usa tax reform winners & losers - agn international · 2018-03-05 · gst bill will help...

March 2018w w w. i n t e r n at i o n a l a c c o u n t i n g b u l l e t i n . c o mIssue 583

NEWS INSIGHT RANKINGSGDPR adoption

Tax & SDGsCarillion & audit failures:

more of the sameUSA

Canada

USA TAX REFORMWINNERS & LOSERS

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Contents

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USA TAX REFORM

COVER STORY

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NEWS

04 / GDPRBusinesses late on implementation

04 / M&A ADVISORYUK mid-tier take on the Big Four.

05 / UN GOALSCountries called on to strenghten tax system to meet development goals

05 / WOLRD CONGRESSThree countries compete to host the World Congress of Accountants 2022

05 / INDIA’S NEW TAXIndia’s new tax seen to disrupt businesses

s to talk about cracking China, disrupting SWIFT, and leveraging WeChaCOMMENT

06 / CARILLION Prem Sikka, professor of accounting and finance at the University of Sheffield and emeritus professor of accounting at the University of Essex, puts the fall of UK construction and outsourcing company, Carillion, into historical perspective. He explains why audit failure has little to do with market concentration but comes down to systemic and organisational problems combined with an ineffective regulator

RANKING

12 / USA 16 / CANADA

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Firm movement Morison KSi South

African member firm joins Grant Thornton

news

SizweNtsalubaGobodo will merge with Grant Thornton South Africa, and the new entity will be branded as SizweNtsalubaGobodo

Grant Thornton.This move could have a considerable impact on Morison

KSi, which was ranked as the largest association in South Africa in the 2017 financial year. It had a reported total fee income of ZAR 586.1m, of which ZAR 549.7m came from SizweNtsalubaGobodo.

On the other hand, in the same year end, Grant Thornton was comfortably ranked as the fifth largest network in South Africa with reported fee incomes of ZAR 677.5m, ahead of BDO by ZAR 147.3m.

With the addition of SizweNtsalubaGobodo, Grant Thornton is expected to consolidate its position as the largest mid-tier network in South Africa.

SizweNtsalubaGobodo is one of a few ‘emerging firms’ in South Africa, which are led by black South Africans. They are part of the efforts of transformation to include previously disadvantaged groups in the economy.

SizweNtsalubaGobodo CEO Victor Sekese said: “The integrated firm will preserve and build on the identity and reputation of SizweNtsalubaGobodo.

“This is a very significant development in the proud history of our firm since we will be part of a global organisation that respects and celebrates our heritage.”

SizweNtsalubaGobodo leaves Morison KSi to join Grant Thornton which could have consequence on the ranking tables in South Africa

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accounting news bites

UK Mid-tier accounting firms beat Big Four at M&A advice

BUSINESSES LATE ON GDPR IMPLEMENTATION Many businesses are likely to be late in complying with the EU General Data Protection Regulation (GDPR), according to EY Global Forensic Data Analytics Survey 2018. The survey is based on 745 interviews with companies using forensic data analytics in 19 countries. Respondents were decision-makers with risk management responsibilities, particularly in legal, compliance and fraud functions. The GDPR, which comes into effect on 25 May this year, is intended to strengthen data protection and unify the laws on this across the EU. It applies to all companies, regardless of location, that process personal data of people living in the EU. It therefore has immense extraterritorial reach; it also carries significant potential financial penalties. However, only 33% of EY’s survey respondents had plans in place to ensure they would comply with the GDPR. Another 39% indicated they were not familiar with GDPR and 17% said that they had heard of the GDPR but had not yet taken any action. Only 13% of respondents across the Americas and only 12% in Asia-Pacific had a GDPR compliance plan. In Europe, 60% of companies had plans in place. Specifically, 80% of those in Germany, 68% in the UK and 73% in Ireland said they had a compliance plan. EY Global FIDS leader Andrew Gordon said: “Two risks come into sharp focus in this survey: regulatory compliance; and data protection and data privacy. We heard from companies around the world that expressed growing concern in these areas and identified real challenges to overcome. This year’s Global Forensic Data Analytics Survey findings show that this is where [forensic data analytics] has a vital role to play.”

InuGrant Thornton, RSM and BDO have taken the top three places for the number of M&A deals for which they acted as financial advisors, in Experian Market IQ’s 2017 survey for mergers and acquisitions in the UK.However, when it came to transaction values only two accountancy firms were in the top 20 financial advisors, KPMG and EY ranked 16th and 19th respectively. KPMG had earned £7.1m, and EY £5.7m, compared to Morgan Stanley (£62.4m) and Goldman Sachs (£45.8m) took first and second place.Grant Thornton advised on 165 deals, RSM advised 145, and 128 deals were advised by BDO, with all three also performing well on a regional level. EY was the highest ranked of the Big Four firms, taking sixth place and advising on 86 deals, while PwC came ninth with 81, and Deloitte 18th with 51.Grant Thornton UK attributed the

ranking to a 25% increase in the volume of transactions for the M&A team, totalling £5.5bn, with a quarter of transactions from cross-border deals and 33% involving private equity backing. Yet their total number of deal completions was down by 10%.Grant Thornton UK partner and head of corporate finance advisory Andy Morgan said: “Whilst the overall deal market experienced some economic and political headwinds, 2017 was a very busy and exciting year for our team.”He predicted continued growth in 2018: “Valuations remain strong – and perhaps frothy in some areas – however, the level of liquidity in equity, debt and public markets and the continued appetite of international corporates for quality UK assets provides a strong underpin for deal activity into 2018.”

News | Digest


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THREE COUNTRIES IN CONTENTION TO HOST WORLD CONGRESS OF ACCOUNTANTS IN 2022Austria, France and India have each put forward a bid to host the World Congress of Accountants in 2022, The Accountant and International Accounting Bulletin have learnt.The Accountant and International Accounting Bulletin understands that a decision will be taken by June of this year and the host will be announced at the 2018 World Congress of Accountants in Sydney in November 2018.The International Federation of Accountants (IFAC) declined to comment on who nominated and the process for awarding the Congress.The Accountant and International Accounting Bulletin understands form a source with knowledge of the situation that the bookmakers’ favourite is France. However, with a few months left before the final decision is taken, everything is to play for.

Around 64% of Indians surveyed believe that the Goods and Services Tax (GST) rollout led to a disruption among the businesses community across the country, according to an International Federation of Accountants (IFAC) survey.The survey, with a sample size of 1,200, was conducted by Harris Poll on behalf of IFAC from October 30 to November 2, 2017. It was conducted to assess public perception on key issues facing the accounting profession.76% of respondents believe that a knowledgeable accounting professional is essential for businesses to be compliant with GST, underscoring the willingness for compliance and the trust of people in the acumen and expertise of accounting professionals.The GST, implemented 1 July 2017, aims to solve long existing challenges prevalent in the current taxation system.

Countries must strengthen tax systems to meet Sustainable Development Goals

The IMF, the OECD, the United Nations and the World Bank Group have called on governments to strengthen their tax systems and make them more effective to generate the domestic resources needed to meet the Sustainable Development Goals and promote inclusive economic growth.

Domestic resource mobilisation is particularly difficult for developing countries, which struggle to raise sufficient revenue to provide basic services such as road infrastructure, healthcare and public safety.

Research indicates that at least 15% of GDP in revenue is necessary to finance these basic services but, in almost 30 of the 75 poorest countries, tax revenues are below this 15% threshold.

At the same time, all countries need to pay greater attention to the

spillovers from their tax policies and increase their support for stronger tax systems, the international organisations said.

“Governments and relevant stakeholders need to work together on establishing a fair and efficient system of international taxation, including efforts to fight tax evasion and tax avoidance,” they said.

During a conference on taxation and the SDGs at the UN headquarters organised by the Platform for Collaboration on Tax, ministers of finance, tax authorities and senior representatives from civil society, the private sector and academia debated the key directions needed for tax policy and administration to meet the SDGs by 2030.

The event aimed to provide guidance on using tax to achieve development goals.

For small and medium enterprises (SMEs) in particular, the GST bill will help eradicate indirect taxes, provide more transparency of the tax process, draw projections of production cost and make access to new geographies for business expansion more accessible, the survey reported.There are more than 50m SMEs in the country which are expected to contribute nearly 50% of India’s GDP by 2020.70% of respondents think that technologies such as blockchain, automation, and AI will replace professional accountants in the next 10 years.However, 64% believe that they would not trust AI alone to fulfil their personal and business accounting needs.According to the IFAC survey, 80% of respondents think the accounting profession enhances the financial transparency in the economy.

INDIAN TAX REFORM DISRUPTED BUSINESSES

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Carillion: only the latest in a long series of audit failuresPrem Sikka, professor of accounting and finance at the University of Sheffield and emeritus professor of accounting at the University of Essex, puts the fall of UK construction company, Carillion, into historical perspective and explains why audit market concentration has little to do with audit failure but it rather comes down to systemic and organisational problems combined with an ineffective regulator.

It is almost impossible to sue auditors for negligence. the pressures to deliver good audits have been diluted

When in a hole – deflect attention’ is an old strategy used by elites to manage awkward

situations. That strategy was in full use by the Financial Reporting Council (FRC) at last week’s Parliamentary inquiry into the collapse of Carillion, a major UK construction and services conglomerate. Carillion entered liquidation on 15th January 2018. It had about 43,000 employees (19,500

in the UK) and owed £800m to employee pension scheme and about £2bn to 30,000 small businesses. Carillion had non-current assets of £2,163m, and £1,571m of this was goodwill, which was not amortised. For the period 2009 to 2017, Carillion’s debts rose by 297%, whereas the value of its long-term assets grew by just 14%. In the five-and-half-year period from January 2012 to June 2017, Carillion paid out £333 million more in

dividends than it generated in cash from its operations. Over the eight years from December 2009 to January 2018, the total debt owed by Carillion in loans increased from £242 million to an estimated £1.3 billion. The company always received an unqualified audit report from KPMG.

Inevitably, there were questions about accounting and auditing practices and the FRC chief executive was summoned to appear in front of a joint session of the UK House of Commons Work and Pensions and Business

Energy and Industrial Strategy Committees on 30th January. It wasn’t long before he attributed auditing woes to the lack of “competition in the major accounting and audit area”.

We can have a debate about competition, but that is not the reason for poor audits. Since the 1970s, there has been increased concentration of audit services. The number of major firms shrank from the big eight to

seven, six, five and finally after the 2001 Enron and WorldCom scandals and the demise of Arthur Andersen, the big four.

HISTORY OF FAILURESThe presence of 8/7/6/5 major firms was

not some golden era for auditing. The auditing industry has always been mired in scandals and failures. If by luck or otherwise, a company survived audit failures remained covered. Even then too many hit the headlines. The secondary banking crash of the mid-1970s highlighted pitiful auditing practices as auditors turned a blind eye to fraud. They were joined by failures at Lonrho, Pergamon Press, Ramor, Pinnock Finance, Vehicle and General, Court Line, London and Counties, Peachey Property Corporation, Grays Building Society and Milbury, amongst others.

The Department of Trade and Industry inquiry into audit failures at Roadships concluded, “We do not accept that there can be the requisite degree of watchfulness where a man is checking either his own figures or those of a colleague ... for these reasons we do not believe that [the auditors] ever achieved the standard of independence necessary for a wholly objective audit”. Yet to this day auditors are permitted to use audit as a

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many audit staff admit to irregular practices, ignoring awkward

and time-consuming items, and falsification of work

Prem Sikka receiving the 2017 Editor’s award at The Accountant & International Accounting Bulletin’s award ceremony

potato crisps and toffees have to ensure that the product is fit for purpose and does not injure current or future consumers. Yet there is no equivalent requirement for auditors. In the 1970s and 1980s, auditing firms traded as partnerships with each partner having ‘joint and several’ liability. Even those, supposedly more biting liability arrangements, did not deter scandals and failures. There was no evidence to show that the UK courts made excessive damages awards against auditor, but their liability was eroded by the 1990 Caparo judgement and the Companies Act 2006. The advent of limited liability partnerships (LLPs) gave auditors even more liability shields. It is almost impossible for stakeholders to sue auditors for negligence. Such developments have diluted the pressures to deliver good audits.

One might look to regulators, such as the FRC, to exert pressures for improvement of audit quality, but that is deficient too. Through the FRC, the auditing industry effectively sets its own standards. These have encouraged a checklist mentality. The

market stall for selling other wares, especially tax avoidance.

The 1980s drew attention to auditing debacles as failures at Johnson Matthey, De Lorean, Euroflame, Sound Diffusion, Alexander Howden, Barlow Clowse, Levitt, Milford Docks Company, Dunsdale, and Edencorp hit the headlines. Still, the auditing industry did not mend its ways. The 1990s debacles at Maxwell, Bank of Credit and Commerce International (BCCI), Polly Peck, Sock Shop, Queens Moat Houses and Atlantic Computers showed that audit failures are deeply institutionalised. Then came the 2007-08 banking crash. Some banks collapsed within days of receiving an unqualified audit report.

SYSTEMIC PROBLEMSThe claim that more audit firms would

somehow arrest audit failures has no substance.

We can’t also talk about audit market in the same terms as the market for consumer goods and services. The market for auditing is created and guaranteed by the state and handed to accountants belonging to a select few trade associations. There are no state guaranteed markets for scientists, engineers, mathematicians, or information technology experts. The normal rule of competitive markets is that those producing shoddy goods/services and deriding customers for expecting higher quality are pushed out of business. They can face mega lawsuits. But despite monumental failures that does not happen to auditors because the market is guaranteed by the state. Admittedly Arthur Andersen disappeared in 2001, but its business migrated to other accountancy firms. There was no loss to the auditing industry.

The state guaranteed market is accompanied by poor pressures. Producers of

standards are low enough but even then as the FRC inspections show many major firms fail to meet them. The FRC has done little about that. Its occasional investigations take years and the resulting fines, if any, are passed on to the professional body of the errant auditor. The FRC has failed to examine its role in nurturing audit failures.

The public accountability requirements for the auditing industry are low. At any mention of public responsibility, firms wheel out the rusty arguments about the expectations gap. Stakeholders are not told anything about the audit contract; composition of the audit team, time spent on audit, questions asked, material replies received from directors or regulatory action against auditors. Audit files remain secret. There is no opportunity to glimpse the quality of audit. Auditor (re)appointment resolution tabled at company AGMs is not accompanied aby any meaningful information. The transparency and public accountability revolution has bene shunned by the auditing industry. None of the auditing standards issued by the FRC set a benchmark for auditor accountability to stakeholders.

ORGANISATIONAL DYNAMICS

Audits are manufactured within accounting firms and organisational culture is a key part of that process. In common with other capitalist organisations, firms deploy various systems to maximise profits and squeeze labour. This has consequences for the quality audits.

Audits are generally labour intensive and within firms there are pressures to increase

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profits. Individuals are subjected to performance appraisals and often their promotion and financial rewards depend on contribution to profits. Firms can increase profits by charging higher fees, but clients may resist such moves. Firms might use more audit juniors or change the mix of junior and senior staff to reduce costs.

An alternative is to squeeze time budgets and expect audit staff to beyond the designated hours, i.e. week-ends and evenings, to complete the tasks. With lower liability pressures, firms may also undertake less stringent audits. A body of research has consistently shown that tight time budgets

have dysfunctional effects on audits. Faced with inadequate time budgets, many audit staff admit to adopting irregular practices, ignoring awkward and time-consuming items and falsification of audit work i.e. working papers show that something has been done but actually not done at all. The pressures to come under time budgets may help to increase profits and mediate internal performance appraisals, but they deliver poor audits.

Audit firms partners are supposed to review the audit files for completeness before signing-off the audit report. But a false audit schedule looks like any other. Without a replication of the audit process no partner can tell whether the required audit work, assuming it is of a good quality has actually been done.

The organisation dynamics, a key part of the audit production process, are totally

neglected by the FRC. Its inspection regime is a checklist approach, ticking the boxes to see that the firm has complied with minimalist auditing standards. The FRC chief tried to deflect attention at the parliamentary hearings but did not totally succeed with that strategy and at one stage a legislator described it as “useless”

Carillion, BHS, the 2007-08 banking crash and other episodes provide plenty of evidence to show systemic and organisational problems. Auditors have rarely exposed predatory practices that enabled financial enterprises to report higher profits and pay unwarranted dividends. Since the 1970s,

regulatory structures, codes of ethics, audit reports, auditing standards and disciplinary arrangements have been tweaked, but on the terms specified by the auditing industry itself. Inevitably, there has been little meaningful change. The FRC has a poor record and its capture by the audit industry has become a major barrier to change. Its removal and replacement should be a priority for any government seeking to rebuild confidence in corporate governance.

Prem Sikka is professor of accounting and finance at the University of Sheffield and emeritus professor of accounting at the University of Essex. And he is the 2017 recipient of The Accountant & International Accounting Bulletin’s editor’s award: The Abraham Briloff award for extraordinary contribution in promoting transparency and public accountability of businesses.

BIG FOUR WORK ON CARILLION SINCE 2008 IN £M

companypension schemes

government Total

KPMG 16.8 0.0 3.4 20.2

PwC 8.5 6.1 6.5 21.1

Deloitte 10.3 0.0 1.7 12.0

EY 15.6 0.0 2.7 18.3

Big four combined

51.2 6.1 14.3 71.6

Source: UK Work and Pensions committee

UK MPs: Big Four feast-ed on carcass

The UK’s Work and Pension Committee has published the responses of the Big Four to their queries on each of the firms’ involvement with Carillion over the last 10 years.The committee said the responses revealed that Big Four have billed the company, pension schemes and the Government £ 71m ($ 99.6m) since 2008 relating to Carillion. (see table on the left)The Work and Pensions Committee chair MP Frank Field said: ““The image of these companies feasting on what was soon to become a carcass will not be lost on decent citizens. We saw at the end of our evidence session that the former directors of Carillion are, unlike their pensioners, suppliers and employees, alright. These figures show that, as ever, the Big Four are alright too. All of them did extensive – and expensive – work for Carillion.”Following the downfall of Carillion, PwC UK was appointed as the company’s special manager to oversee its liquidation, a fact that was heavily criticised by Field.“PwC managed to play all three sides – the company, pension schemes and the Government – to the tune of £21 million and are now being paid to preside over the carcass of the company as Special Managers,” he said. “It was perhaps telling that, with their three fellow oligarchs conflicted, PwC were appointed to this lucrative position without any competition.”Carillion collapse also reignited the old question of “where was the auditor”, as KPMG’s role in not spotting the warning signs came under scrutiny as it audited the company year on year since its inception in 1999.

Full story available onlineBy Vincent Huck

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Of the many issues exercising the minds of those in the accounting profession in the United States and Canada, the new tax code introduced with customary fanfare

by Donald Trump at the end of last year is by far the most ‘taxing’.

Most practitioners reckon the most comprehensive reform to the USA tax code for 30 years is a positive development for the profession.

“Because it is disruptive, partisan and implanted without the usual comment period or ramp up, tax payers and businesses and their advisors are scrambling to react,” says Leslie Sobol, partner at MSI Global Alliance member firm Lucas Horsfall. “The lack of published guidance forces businesses to proceed without an understanding of the tax impact on transactions which must continue to take place while the government slowly releases explanatory regulations. The value of knowledgeable professionals has never been greater.”

Kenneth Laks, partner with BKR International member Albrecht, Viggiano, Zureck & Company and the chair of the international tax practice group for BKR International observes that several of the reforms will require special calculations and assistance by CPAs knowledgeable about international tax impacts.

PKF O’Connor Davies tax partner, Leo Parmegiani, is even more bullish, suggesting that tax law has been stagnant for many years and tax planning considerations were drying up. “The changes have raised the accounting profession’s profile as the trusted adviser and voice of reason in a world of talking heads. It provides a platform for CPAs to have valuable conversations with our clients as to how they may be impacted.”

Jim Powers, CEO of Crowe Horwath says practitioners will be working with clients to help them understand the impact of the changes on their overall tax strategy and how that strategy may need to be modified so that there are no surprises in the spring of 2019 when they file their first tax returns under the new law.

Reform should be looked at positively as a trigger for accounting professionals to evaluate the tax strategies they offer, says Jim Alajbegu, firm leader - international tax at Baker Tilly in New York. “Compliance with the act is an immediate need but advice and counsel is a constant. Many are curious about pursuing a C-corporation tax strategy, while others want to know what other planning opportunities exist.”

The government’s intention to simplify tax compliance has turned into a valuable service opportunity for accountants according to William Norwalk, tax partner-in-charge of Morison KSi member firm Sensiba San Filippo, although Scott Schoenstadt, director of tax services at fellow Morison KSi member firm Morison Cogen describes the reforms as a double-edged sword.

“On the one hand, the new law creates opportunities for more communication and planning with clients in order to help them understand the impact the law has on them and their business,” he says. “On the other hand, many clients will require additional work and may not be willing to pay for the additional time.”

Sobol reckons the reforms will lead to increased collaboration between professionals in the US and their counterparts elsewhere in the world as US entities start to unwind the existing structures and reposition their subsidiaries.

Several components of the new law will require companies with international operations to assess their structure and transfer pricing practices, explains Ed Fahey, MGI deputy chairman and managing partner at US MGI Worldwide member firm RINA Accountancy Corporation.

The USA tax reform law includes provisions relating to interest deductibility, base erosion and hybrid transactions and entities, which are consistent with recommendations of the OECD’s BEPS initiative, observes Chris Kong, PwC’s US inbound tax leader.

“Taken together, these represent one of the strongest measures adopted by any country to implement BEPS actions items,” he says. “This makes it imperative that transfer pricing

USA & Canada opportunities in the wake of tax reformRegulatory changes and economic uncertainty are giving North American practitioners plenty of food for thought as they navigate clients through the implications of tax reform and trade agreements. Paul Golden reports

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There are numerous open questions on how these key provisions will be applied

feature | USA & Canada

and international tax professionals collaborate and provide integrated and coordinated advice to US companies with international operations.”

New withholding rules regarding the disposition of partnership interest owned by non-USA persons may decrease the appetite for USA partnerships, suggests Sobol, while lower USA corporate tax rates could make this the favoured entity choice for overseas investors seeking to take advantage of the strong domestic economy.

USA-based companies have incentives to move more of their business back to the US, with the reduction of the corporate tax rate to 21%, the lowering of the effective tax rate on foreign-derived income, the ability to expense fully capital expenditures and the retention of the R&D credit and the net operating loss carry forwards.

The global intangible low tax income provision also provides a partial reason to move business back to the US, says Kong, while also warning that these provisions need to be balanced against other tax reform provisions, such as the increased limitations on the business interest expense deduction, the repeal of the domestic production deduction and the new base erosion anti-abuse tax.

“There are numerous open questions on how these key provisions will be applied,” he adds. “Many businesses are hoping the IRS and Treasury will provide clarification on these key issues in due course.”

The new law also has many areas that have technical mistakes that require correction, which leaves both tax practitioners and taxpayers doing the best they can with what they have to apply the rules correctly says Sensiba San Filippo partner, Greg Brown.

For some clients the impact of the various law changes on their tax liability may be easy to determine, but the implications for businesses are more difficult to determine since there are still many unanswered questions agrees Steven Eller, partner at MSI Global Alliance member firm Gettry Marcus.

Gettry Marcus tax attorney, Dean Surkin, says the act has a potential loophole in that a US corporation will have an advantage if it can make payments to a related foreign

corporation that will be deductible in the US and – when it is repatriated through a dividend – treated as foreign source income and thus deductible.

He notes that the act imposes a tax on accumulated foreign income at the rate of 8% on illiquid assets and 15.5% on cash and cash equivalents as of the end of 2017 and applies whether the taxpayer has patriated the income or not. “However, there is no clear evidence that the affected corporations will use the patriated cash for business expansion.”

David Springsteen, partner & practice leader national tax

services at WithumSmith+Brown and chairman of the HLB International tax committee suggests that although many companies will evaluate migrating certain operations back into the US in light of the lower federal corporate tax rate, US state income tax and city taxes will continue to make foreign operations attractive.

Changes to depreciation/expensing of business equipment and real estate create significant incentives for companies to invest in their US operations, says Fahey. “The payroll component of the 20% business income deduction, if applicable, rewards job creation. The timing will vary depending on the company’s growth plans and need for new production capacity. The location of revenue from intellectual property will also be closely looked at by companies.”

Despite the lack of clarity around some aspects of the new law, Nexia International member firm Whitley Penn’s international tax partner, Brian Mitchell, says businesses are proceeding with their plans.

“Businesses are adapting to the changes and any uncertainty is built into their modelling exercises,” he adds. “Clients have been interested in our views and have been receptive to benchmarking within their industry in light of the new changes.”

BKR international member firms have experienced increased queries regarding tax reform, in particular questions by business owners who have companies structured as pass-through entities, adds its international executive director, Maureen Schwartz. Tax reform for individuals and businesses affects these owners, so they have many questions about the impact on 2017 and 2018 taxation.

Parmegiani does not believe US companies will move back en masse at this early stage, although he does anticipate more cash to return as result of the deemed repatriation toll charge tax. “The tax law is only one factor in deciding where to locate their businesses and the uprooting of assets and people and changes in global strategies take many years to implement.”

Jeffrey Mull, partner and international tax services leader at Crowe Horwath suggests the changes were designed to send a clear message to the world that the US is serious about driving new business rather than moving businesses back to the US.

“Globalisation has already happened,” he adds. “However, tax reform and some of the proposed deregulations may drive other countries to make significant inbound investments and drive new business for the US. Additionally, US-based companies may now more seriously consider domestic destinations for their expansions.”

One incentive in the act that should result in US-based companies moving back some of their business is the introduction of foreign-derived intangible income rules, yielding an effective federal tax rate of 13.125% on such income earned by US C corporations, adds Alajbegu.

This incentive is of particular interest to the technology and service industries, he says. “The US views these incentives as BEPS compliant and should allow for more intellectual property planning. Our lower corporate tax rate in combination with our adoption of a participation exemption


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tax reform is already having a

positive effect on inbound investment

in new businesses

system will make the US an attractive destination for global business.”

Schoenstadt notes that the 21% corporate rate only puts the US on par with the average tax rate for EU countries, though. “While the new rate is below the average for the Latin American, South American and Oceanic regions, there may not be enough of a difference to justify relocating business operations, especially after factoring in state and local taxation.”

While a lot of information will be required on structuring and how to bring back profits to the US via the new tax law, Doug Mueller, president of Allinial Global member firm Mueller Prost expects more money to be repatriated as a result of the reforms.

In the past, middle market companies may not have been as affected by transfer pricing because of the focus on worldwide taxation, but the new quasi-territorial regime and its promise of potentially sub-21% tax rates for foreign operations mean that getting transfer pricing right is more important than ever adds Robert Smith, tax manager at fellow Allinial Global member firm Saville CPAs & Advisors.

“We are seeing increased interest in using domestic corporations as holding companies for foreign investments,” he continues. “There are incentives both to move business to the US and to move more operations away from the US, so it is unclear what will be final effect will be. However, we do see that the tax reform is already having a positive effect on inbound investment in new businesses.”

On the other side of the International Boundary, Chris Watson, partner at Kreston International Canadian member firm Calvista suggests that the Canadian market has stagnated somewhat in recent years as clients increasingly view compliance-type services such as preparation and filing of tax returns as a commodity.

“Clients are seeking business advisory services that add value and the use of technology and the ability to respond promptly has become a necessary part of any successful relationship,” he says. “This has caused a move away from traditional reporting with an increasing emphasis on electronic communication and recordkeeping, which then requires greater security.”

Investors are expecting more from audits and auditors and accountants have to change their thinking to meet these higher standards according to Brett Starkman, senior tax partner at Schwartz Levitsky Feldman and Canadian member of the HLB International tax committee.

Smaller firms are getting out of assurance work due to the onerous standards and additional risk, he says. “Fees are going up but there is a dichotomy between fees and the work that the public wants performed. Audits are becoming more sophisticated due to technology and in certain instances are eroding traditional services in audit and accounting.”

BKR International member firm Welch managing partner, Micheal Burch, agrees that the business climate for traditional accounting and audit services is in decline. “It may not show up in the numbers yet, but there is a pervasive feeling that the delivery of historical information coupled with tax compliance reporting is becoming less and less useful ,” he says. “However, forward-thinking, proactive advice continues to be perceived as a high value service.”

While noting that the Canadian economy will lead growth in 2017 for the G8 economies, national managing partner RSM Canada, Harry Blum, refers to two major issues that could negatively impact middle market companies this year.

The first is the uncertainty Canadian companies face surrounding the North American Free Trade Agreement (NAFTA). “As the US takes an aggressive protectionist strategy in its NAFTA negotiations, Canadian companies could bear the brunt of the fallout given the US is our largest trading partner,” he explains.

Blum adds that middle market companies are also faced with ever growing complexities imposed upon them by the Canadian federal government.

“While the US is aggressively lowering tax rates, the mindset in Canada is to target private companies and eliminate many of the incentives that reward entrepreneurs for the risks they take. Given that over 95% of the companies in Canada have less than 100 employees, many economists are predicting that Canada’s latest tax policy and its lack of competitiveness internationally (especially against the US) could create a recession.”

Laurence Zeifman, partner at Nexia International member firm Zeifmans in Toronto is also concerned about the prospects for the economy now that Canada has lost its tax advantage with the government unlikely to follow the US and lower tax rates. “At the same time, that could lead to increase in demand for corporate recovery and turnaround services,” he adds.

On a more positive note, Blum observes that Canada is seeing a significant jump in foreign direct investment as companies see the advantages of establishing their North American footprint in the country. Trade barriers have been significantly reduced due to the free trade agreement with the EU and the signing of the Trans-Pacific Partnership and it is anticipated a free trade agreement with China - Canada’s second largest trading partner - will follow.

Jerry Paskowitz, partner at Morison KSi member firm Sloan Partners describes 2018 as being likely to be a good year for business owners to invest in productivity improvements, although he accepts that uncertainty around interest rates movements is a concern.

“In January, the Bank of Canada increased the rate from 1% to 1.25% which was the third increase since last summer,” he explains. “In the accompanying commentary the bank signalled further rate increases without specifying timing.”

According to Watson, the provincial nature of Canada can be unhelpful because it can pit provinces against each other in the quest for economic or political advantage.

“This can be further compounded by the overlay of the federal government, which makes decision-making cumbersome and occasionally contradictory and definitely adds to the cost and burden of implementing major strategies,” he concludes.

feature


IAB 583.indd 11 01/03/2018 19:41:14

Rank NameFee

income (USA$m)

Growth (%)

Fee split (%)Year end Audit &

assurance Accounting

services Tax Advisory Other

Netw

orks

1 Deloitte* (1) 18,551.0 6% 30 - 17 5 49 Jun-17

2 PwC* (1) 15,996.0 12% 37 - 26 37 - Jun-17

3 EY* (1) 13,000.0 7% 32 - 29 31 8 Jun-17

4 KPMG* (1) 8,958.0 4% 32 - 28 40 - Sep-17

5 RSM* (1) 2,100.0 4% 38 - 36 25 1 Dec-17

6 Nexia International* 1,719.1 7% 37 10 39 5 10 Jun-17

7 Grant Thornton* (1) 1,710.0 4% 37 - 26 36 1 Sep-17

8 BDO* (1) 1,411.0 9% 49 - 34 17 - Jun-17

9 Baker Tilly International* 1,367.3 7% 36 4 37 17 6 Dec-17

10 Moore Stephens International* 1,273.5 5% 30 8 39 18 5 Dec-17

11 Kreston International* 954.1 6% 34 14 41 - 11 Oct-17

12 Crowe Horwath* (1) 853.0 6% 30 - 26 44 - Dec-17

13 HLB International* 668.1 12% 37 4 41 15 3 Dec-17

14 PKF International* (2) 376.0 172% 51 1 38 5 5 Jun-17

15 Mazars* 192.6 1% 36 5 36 23 - Aug-17

16 UHY International* (1) 140.9 11% 31 - 47 22 - Dec-17

17 MGI Worldwide* 94.8 -8% 23 13 42 5 17 Jun-17

18 Russell Bedford International* 89.0 1% 35 15 40 9 1 Dec-17

19 TGS Global* n.ap -100% n.ap n.ap n.ap n.ap n.ap Sep-17

- ECOVIS International* (3) n.d n.d n.d n.d n.d n.d n.d n.d

Total fee income / growth 69,454.4 7%

Notes: (e) International Accounting Bulletin estimate. n.d. = not disclosed, n.c. = not collected, n.ap = not applicable, n.av = not available, (1) Accounting services are included in audit and assurance, (2) Added new member firm(s), (3) ECOVIS International declined to participate, in last year’s survey, the network reported total fee income of $200.9m in the USA. *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin.

USANetworks: fee data

ranking


IAB 583.indd 12 01/03/2018 19:41:15

associations: fee Data

ranking

Rank NameFee

income (USA$m)

Growth (%)




asso

ciat

ions

1 LEA Global / Leading Edge Alliance* (1) 2,361.5 15% 30 9 39 18 4 Dec-17

2 Praxity* 2,322.3 3% 38 3 32 25 2 n.ap

3 Allinial Global* 1,830.0 9% 29 20 27 19 5 Dec-17

4 PrimeGlobal* (1) (2) (3) 1,196.7 24% 39 - 45 3 13 May-17

5 RSM US Alliance* (2) 1,081.8 4% 46 - 41 9 4 Dec-17

6 AGN International* (4) 636.5 5% 29 9 51 3 8 Dec-16

7 DFK International* (2) (5) 475.3 -16% 30 - 37 1 32 n.ap

8 BKR International* 463.0 1% 39 17 31 4 9 Jun-17

9 Morison KSi* (6) 308.9 n.ap 35 3 48 4 9 Dec-16

10 CPA Associates International* (2) 215.7 -1% 41 - 48 11 - Oct-17

11 MSI Global Alliance* (7) 210.8 20% 28 12 46 11 3 Dec-17

12 Alliott Group* 176.4 -6% 23 26 30 13 9 Dec-17

13 Integra International* (8) 111.4 -0.2% 40 20 25 15 - Dec-17

14 INPACT* (2) 94.5 -1% 35 - 55 - 10 Dec-16

15 IAPA* (5) 61.3 -73% 25 10 55 6 4 n.ap

16 GMN International* (9) 37.6 102% 30 4 59 2 5 Sep-17

17 Abacus Worldwide* 36.6 14% 38 9 37 10 6 Dec-17

18 ANTEA* (5) 15.7 -36% 66 8 23 3 - Dec-17

19 EuraAudit International* (2) (9) 8.0 58% 35 - 45 5 15 Dec-17

20 UC&CS Global* (2) 0.9 0% 40 - 30 30 - Dec-17


Notes: (e) International Accounting Bulletin estimate. n.d. = not disclosed, n.c. = not collected, n.ap = not applicable, n.av = not available, (1) Data does not include revenue from Sikich (US$146.5m) which is a member of both LEA Global and PrimeGlobal, (2) Accounting services are included in audit and assurance, (3) Increase in fee income attributed to organic growth, (4) In last year survey year end was published as December 2016 which was an error it should have been December 2015, (5) Lost member firm(s), (6) Morison KSi restated its FY16 figures as last year it submitted estimates. FY15 figures were not available as Morison KSi is born out of the merger of Morison International and KS International in 2016, (7) Growth in fee income attributed to merger with a larger firm, (8) Integra restated its FY16 data taking out figures for alliance and correspondent member firms, (9) Added a member firm. *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin.


IAB 583.indd 13 01/03/2018 19:41:15

USANetworks: staff data

ranking

Rank NameTotal staff Growth

(%)Female

StaffFemale

partners Partners Professionals Admin Offices2017 2016

1 Deloitte* 84,890 78,642 8% n.d n.d 3,135 68,077 13,678 115

2 KPMG* 35,037 34,091 3% n.d n.d 2,178 25,928 6,931 110

3 PwC* (e) 54,469 51,386 6% n.d n.d n.d n.d n.d n.d

4 EY* (e) 47,700 45,000 6% n.d n.d n.d n.d n.d n.d

5 RSM* 9,560 8,829 8% n.d 128 799 7,079 1,682 90

6 Nexia International* 8,959 9,397 -5% 3,568 270 871 6,486 1,602 135

7 Grant Thornton* 8,273 8,390 -1% 3,649 121 610 5,661 2,002 60

8 Baker Tilly International* 6,974 6,526 7% 3,412 191 864 5,006 1,104 89

9 BDO* 6,461 6,057 7% 2,967 105 562 4,842 1,057 67

10 Moore Stephens International* 5,933 5,916 0.3% 3,055 211 906 4,021 1,006 101

11 HLB International* (1) 4,140 3,000 38% 1,497 123 513 2,891 736 61

12 Kreston International* 3,980 3,899 2% n.d n.d 448 2,929 603 31

13 Crowe Horwath* 3,875 3,483 11% 1,052 60 301 2,960 614 43

14 PKF International* 1,877 1,182 59% n.d n.d 294 1,229 354 29

15 Mazars* 912 893 2% n.d n.d 76 681 155 8

16 UHY International* 660 649 2% 321 9 74 455 131 17

17 Russell Bedford International* 475 488 -3% n.d n.d 77 318 80 14

18 MGI Worldwide* 433 486 -11% n.d n.d 95 338 n.d 21

19 TGS Global* n.ap 132 n.ap n.ap n.ap n.ap n.ap n.ap n.ap

- ECOVIS International* (2) n.d 642 n.d n.d n.d n.d n.d n.d n.d

Total staff / growth 284,608 268,446 6% 19,521 1,218 11,803 138,901 31,735 991

Notes: (e) International Accounting Bulletin estimate. n.d. = not disclosed, n.c. = not collected, n.ap = not applicable, n.av = not available. (1) Growth in staff number attributed to opening of additional of-fices and expansion of the existing ones, (2) ECOVIS International declined to participate in this year’s survey. *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin.


IAB 583.indd 14 01/03/2018 19:41:16

associations: Staff Data

ranking


(%)Female

StaffFemale


1 Allinial Global* 12,046 12,053 0% n.d n.d 2,530 7,455 2,061 233

2 Praxity* (1) 11,352 10,883 4% 3,136 240 1,258 7,910 2,184 127

3LEA Global / Leading Edge Alliance*

10,137 9,130 11% 2,186 166 1,400 6,735 2,002 213

4 PrimeGlobal* 6,388 5,420 18% n.d n.d 673 4,535 1,180 164

5 RSM US Alliance* 6,770 6,525 4% n.d n.d 1,022 4,518 1,230 220

6 AGN International* 3,472 3,410 2% n.d n.d 339 2,520 613 123

7 BKR International* 2,704 2,615 3% n.d n.d 383 2,070 251 72

8 DFK International* 1,869 2,202 -15% 211 28 293 1,248 329 49

9 Morison KSi* 1,712 n.ap n.ap 750 31 210 1,254 248 31

10 CPA Associates International* 1,142 1,258 -9% n.d n.d 206 743 193 43

11 MSI Global Alliance* 1,216 997 22% n.d n.d 186 858 172 28

12 Integra International* 756 715 6% n.d n.d 100 468 115 36

13 Alliott Group* (2) 680 1,885 -64% n.d n.d 117 210 353 27

14 INPACT* 591 608 -3% n.d n.d 124 359 108 36

15 IAPA* 306 1,173 -74% 74 11 57 192 57 17

16 Abacus Worldwide* 278 278 0% n.d n.d 35 210 33 11

17 ANTEA* 117 173 -32% 35 4 17 89 11 14

18 GMN International* 295 130 127% 100 15 59 175 61 12

19 UC&CS Global* 56 56 0% 10 2 3 45 8 4

20 EuraAudit International* 41 40 3% 18 3 7 26 8 9

Total staff / growth 61,928 59,551 1% 6,520 500 9,019 41,620 11,217 1,469

Notes: (e) International Accounting Bulletin estimate. n.d. = not disclosed, n.c. = not collected, n.ap = not applicable, n.av = not available. (1) Female staff figures doesn’t include Mazar, (2) Some of Alliott’s members didn’t discolse their staff data. *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin.


IAB 583.indd 15 01/03/2018 19:41:17

Rank NameFee

income (CAD$m)

Growth (%)




Netw

orks

1 Deloitte* 2,300.0 7% n.d n.d n.d n.d n.d May-17

2 PWC* (1) (2) 1,447.0 3% 43 - 27 30 - Jun-17

3 KPMG* 1,446.0 6% n.d n.d n.d n.d n.d Sep-17

4 EY* (e) 1,215.9 5% n.d n.d n.d n.d n.d Jul-17

5 Grant Thornton* (1) 628.7 5% 52 - 23 25 - Sep-17

6 BDO* 609.5 7% n.d n.d n.d n.d n.d Dec-17

7 Baker Tilly International * 250.4 5% 32 29 23 10 6 Dec-17

8 Crowe Horwath* (1) 104.2 3% 56 - 26 4 14 Dec-17

9 Nexia International* 76.9 9% 44 19 27 9 1 Jun-17

10 Moore Stephens International* 72.9 6% 24 32 30 6 8 Dec-17

11 RSM* (1) 52.4 n.ap 47 - 22 31 - Dec-17

12 HLB International* 38.7 -10% 30 32 24 10 4 Dec-17

13 Russell Bedford International* 26.0 9% 9 68 13 9 1 Dec-17

14 Mazars* 14.1 4% 53 6 26 13 2 Aug-17

15 UHY International* (4) 11.9 n.ap 47 20 24 5 4 n.ap

16 ECOVIS International* 11.5 n.ap 18 40 38 4 - Dec-17

17 TGS Global* (3) 11.0 50% 23 37 20 8 12 Sep-17

18 Kreston International* 10.1 -12% 46 29 14 2 9 Oct-17

19 MGI Worldwide* (5) 1.2 -14% 7 44 42 - 7 Jun-17


Notes: (e) International Accounting Bulletin estimate. n.d. = not disclosed, n.c. = not collected, n.ap = not applicable, n.av = not available, (1) Accounting services are included in audit and assurance, (2) PwC informed IAB that figures in their transparency report for FY16 were in net (CA$ 1268m), and that the gross fee income was CA$1,400m for FY16, (3) Added a new member firm, (4) Last year’s survey only accounted for one member firm, (5) Lost a member firm, *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin.

CanadaNetworks: fee data

ranking


IAB 583.indd 16 01/03/2018 19:41:18


associations: fee Data

ranking

Rank NameFee

income (CAD$m)

Growth (%)




asso

ciat

ions

1 Praxity* 674.7 10% 22 24 24 25 5 n.ap

2 DFK International* 133.6 7% 34 20 20 8 18 n.ap

3 BKR International* 100.0 5% 39 17 31 4 9 Jun-17

4 Allinial Global* 99.6 13% 37 23 22 14 4 Dec-17

5 IAPA* 86.0 3% 19 43 20 16 2 Dec-17

6 Prime Global* (1) 60.1 -16% 70 - 23 4 3 May-17

7 Alliott Group* 39.8 -7% 42 24 24 9 1 Dec-17

8 MSI Global Alliance* 25.7 7% 50 16 20 6 8 Dec-17

9 Morison KSi* (2) 22.3 n.ap 29 27 23 12 9 Dec-16

10 AGN International* (3) 20.0 8% 26 46 25 - 3 Dec-16

11 INPACT* (1) (3) 7.3 -10% 73 - 24 - 3 Dec-16

12 GMN International* 5.2 2% 22 48 25 5 - Sep-17

13 Integra International* 4.5 -6% 10 50 30 10 - Dec-17


Notes: (e) International Accounting Bulletin estimate. n.d. = not disclosed, n.c. = not collected, n.ap = not applicable, n.av = not available, (1) Accounting is included in Auditing and Assurance, (2) Morison KSi restated its FY16 figures as last year it submitted estimates. FY15 figures were not available as Morison KSi is born out of the merger of Morison International and KS International in 2016, (3) Last yearend was publisehd by errors as December 2016 which was December 2015. *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin.

IAB 583.indd 17 01/03/2018 19:41:18

CanadaNetworks: staff data

ranking



(%)Female

StaffFemale


1 Deloitte* 9,947 9,395 6% n.d n.d 957 n.d n.d n.d

2 PwC* 7,130 6,686 7% n.d n.d 559 5,153 1,418 28

3 KPMG* (e) 6,300 6,000 5% n.d n.d n.d n.d n.d n.d

4 EY* (e) 4,841 4,610 5% n.d n.d n.d n.d n.d n.d

5 Grant Thornton International* 4,358 4,150 5% 2,773 74 375 2,957 1,026 178

6 BDO* (1) 3,937 3,864 2% 2,310 106 472 2,951 514 124

7 Baker Tilly International* 1,588 1,485 7% 894 52 243 1,059 286 54

8 Crowe Horwath* 576 535 8% 185 16 95 370 111 11

9 Moore Stephens International* 469 431 9% 263 5 63 325 81 6

10 Nexia International* 396 434 -9% 134 6 60 266 70 11

11 Russell Bedford International* (2) 291 232 25% - - 25 224 42 9

12 RSM* 281 n.ap n.ap n.ap 8 39 190 53 1

13 HLB International* 231 239 -3% 122 4 44 138 49 11

14 Mazars* 100 108 -7% n.d n.d 10 75 15 2

15 TGS Global* 82 47 74% 37 1 13 59 10 2

16 Kreston International* 80 78 3% - - 16 49 15 6

17 ECOVIS International* 64 n.ap n.ap 30 - 10 44 10 1

18 UHY International* 67 n.d n.d 41 3 12 48 7 2

19 MGI Worldwide* 12 16 -25% n.d n.d 3 9 n.d 1

Total staff / growth 40,708 38,330 5% 6,763 273 2,990 13,885 3,703 446

Notes: (e) International Accounting Bulletin estimate. n.d. = not disclosed, n.c. = not collected, n.ap = not applicable, n.av = not available. (1) BDO restated their last year’s figures for staff as they did not include all revenue-earning staff, (2) Acquired new staff and clients of two local firms. *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin.

IAB 583.indd 18 01/03/2018 19:41:18


associations: Staff Data

ranking


(%)Female

StaffFemale


1 Praxity* (1) 3,957 3,662 8% 849 163 690 2,487 780 71

2 DFK International* 902 805 12% 311 311 129 576 197 22

3 Allinial Global* 672 679 -1% - - 118 399 155 25

4 BKR International* 556 530 5% n.d n.d 39 468 49 21

5 IAPA* 514 489 5% 111 18 89 297 128 16

6 PrimeGlobal* 355 319 11% n.d n.d 40 257 58 6

7 MSI Global Alliance* 183 178 3% n.d n.d 28 125 30 4

8 Alliott Group* 139 131 6% n.d n.d 21 92 26 4

9 Morison KSi* 132 n.ap n.ap 52 1 30 79 23 6

10 AGN International* 128 123 4% n.d n.d 14 92 22 4

11 INPACT* 47 45 4% n.d n.d 9 32 6 2

12 GMN International* 32 38 -16% 8 - 7 20 5 1

13 Integra International* 29 26 12% n.d n.d 7 15 7 -

Total staff / growth 7,646 7,025 9% 1,331 493 1,221 4,939 1,486 182

Notes: (e) International Accounting Bulletin estimate. n.d. = not disclosed, n.c. = not collected, n.ap = not applicable, n.av = not available. (1) The female staff figures do not include Mazars. *Disclaimer = Data relating to correspondent and non-exclusive member firms is not included. Source: International Accounting Bulletin.

IAB 583.indd 19 01/03/2018 19:41:19

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