CPAs and Consultants

Risks Faced in Accountants’ Professional Liability

Martin W. Terpstra, CPA, CFEPartner, Forensic and Litigation Services

The Accounting Profession

• The Big 4• The National Firms• The Consolidators – Alternative Practice Structure• The Super-Regionals• The Large Local Firms• The Tax Prep Firms• Small Firms and Sole Practitioners

The Big 4

• 1 – Deloitte; $8.8 billion• 2 – PricewaterhouseCoopers; $6.9 billion• 3 – Ernst & Young; $6.9 billion• 4 – KPMG; $4.8 billion• These firms audit most of the Fortune billion• These firms are international in scope• They are now audit driven

The National Firms

• 6 – Grant Thornton; $940 million• 7 – BDO Seidman; $558 million• Adding many public clients, growing fast• Taking many risky engagements turned away by the

Big 4• Considered a merger possibility

The Consolidators

• 5 – RSM McGladrey; $1.3 billion national• 8 – CBiz/MHM; $467 million scattered offices• 13 – UHY; $242 million: NE, DET, STL, HOU• Alternative practice structures• RSM purchased AmEx TBS in October 2005 • RSM is owned by H&R Block• CBiZ is publically traded• Few public clients, little appetite for risk• Looking to buy firms to fill in the map• UHY had two deals fall apart recently

The Super Regionals

• 9 – Crowe; $423 million: IL, IN, KY, MI, OH, TN• 10 – BKD; $287 million: MO, KS, NB, AR, IN, KY• 11 – Moss Adams; $271 million, West Coast• 12 – Plante Moran; $243million: MI, IL, OH, TN• 14 – Clifton; $198 million: Midwest, 15 states• 15 – Virchow Krause; $182 million: WI, IL, MI, MN• 16 – JH Cohn; $175 million: NJ, NY• 17 – Dixon Hughes; $155 million, South• 18 – Larson Allen; $140 million: MN, MO, PA, FL, AZ• 19 – Reznick; $137 million: MD, VA, GA, IL, CA

The Large Locals

• New York – 18 large local firms• Chicago – Blackman Kallick is the only large local left• Midwest – a number of large state-wide firms• Northeast – a number of large firms based in the

metro areas• Miami – five large firms• Southeast – a number of large state-wide firms• Southwest & West – a number of large local firms

The Tax Prep Firms

• H&R Block – $2.3 billion, parent corporation of RSM McGladrey

• Jackson Hewitt – $650 million• Liberty Tax Services – $66 million, founded by John

Hewitt

Services Offered

• Attest – 86%• Business Valuations – 82%• Litigation Services – 78%• Forensics and Fraud – 77%• Estates and Trusts – 74%• Mergers and Acquisitions – 68%• High Net Worth – 62%• Cost Segregation – 54%

Clients Served

• Real Estate – 86%• Manufacturing – 78%• Construction – 69% A&AG• Professional Services – 69%• Nonprofit Organizations – 65% A&AG • Pension Plans – 64% A&AG• Wholesalers and Distributors – 64%• Technology – 56%• Healthcare – 50% A&AG• Government – 40% A&AG/GASB

Source: Accounting Today Top Client Categories

CPAs and Consultants