BDO and Grant Thornton in Canada discuss merger

It was announced on Friday that the number five and six accounting firms in Canada, Grant Thornton LLP and BDO Dunwoody LLP, have entered into discussions on the possibility of merging. The firms are both members of their international networks, Grant Thornton International and BDO International. If merged, the combined firm would take the name of one of the firms.

Grant Thornton, with about $400 million in annual fees, is currently the country’s fifth-largest accounting firm, with more than 2,900 employees and 370 partners in 99 offices across Canada. BDO, with $300 million in annual fees, is the sixth largest, with more than 1,900 employees and 315 partners in 95 offices across Canada.

HandshakeThe decision to merge will be done by early July, and will require the support of at least 75% of the partners of both firms. This could be pretty huge in Canada, as the combined firms would be 2nd in the country in terms of the number of partners.

Grant Thornton LLP and BDO Dunwoody LLP said their proposed merger will create a national firm with 685 partners and 4,800 staff operating out of 194 locations. A spokesperson for the firms said that no offices will be closed and there will be no job cuts as a result of the merger. The combined entity will be the second biggest accounting firm in Canada, with only global giant Deloitte and Touche LLP larger in terms of number of people.

By revenue, however, the combined firm would still trail the Big Four by a large margin. The two firms simply don’t target the top level of public companies in Canada, from which the lion’s share of the Big Four’s revenue comes from.

The comment about job cuts is pretty funny, for anyone following the red-hot market for accounting professionals. I suppose it’s pretty standard fare for the business journalist writing about a potential merger to mention any foreseen effect on jobs. But really, I’m sure no one at either firm is worried about their job security.

This is probably the most interesting story in Canadian accounting so far in 2007. The effect on the audit market in the country could be substantial, as the combined firm would present a strong alternative to the Big Four for that second-tier of public companies whose needs may be better met by a smaller firm with a better partner-to-staff ratio.

The main question is what this new firm, if it materializes, will be called and how it will fit internationally. If it becomes GT in Canada, does BDO International start looking for a new firm here to take on the BDO name, and vice versa? Both firms have strong brand value, so it’s hard to see either international arm simply giving up on the country.

Office atmosphere should be frenetic, fluid

New York magazine has a feature on the offices of prominent New Yorkers, from Martha Stewart to Michael Bloomberg. Martha’s was devoid of anything remotely resembling work, which perhaps indicates how much of it she gets done. (No word on where the insider trading occurred.)

But it was Bloomberg’s that really impressed me, because he doesn’t technically have an office. He eschewed Giuliani’s former digs and instead filled a large room with low-walled cubicles and called it “the Bullpen”.

The enormous, newsroom-style office houses 50 of his senior staff and aides. “I’ve never understood why anyone would want to seal himself off from the rest of the organization. In the Bullpen, there are no walls, no gatekeepers, and no communication barriers,” explains Bloomberg.

This is the ideal situation in my opinion, and it’s like that at a lot of accounting firms. We even call our version of that room the bullpen as well, so I hope Bloomberg doesn’t consider the name original. The problem with my firm’s office is the walls around everyone’s desks are too high. You have to stand up to see the desk beside you.

Having an office like this is good because you see everyone more and although noise may occasionally be a problem, that can easily be overcome by having some actual offices available for individuals or groups to set up in to have a more secluded session. For general use, the bullpen is best.

What are other accounting firms’ setups like? Do we all have bullpens? Is this the best way to organize an office to enhance communication between colleagues, or does it just hinder productivity? Tell me in the comments!

(Via kottke.)

Income trust foreign takeovers may be a good thing

There’s been a lot of activity lately on the income trust front. Foreign firms are making bids left and right to acquire the Canadian entities, in the wake of the 31.5% trust tax introduced by the Conservative government.

Jack Mintz, a professor at Rotman, the business school at the University of Toronto, discusses in a recent Globe and Mail article that trust takeovers are not always a bad thing:

Trusts were shielded from takeovers prior to the federal trust tax announcement because their relatively high market values made purchases more prohibitive. It allowed managers to avoid the threat of takeover and therefore encouraged inefficiency.

Makes sense to me. I’ve come around to the idea that trusts were not all they were cracked up to be. That the trust tax is a good thing. Maybe not for investors who plowed most of their assets into units instead of shares or bonds, but it didn’t make sense that a business could choose to structure itself in a way such that it would pay no tax while other entities would.

Prof. Mintz says trusts could end up being run more efficiently and productively by new management.

“When you are operating as an income trust and have the high valuations at that point – and the very high distributions – it made it difficult for someone to come in and do a takeover based on such a very high valuation,” Mr. Mintz said.

Canada has been lagging in productivity for years compared to our neighbours to the south. This could help close the gap, but it could also result in a dramatic increase in foreign ownership, which could potentially lower tax revenues for the government which set in motion this chain of events in an effort to strengthen the tax base!

What do you think? Could trust takeovers be a good thing for our productivity? Will the increased productivity make up for the potential lost tax revenues?

Scots tout principles in the Big Apple

The Scotsman:

The Institute of Chartered Accountants of Scotland will tell high-powered US financiers at a conference in New York that individual judgment should play a bigger role than strict adherence to a rule book.

Ah, this old classic. Once again the rules-based US system is coming under attack by external sources, this time from Scottish accountants enjoying their visit to the Statue of Liberty and Times Square with a sharp admonishment of the US accounting hegemony post Sarbanes-Oxley.

The debate over principles and rules goes to the heart of the profession as it begs questions about the type of training given and the way that accountants interpret accounts.

“We want to make accounts more accessible and we want a greater place for judgment and common sense in the way that opinion is given on the financial position of a company.”

Canadian GAAP is principles-based. International accounting standards are principles-based. US GAAP is the exception to the rule (no pun intended). Did rules prevent Enron from happening? No. Will they prevent something like it from happening again? Of course not.

Crooks are crooks regardless, and audits are not designed to detect fraud. Management fraud, like the kind at Enron, is even tougher because management can override the internal controls that are the focus of Sarbanes-Oxley!

Yes, there’s something to be said for principles. Principles allow greater judgment, which in turn allow auditors to get their way when management attempts to put an overly rosy glow on their financial reporting. If there are rules, then you can structure transactions to be just within those rules, even if the spirit of the deal is clearly out of bounds. Judgment, and principles-based accounting standards are really the only way to address this concern.

Impossible to hide

A comment by Dennis Howlett in one of his recent posts forms my inspiration:

I can only ever be the judge of what I think might work in a situation where I have incomplete information. I could be completely wrong. But that’s where the blog metaphor makes such a positive difference. It is impossible to hide in a blog. You get caught out sooner or later.

He was talking about being asked to recommend someone for a job in tech PR, but the sentiment is pretty close to my feelings about this blog, which recently turned a year old and is going stronger than ever.

I’ve never tried to come off as much of an expert – I have some knowledge and I’m eager to share it with anyone who will listen. I’m nearly a full-fledged CA, but the designation means that I have to keep learning, not that I’m done.

That’s the great thing about blogging. You learn by writing, by sharing your thoughts and reading others.

Anyway, I guess that quote made me think about why I like this blog, what I get out of it, and why I’ve kept on with it for just over a year now. Here’s to the next year!