 –8% 123 122 806 870 122 151 32 32

13 Grant Thornton* 672 815 –18% 79 89 472 590 121 136 10 11

14 Baker Tilly International* 669 792 –16% 80 78 366 405 223 309 12 12

15 Crowe Horwath International* 355 341 4% 34 31 241 244 80 66 6 6

16 Kreston International* 348 483 –28% 32 45 225 322 91 116 12 21

17 Mazars* 264 337 –22% 21 25 223 277 25 32 6 8

18 AUREN* 190 186 2% 22 20 142 136 26 30 10 10

19 Reanda International 128 125 2% 8 8 106 102 14 15 17 17

Totals 46,866 45,983 2% 3,362 3,331 34,458 33,582 9,051 9,067 549 570

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) CPAAI total fee income are for one of the association’s two firms in Germany

Source: International Accounting Bulletin.



in the reform,” he adds. “This is a very big chance for us, because in the end we don’t have the capability to audit two or three of the very large scale companies.”

The reform will offer Rödl & Partner the opportunity to audit the smaller PIEs as well as offering tax and business consulting services to all PIEs regardless of their size, Wambach continues. “In the last year we really grew in this client group and we are now doing some consulting work for big companies such as Audi.”

For Allmendinger at Baker Tilly Roelfs the most important measure in the reform is the recognition of joint-audit. “We lobbied a lot for joint-audit and it was a success for it to be recognised considering that the Big Four fought hard against it,” he says. “Now we’ll see what will happen in the national law.”

Joint-audit was included in the EU reform as an option for member states, meaning that the German government, like all the other EU governments will have to decide if they transpose joint-audit into their national

law or write it off.“In our opinion the German government

should transpose the EU audit reform as it was adopted by the EU parliament,” All-mendinger says. “Joint-audit will give mid-tier firms the possibility to work with big listed companies.”

He says 95% of the German listed com-panies are audited by the Big Four. “It will take a long time, but joint-audit will open up the market for the mid-tier,” he adds.Because DHPG does not target the PIEs as a core business, the EU audit reform will not directly impact the firm.

However Neu believes it could have a fil-ter down effect in the long run.

“These rules which are designed for the PIEs will have an impact on the overall view of the stakeholders in terms of what is a good code of conduct,” Neu says. “So I could imagine that in the long run manage-ment boards of non-PIEs which don’t fall under mandatory rotation could see rotation as a good practice and would implement it as a code of conduct rather than a legal obli-

gation.”Asked about the outcome of the reform,

Neu says it is “really poor” in comparison to the initial proposals. However like other members of the mid-tier, he believes there will be some opportunities for his firm to offer non-audit services to PIEs.

Aside from the EU audit reform, at the national level the German regulator has been quiet, but accounting firms are expect-ing a change in regulation in the coming year with regards to inheritance tax which would impact business succession.

In a country where family-owned enter-prises plays such a big part in the national economy, this is regarded as a major issue by businesses.

If the change in regulation does happen firms are expecting a surge in demand for succession and tax work.

The announcement of a possible change in regulation has already brought some work to firms like Rödl & Partner and DHPG. “We think the change will happen in autumn this year or early next year, so there’s a high

■ GerMAnY

ASSOCIATIONS – STAFF DATA

rank name



2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 PrimeGlobal* 1,207 1,271 –5% 129 126 827 909 251 236 65 58

2 Praxity* 933 887 5% 86 71 671 587 176 229 23 23

3 AGN International* 867 651 33% 83 67 503 363 281 221 22 25

4 Morison International* 515 463 11% 55 48 379 343 81 72 20 17

5 BKR International* 506 498 2% 51 50 351 348 104 100 12 12

6 DFK International* 473 461 3% 58 61 271 253 144 147 8 8

7 ANTEA* 459 348 32% 48 35 351 263 60 50 21 19

8 MGI 453 416 9% 61 57 316 288 76 71 27 26

9 IAPA* 350 348 1% 36 36 273 271 41 41 6 6

10 Alliott Group* 327 294 11% 37 34 209 187 81 73 17 16

11 GMN International* 320 330 –3% 37 39 213 220 70 71 9 10

12 Integra International* 218 224 –3% 23 25 152 163 43 36 15 11

13 MSI Global Alliance* 202 195 4% 29 27 140 135 33 33 8 8

14 INPACT International* 189 186 2% 26 26 132 140 31 20 9 9

15 CPAAI* 58 53 9% 7 7 41 38 10 8 2 2

16 EuraAudit International* 38 25 52% 8 6 23 13 7 6 6 5

17 A.C.E.E.* 31 48 –35% 4 7 26 35 1 6 1 2

18 Abacus Worldwide* 18 14 29% 3 3 14 10 1 1 1 1

Totals 7,164 6,712 7% 781 725 4,892 4,566 1,491 1,421 272 258

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



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interest from companies to get things done before it happens,” Wambach says. “We’ve been offering advisory services in restructur-ing and company succession.”

Further to the challenges posed by regula-tory changes, the German profession appears to be becoming less attractive to the younger generation and firms are struggling to enrol young talent from universities.

Germany has the lowest EU unemploy-ment rate, which means graduates have a great deal of choice. “With the financial crisis the banks have received bad press and this has had some repercussion on the audit and accounting profession,” Deloitte’s Kompenhans says. “The financial industry has lost a lot of attractiveness.”

Interviewed firm leaders believe the pro-fession also suffers from being little known especially when it comes to audit.

“Young people are interested in advisory and management consulting rather than audit,” Allmendinger says. “Audit is increas-ingly industrialised with more and more IT-based automated work, so it’s associated with a check list making it less attractive.”

Neu agrees saying that the challenge faced by firms is to clarify what being an account-ant is, and to challenge the idea that it’s only about adding up figures.

“This is something quite difficult to work on at firm level, but our regulatory body has started some work in that sense,” he says.

After registering a drop in the number of student admissions from 828 in 2012 to 721 in 2013, the WPK established a working group with university teachers to examine the reasons behind the negative trend.

Though the group hasn’t released its find-ings yet, some, like Wambach believes it has to do with the very demanding nature of the curriculum and of the work. “To be a CPA in Germany is very complicated and hard, it’s not really family friendly,” he says.

As a result, firms like DHPG have rethought their approach to recruitment and tried to make good offers to young talent in terms of “personal training, relationship, work/life balance and, of course,salary”.

Despite the uncertainties created by the regulatory changes and the lack of attrac-tiveness of the profession, interviewed firm leaders have little doubts on what the future holds for their firms.

All firms regardless of their size will look at making the most of the opportunities in consulting and advisory while trying to capi-talise on audit rotation.

As the Mittelstand companies show no signs of economic slowdown, and are even expanding around the world, accounting firms will hope to harness this growth know-ing that their success will depend solely on their capacity to adapt to changing rules and on their ability as a profession to regain their former appeal to the younger generation. <

■ GerMAnY

FIrM MoveMenTs

neTworK/AssoCIATIon FIrM AddITIons, MerGers & ACQuIsITIons

A.C.e.e Lost: Vietmeier & Baron-Schürings Steuerberatung - Dinslaken (Düsseldorf)

Antea Added: INIT Individuelle Softwareentwicklung & Beratung (Stuttgart), VIERHAUS Steuerberatungsgesellschaft (Berlin)

Baker Tilly International Lost: Dr Clauss, Dr Paal und Partner (Münster), Abstoß & Wolters OHG (Mönchengladbach)

deloitte M&A: Raupach & Wollert-Elmendorff Rechtsanwaltsgesellschaft (Düsseldorf), Monitor Company (München)

euraAudit Added: WHS Steuerberatungsgesellschaft (Sarrelouis )

Grant Thornton International Lost: Oldenburg office

hLB M&A: LKC Kemper Czarske v. Gronau Berz merged with HLB Dr. Stürzenhofecker – Hacker – Dr. Hußmann oHG Added: Treuhand Oldenburg GmbH (Oldenburg)

Integra International Lost: Dr. Hansen - Voss - Behrens (Bad Segeberg)

KpMG M&A: TellSell Consulting, (Frankfurt am Main), Dr. Geke Associates (Düsseldorf)

Kreston Lost: BPG (Krefeld)

Moore stephens International Lost: Dr. Muth & Co. GmbH (Fulda)

Morison International M&A: Ehler Ermer & Partner, Syring Schell Schmidt (Lübeck)

rsM Lost: Hausmann Welz Seeger (Stuttgart)


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