the taxman cometh...15-20: mexico accounting firm leaders speak positively about the past fiscal...

www.InternationalAccountingBulletin.comJuly 2013 Issue 527

The taxman comethTide turns oncompany tax avoidance

� XXX � XXX � XXX � XXX

� US and Europe divided on audit fi rm rotation � Profession stalls in South Korea

� Ernst&Young rebrands � Boom time for Mexico

xxxxx

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editorial Advisory BoardFrank Arford, Crowe Horwath International CEOKevin Arnold, Nexia International executive directorGeoff Barnes, Baker Tilly International president and CEOGraeme Gordon, Praxity executive directorstephen Jacobs, INPACT International presidentJon Lisby, Kreston International executive director James Mendelssohn, MSI Global Alliance CEOChristian Mouillon, Ernst & Young global vice-chair, assurance ed nusbaum, Grant Thornton International CEOMichael reiss von Filski, Geneva Group International CEOLiza robbins, Morison International CEOMartin van roekel, BDO International CEOJean stephens, RSM International CEOrobert Tautges, HLB International CEOpauline wallace, PwC head of public policy and regulatory affairs

news

CounTry survey 10-20

This month the US House of Repre-sentatives voted for legislation, which if approved by the Senate and the President, will prevent the US Pub-

lic Company Accounting Oversight Board (PCAOB) from enforcing mandatory audit firm rotation.

It appears a somewhat surprising move as the PCAOB had only recently launched exploratory discussions with stakeholders on the consequences of such a move in an attempt to improve the role of auditors and secure their independence. With the vote, US politicians appear to have made a stand on rotation without even waiting for the final findings of a PCAOB’s report on these issues (see page 3).

In Europe the situation couldn’t be more different, as it’s the politicians and policy-makers who are behind the drive to impose market remedies in order to increase auditor independence and quality. As the industry somewhat nervously awaits the final report by the UK Competition Commission, and as European audit reform is debated at member state level, mandatory rotation and retender-ing are far from off the table.

Nevertheless, on both sides of the pond the lack of consensus is apparent and the lack of agreement could be forcing policy-makers into unwanted compromise, or the so-called politicising of standards and regulations.

Perhaps we need to look again at why we are having all these discussion and remember that only very recently safeguards, including audit, did fail, in part, to prevent some of the events that led to the economic downturn. And, if mandatory retendering, rotation and limiting the provision of non-audit services are not the right local and global solutions, what are?

speaking to the whistle-blowerA couple of weeks ago the editor of The Accountant, sister title of International Accounting Bulletin, Carlos Martin Tornero spoke to Michael Woodford, the Olympus whistle-blower, who says not much has changed since a $1.7bn loss was discov-ered almost two years ago at the Japanese camera-maker (see page 6). Aside from the prosecution and sentencing of some of its former board members, there have been very few corporate governance changes since therevelation.

Olympus auditors, KPMG and EY, were mostly cleared of all faults. But if the right safeguards exist, as claimed by local regula-tors, why do such things occur. Woodford says that in Japan the relationships between auditors and company directors are “far too comfortable” and warns that in general there could be many more companies hiding their losses.

Perhaps while on a local level regulators, standard-setters and politicians look for ways of intervening and improving inde-pendence and quality, we need to think of the current nature of businesses. Just like Olympus, many companies are increasingly global and there needs to be solutions that can be applied globally.

Perhaps the issue is not so much about complex rules and standards, perhaps it’s more about human nature and cultural dif-ferences. Standards that would address peo-ple’s different cultural views, perceptions and ways of doing things are almost impos-sible to create, however those differences are very real in everyday global business.

Ana [email protected]

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FeATure 06-09

CoMMenT 05

02-04

ConTenTs

■ US one step closer to banning audit fi rm rotation

■ Deloitte: UK CFOs want to take more risks

05: KevIn ArnoLd

Nexia International chief executive Kevin Arnold shares his experience and challenges of running a growing inter-national network

o6: MICHAeL woodFord

IAB speaks to the Olympus whistl-blower.

07-09: TAx AvoIdAnCe

The tax arrangements of companies such as Starbucks and Google have sparked a global debate.

10-14: souTH KoreA

Pressure on audit fees and declining appetite for advisory services are the main reasons behind slower growth of South Korea’s accounting firms. david Hayes reports on the challenges facing the market as the domestic economy slows

15-20: MexICo

Accounting firm leaders speak positively about the past fiscal year and demonstrate optimism about the future as strong organic growth is backed by hopes of increased work arising from pending government reforms and increased investment appetite. Gundi Jeffrey reports

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US and Europe diverging

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IAB onLIne - JuLyTop 5 articlesWeinberger becomes chairman of rebranded EY

US Congress votes to ban mandatory audit rotation

PwC makes global leadership appointments

Leaked report heats up Deloitte probe in Spain

BDO adds Ethiopian firm

Deloitte acquires cyber security firm

Most re-tweeted articleWeinberger becomes chairman of rebranded EY

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Other 40%

us

Former KpMG partner pleads guilty to insider tradingFormer KPMG Los Angeles office lead audit partner Scott London has pleaded guilty to insider trading charge.

In April, London was alleged to have tipped off Bryan Shaw, with details about five KPMG audit clients, enabling Shaw to make more than $1.2m profit by trading ahead of earnings or merger announcements.

Following an insider trading alert by the US Securities and Exchange Commission, KPMG sacked London and the firm had to step down as auditor of health care group Herbalife and shoe manufacturer Skechers due to impairment of independence.

London is facing up to 20 years in jail and a large fine.

eu

Leaked report heats up deloitte probe in spainA leaked report published in the Spanish press has revealed details of ongoing disciplinary proceedings initiated by Spain’s audit watchdog Instituto de Contabilidad y Auditoría de Cuentas (ICAC) against Deloitte’s work at bailed-out bank Bankia before its 2011 stockmarket flotation.

ICAC maintains that Deloitte could have compromised the statutory auditor’s independence as it allegedly rendered non-audit services carried out by the same audit team.

According to ICAC, non-audit work represented 57% of Deloitte’s fees earned from Bankia, which

included the preparation of interim consolidated financial statements as of 31 March 2011.

The Spanish watchdog, part of the Ministry of Economy, is investigating whether or not Deloitte could be found liable for professional misconduct and, in the worst case, have the firm’s auditor’s licence withdrawn.

Deloitte said the proceedings focus “on technical formalities” that in no case “represent a modification of the entity’s audited financial statements” and trusted the proceeding will be dismissed as the examination goes ahead.

us/CHInA

Chinese regulator to handover Langtop audit papersThe US Securities and Exchange Commission (SEC) said that the China Securities Regulatory Commission (CSRC) has indicated that it will hand over audit work papers related to an investigation into Deloitte China. The audit documents are believed to be in relation to US-listed software company Longtop Financial Services.

The SEC statement was released as part of the a subpoena enforcement action against the Chinese unit of Deloitte lodged by the SEC in the United States District Court for the District of Columbia in an attempt to get hold of the audit documents.

The SEC said: “The SEC has not received these documents or had a chance to review them, nor does the SEC know when the production will be made, the extent of redactions,

if any, whether the production will be complete, or whether there will be potential use restrictions.

“If and when the SEC receives the documents, and has had a chance to review and assess them, we will advise the court of the impact, if any, on the subpoena enforcement action.”

In late May the Public Company Accounting Oversight Board (PCAOB) signed a Memorandum of Understanding with the CSRC and the Chinese Ministry of Finance enabling the production and exchange of audit documents relevant to investigations in both jurisdictions.

JApAn

olympus former chairman sentencedA Tokyo district court has given Olympus former chairman Tsuyoshi Kikukawa a suspended three-year sentence for his role in the accounting fraud covering a $1.7bn loss made by the Japanese camera maker.

Former executives Hideo Yamada and Hisashi Mori were given three-year and two-and-a-half-year suspended sentences, respectively, and Olympus was fined $7m.

The scandal emerged in October 2011 when former chief executive Michael Woodford blew the whistle over accounting irregularities dating back from 1990.

Woodford claimed Olympus’ board paid excessively large fees on the advice of acquisition deals that were used to hide billions in losses and he was dismissed as a result.

news round-up

Movers & sHAKers

pwC has appointed richard sexton, robert swaak, Agnès Hussherr and Georg Kämpfer to the network’s global leadership team.

richard sexton, who is currently pwC uK’s head of reputation and policy, has been appointed as vice-chairman of global assurance and as a member of the network executive team.

robert swaak has also become part of the executive team and was appointed as vice-chairman of global clients and markets, responsible for co-ordinating pwC network’s

strategy across regions and industries.

Additionally, Agnès Hussherr has been appointed as global diversity leader and Georg Kämpfer as global regulatory leader.

The managing partner of AGN International’s Swiss member firm Fiduciaria Mega, Riccardo Biaggi (pictured), has been named as chairman of AGN International - Europe.

Biaggi replaced Nancy Cruickshanks, whose term as regional chair ended in June.

ey has promoted 509 of its staff to become partners across the member firms of the organisation worldwide.

ey chief executive and global chairman Mark weinberger

said he was pleased that 26% of the appointed partners, 131, were

women.KpMG us has named

Tracy Benard as leader of the firm’s Accounting Advisory services network. Benard is a new york-based partner in the transactions and restructuring advisory service group for KpMG us.


newsInternational Accounting Bulletin AnALysIs / FIrM MoveMenTs

Bdo’s east Africa practice has added a member firm in ethiopia.The practice currently comprises firms in Burundi, Kenya, rwanda, Tanzania and uganda.The ethiopian firm, formerly next Consult, is a full-service firm operating from an office in Addis Ababa employing 25 partners and staff.

Morison International’s UK member firm MHA MacIntyre Hudson has merged with independent firm Larkings, which will now operate under the MHA MacIntyre Hudson name.Prior to the merger Larkings had six partners and 40 staff who operated out of two offices based in Canterbury and Maidstone.

rsM member in Argentine, rsM Torrent, has merged with local firm razzetto Lopez rodriguez & Cordoba. The merged firm will operate as rsM Torrent razzetto, which will have a combined fee income of $6.8m and 10 partners and 190 staff.

MSI Global Alliance has added a member firm in Mozambique.The Maputo-based firm, Moneris Mozambique, employs 14 staff and provides accounting and tax services both to regional and international clients in the country.The firm is part of MSI’s Portuguese member firm Moneris Group.

Geneva Group International (GGI) has added Hösel siemer to its

membership in Germany. Hösel siemer is an audit and advisory firm specialised in business valuation, tax declaration advice, controlling, company restructuring and succession.Hösel siemer is based in Bremen and has three partners and 60 employees.

HLB International has added member firms in Bahrain and Eritrea.Joining the network are Elyaa Audit & Consulting based in Bahrain and Abraham Isaac & Company based in Eritrea.

AGn International has added Finnish firm Accounting services Tilimatic oy (AsT) to its association.The Helsinki-based firm is AGn

International’s first firm in Finland. AsT has 45 professional staff across three offices.

Moore Stephens International member firm Carr, Riggs & Ingram (CRI) has expanded into North Carolina by merging with Pittard, Perry & Crone (PPC). PPC has several offices throughout the east of the state and will now operate under the CRI name.

Canadian praxity member firm Mnp will merge with ontario firm Laberge venne & partners (Lvp) on 1 september 2013.Lvp has two offices in the city of sudbury operated by three partners, six managers and 17 support staff and provides accounting, tax and consulting services.

FirmMovements

us

Congress one step closer to rejecting mandatory audit firm rotation The US House of Representatives has voted through H.R. 1564: The Audit Integrity and Job Protection Act by 321 votes to 62, which, if made law will pre-vent the Public Company Accounting Oversight Board (PCAOB) from introduc-ing mandatory audit rotation.

The bill is the result of a 2011 concept release from the PCAOB which floated the idea of mandatory audit rotation as a possible way of combating an appar-ent lack of audit independence, following questions over the role auditors may have played in the financial crisis.

At the time, PCAOB chairman James Doty complained of a “disturbing lack of scepticism”, adding “the board is pre-pared to consider all possible methods of addressing the problem of audit quality, including whether mandatory audit firm rotation would help address the inherent conflict created because the auditor is paid by the client.”

He pointed out that mandatory rotation wasn’t a definite plan, saying: “My only predilection is that the PCAOB deepen the analysis of how we can better insu-late auditors from client pressure and shift their mindset to protecting the investing public.”

BacklashThere was an immediate backlash, with the majority of the big firms, networks and associations, along with bodies such as the American Institute of Certi-fied Public Accountants (AICPA), argu-ing that mandatory audit rotation would increase costs, decrease quality and make the entire audit process more complicated for everyone involved.

Since then, the PCAOB has remained relatively quiet on the topic, however this didn’t prevent Republican Robert Hurt introducing H.R. 1564, which received a unanimous “yes” vote in the US govern-

ment Committee of Financial Services (COFS) in June 2013, and a 74% “yes” vote in the House this month.

When asked about the COFS vote, a spokesperson for the PCAOB told Inter-national Accounting Bulletin: “What we issued was a concept release on how to improve independence, professional scep-ticism and objectivity, including rotation. We have no comment on the legislation.”

Although the bil l sti l l needs to go through the Senate and be signed by Pres-ident Obama before becoming law, this didn’t stop AICPA chief executive officer Barry Melancon commenting: “There is a misconception that the continued con-sideration of the PCAOB’s concept release means that the US is headed toward adop-tion of a mandatory firm rotation require-ment. “The House vote will go a long way toward alleviating confusion and uncer-tainty for policy-makers and stakeholders on both sides of the Atlantic.” <


news International Accounting Bulletinround-up

Deloitte: UK CFOs are willing to take more risksNow is a good time to take risks on balance sheets, according to 45% of respondents to Deloitte’s Q2 2013 chief financial officer survey, the highest level in six years, and double the same period from last year.

The more risk-friendly attitude was also reflecting in the number of CFOs focusing on cost reduction, which fell from 42% in Q1 2013 to 34% in Q2.

Similarly the number of CFOs looking to expand by acquisition grew from 17% in Q1 2013 to 21% in Q2, while the number of CFOs looking to dispose of assets or reduce leverage fell from 19% to 17% in the same period.

There were a number of reasons for the new, more expansionary, outlook for UK business, including credit conditions, which 53% of CFOs viewed as cheap and 56% saw as easily available, with it being seen as cheaper and more readily available than at any time in the past six years.

Despite this, just 48% felt the Bank of

England is doing a good job of ensuring the flow of credit into the economy, although 94% said they felt it had done a good job providing monetary stimulus to the economy and 85% said they felt it had maintained an appropriate exchange rate for sterling.

At the same time, 73% of CFOs said their businesses face an above normal, high or very high level of external macroeconomic uncertainty, down from a peak of 97% in late 2011.

Respondents also rated the chance of a eurozone break-up at just 9%, down from 36% in 2012, a figure that has now fallen for five consecutive quarters.

Businesses that derived more than 70% of their revenues from the UK became more expansionary than in any survey in the past two years, in contrast to the normally more expansionary international businesses, which became markedly more defensive in Q2, though they still remained more expan-sionary than their primarily UK-based peers.

Encouragingly, CFOs thought the likli-hood of the UK having a recession in the next two years was only 23%, significantly down from any recent survey.

“Expansion is back on the agenda for many businesses,” said Deloitte chief econo-mist Ian Stewart, adding “CFOs’ willing-ness to take risk onto their balance sheets has risen to the highest level we have ever recorded. The recession-era focus on cost-cutting and debt reduction is easing.”

Stewart said the survey was conducted in the second half of June amid turbulence in the financial markets due to the withdrawal of quantitative easing in the US and a cash crunch in China.

“Yet despite this challenging backdrop CFO perception of risk has fallen while opti-mism and risk appetite have risen,” Stewart added.

Deloitte’s quarterly CFO survey featured 135 CFOs from UK-listed companies with a combined market value of £684bn. <

Weinberger takes chair at rebranded EYErnst & Young has rebranded itself as EY and changed its tagline to “Building a bet-ter working world”.

Simultaneously, Mark Weinberger has become global chairman and chief execu-tive officer of the global firm.

Weinberger’s was elected as global chair-man in January 2012, but only took up the position on 1 July 2013, coinciding with the rebrand.

He previously led the US firm’s tax prac-tice. He was also appointed assistant sec-retary of the US Treasury under President George Bush and, prior to that, he was appointed to the US Social Security Advi-sory Board by President Clinton.

Weinberger’s predecessor, Jim Turley, has retired after 12 years as chairman and CEO.

ey: Building a better worldAs part of the rebrand, EY not only short-ened the name and changed the tagline, but also redesigned the logo.

Weinberger explained: “Shortening our name will provide consistency and ease of use for EY practices and clients around the world.

“We have also redesigned our logo, reflecting our new brand name clearly in the design. Our new brand name and logo demonstrate clearly and boldly who we are and reflect the goal we have recently set ourselves to be the number one brand in our profession.”

Explaining the motivation behind the new tagline, Weinberger said “We know that building a better working world is an ambitious objective, but it is an incred-ibly important aspiration and will be front and centre of everything we do as an organisation.”

“We understand our obligation to look beyond our self-interest and engage with the world. We use our global reach and our relationships with clients, governments and other stakeholders to create positive change. We do this through who we are

and what we stand for and, most impor-tantly, we back it up by how we act.”

EY is the second of the Big Four to rebrand in the past few years. Pricewa-terhouseCoopers rebranded to PwC and lunched a brand makeover in 2010. <


CoMMenTInternational Accounting Bulletin nexIA InTernATIonAL

We all know that one of the key drivers for a f i rm joining a ne t work i s t he

oppor tunity to develop its international capabilities and enhance its ability to attract new clients. Growing networks such as Nexia International face the additional challenge of supporting the needs of mem-ber firms while continuing to enlarge the global network.

At Nexia International, we have experienced significant growth of 34% over the past two years, with total revenue at $2.8bn in 2012, an increase of 22% on the previous year. Our 2012 increase was large-ly accounted for by US firms CliftonLarsonAllen and Cohn-Reznick making the positive decision to stay with the net-work following their respective mergers. It’s a useful principle to work on the basis that every member firm is a potential merger target. In the cases of Larson Allen and J.H. Cohn, many of their partners were already active participants of Nexia’s special interest groups, committees, etc, and, as such, were firmly embedded in the fabric of the network and deriving real value from their membership.

recruitmentRecruiting high-quality firms in key and emerging world markets has been critical to our success. However, as we increase our global representation and larger firms join the network, one of the key challenges is to ensure that existing member firms – particularly smaller ones

– don’t feel marginalised.As a network expands, some firms

may feel their membership is not valued

in the same way as before, or that their ability to attract international clients will be inhibited, as they will now have to compete with larger firms for business. It’s our job to reassure them that this is not the case.

Member firms that get the most out of being part of a network are those that are proactive and committed to develop-ing the international capabilities of their own practices, as well as genuinely help-ing other members around the world meet the needs of their clients. This requires a culture of cooperation within the net-work – where firms feel confident about referring work to one another. Encour-aging international and domestic referral work has been a keystone of our strategy over the past few years and will continue to be the focus for the future.

Enduring professional relationships go a long way towards promoting a sense

of trust and collaboration, so facilitating networking oppor-tunities through global and regional conferences and train-ing courses is crucial. In addi-tion, we have introduced several internal initiatives to encourage referral opportunities, enable information sharing between members and help ident i f y potential conflicts of interest. This gives member firms the tools they need to feel confident about referrals.

Key to referral activity is mutual trust between members and confidence in a firm’s abil-ity to deal with referred clients. In this context, we require our members to maintain stringent quality control standards as a condition of ongoing member-ship. This helps to encourage referral opportunities, as mem-bers are reassured that clients

will receive consistently high standards of professional advice – regardless of a firm’s size or location.

rising expectationsFollowing our strategic review in 2010, an appreciation that the network is mak-ing significant strides has raised expec-tations among Nexia’s board and senior management. This, in turn, has trickled down to what member firms expect of themselves and each other. The challenge now is meeting these expectations.

In my experience the key to success is to remember that a growing network is only as good as the sum of its parts; in other words, the relationships, friend-ships and camaraderie between its peo-ple. In reality, accounting and tax profes-sionals rarely want to do business with other firms – they do business with peo-ple they trust. <

Trust, collaborate and refer to build a successful growing networkNexia International chief executive Kevin Arnold shares his experience and advice about running a growing international network for the benefit of all its member firms


FeATure International Accounting BulletinMICHAeL woodFord

Auditors are part of the problemCarlos Martin Tornero speaks with Olympus whistle-blower Michael Woodford about the part he played, and his views on the biggest accounting scandal in recent years.

Lifting the lid on corporate fraud at one of Japan’s best-known global companies was not an easy decision for Michael Woodford. The British

whistle-blower, at the time the president and chief executive of Olympus, knew he could be embarking on a dangerous and perhaps lonely path. However, he didn’t anticipate the widespread denial and the passiveness of the Japanese corporate world, which fol-lowed his revelation.

Almost two years after a $1.7bn hole was revealed in Olympus’s accounts, Woodford spoke to In t e r n a t ion a l Accounting Bulletin’s sister publication The Accountant about how different the Japanese corporate world is, and how there could be several more cases like Olympus among large Japanese compa-nies just waiting to explode.

Woodford says there are behavioural differences between Japanese and West-ern investors and that the culture is often based on blind loyalties.

Confrontation Prior to making his concerns public, Woodford confronted the Olympus board on several occasions and commissioned PwC to produce a report that found

“potential offences […] including false accounting” and recommended inves-tigating “regulatory issues […] such as money laundering”.

Despite the evidence the board decid-ed to ignore the red flags and dismissed Woodford.

“It really surprised me that 14 intel-ligent men, who all went to universi-ty, including the three non-executives, would act like one united entity against overwhelming evidence,” he says. Wood-ford also sent his findings to EY in Japan, Olympus’s auditor, and the firm’s global leadership team. His concerns remained unanswered.

Olympus had been concealing losses by acquiring companies at inflated prices, funnelled cash to the Cayman Islands, and paid excessive advisory services fees.

At the time of t h e s c a n d a l s o m e i n t h e m e d i a w e n t further alleging that Olympus had also been a s s i s t e d b y

“antisocial forc-es” – the euphe-mism for the term Yakuza or Japanese organ-ised crime. “ H o w c a n

you miss that?” Woodford asks in relation to the $1.7bn in concealed losses, which went unnoticed and accu-mulated over decades.

KPMG ASZA was Olympus’s auditor until March 2009 when it resigned alleg-edly because of differences of opinion with its client. KPMG global chairman Michael Andrew spoke out at the time and said the firm had met all its legal obligations and that it was “displaced as a result of doing our job”. Ernst & Young ShinNihon took over from KPMG and was the company’s auditor when the scandal broke.“If KPMG had been so concerned, how

could they have signed off Olympus’s 2009 accounts without qualification?” Woodford asks.

The two Big Four firms were cleared of wrongdoing after investigations into the affair, however Woodford says that people need to believe in the efficiency of audit firms and believes that, in general, the relationship between auditors and cli-ents in Japan is often “too cosy, far too comfortable and unhealthy”.“Auditors are part of the problem in

Japan,” he says.“I believe the relationships with audit

firms in Japan are incestuous. So I’m con-vinced there are lots of Olympuses in the country in a very similar situation.”

Woodford feels not much has been

learned from Olympus in Japan and thinks in some ways corporate Japan is worse off than before.

Woodford, who gave evidence to the Japanese Parliament, says the very mild recommendation which resulted from his testimony was a rule making it com-pulsory for listed companies to have one outside director.“But the Business Federation objected to

it and the Japanese government dropped it,” exclaims Woodford. “Out of the 1,600 companies on the Nikkei, 1,000 don’t have one outside director. Not one. What are they scared of?”

Woodford has written a book, Expo-sure, recalling the ins and outs of the scandal. It’s to be made into film with Colin Firth tipped to play Woodford.

Woodford doesn’t expect to return to the corporate world saying: “The idea of sitting in a room looking at PowerPoint slides, just talking about strategies, no thank you.“When you go through intense moments

and at one point think you are going to be assassinated, that changes you. Life’s too short and I want to do things that add some value, I don’t want the corporate bulls**t again!”

Picture: Woodford speaking to The Accountant. Photo by Bartosz Rosol.


FeATureInternational Accounting Bulletin TAx

Multinationals’ have complicated tax structures and follow prac-tices (such as profit shuffling, transfer pricing, and so on) that

are legal but increasingly controversial.Business and many accountants often

argue that if governments think tax loop-holes are being exploited, they should close them by changing the law.

Critics say corporate tax avoidance is morally wrong and unfair with protests and boycotts against companies such as Starbucks and Amazon becoming news of late. Politicians have also grilled partners at the Big Four accountancy firms about their role in helping companies dodge tax (see box right).

Governments are trying to counter tax avoidance and evasion by sharing informa-tion about taxpayers and requiring compa-nies to reveal those countries in which they make profits and pay tax.

There is a consensus among politicians and accountants that the global tax system hasn’t kept pace with digital services, and global companies that shift profits between countries to reduce their tax bills.

In the UK, where the debate about tax avoidance has been fiercest, a new “General Anti-Abuse Rule”, aimed at deterring and tackling “artificial and abusive” tax avoid-ance schemes, will soon come into effect.

Accountants say the old definitions of acceptable and unacceptable tax arrange-ments are changing. Tax avoidance used to be legal and tax evasion illegal.

HM Revenue & Customs, the UK tax authority, defines tax avoidance as “bend-ing the rules of the tax system to gain an advantage that Parliament never intended”. It often involves “contrived, artificial trans-actions that serve little or no purpose other than to produce a tax advantage.”

The letter and spirit of the law have to be followed, some tax authorities now insist. Claiming that tax avoidance is the same as “tax planning” (a favoured phrase

among tax advisers) won’t assuage HMRC. It defines tax planning as using tax reliefs for the purpose they were intended.

So how is the debate about tax avoidance affecting accountancy firms? The effect on firms’ revenues is hard to measure, but some tax experts say it’s creating new busi-ness. New tax laws mean a more compli-cated tax system and clients need advice on how to comply with legislation. “The com-pliance ‘sledgehammer’ which create the tax loophole ‘nuts’ inevitably creates more of a need for tax advice and BDO’s tax teams remain busy,” says BDO tax partner Richard Rose.

At the same time, however, tax part-ners at big accountancy firms say they’re offering less advice on “aggressive” tax avoidance schemes.“Overall, companies are doing less tax

planning (i.e. “aggressive” tax avoidance schemes),” says Chris Morgan, head of tax policy at KPMG UK. “This is partly due to the tax regime having been modernised and being seen as fair,) which takes away the incentive and the need to do aggressive planning. At same time, the financial crisis and government spending cuts are putting the spotlight on company tax arrangements

which is [one reason] why you’re seeing peo-ple out on the streets.”

Mid-tier firms also report a change in the way they advice on tax.

Rose says: “The latest [debate over tax avoidance] is creating reputational risks for businesses that are the subject of political and media scrutiny.“We’ve had many examples of clients

questioning whether claiming quite legal and Government-introduced tax reliefs for expenditure on R&D, capital investment, share incentives and remuneration for employees will be considered as aggressive tax avoidance.”

In these situations accountants need to soothe clients’ nerves by explaining the tax system in simple language.

Some tax experts say a decline in rev-enue from advising on tax avoidance schemes first began in 2004 when the Disclosure of Tax Avoidance Schemes (DOTAS) became law.

Under DOTAS, tax advisers must tell HMRC about the schemes at an early stage. The Government has used DOTAS to change the tax law if it believes avoidance scheme are unacceptable. More than 2,000 tax schemes had been identified under

Tide turns against company tax avoidanceThe tax arrangements of companies including Starbucks and Google have sparked a global debate about corporate tax avoidance that could have big implications for the revenue and reputations of accountancy firms. nick Huber reports

uK Big Four under fire by government committee UK politicians have accused the Big Four accountancy firms of abusing their second-ments to government and being at the heart of a corporate tax avoidance industry.

In two evidence sessions before the UK’s Public Accounts Committee in January and April this year, smooth-talking Big Four partners found themselves facing the kind of fire that is usually reserved for their corporate clients.

Margaret Hodge, chairwoman of the House of Commons Public Accounts Com-mittee, told the heads of tax at KPMG, PwC, Ernst & Young and Deloitte that

certain activities to reduce tax liabilities were “shocking”.

But the accountancy firm partners rejected claims that they were marketing “aggressive” tax avoidance schemes to cli-ents and insisted their work benefited the UK by encouraging companies to locate and recruit here.

In April, the committee accused the Big Four firms of using knowledge gained from staff seconded to the Treas-ury to help wealthy clients avoid pay-ing UK taxes. The firms strenuously denied the claim.


FeATure International Accounting BulletinTAx

DOTAS as of March 2012, says HMRC.Morgan says “KPMG won’t offer tax

advice on certain [tax] schemes now that we would have, say, 10 years ago. Courts are taking a narrower approach to things; things that would have worked a while ago won’t work now.“Stakeholders, including customers and

employees, have a changed perspective of what’s acceptable. Tax is more high profile and there’s more concern about reputation.”

KPMG’s “ethical guidance” to partners and staff, says it won’t give tax advice con-trary to the principles [and clear intention] of Parliament.”

Working out the spirit of the tax system can be tricky, though.“Who’s to know what the spirit of the law

is?” says Peter Simons, technical special-ist, research and development, education department at the Chartered Institute of Management Accountants (CIMA). “The spirit of the law is not documented.”

Tax conundrumsSimons gives some examples of possible tax conundrums facing tax advisers.

In example one, principals of very small owner-managed companies, including self-)employed tradesmen and professionals, are alert to tax advantages in how their income might be treated if taken as dividends rather than salary. Often a SME might be owned 50:50 by a couple. If business income of up

to £80,000 is split evenly as dividends rath-er than as an individual’s salary, this can significantly affect the tax bill.

Will the taxman see this practice as an

acceptable loss of tax receipts in order to encourage enterprise, or an abuse of the tax system?

Example two is the Netherlands’ tax treatment of royalties. The reduced tax rate for corporate royalty payments came to the public’s attention because Starbucks seems to have limited the level of profits reported in the UK by paying a royalty to a related company in the Netherlands.

The Dutch tax authority will usually allow such income to be transferred else-where, without applying any withholding tax, giving companies more certainty when planning their tax, Simons says.

But in light of the Starbucks tax row could similar tax arrangements be

challenged even though the UK ministers signed a new tax treaty with the Nether-lands only a short while ago?

Tax advisers could be forgiven for feeling confused, but what about in-house accountants?

Management accountants don’t normally give tax advice, of course. However, they may need to explain to their board the risks of tax advice offered by an external adviser.“My personal tip [is] if in doubt if rules

are being bent, consider if one would be prepared to be transparent,” Simons says.

“Disclosure in accounts may not be neces-sary, but how would customers or other stakeholders react if an advanced tax struc-ture were made public in a newspaper?”

Accountants also need to consider the risk of a customer backlash if a company’s tax arrangements are considered unethical.

Even if it’s legitimate, there may be a risk to a company’s reputation and brand that might outweigh any potential tax saving.

Management accountants often have to say: “Hang on, what about the damage to our brand,” Simons says.

Justin King, chief executive of J Sains-bury, parent company of the supermarket chain, warned retailers recently, that they face a battle to regain customers’ trust on matters including tax. He said to the Daily Telegraph: “Trust is a moral issue and you can’t claim to hold a trustworthy space on any issue including tax by just saying ‘I’m

Businesses want clear guidelines on tax planning

By Francesca Lagerberg, global leader for tax services at Grant Thornton InternationalThe media is awash with stories on the tax planning activities of large corporates. In the US, Apple chief Tim Cook had to answer some tough questions about the levels of cash his company holds abroad. And in the UK, senior leaders from Ama-zon, Google and Starbucks were hauled in front of a hostile Government commit-tee to explain why they pay relatively little corporation tax in that country.

What’s interesting is that these compa-nies are not in any way being accused of breaking the law. The issue is not tax eva-sion – which is illegal – but tax avoidance – which is not. The debate has moved on to whether these companies ought to be paying more. Elected officials now say it has become a question of morality.

But morality is a nebulous concept,

certainly in the business world. Who’s morality do we use as a base for decid-ing what constitutes a ‘fair share’? Yours? Mine? Businesses need things in black and white. They have a responsibility to their investors and shareholders to keep costs down. Simply telling them to pay their ‘fair share’ is not a viable alternative to a clear set of rules or principles.

According to the latest research from the Grant Thornton International Busi-ness Report, a quarterly survey of 3,200 businesses in 44 economies, more than two-thirds (68%) would welcome more global cooperation and guidance from tax authorities on what is acceptable and unacceptable tax planning, even if this provided less opportunity to reduce tax liabilities.

Current tax planning rules are archaic, and businesses need clear guidelines for a modern, digital, internet-powered world. But trying to modify individual coun-tries’ tax laws is unrealistic as it would put them at a relative disadvantage to other countries.

Rather, we need to design a system that works globally and simplifies and clari-fies the tax code, which would be good for businesses, consumers and governments. The tax system needs to be addressed through international institutions such as the OECD and the UN, and via global groupings like the G20.

Using these channels means any modi-fication of corporate tax laws would be worldwide, understandable to all, and enforceable.

“disclosure in accounts may not be necessary, but how would customers or other stakeholders react if an advanced tax structure were made public in a newspaper?”Peter Simons, Chartered Institute of Management Accountants


FeATureInternational Accounting Bulletin TAx

operating within the law’; it is not a good enough articulation to win trust.”

Accountants may increasingly also have to explain and justify their company’s tax policy to employees.“I’ve spoken to many senior people at

companies who want to know about their company’s tax planning and have a view about what they should be doing, and with investors who may have an ethical stance,” KPMG’s Morgan says.

updating guidelinesThe accountancy institutes are updating their ethical guidelines for their members, but how many members stick to them or find them useful?

Also, accountants often moan that jour-nalists and politicians often don’t under-stand or oversimplify tax. So why don’t the accountancy institutes rebut what they believe are tax myths? Or if they believe the tax system is hopelessly outdated and unwieldy why don’t they lobby govern-ments more vocally?

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA) says accountants need to “be much more articulate about tax structures and not hide behind the parapet”, explaining the reasons for com-panies’ tax arrangements to politicians, the media and public.

But others in the profession are more cautious about accountants’ role in the tax avoidance debate.

Ian Young, a specialist in international tax at the tax faculty of the Institute for Chartered Accountants in England and Wales (ICAEW), says that the tax system is

“not working as it should be” but says the ICAEW is not a lobby group.

Companies are under more pressure to publish more information about their tax arrangements and accountants like to talk about the importance of transparency in business. So shouldn’t accountants encour-age clients to reveal where they make profits and pay their tax?

Young says he’s not in favour of the G8’s recent proposal for country-by-country reporting.

He says: “If you have lots of information it’ll be picked over by campaigning groups to further their agenda. [Companies] don’t need to have to expose absolutely every-thing .... it sounds attractive but I’m not sure it will get the results civil society wants.”

Young says that a director of General Electric told him that the industrial con-glomerate probably has millions of differ-ent pieces of information in its accounts that it has to provide to the US Internal Revenue Service. “If it was produce [pub-lish] all the information we would be none the wiser,” Young says.

But some accountants want the profes-sion to be bolder in shaping the debate about tax avoidance.

A different perspectiveCIMA’s Simons says the tax debate should be broadened to look at the value compa-nies generate for society.

He says: “They exist to produce goods and services, to generate employment and wealth, not primarily as corporation tax cash cows. Flourishing businesses will generate corporation tax, but that’s only a quarter of the taxes businesses pay – they

also pay employer’s national insurance con-tributions (NICs), business rates, fuel duties and many other taxes. On top of that they generate and collect employee’s NICs and value added tax. We need a tax system to encourage business, not squeeze the life blood out of it.”

The debate about tax avoidance has pro-duced more rhetoric than action but it has begun to change the tax system. Govern-ments are trying to making it harder for companies to avoid tax by sharing informa-tion and passing new laws.

All this means it’s an interesting time to be a tax accountant. Advising companies on tax avoidance scheme is increasingly risky; too likely to be challenged by tax authori-ties, plus the risk of damage to the reputa-tion of the client and the accountancy firm.

But there are also new opportunities – such as advising clients on how to com-ply with new tax rules and explaining tax arrangements to sceptical politicians, media and the public. As Roy-Chowdhury says:

“In the twenty-first century it’s not just enough to crunch the numbers and be tech-nically proficient. [Accountants] have to go out and explain tax.” <

Tax Aid: world leaders agree measures to counter tax evasionLeaders of the G8 major economies agreed measures to clamp down on tax evaders and corporate tax avoiders.

During the meeting at Loch Erne, Northern Ireland, in June, G8 leaders agreed to share information automatically on their residents’ tax affairs.

Countries should change rules that let companies shift their profits across bor-ders to avoid taxes, and multinationals should report to tax authorities what tax they pay and where, it was agreed.

The leaders of the G8 nations, which

include the US, Russia, Germany and Japan, as well as the UK, reiterated their support for efforts by the Organisation for Economic Co-operation and Develop-ment to tackle tax avoidance by multina-tional companies.

The summit communique will also require shell companies – often used to exploit tax loopholes and invest money anonymously – to identify who really owns them. Tax authorities should be able to get this information easily.

The UK government also announced

further plans to assist developing countries in strengthening their tax systems – known as capacity building – in order to help them claim the tax which they are owed and benefit from information exchange. The Department for International Develop-ment will fund international tax seminars with HMRC tax experts advising about negotiating information exchange agree-ments with counterparts in developing countries and support them in joining in the multilateral convention on the sharing of tax information.

■ TAx revenue

TAx revenue As percAnTAge of gDp In 2011

France 44.2%

Australia 42.1%

Germany 37.1%

UK 35.5%

Canada 31.0%

Switzerland 28.5%

US 25.1%

Source: Organisation for Economic Co-operation and Development (OECD)

CounTry survey International Accounting BulletinsouTH KoreA


South Korea’s accounting market has faced strong downward pressure on audit fees and reduced demand for advisory services during the past year

as companies and other organisations look to cut costs and target accounting services as an important area to make savings.

The domestic economic slowdown is the main factor driving accounting firm clients to reduce accounting fee costs. Little improve-ment seems likely in 2013 though business leaders appear hopeful the economic climate will not worsen.

Exports to major overseas markets includ-ing the US and the EU slowed last year, result-ing in GDP growth slipping to less than 3% in 2012. South Korean business leaders are looking for some improvement this year, while most accounting firms are hoping for stable revenue or a low single-digit increase.

According to firms surveyed by Interna-tional Accounting Bulletin, only one Big Four practice, Ernst & Young Han Young (EY Korea) reported revenue growth in the finan-cial year ending 31 March, with the fourth-ranked firm reporting a 4% rise in revenue compared with the previous year.

Samil PwC in first place and second placed Samjong KPMG both recorded a 3% decrease in revenue last year, while third-ranked Deloitte Anjin reported revenue fig-ures that remain unchanged from the previ-ous year.

One change to note is that Samjong KPMG previously operated advisory services under a separate company and consequently didn’t include advisory fees in its reported revenue. In financial year 2012, Samjong KPMG restructured its operations and merged advi-sory services with the rest of its accounting business. This resulted in a large increase in total revenue being reported for last year.

For mid-tier firms, the past fiscal year was one of mixed fortunes with some reporting an increase in revenue while around six medium practices saw revenue figures drop.

BDO Daejoo, the largest mid-tier firm,

reported a 9% increase in revenue firmly positioning the practice in fifth place in the South Korean accounting market. Sixth ranked Nexia International reported an 11% rise in revenue, while RSM in seventh posi-tion saw revenue rise by 1%.

The next five firms all saw revenue decline in financial year 2012 – Baker Tilly Interna-tional in eighth place down 2%; ninth-ranked Kreston International down 13%; tenth-ranked Grant Thornton International down 6%; 11th-placed HLB International down 5% and 12th-ranked ECOVIS International down 1%.

Continuous fee pressure means that audit services account for a declining share of many accounting firms’ total revenue.“Audit is about 40% to 45% of our revenue.

It’s slowly going down. Tax has growth com-pared to other service lines; it’s about 22% of revenue now,” says Ahn Yeong Kyun, part-ner and RMI leader at Samil PwC, “Tax is increasing slightly, advisory is the same; it’s about 33% of revenue.“South Korean companies are seeing lower

growth so they try to reduce their cash expenses, especially for advisory services, so our consultancy fees are not as good as previ-ously.”

South Korea’s accounting market is sharply divided between large companies and con-glomerates requiring Big Four services and smaller companies that use mid-tier firms.“It’s almost a separate market between mid-

tier and Big Four firms. It will stay separate for the time being,” says Ahn. “The customer size is a big factor. Also, more high profile companies focus on using the Big Four. Cost-sensitive companies already have chosen mid-tier practices.”

While some companies do change their accounting firm occasionally, the decision to change the audit or advisory firm used doesn’t normally involve moving between a Big Four firm and a medium-tier practice.“The accounting market has not yet

improved due to the global and South Korea’s

economic depression. The Korean economy appears to be slightly improving from slow-down, though the overall pace remains mod-est,” says Kim Chun Soo, international liai-son partner at BDO Daejoo.

In the year ending 31 March 2013, audit services accounted for 59% of BDO Daejoo’s revenue while tax work was 12% and advi-sory services 29%.“Total revenue at BDO Korea increased

about 9% in the last fiscal year. The perfor-mance in advisory services was better than audit and tax service lines,” Kim says.

Korean profession faces uphill strugglePressure on audit fees and declining appetite for advisory services are the main reasons behind slower growth of South Korea’s accounting firms. david Hayes reports on the challenges facing the market as the domestic economy slows

■ souTH KoreA

At a glancerevenue

Most revenue: PwC, KRW446,477mLeast revenue: Moore Stephens Intr., KRW9.9mHighest growth: Key Will Group, 45%Lowest growth: Kreston Intr., -13%

sTAFF

Largest workforce: PwC, 3,700smallest workforce: Alliot Group, 8Most partners: PwC, 183Most offices: Prime Global, 8

eConoMIC IndICATors

Gdp: KRW1,302trnGdp growth: 2%Gdp per capita (ppp): 32,272 unitsInflation (CpI): 2.2%Current account balance: 3.7% of GDPunemployment: 3.3%population: 50 million

IAB survery IndICATors

revenue per employee: KRW118.9mstaff density: 1 accountant per 4,134 ppl

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

Source: International Accounting Bulletin, IMF

CounTry surveyInternational Accounting Bulletin souTH KoreA


BDO Daejoo continues to attract new cli-ents and Kim notes the firm last year was appointed auditor for Kumho Petrochemical, a listed company that is one of South Korea’s largest petrochemical firms. “BDO Daejoo was chosen through personal connections and BDO Daejoo’s market position which is No 5 in South Korea,” Kim remarks.

At 59%, audit accounts for a relatively high proportion of total revenue at BDO Dae-joo compared with Samil PwC (mentioned above) and with fellow mid-tier Baker Tilly Sungto where audit represented 44% of total revenue in the past fiscal, tax work 31% and advisory 25%.“Due to the economic recession we don’t

expect a lot of movement in these percentag-es, although we anticipate audit will decrease slightly,” says Park Jae Young, quality risk management partner at Baker Tilly Sungto.“We have a strong assurance services prac-

tice, advising central and local government and public sector bodies. Our taxation prac-tice, with a focus on the telecommunications industry, also has developed over the year.”

With fee pressure on audit services expect-ed to continue, RSM Shinhan is looking to

strengthen other service lines in a bid to lift total revenue.

RSM Shinhan managing partner Choi Jong Man notes: “Our firm is focused on audit engagements more than other areas. Our weakness is in the area of international tax, corporate recovery services and consulting. “We are planning to hire tax specialists with

globalised business knowledge; also, profes-sionals in the areas of fraud investigation, liq-uidation, receivership, digital forensics and e-discovery.”

RSM Shinhan, along with other accounting firms, is looking at various other measures to boost revenues and profits in future.

Choi says: “We accounting firms are seek-ing measures to break the situation – such as saving costs, reorganisation and development of new services lines such as audit for not-for-profit entities and audit for residential condominiums.”

Meanwhile, at Samil PwC, improvements to client services and client management are being targeted through the firm’s specialisa-tion line of service programme which focuses on increased inter-department coordination to meet customer needs.

“We believe it’s time to strengthen the pro-gramme. We are trying to improve collabora-tion with our specialisations,” Ahn remarked.

“A client may not need a specific service; for example, they may want advisory and tax ser-vices, so then we put out experts from both departments. Previously we realised there was a need for coordination but it was not so well done. Now we encourage partners to look beyond their own service lines. We believe that bigger clients benefit from this, also medium-sized clients.“For some priority clients we set up meet-

ings for partners to see if there are any ideas and points to note. For these priority accounts there are regular meetings of partners.”

Inbound and outbound referrals are expected to pick up as South Korea’s econ-omy begins to grow more strongly. Foreign investors are expected to see opportunities in some well-developed sectors including construction and shipbuilding, while more South Korean companies are expected to invest abroad as part of long-term business expansion schemes.“Inbound foreign investment is making slow

progress, while outbound foreign investment 4

■ souTH KoreA

neTworks – fee DATA

rank nameFee income

(Krwm)Growth rate

(%)

Fee split (%)

year-endAudit

& accountingTax

servicesManagement

consultingCorporate

financeCorporate recovery

/Insolvency Litigation

support other

1 PwC* 446,477.3 -3 - - - - - - - Mar-13

2 KPMG* 279,712.0 -3 36 17 31 5 11 - - Mar-13

3 Deloitte* 251,004.6 0 - - - - - - - Mar-13

4 EY* (1) 187,450.0 4 51 16 - - - - 33 Mar-13

5 BDO* 60,415.0 9 59 12 29 - - - - Mar-13

6 Nexia International* 32,001.0 11 58 26 10 - - - 6 Jun-12

7 RSM* (2) 29,283.0 1 55 13 1 - - - 31 Dec-12

8 Baker Tilly International* 14,391.5 -2 44 31 3 6 7 - 9 Mar-13

9 Kreston International* 11,618.2 -13 1 2 79 3 - - 15 Oct-12

10 Grant Thornton International* 6,000.0 -6 49 21 5 4 1 1 18 Mar-13

11 HLB International* 5,807.0 -5 68 10 19 2 - - 1 Mar-13

12 ECOVIS International* 5,632.8 -1 55 24 21 - - - - Mar-13

13 Mazars* 3,882.6 3 31 20 8 - - - 42 Aug-13

14 Alliott Group* 556.3 5 63 32 3 - - 2 - Dec-12

15 PKF International* (3) 10.0 -6 39 16 16 1 2 1 25 n/a

16 Moore Stephens International* (4) 9.9 13 48 13 9 9 7 6 8 Dec-12

Total revenue/growth 1,334,251.3 0

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) 51% audit & accounting = 26% statutory audit and 25% = other assurance; (2) RSM is represented by Shinhan Accounting Corporation in South Korea; (3) PKF International is represented by Do0ne Accounting Corporation; (4) Moore Stephens International is represented by Samhwa Accounting Corporation.

Source: International Accounting Bulletin



is increasing steadily,” BDO Daejoo’s Kim says. “BDO Daejoo has plans for a cross-border corporate finance service as a new advisory service area in future.”

Baker Tilly Sungto has assisted with a num-ber of outbound referrals recently. According to Park, outward referrals during the past few months have included assistance to South Korean clients setting up subsidiary compa-nies in the Philippines involved in the telecom-munications sector. In-country assistance was provided by the local Baker Tilly Internation-al member firm, Constantino Guadalquiver & Co.

In Malaysia, liquidation services were provided through Baker Tilley Malaysia to a South Korean client liquidating local sub-sidiary companies involved in agriculture sector activities, while in the US, tax advice was provided to a Korean client involved in telecommunications through a Baker Tilley International member firm, Habif Arogeti & Wynne in Atlanta, Georgia.

Other mid-tier firms also anticipate rising in and outbound client referrals as economic growth recovers.“RSM Korea has numerous CPAs and tax

specialists who are qualified to handle inter-national works,” says RSM Shinhan’s Choi.

“We are hiring more professionals as we expect the demands will be increased more and more.”

Big Four firms expect outbound invest-ment to resume once global economic con-ditions improve while also attracting foreign investors looking for opportunities to enter South Korea. “M&A business has been slow over the last 12 months but we think it will improve this year,” comments Samil

PwC’s Ahn.“There is some demand for restructuring so

we expect more M&A work this year. Con-struction and shipbuilding are two major industries that require restructuring here.“We think there will be some foreign invest-

ment as there are not enough South Korean funds. China has been slow with foreign direct investment here, but Hong Kong, Singaporean and European companies are looking along with US equity funds.”

New opportunities to serve outbound cli-ents are expected to develop as South Korean private hospitals are built overseas.“Regarding advisory services growth, we

have recently focused on medical service providers and we have built up some teams,” Ahn notes. “South Korean hospitals have started going abroad to the Middle East. We provide help to go abroad. Our advice is sys-temic advisory – how to run hospitals in a foreign country.“General hospitals are trying to go abroad.

It’s a recent development as one of the agenda items for our new government is to encourage the export of services.”

Meanwhile, most South Korean account-ing firms have seen business slow down dur-ing the current economic crisis. Big Four firms were hit most due to the end of IFRS conver-sion work for clients prior to the adoption of IFRS in 2011.

Says Ahn: “IFRS transition work has already been completed. We don’t expect more work from this, but there are some small listed companies still having difficulty in picking up IFRS.”

Mid-tier accounting firms have suffered less from the winding up of IFRS conversion

work and training as fewer of their clients have been affected by IFRS or required train-ing.“BDO Korea has not benefitted much from

IFRS and new business regulations,” notes Kim. “Also, while we have to spend much more time on audit due to the introduction of IFRS, audit fees have increased just a little bit.”

Some mid-tier practices, however, are hope-ful the Government will increase the number of companies and organisations required to use IFRS in future and, in so doing, extend the market for IFRS advisory services.“We are not expecting expanded adoption

of IFRS for a while, since non-listed compa-nies apply Korean GAAP. Also, the discussion on the application of IFRS for SME compa-nies is inactivated,” RSM Shinhan’s Choi says.“However, there is a rising interest in audit

for not-for-profit entities to maintain their transparent accounting records. Educational foundations are required to be audited by the independent auditors. Also, a new law for the mandatory audit of residential condominium buildings is currently being discussed in the National Assembly.”

Meanwhile, South Korea’s accounting pro-fession and clients are required to prepare for the introduction of new ISA audit standards on 1 January 2014.

The new ISA regulations were originally planned to take affect at the same time as IFRS at the start of 2011, but their introduc-tion was then put back to 1 January 2013 as it was felt that starting IFRS and the ISA audit regulations at the same time might place some companies and accounting firms under exces-sive pressure during the introduction phase.

Since then, the launch of the new ISA

4

■ souTH KoreA

AssocIATIons – fee DATA

rank nameFee income

(Krwm)Growth rate

(%)

Fee split (%)

year-endAudit

& accountingTax

servicesManagement

consultingCorporate

financeCorporate

recovery/Insolvency Litigation

support other

1 PrimeGlobal* 38,190.3 8 48 29 15 3 - - 6 May-13

2 Morison International* (1) 24,723.9 -1 59 15 24 2 - - - Mar-12

3 DFK International* (2) 20,632.4 24 48 14 38 - - - - Mar-12

4 Praxity* (3) 14,943.1 3 48 12 2 - 1 - 37 n/a

5 Integra International* 5,022.6 -4 50 25 25 - - - - Apr-13

6 Key Will Group* 180.5 45 50 19 31 - - - - Dec-12

Total revenue/growth 103,692.9 7

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Morison International is represented by Echon & Co. in South Korea; (2) DFK International is represented by WooRi Accounting Corporation (3) Praxity year-end is the latest available year end of participating firms;


CounTry surveyInternational Accounting Bulletin souTH KoreA


standards has been put back by a further 12 months to 1 January 2014, due to an appar-ent lack of coordination between the Finan-cial Supervisory Service and the Korea Insti-tute of Certified Public Accountants (KICPA) over translating the new regulations from English into Korean.“I don’t think there will be any big impact

from the new ISA audit standards. I don’t think there will be extra Big Four work, but for mid-tier firms it’s a different story,” says Ahn. “Their audit standards are based on old

ISA standards, but Big Four firms already have a risk-based approach.“For mid-tier there will be a big change in

audit procedures but I don’t think there will be any transfer of clients because of new ISA regulations. It could affect their profitability as extra time is needed to comply with the rules.”

South Korea’s External Audit Law is also expected to benefit mid-tier firms.“South Korea is promoting transparency

in society. Many organisations do not carry

out an external audit but will require one in future, for example, universities, cooperatives and non-profit ventures will be subject to it at some point this year,” says Ahn. “That market will mostly be for mid-tier account-ing firms.”

Baker Tilly Sungto, for example, foresees opportunities to expand assurance services and greater opportunities to develop tax work.“Looking ahead, the trend towards impos-

ing tax increases on the rich is expected to

■ souTH KoreA

neTworks – sTAff DATA

rank name

Total staff Growth rate (%)

partners professional staff Admin staff offices

2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 PwC*(e) 3,700 3,671 1 183 176 3244 3212 309 306 5 4

2 KPMG* 2,300 2,200 5 150 150 2000 1900 150 150 2 2

3 Deloitte*(e) 2,200 2,000 10 - - - - - - - -

4 EY*(e) 950 913 4 53 51 723 699 174 163 2 2

5 BDO* 522 502 4 63 60 439 423 20 19 6 7

6 Nexia International* 345 324 6 40 39 190 186 115 99 6 7

7 RSM* (1) 328 355 -8 41 29 133 157 154 169 8 8

8 Baker Tilly International* 132 129 2 13 12 105 106 14 11 3 3

9 Moore Stephens International* (2) 105 72 46 4 4 37 32 64 36 1 1

10 PKF International Limited* (3) 105 108 -3 19 19 33 33 53 53 1 1

11 Kreston International* 76 76 0 6 6 57 57 13 13 5 5

12 ECOVIS International* 67 64 5 21 21 44 43 2 3 3 3

13 Mazars* 59 61 -3 4 3 51 53 5 5 1 1

14 Grant Thornton International* 58 60 -3 7 7 47 48 4 5 2 2

15 HLB International* 51 50 2 9 10 32 31 10 9 1 1

16 Alliott Group* 8 8 0 2 2 5 5 1 1 1 1

Totals 11,006 10,593 4 615 589 7,140 6,985 1,088 1,042 47 48

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (e) IAB estimate; (1) RSM is represented by Shinhan Accounting Corporation in South Korea; (2) Moore Stephens International is represented by Samhwa Accounting Corporation ; (3) PKF International is represented by Do0ne Accounting Corporation.


■ souTH KoreA

AssocIATIons – sTAff DATA

rank name


partners professional staff Admin staff offices

2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

1 PrimeGlobal* 423 420 1 90 86 321 259 12 75 8 8

2 Morison International* (1) 245 225 9 20 20 70 71 152 134 8 8

3 Praxity* 190 182 4 27 27 90 117 73 38 5 5

4 DFK International* (2) 169 141 20 10 9 149 72 10 60 2 2

5 Integra International* 57 57 0 2 2 29 29 26 26 4 4

6 Key Will Group* 8 3 167 3 1 3 1 2 1 2 1

Totals 1,092 1,028 6 152 145 662 549 275 334 29 28

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Morison International is represented by Echon & Co. in South Korea; (2) DFK International is represented by WooRi Accounting Corporation;


4



trigger an increased demand for mock tax audits and tax-related consultancy services,” says Baker Tilly Sungto’s Park.“Traditional audit services will continue

to play a key role as the economic recession continues to be felt. We also anticipate an increase in the demand for assurance services amongst private schools, hospitals, LLCs and cooperatives, as the need for transparency remains critical.”

RSM Shinhan also sees new opportunities emerging shortly. “There is a rising interest in audit for not-for profits entities to maintain their transparent accounting records,” Choi says. “Educational foundations are required to be audited by independent auditors. Also, a new law for the mandatory audit of resi-

dential condominiums is currently being dis-cussed in our National Assembly.”

Meanwhile, the economic downturn and resulting downward pressure on audit fees continues to impact recruitment to the pro-fession. The days of large-scale recruitment by Big Four firms to prepare staff for IFRS con-version have passed and new recruit require-ments currently are a lot more limited.“There is some impact from slow growth

this year. Our total requirement will drop slightly – probably 200 to 300 new recruit this year”,” says Ahn. “Big Four recruitment will total about 600 trainees this year.“Job hopping is growing at a small pace. We

have more senior executive recruitment but less than other countries.”

Starting salaries for new entrants have been affected by the current slowdown, according to Baker Tilly Sungto’s Park: “The effect of the economic recession is being felt as we see a decrease in the salary for entry-level staff. The challenge is to ensure the profession retains its attraction as a rewarding career path for today’s top talent,” he says.

Staff retention is important for BDO Dae-joo as the firm prepares for a future upturn in business. “Our number of new staff is increas-ing by approximately 20 to 30 a year and we are implementing enough on-the-job training in order to retain our staff,” says Kim.

Staff training and overseas placements are important for staff development and reten-tion, according to Choi.“RSM Korea is trying to diversify service

lines to other areas than audit. We have per-formed various trainings per position and subject during the year,” Choi explained.

“We are planning to organise online training sessions. We also provide the same pay and benefits as the Big Four firms to our staff.“RSM Korea participates in RSM’s over-

seas programme for seconding staff who are expected to lead our firm in advanced countries.”

Meanwhile, Big Four firms are expected to continue dominating South Korea’s account-ing market by focusing on serving the coun-try’s largest companies.

Whether this situation continues for audit services in future remains to be seen as accounting firm managing partners have begun meeting to try to find ways of working to tackle the low audit fee problem.“Competition in the audit market is intense.

Accounting firms have proposed lower audit fees and thus the profitability of accounting firms has been worsening,” says Kim of BDO Daejoo. “There were meetings of managing part-

ners of accounting firms and they discussed coexistence of Big Four firms and small and medium-sized firms.“One consensus made was that Big Four

firms would rather focus on consulting ser-vice in order to give more service opportunity to small and medium-sized firms. It is not cer-tain whether this consensus may work well because it is not mandatory.”

It has not been an easy time for South Korea’s accounting firms and there are some more tough times to come; however a steady flow of investment and changes to standards might offer some future opportunities. <

■ FIrM MoveMenTs

FIrM TeLepHone, FAx, eMAIL, weBsITe reGIon HeAd/ConTACT

Alliott Group Tel: +44 (0)203 33 00 111; Email: [email protected]; Website: alliottgroup.net

James Hickey

Bdo Tel: +82 70 8893 6500; Fax: +82 2 568 8333; Email: [email protected]; Website: bdo.kr

Chun-Soo Kim

Baker Tilly International

Tel: +82 2 517 8333; Fax: +82 2 517 8399; Email: [email protected] Min Jae Lee

daemyung Grant Thornton

Tel: +82-2-2056-3701; Fax: +82-2-548-4210; Email: [email protected]; Website: dmgt.co.kr

Moon-Won Choi

dFK International Tel: +44 (0) 20 7436 6722; Email: [email protected]; Website dfk.com Martin Sharp

eCovIs International Tel: +49 30 31000855; Fax: +49 30 31000856; Email: [email protected]; Website: ecovis.com

Kay Friedrich Thomsen

HLB International Tel: +82 10 5254 6383; Fax: +82 2 553 2343; Email: [email protected]; Website: skac.co.kr

Young Il choi

Integra International Tel: +604 817 1500; Fax: +604 939 1872; Email: [email protected]; Website: integra-international.net

Richard Purcell

Key will Group Tel: 82 10 2296 5077; Fax: 82 31 273 5078; Email: [email protected]; Website: jzassociate.com

Joseph SY Zoh

KpMG Tel: 82 2 2112 0169; Email: [email protected] Lee, Yun Seob

Kreston International Tel: +44 1245 449266; Fax: +44 1245 462882; Email: [email protected] ; Website: kreston.com

Jon Lisby

Mazars Tel: +82-2-3438-2406; Fax: +82-2-544-6344; Website: mazars.kr Seung-ha, Park

Moore stephens International

Tel: +82 (2) 554 6960; Fax: +82 (2) 554 5963; Email: [email protected]; Website: moorestephens.com

Kook-Hee Lee

Morison International Email: [email protected]; Website: morisoninternational.com

Liza Robbins

nexia International Tel: +44 (0) 20 7436 1114; Fax: 020 7436 1536; Email: [email protected]; Website: nexia.com

Kevin Arnold

pKF International Tel: +44 (0) 20 324 5585; Email: [email protected]; Website: pkf.com

John Sim

praxity Tel: +44 (0)20 8774 4020; Fax: +44 (0)20 8774 4029; Email:[email protected]; Website: praxity.com

Graeme Gordon

primeGlobal Tel +1 678 417 7730 ext. 31; Email: [email protected]; Website: primeglobal.net

Kevin Mead

rsM Tel: +82 (2) 2279 0611; Fax: +82 (2) 2277 9415; Email: [email protected]; Website: shinhan-rsmi.com

Choi JongMan


4

June 2013 y 15www.InternationalAccountingBulletin.com

With the election of Enrique Peña Nieto in 2012 as president of Mexico – reviving the Institu-tional Revolutionary Party (PRI),

which was ousted in 2000 after 71 years of unbroken rule – the business community is hopeful there will be a positive change.

Already, Peña Nieto’s administration – which has promised to reform just about everything – has enacted a new federal revenue law for fiscal year 2013, anti-mon-ey-laundering provisions and comprehen-sive labour reform. It also has many more reforms pending, including establishing an Anti-Corruption Commission, passing new government accountability and reporting provisions, formalising public-private part-nerships and promising comprehensive tax and fiscal reforms in the very near future.“Despite continuing weakness in the

global economy the general economic out-look for Mexico is positive,” says Alberto Tiburcio, chief executive of EY Mexico,

“I believe Mexico will now be able to make real progress in the structural reforms that have been under consideration for some years. There is confidence that the new pres-idential administration will have the politi-cal skills and support to move on the energy, tax, telecommunications, education and other reforms that are considered important for Mexico’s economic advancement.”

According to Guillermo Garcìa-Naranjo, chief executive of KPMG Mexico: “The beginning of a new presidential adminis-tration, a seemingly reinvigorated Congress and the signing of a cross-party political ‘pact’ have raised optimism. In 2013, the new government is likely to make some progress in addressing competitiveness shortcomings in the education, labour, fiscal and energy sectors, but security and economic growth will remain the most pressing challenges.”

president on the moveEduardo Ojeda, general director of Baker Tilly Mexico, points out that Peña Nieto has been criss-crossing the world to assure foreign investors that they can rest assured their capital will be properly safeguarded in Mexico and generate good, reliable returns.

“The fact is, Western economies are currently in an economic whirlwind, while Mexico is a safe harbour for investments,” Ojeda says.

The managing partner of Enterprise Worldwide Mexico (EW), Carlos Brito, explains that the states of Querétaro and Baja California have snagged a lot of aero-space business, with the latter now having more than 50 aerospace companies setting up shop there, generating exports of about $1.14bn, and Querétaro generating close to $668m with 30 aerospace companies of its

A year of optimism and growthAccounting firm leaders speak positively about the past fiscal year and demonstrate optimism about the future as strong organic growth is backed by hopes of increased work arising from pending government reforms and increased investment appetite. Gundi Jeffrey reports

■ MexICo

At a glancerevenue

Most revenue: PwC, MXN3,714.2mLeast revenue: EuraAudit, MXN9.3mHighest growth: Baker Tilly, 46%Lowest growth: MSI Global Alliance, -63%

sTAFF

Largest workforce: Deloitte, 5,260smallest workforce: EuraAudit, 118Most partners: Deloitte, 223Most offices: UC &CS Global, 112

eConoMIC IndICATors

Gdp: MXN5.5tr Gdp growth: 3.9% Gdp per capita (ppp): $15,311Inflation (CpI): 4.1%Current account balance: -0.8%unemployment: 4.8%population: 112m

IAB survery IndICATors

revenue per employee: MXN495,252staff density: 1 accountant per 4,367ppl

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

Source: IAB, IMF

4

CounTry surveyInternational Accounting Bulletin MexICo

CounTry survey International Accounting BulletinMexICo

16 y June 2013 www.InternationalAccountingBulletin.com

own. Another sector “showing enormous potential”, he adds, is automotive, with Nissan, Honda and Mazda all expanding operations in Mexico.

Carlos Mendez, the new chief executive of PwC, adds that the country’s monetary policy “is focused on maintaining the sta-bility of the national currency’s purchasing power and that, along with a cautious tax policy, has enabled significant progress in inflation control.”

Managing partner of Salles Saìnz Grant Thornton, Héctor Pérez, sums up that Mexico’s 2012 GDP growth was 3.9%, compared to 3.4% in 2011, “which is good considering the economic slowdown in the US and Europe.”

Total exports increased to $370.7bn ($349.7bn in 2011). Says Pérez: “This resulted in a better economic performance for most companies, so for most of our clients, 2012 was a better year than 2011.”

All of this helped most of Mexico’s

professional services firms achieve dou-ble-digit growth in fiscal year 2012. BDO México, for example, raked in a 27% revenue increase over fiscal year 2012, Although international crises do affect Mexico, says the firm’s managing part-ner Gabriel Llamas, “our economic ratios and our structural and legal reforms were positive for our target client base.”

restructure and disposalThe only Big Four firm to report a decrease in revenues was Deloitte, with a 9% drop. The firm’s chief executive Francisco Pérez Cisneros says this is because of a slight restructure of the firm, which saw it dispose of some of the less profitable services.

Pérez Cisneros is optimistic and says the firm has grown significantly, gaining public client audits, and adds the firm now also audits the highest number of listed clients in Mexico. “We have also been successful in some financial advisory projects, such as

due diligence and forensic audits,” he says.All the firms saw important growth in

their core services – auditing and assurance, accounting and tax – and are once again pursuing consulting and advisory services with great vigour.“Services in accounting, tax and consult-

ing are currently more profitable for us than traditional auditing services,” notes Baker Tilly’s Ojeda. “It’s hard to find good, risk-free audit clients. Also, competition for audits is heavy, with competitors resort-ing to fee reductions or offering free addi-tional services.”

He notes that the firm’s new services in forensics, SOX implementation and personal data protection have been favourably received.

On the other hand, BDO’s main growth did come from assurance services. Llamas says: “It’s our core business, where we have won important new clients,” but adds

“other areas, such as financial control, are

■ MexICo

neTworks – fee DATA

rank nameFee income

(Mxnm)Growth rate

(%)

Fee split (%)

year-endAudit

& accountingTax

servicesManagement

consultingCorporate

financeCorporate recovery

/Insolvency Litigation

support other

1 PwC*(e) 3,714.2 14 45 34 7 5 - - 9 May-12

2 Deloitte* 3,700.7 -9 - - - - - - - Jun-12

3 EY*(e) 2,550.7 17 51 34 12 3 - - - Jun-12

4 KPMG*(e) 2,499.9 9 - - - - - - - Sep-12

5 Grant Thornton International* (1) 404.5 20 75 25 - - - - - Jul-12

6 Moore Stephens International* 330.7 14 77 10 7 - - - 7 Dec-12

7 Crowe Horwath International* (2) 315.1 15 62 33 1 2 - 2 - Dec-12

8 RSM International* 312.0 26 75 10 5 - - - 10 Dec-12

9 BDO(3) 300.3 27 81 13 3 3 - - - Dec-12

10 Enterprise Worldwide International*

262.1 26 30 45 2 3 1 2 18 Dec-12

11 Kreston International* 238.9 -4 46 33 8 3 - - 10 Oct-12

12 Baker Tilly International* 200.9 46 53 15 10 - - - 22 Dec-12

13 Russell Bedford* 200.7 -2 49 26 5 - - 1 19 Dec-12

14 PKF International* 140.4 38 64 27 5 0 0 0 4 Dec-12

15 Nexia International* 116.6 34 51 43 1 - - 5 - Jun-12

16 HLB International* 110.4 -18 75 20 5 - - - - Dec-12

17 MGI* 77.5 34 - - - - - - - Jun-12

18 Mazars* 95.4 9 95 2 1 2 - - - Aug-12

19 SMS Latinoamérica* 37.5 6 75 15 10 - - - - Dec-12

Total revenue/growth 15,608.5 8

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (e) IAB estimate; (1) Grant Thornton International’s member firm in Mexico is Salles Sainz Grant Thornton; (2) Crowe Horwath International’s member firm in Mexico is Gossler; (3) BDO’s figure includes MXN41m from correspondent and non-exclusive member firms.


4


June 2013 y 17www.InternationalAccountingBulletin.com

■ MexICo

AssocIATIons – fee DATA

rank nameFee income

(Mxnm)Growth rate

(%)

Fee split (%)

year-endAudit

& accountingTax

servicesManagement

consultingCorporate

financeCorporate

recovery/insolvency Litigation

support other

1 UC&CS Global(1) 317.1 0% 69 26 5 - - - - Dec-12

2 DFK International* 230.9 12% 48 14 11 - - 2 25 Dec-11

3 PrimeGlobal* 191.9 -47% 62 20 5 1 1 6 4 May-13

4 Key Will Group* 103.8 34% 99 1 - - - - - Dec-12

5 Praxity* (2) 95.4 9% 95 2 1 2 - - - n/a

6 Morison International* (3) 79.9 1% 70 20 5 - - 1 4 Dec-12

7 AGN International* (4) 60.0 1% 43 24 - - - - 33 Dec-12

8 GMN International* 53.5 5% 52 32 16 - - - - Dec-13

9 BKR International* 39.0 -3% 73 22 4 - - - 1 Jun-12

10 MSI Global Alliance* 37.5 -63% 85 15 - - - - - Dec-12

11 Integra International* 26.3 -6% 50 25 25 - - - - Apr-13

12 Alliott Group* 14.9 - 50 40 8 - - - 2 Dec-12

13 EuraAudit International* 9.3 13% 41 25 34 - - - - Dec-12

Total revenue/growth 1,259.6 12%

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) UC&CS Global’s figure includes MXN700,000 from correspondent and non-exclusive member firms; (2) Praxity’s year-end is the latest available year-end of participating firms; (3) Morison International’s member firm in Mexico is Grupo KMC Contadores; (4) AGN International’s member firm in Mexico is Prieto Ruiz de Velasco y CIA.


also performing well”.To meet client needs for accessibility to

financing, the firm contracted an alliance with Alternative Capital Group, which Llamas says provided clients “with excel-lent financing services”.

Also, in response to new needs stemming from new government initiatives, BDO is developing infrastructure sustainabil-ity and background screening service lines. Llamas notes that BDO at the global level has wide experience in the background checking initiative and “we are now bring-ing it to Mexico.”

number one for auditMendez points out that PwC remains the number one audit firm in Mexico, and that he expects to exceed the growth targets the firm had set for fiscal year 2012. The tax practice also continues to thrive, as do advisory services.“Many clients are looking for ways to

become more efficient in terms of how they manage their supply chains, control cash flows and improve their capabilities around innovation,” Mendez says.“In the past few years, non-audit ser-

vices have really driven strong growth and we expect it to continue in the fore-seeable future.” The firm has also been

offering specialised services to help foreign companies interested in setting up shop in the Mexican markets get acquaint-ed with local laws, business structures, customs and culture.

Although audit came in somewhat below expectations, EY saw tax, transaction and advisory services boom. “We offered more products and services in the advisory prac-tice as we continue penetrating the consult-ing markets in Mexico,” Tiburcio says.“A few years ago, three of the Big Four

firms – including us – began re-entering the consulting market in a more aggres-sive way, and our expectations for these services are high.”

Also contributing to EY’s 2012 growth was attracting 300 new people to the firm.

KPMG concentrated on “making the right investments in our strategic priori-ties,” says Garcìa-Naranjo, “and focus-ing on the fundamentals of our business”, which led the firm to double-digit growth last year. All three service lines – audit, tax and advisory – grew well, with clients focusing on innovation, cost optimisation, customer satisfaction or quality assurance, and improvement of business processes and performance.

The firm also strengthened its infra-structure practice.

“Given KPMG’s proven experience in supporting large-scale infrastructure pro-jects in Mexico,” Garcìa-Naranjo believes the firm is “uniquely positioned to help transform all kinds of infrastructure pro-jects, from concept to reality.”

revenues and growthGrant Thornton boosted revenues by 19.6% in Mexico in 2012, with 9% of that attrib-utable to acquiring former BDO practices in Guadalajara, Mazatlán, and in the bor-der states of Tijuana, Mexicalli and Ciudad Juárez. The rest, says Pérez, was due to organic growth. The mergers significantly strengthened the firm’s presence in the north of the country. A communications campaign promoting the firm’s business risk services brought in new clients and helped give the firm greater prominence in the financial markets.

And Pérez is pleased that important cli-ent referrals from other Grant Thornton International members “brought in addi-tional revenue, especially in the assurance and tax practice”.

Marcelos de los Santos is managing partner of Moore Stephens associate Moore Stephens Marcelo de los Santos y Cía in San Luis Potosi. He says his firm’s best growth came from the auditing, tax 4



planning and legal advisory service lines, and investment in technology services has also brought significant returns. In this case, the demand was generated by new govern-ment requirements for electronic invoicing.

“All Mexican companies must now issue dig-ital invoices to customers and receive them from their suppliers,” de los Santos says

us referralsBrito says his firm has added several new Japanese clients – referred by the Chi-cago EW affiliate – “that are suppliers to the growing automobile industry in the northern states”.

“This is one small step towards servicing a new and challenging market,” he says. In addition, enhanced payroll and IT services

“have shown increasing demand”.Brito adds that new software developed

in-house in response to the new electronic invoicing requirements has been particularly

popular, and the firm’s transfer pricing practice has also shown good profits.

Expansion into new areas has not been as top of mind as in other years, although there were some notable expansions, includ-ing Grant Thornton’s enhanced position in the north of the country and BDO Mexico opening a new office in Ciudad Juárez.

“That’s brought excellent results because it’s such an important business region,” says Llamas. “Now, we want to open more offic-es along the US border.”

KPMG Mexico’s office in the border state of Chihuahua acquired the tax advisory firm RBP&C, “allowing us to strengthen our tax services in that area,” notes Garcìa-Naranjo.

The firm also benefited from global strategic acquisitions such as consulting firm BrainNet Supply Management Group, which specialises in procurement consulting and supply chain management.

“The acquisition enhances our existing capability in designing and optimising global supply chains and broadens the ser-vice offering to support clients across their whole value chain,” says Garcìa-Naranjo.

EY’s Tiburcio points out that the firm now has 22 offices around Mexico, with around 3,000 professionals and 160 equi-ty partners. “We believe that we have the right geographical coverage and are not planning on opening any new offices in the near future,” he says.

evolving service linesAs Mexico’s businesses enter more foreign markets and foreign investors continue to bring their businesses to Mexico, the service lines of the profession are changing.

One notable area of transformation is transfer pricing, which has become an important staple for many of the firms. As Garcìa-Naranjo explains: “Corporate

■ MexICo

neTworks – sTAff DATA

rank name


partners professional staff Administrative staff offices

2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

1 Deloitte* 5,260 5,234 0 223 243 4,121 4,119 916 892 21 20

2 PwC* 3,425 3,262 5 201 191 1,507 2,388 717 683 21 21

3 EY 2,834 2,600 9 160 150 2,136 1,970 538 480 22 22

4 KPMG* 2,476 2,309 7 139 140 1,933 1,794 375 365 17 17

5 Moore Stephens International* 1,262 1,228 3 46 46 1,085 1,056 131 126 18 17

6 RSM International* 915 956 -4 60 62 714 742 141 152 32 32

7 Crowe Horwath Intr.*(1) 880 853 3 52 51 727 692 101 110 25 25

8 Kreston International* 799 739 8 50 55 640 566 109 118 34 25

9 Grant Thornton Intr.*(2) 712 642 11 38 34 578 520 96 88 11 11

10 PKF International* 631 535 18 42 33 498 419 91 83 12 11

11 Baker Tilly International* 601 523 15 78 58 427 392 96 73 20 22

12 BDO* 534 395 35 27 24 445 312 62 59 5 4

13 Russell Bedford* 491 496 -1 44 39 387 399 60 59 15 17

14 Enterprise Worldwide International*

410 401 2 38 35 326 319 46 47 13 13

15 HLB International* 398 517 -23 42 59 309 395 47 63 20 19

16 MGI* 262 230 14 21 15 165 157 76 58 16 13

17 Mazars* 237 166 43 9 10 183 129 45 27 8 7

18 Nexia International* 234 222 5 21 18 181 176 32 28 7 6

19 SMS Latinoamérica* 70 59 19 8 6 49 40 13 11 3 2

Totals 22,431 21,387 5 1,299 1,269 17,411 16,585 3,692 3,522 320 304

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (e) estimate; (1) Crowe Horwath International’s member firm in Mexico is Gossler; (2) Grant Thornton International’s member firm in Mexico is Salles Sainz Grant Thornton.


4


June2013 y 19www.InternationalAccountingBulletin.com

management has already realised that trans-fer pricing is a very resourceful tax planning tool that might help optimise the global effective tax rate. Transfer pricing is an essential risk management tool that CFOs simply cannot forget. Given the significant

amounts of the transfer pricing adjustments that we have seen globally, companies with significant intercompany transactions do need to consider their transfer pricing poli-cies very carefully.”

But fiscal year 2012 also presented

several negative issues that perhaps kept growth in check more than the firms would have liked. As Grant Thornton’s Pérez explains it: “A significant change brewing in the last few years is increased regulation of our assurance practices that have given rise to a larger number of quality control requirements, thus increasing training and supervision costs. “The increase in the cost of quality control

has been so large that we have not been able to recoup it in our billing. Our profitability index is suffering.”

He adds that there are also more profes-sional risks due to the litigious environment worldwide, especially in the US and Europe.

“This is having a significant impact on every accounting firm, especially in the cost of professional risk insurance.”

Hiring difficultiesSome of the firms are lamenting the difficul-ties in hiring and maintaining professional expertise. Pérez notes that: “Recruiting staff is increasingly difficult and this has prevented us from experiencing further growth, since we don’t want to risk the quality control of engagements and we prefer to carry out only the services we can

■ MexICo

AssocIATIons – sTAff DATA

rank name


partners professional staff Administrative staff offices

2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

1 UC&CS Global* 1,817 1,698 7 137 115 1351 1254 329 329 112 75

2 DFK International* 501 542 -8 35 40 401 373 65 129 27 28

3 PrimeGlobal* 412 403 2 26 25 331 337 55 41 13 15

4 Morison International* (1) 320 293 9 12 12 265 239 43 42 8 8

5 Praxity* 237 166 43 9 10 183 129 45 27 8 7

7 GMN International* 203 188 8 12 11 168 161 23 16 3 3

8 AGN International* (2) 174 183 -5 9 8 140 150 25 25 2 2

9 Key Will Group* 162 126 29 3 3 153 117 11 8 5 3

10 Integra International* 107 147 -27 6 6 83 138 18 3 7 7

11 MSI Global Alliance* 86 287 -70 7 12 61 234 18 41 2 3

12 BKR International* 61 75 -19 6 6 55 62 0 7 3 3

13 Alliott Group* 31 - - 2 - 26 - 3 - 1 -

14 EuraAudit International* 18 18 0 4 4 9 14 5 5 2 2

14 INPACT International* 186 194 -4 26 22 140 54 20 118 9 10

Totals 4,129 4,126 0 268 252 3,226 3,208 640 673 193 156

Notes: *Disclaimer = Only data from the named member firm or the exclusive member firms within a network/association is included. Data relating to correspondent and non-exclusive member firms is not included. (1) Morison International’s member firm in Mexico is Grupo KMC Contadores; (2) AGN International’s member firm in Mexico is Prieto Ruiz de Velasco y CIA.


■ FIrM MoveMenTs

neTworK/AssoCIATIon FIrM AddITIons, MerGers & ACQuIsITIons

Alliott Group Acquisition: Villegas y Asociados, (Nuevo Leon)

Baker Tilly International Added: offices opened in Chihuahua and San Luis Potosi; Lost: offices closed in Irapuato, Veracruz, Xalapa and Puebla

Bdo new office: Ciudad Juárez

dFK International Addition: Calvo Nicolau y Márquez Cristerna (Mexico City)

euraAudit International Lost: SPC Contadores y Abogados (Queretaro)

Mazars Alliance with GMV Asociados S.C. (in Mexicali) which will be converted into a direct Mazars office in 2013

MsI Global Alliance Lost: Rivero Hernandez & Asociados, (Mexico City)

pKF International Added: new office in Leon Guanajuato and incorporated a tax practice in Mexico City

praxity Mazars in Mexico and GMV Asociados (Mexicali) formed an alliance which will be converted into a direct Mazars office in 2013

sMs Latinoamérica Added: Cavazos Asesores y Consultores (Monterrey)

uC&Cs Global Added: Corporativo de Consultoría Acceso-15 offices; Apaez Melchor Otero (Mexico City); AB Despacho de Consultores (Mexico City)

Source: International Accounting Bulletin 4



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provide with the staff we have in place. Therefore, we decided not to increase fur-ther our search for additional clients.”

Baker Tilly Mexico’s main headache, Ojeda adds, is personnel turnover. “Peo-ple appear to be looking for a nice place to work,” he says, “with no travelling, no overtime, no having to do physical invento-ries and so on, but without wanting to put in a lot of effort.”“Moreover, the profession has been unable

to convince enough young people to study public accounting, “so the profession is not growing at the same pace as client demands

–there are still only around 20,000 public accountants registered at the Instituto Mex-icano de Contadores Públicos, a figure that has remained static for some years.”

Competition on prices is heating up, says BDO’s Llamas, “cutting into everyone’s margins. This might be the biggest chal-lenge we have to overcome going forward.”

The far-reaching changes to the audit profession being proposed in Europe – mandatory auditor rotation, mandatory tendering, and audit-only firms being some of the more drastic changes proposed – are also bound to have a major impact on the global profession overall, including Mexico.

“We certainly will need to keep a close eye on the regulatory changes under discussion around the world,” says EY’s Tiburcio.

revisiting auditThe financial crisis has forced many people to revisit the auditor’s role and responsibili-ties, adds Mendez. “At PwC, we welcome the opportunity of having such discussions,” he says.“In terms of the audit, there are always

things we can learn and things we can do better. In fact, PwC is engaged in discus-sions with regulators all around the world about the changes that could enhance audit quality, increase investors’ confidence and generally improve the audit profession.”

Going forward, Pérez fears 2013 will turn out to be a difficult year, given that many world economies are still suffering, especially Mexico’s biggest trading partner, the US. And a delay in approving Mexico’s federal government’s 2013 budget meant that Mexico’s investments stagnated, in turn dampening the economic growth of the whole country this year.“There is no doubt that the performance of

the Mexican economy will be an important factor for our performance,” says Tiburcio.

“If structural changes are passed, the uncer-tainty in the global economy is reduced and the Mexican political environment is stable, interest in doing business in Mexico on the part of foreign investors could increase sig-nificantly, which would lead to significant growth in Mexico’s GDP. Obviously, if this does come to pass, this will have a very posi-tive impact on our practices.

Mendez adds that: “Today’s most impor-tant business opportunities lie in society’s biggest challenges – ranging from help-ing businesses increase their transparency, reliability and fairness, to the management of increasingly scarce natural resources.

That’s why we use our skills to act as a catalyst for a wider change in business and society.” <

MexICo

Top 20 fIrMs: fee DATA

rank Firm name Fee income (€m)

Growth rate (%)

1 PwC 3,714.2 -9

2 Deloitte(e) 3,700.7 14

3 EY(e) 2,550.7 17

4 KPMG(e) 2,499.9 9

5 Salles, Sainz Grant Thornton

404.5 20

6 Gossler(1) 315.1 15

7 RSM Borgarin 312.0 26

8 BHR Enterprise Worlwide Mexico

262.1 26

9 BDO Castillo Miranda y Cia.

259.3 9

10 Baker Tilly Mexico 200.9 46

11 Russell Bedford México 200.7 -2

12 PKF Mexico 140.4 38

13 Cortina Tagle Isoard y Cia. (2)

102.0 32

14 Moore Stephens Marcelo De Los Santos y Cia.

101.6 10

15 Mazars(3) 95.4 9

16 Traust Accounting and Legal Firm(4)

80.0 -23

17 Grupo KMC Contadores(5) 79.9 11

18 Solloa, Tello de Meneses y Cia.(6)

74.3 0

19 De la Paz, Costemalle(7) 74.1 -25

20 Kreston CSM 68.3 7

Notes: (e) International Accounting Bulletin estimate; (1) Gossler is a member of Crowe Horwath; (2)Cortina Tagle Isoard y Cia is a member of Key Will Group; (3) Mazars is a member of Praxity; (4) Traust Accounting and Legal Firm is a member of Prime Global; (5) Grupo KMC Contadores is a member of Morsion International; (6) Solloa, Tello de Meneses y Cia is a member of Nexia; (7) De la Paz, Costemalle is a member firm of DFK; (8) Prieto ruiz de Velasco y Cia is a member of AGN.


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WealthInsight provides detailed data and insightful analysis on the world’s High Net Worth Individuals (HNWIs) and wealth sector. With decades of experience providing business information, WealthInsight helps organisations make informed decisions and win new business.

AAt WealthInsight’s core is our proprietary HNWI Database of the world’s wealthiest individuals. Around this database we have built a number of valuable research based products and services that make WealthInsight much more than just a rich contact list.

We work with and provide solutions for: Wealth Managers Private Banks Family Offices Technology Providers Professional Services – Consultants, Accountants, Lawyers, Real Estate Professionals Fund Managers, Asset Managers, Venture Capitalists Non-profits and Educational Institutions

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