BDO and Grant Thornton decide against merger

It was only a few weeks ago I was blogging about the the potential merger in Canada of BDO Dunwoody and Grant Thornton. They announced that they were in talks and conducting the necessary due diligence procedures to see if a merger would be good for the two firms and their clients.

They announced today that the merger talks are off.

BDO Dunwoody LLP and Grant Thornton LLP announce today that their respective Boards have agreed to discontinue merger discussions. No specific reason led to the decision to cease discussions; however, both firms recognized that despite the potential of the union, a merger of this nature also presented significant challenges.

HandshakeFirst and foremost I’d say the fact they belong to their respective international networks and one of the two firms would’ve had to dissolve in Canada and the merged firm continue as the remaining firm. That’s a lot of brand value up in smoke for either one of them. I’m not sure the merger’s potential benefits would’ve been great enough to overcome even that sole stumbling block.

So Grant Thornton merges with RSM Robson Rhodes in the UK, and the Grant Thornton merger with BDO in Canada is kaput. Who’s next?

Economist claims accountant obsolescence

An esteemed Princeton economist has predicted that accountants, lawyers and other highly educated and highly paid workers in the developed world will be made obsolete in the near future by lower cost alternatives in the developing world.

From the best accountants and lawyers to the smartest derivatives traders to teachers and lecturers, many of today’s most prestigious jobs could, thanks to globalization and improved communications technology, just as easily be done more cheaply in places such as India and China.

I’m skeptical, and not just because I’m on his extinction list.

Some occupations are safe, of course. Investment bankers, who have to take out their clients and sweet-talk them are more likely to survive than derivatives traders, who could as easily be elsewhere. Clearly, for example, most of the health profession will still have to remain in situ.

There’s why. If you’re just sitting at a desk crunching numbers, you’re already replaceable. It’s the soft skills like being a good communicator that separates the accountants with job security from the ones who could be half way around the world. How is it that investment bankers are the only ones who are safe due to this reason? Why is the economist ignoring this aspect of professionals’ jobs? What about culture as well? Is being a good advisor really learnable?

Canadian government backs down on controversial budget move

In late March I talked about the Canadian Federal budget, which had been recently released, and how it included a measure to prevent companies from deducting interest on debt incurred to fund foreign operations. I couldn’t understand the logic of the move.

Canadian ParliamentIt seemed strange for a conservative government normally known to be friendly to business. It also was inconsistent with how interest is generally treated for tax – that is, it is deductible if incurred to earn income both for businesses and individuals.

I wrote the blog post with more than a little trepidation, however, as I couldn’t shake the feeling that I might be missing something. The last thing I wanted was to appear the fool – perhaps the Finance Minister knew something I didn’t.

In the weeks that have passed since then, I have been joined by business leaders throughout the country decrying the move. It’s been sweet vindication reading every article featuring various business groups, executives and financial experts putting forward strong arguments against the now very controversial measure.

Now it appears the government is listening to us. They are “retreating” from the measure, and will continue to allow the deductibility of interest in these cases.

Companies will still be allowed to deduct the interest costs, but only once, Flaherty said Tuesday, claiming the measure was not aimed at eliminating the deduction but at corporations who were using offshore tax havens to claim the deduction twice — in Canada and in a foreign country.

The move was too much of a blunt instrument for the precise target Flaherty’s now claiming for the move.

On top of that, since when is it the Canadian government’s business what companies are deducting in other countries? Shouldn’t the government be focusing on establishing tax treaties with these countries, or at least working with other governments to put more pressure on countries with lax tax law?

Keep in mind I’m in way over my head here on this undoubtedly very complicated international tax issue. But it’s pretty nice finding out my initial thoughts about the move were spot on.

Terence Corcoran of the National Post has some smarter thoughts on the issue than I do:

Something is amiss in the ability of Canadian companies to deduct interest expense on their foreign investment. All serious reviews of the subject have concluded that the strange combination of Canada’s high corporate tax rates, interest-deductibility rules and the dense world of global tax law has produced a great distortionary mess that needs fixing. The question is how and when to fix it. Mr. Flaherty would be wise to announce that, in view of all the serious comment and inherent complexity surrounding deductibility, he will turn the subject over to a panel of experts to get to the bottom of the mess.

Something tells me I won’t be asked to be on the panel!

Grant Thornton UK merges with RSM Robson Rhodes

Although they’re possibly (likely?) completely unrelated, the recent announcement in the UK that Grant Thornton would merge with RSM Robson Rhodes comes hot on the heels of the announcement in Canada that BDO Dunwoody and Grant Thornton here would enter into discussions on the possibility of merging.

The partners of Grant Thornton UK LLP and RSM Robson Rhodes LLP have today announced their agreement to merge the two firms to create one of the strongest accounting and business advisory groups in the UK.

The UK merger is a done deal according to each party, whereas in Canada BDO and GT are only engaging in talks to see if they’d like to buddy up. Still, one can’t help but think the trend of mergers could continue in other countries, possibly even the US. And if BDO and GT do not merge in Canada, is RSM Richter next on the call list for either?

Some commentary in the UK has been towards the perceived reaction to the merger by BDO Stoy Hayward, whose managing partner Jeremy Newman blogs regularly. Damian Wild of AccountancyAge practices his creative writing skills:

It will, however, have caused a few BDO Stoy Hayward partners to choke on their cornflakes on reading the news in yesterday’s Sunday Telegraph and Sunday Times. Certainly it is a blow to [Newman’s] ambitions as it puts increased distance between [Grant Thornton and BDO].

Newman himself has a different, more nuanced, take on the merger:

Whilst clearly there are some advantages to being larger we are confident that we already have sufficient scale and expertise to handle the audit of all except the largest UK companies. Ultimately it’s the quality of your people and the resultant quality of audits and client service that matter. This is why we have invested heavily in recent years to ensure we have high quality, motivated people and will continue to do so.

Doesn’t sound to me like he’s choking on much at all. Nor should he be – it isn’t size that’s going to break the Big 4. Newman is on the right track with his blog and his campaign to bring Finance Directors around to the idea that a non-Big 4 firm can handle the challenge of a large public company audit.

It’s all about attracting and retained quality people with the skills and talent to conduct quality audits for companies large, medium, and small, and Newman recognizes this.

Hollinger audit committee had “no finance experts”

The Conrad Black trial has been good theatre, and the latest coming out of Chicago doesn’t disappoint.

Testifying at the trial of former Hollinger chairman Conrad Black, a former member of the company’s audit committee has testified that it kept watch over company finances for four years without any financial experts.

Economist Marie-Josee Kravis, sat on the committee during the time that Black allegedly helped steal $60m (£30m) from the company.

She said that no one on the audit committee between May 1999 and May 2003 had the financial experience required by its governing charter.

Kravis is referring in part (I’m assuming) to the best practices of an audit committee as outlined by the AICPA, which stipulate at least one member of the audit committee be designated a financial expert. The decision tree to determine whether a member qualifies as a financial expert can be found here (PDF).

Basically a financial expert is someone who is an accountant or auditor, has taken an accounting or auditing program or course, has experience in auditing or as a controller or financial officer of a company, has experience assessing a company’s financial statements, or has experience supervising the accounting function in a company.

On top of that, they must be familiar with GAAP, the function of an audit committee, internal controls, and how those apply to the company in question.

My question is: Why would you want anyone who doesn’t meet those standards on the audit committee?