The Public Company Accounting Oversight Board reported that its CFO Tom Hohman resigned to become a CFO of a private company in Maryland. He had joined PCAOB in July 2003, and was its first CFO and one of the founding officers. He began his career as an auditor with Ernst & Young LLP and is a Certified Public Accountant.
The PCAOB or Peekaboo is an organization sanctioned by the Sarbanes Oxley act to oversee accounting firms...to replace the self-policing of the industry
Tuesday, October 30, 2007
PricewaterhouseCoopers - IT Security Getting Stronger
A recent PricewaterhouseCoopers survey finds that companies are investing in IT security infrastructure but lagging on their monitoring and enforcement. The 5th annual Global State of Information Security Survey 2007, the largest multi-industry 120+-country survey of its kind, contains responses of 7,200 IT, security and business executives.
Why is IT security important? Consider all the high-profiles losses of laptops (both from Big Four firms and other companies) which expose social security numbers, credit card information and other sensitive personal data of thousands of individuals. These not only get negative publicity for the company but also exposes them to litigation and other costs. Thus, controlling sensitive data and keeping it securely within corporate walls is a key concern not only for IT, but also for the CFO and CEO.
Here are the key findings of this survey:
India, a major destination for IT outsourcing for the developed world, appears to have made major gains since 2006, while unsurprisingly, China lags the world in almost all privacy safeguards.
IT security is now being controlled by the IT department. Data breaches are driving privacy concerns, but encryption of data at rest remains a low priority
60% of organizations now have a CSO or CISO and 57% have an overall information strategy. As every professional knows by now, passwords are becoming crucial to accessing any kind of corporate hardware……the survey finds 80+% are invested in network firewalls, data backup, user passwords, and spyware.
While all this exists, only 48% measured and reviewed the effectiveness of security policies and procedures in the last year; and most companies do not document enforcement procedures in their information security policies.
Another interesting finding…lack of agreement between CEOs, CIOs and CSOs on security priorities and spending. CEOs and CIOs focus on business continuity and disaster recovery, while CISOs focus on regulatory compliance
Also…employees are the number one most likely source of an information security event…69% say employees and former employees as the likeliest source of attacks, surpassing hackers at 41%
PwC has done a great job in compiling these statistics and monitoring responses in a disciplined manner across multiple years. Clearly access to such a large pool of survey respondents is only available to large accounting firms such as the Big Four, and their role in keeping tab on important corporate issues is not be understated. IT security is at the heart of the modern economy in that every individual is affected by loss of security pertaining to personal and corporate information. Companies have a long way to go to enforce privacy procedures (a human issue) but the investment in infrastructure (a capital expenditure issue) seems in better shape. We hope to see better trends from this survey in future years.
The source of this study is “The State of Information Security 2007, a worldwide study by CIO, CSO and PricewaterhouseCoopers.” The full report is at http://www.pwc.com/extweb/ncpressrelease.nsf/docid/8CD1133CA44BF33E8525735C00552F01
Sunday, October 28, 2007
BearingPoint Q2-2007 Results: Loss Widens, Gross Profits Drop
BearingPoint recently reported its Q2-2007 results for its second quarter of 2007 ending June 30, 2007....BE is catching up on contemporaneous SEC reporting, so this is for results achieved almost four months ago
Revenue for Q2-2007 were $875 million dropping from Q2-2006 levels of $893 million, and gross profit was $142 million, declining a whopping $49 million from $191 million prior. As a result net income (loss actually) widened to $(64) million from $(2) million in prior quarter.
This is by no means great performance, the large drop in operating profit of $49 million appears operational in terms of revenue decrease and people related in terms of an increase in stock based compensation. Here's what BE had to say about it in their 10-Q:
Our gross profit for the three months ended June 30, 2007 was $142.5 million, a decrease of $49.0 million, or 25.6%, compared with gross profit for the three months ended June 30, 2006 of $191.6 million. Gross profit as a percentage of revenue decreased to 16.3% during the three months ended June 30, 2007 from 21.5% during the three months ended June 30, 2006. This decline was the result of decreases in revenue and increases in professional compensation due primarily to stock–based compensation related to our February 2007 grant of PSUs, which more than offset a decrease in other direct contract expenses.
To dig into the operational performance, we reproduce the segment detail from the 10-Q, it appears that Public Services is holding its own for the most part (this is all Governmental services), but Commercial and Financial Services are really hurting, so BE is able to play the Federal side well, but not making headway in general business consulting. EMEA is up, much as Europe seems to be doing well, but Latin America swung to a loss.
Three Months Ended June 30,
2007 2006
Operating Operating
Revenue Income (Loss) Revenue Income (Loss)
Public Services $359,494 $ 67,782 $341,081 $ 70,652
Commercial Services 133,973 19,187 159,323 40,380
Financial Services 70,761 6,536 112,170 32,984
EMEA 196,988 32,691 170,427 26,687
Asia Pacific 89,925 19,761 89,627 18,858
Latin America 23,281 (1,021) 18,660 1,070
Corporate/Other 924 (177,112) 1,392 (175,969)
Total $875,346 $ (32,176) $892,680 $ 14,662
In terms of BearingPoint stock, it was damaged severely by a 12% drop in a single day not that long ago, reaching new lows, and as of October 27, 2007 it was $4.62 per share, close to 52-week lows. Obviously investors are not happy with this performance and appear to have little confidence in the stock. At this price level, BE's market capitalization is only $948 million, a prime candidate (as we have said before) for a MBO or LBO, which even despite these tough credit markets could very likely happen.
Revenue for Q2-2007 were $875 million dropping from Q2-2006 levels of $893 million, and gross profit was $142 million, declining a whopping $49 million from $191 million prior. As a result net income (loss actually) widened to $(64) million from $(2) million in prior quarter.
This is by no means great performance, the large drop in operating profit of $49 million appears operational in terms of revenue decrease and people related in terms of an increase in stock based compensation. Here's what BE had to say about it in their 10-Q:
Our gross profit for the three months ended June 30, 2007 was $142.5 million, a decrease of $49.0 million, or 25.6%, compared with gross profit for the three months ended June 30, 2006 of $191.6 million. Gross profit as a percentage of revenue decreased to 16.3% during the three months ended June 30, 2007 from 21.5% during the three months ended June 30, 2006. This decline was the result of decreases in revenue and increases in professional compensation due primarily to stock–based compensation related to our February 2007 grant of PSUs, which more than offset a decrease in other direct contract expenses.
To dig into the operational performance, we reproduce the segment detail from the 10-Q, it appears that Public Services is holding its own for the most part (this is all Governmental services), but Commercial and Financial Services are really hurting, so BE is able to play the Federal side well, but not making headway in general business consulting. EMEA is up, much as Europe seems to be doing well, but Latin America swung to a loss.
Three Months Ended June 30,
2007 2006
Operating Operating
Revenue Income (Loss) Revenue Income (Loss)
Public Services $359,494 $ 67,782 $341,081 $ 70,652
Commercial Services 133,973 19,187 159,323 40,380
Financial Services 70,761 6,536 112,170 32,984
EMEA 196,988 32,691 170,427 26,687
Asia Pacific 89,925 19,761 89,627 18,858
Latin America 23,281 (1,021) 18,660 1,070
Corporate/Other 924 (177,112) 1,392 (175,969)
Total $875,346 $ (32,176) $892,680 $ 14,662
In terms of BearingPoint stock, it was damaged severely by a 12% drop in a single day not that long ago, reaching new lows, and as of October 27, 2007 it was $4.62 per share, close to 52-week lows. Obviously investors are not happy with this performance and appear to have little confidence in the stock. At this price level, BE's market capitalization is only $948 million, a prime candidate (as we have said before) for a MBO or LBO, which even despite these tough credit markets could very likely happen.
Friday, October 26, 2007
PricewaterhouseCoopers - Still Top of the Pyramid
PricewaterhouseCoopers remains top dog among the Big Four firms.
With 2007 revenues of $25.1 Billion, PwC roars up with 14.4% growth in revenues from 2006 and remains ahead of Deloitte by $2 billion.
Advisory increased 14.6% to US$5.7 billion; tax services was up 15.1% to US$6.3 billion; assurance up 6.7% to US$13.1 billion
Central and Eastern Europe revenues were up strong at 22.4%, South and Central America up 19.1%; Asia up 18.8%; Western Europe up 9.4% and North America increasing 7.8%
Partners were 8,576 in 2007, up from 8,280 in 2006. There were 146,767 employees in 2007, up 142,162 in 2006. Deloitte has grown faster in employees, so appears PwC is somewhat more efficient in terms of productivity, though Deloitte seems to have more latent capacity to be used in 2008.
An overall analysis will be done here when KPMG and EY results are available
With 2007 revenues of $25.1 Billion, PwC roars up with 14.4% growth in revenues from 2006 and remains ahead of Deloitte by $2 billion.
Advisory increased 14.6% to US$5.7 billion; tax services was up 15.1% to US$6.3 billion; assurance up 6.7% to US$13.1 billion
Central and Eastern Europe revenues were up strong at 22.4%, South and Central America up 19.1%; Asia up 18.8%; Western Europe up 9.4% and North America increasing 7.8%
Partners were 8,576 in 2007, up from 8,280 in 2006. There were 146,767 employees in 2007, up 142,162 in 2006. Deloitte has grown faster in employees, so appears PwC is somewhat more efficient in terms of productivity, though Deloitte seems to have more latent capacity to be used in 2008.
An overall analysis will be done here when KPMG and EY results are available
Deloitte and Touche: Revs up 16% to $23 Billion
Deloitte Touche Tohmatsu (Deloitte) recently reported revenues were up by 15.5% to US$23.1 billion for the fiscal year ended 31 May 2007. This is the firm's fifth consecutive year of double-digit revenue growth with each service line and region increasing at double-digit rates.
Advisory increased 25% to US$1.89 billion; consulting grew 16% to US$5.19 billion; tax services grew 16% to US$4.98 billion; audit services was up 13% to US$11.08 billion.
Asia Pacific was up 17% to US$2.46 billion; Europe-Mideast-Africa region grew 12.6% to US$9.18 billion and Americas increased 12% to $11.49 billion.
Deloitte had 146,600 employees in 2007, up from 132,400 indicating 14,200 net employees were hired in 2007. Deloitte had 8,500 partners in 2007, indicating an employee to partner ratio of 17.2.
These are spectacular results, with Deloitte posting yet another double-digit revenue growth performance. To grow at 16% at $20+ billion is quite a feat and Deloitte has demonstrated that its global reach and diversified businesses can continue to deliver terrific results.
In another blog post, we will talk about PricewaterhouseCoopers' recent results, where revenues soared to $25 billion, just $2 billion over Deloitte.
Advisory increased 25% to US$1.89 billion; consulting grew 16% to US$5.19 billion; tax services grew 16% to US$4.98 billion; audit services was up 13% to US$11.08 billion.
Asia Pacific was up 17% to US$2.46 billion; Europe-Mideast-Africa region grew 12.6% to US$9.18 billion and Americas increased 12% to $11.49 billion.
Deloitte had 146,600 employees in 2007, up from 132,400 indicating 14,200 net employees were hired in 2007. Deloitte had 8,500 partners in 2007, indicating an employee to partner ratio of 17.2.
These are spectacular results, with Deloitte posting yet another double-digit revenue growth performance. To grow at 16% at $20+ billion is quite a feat and Deloitte has demonstrated that its global reach and diversified businesses can continue to deliver terrific results.
In another blog post, we will talk about PricewaterhouseCoopers' recent results, where revenues soared to $25 billion, just $2 billion over Deloitte.
KPMG Says M&A Market About to Peak
KPMG is calling the top of the M&A market!
The firm's Corporate Finance's Global M&A Predictor is indicating that global merger and acquisition activity is about to peak. Further, it thinks that overall deal volumes in 2007 will be below records achieved in 2006. How do they do this: looking at a forward index of 1,000 leading companies' net debt to EBITDA ratios and Price Earnings ratios shows that things are slowing - 12 month forward PE valuations is increasing only marginally. However, there is still money sloshing around - cash and debt level remain high, but investor confidence and appetite are certainly more conservative.
What's remaining are only smaller deals and the big ones are done, but the air from the M&A balloon will be let off only slowly.
Here's what KPMG is finding, and we quote heavily from their study:
http://www.kpmg.com/Press/07.11.2007.htm
The firm's Corporate Finance's Global M&A Predictor is indicating that global merger and acquisition activity is about to peak. Further, it thinks that overall deal volumes in 2007 will be below records achieved in 2006. How do they do this: looking at a forward index of 1,000 leading companies' net debt to EBITDA ratios and Price Earnings ratios shows that things are slowing - 12 month forward PE valuations is increasing only marginally. However, there is still money sloshing around - cash and debt level remain high, but investor confidence and appetite are certainly more conservative.
What's remaining are only smaller deals and the big ones are done, but the air from the M&A balloon will be let off only slowly.
Here's what KPMG is finding, and we quote heavily from their study:
- In the first five months of 2007, there was a significant discrepancy between the key trend indicators of deal values and volumes. The last time the market witnessed this kind of 'disconnect' - where the average deal size rose, but the number of deals fell - occurred at the height of the dot com boom in 2000. A sign that the market is starting to cool came in H2 2006 when the total number of deals fell for the first time since H1 2003 (dropping 8 percent compared to H1 2006)
Appetite for M&A transactions appears to be slowing, despite conservative balance sheets. Twelve month forward PE valuations rose marginally to 17.1x compared to 16.8x in both June and December 2006 which implies a restriction on the available “bid” premium in the marketplace. Balance sheet capacity remains conservative but has tightened marginally from 0.85 times to 0.91 times.- Interestingly, Europe looks most positive in terms of potential M&A activity, due to rising PE momentum, while Asia Pacific once again looks the weakest. The U.S. remains static in terms of valuation, suggesting the potential for a slow down.
In terms of sectors, the best M&A prospects are in Utilities Europe, Basic Materials North America, Oil and Gas North America, Industrials Europe and Consumer Services Europe with the weakest prospects being Consumer Services AsPac and Consumer Goods AsPac.
http://www.kpmg.com/Press/07.11.2007.htm
PricewaterhouseCoopers - Class Action Law Suit Looms
PricewaterhouseCoopers could be potentially facing a class action law suit for overtime pay...it looks that the Canadian law suit bug may have just slipped over the border.
The fundamental issue claimed against the Big4 is essentially the same - employees supposedly made to work long hours without being paid overtime pay. In this case, Kershaw, Cutter & Ratinoff (KCR) appears to be investigating a potential class action lawsuit on behalf of these associates against the Big4 accounting firms.
KCR claims that under federal Fair Labor and Standards Act (FLSA), and state laws, including the California Division of Labor Standards Enforcement employees classified as “exempt” can be denied overtime pay and mandated meal and rest periods. In the special case of accountants, according to these laws, only those who have a CPA license can be truly marked as “exempt” employees. Thus, associates who do not have a CPA licence (and hence "unlicensed") cannot be classified as "exempt" and thus cannot be denied overtime pay. So, the reasoning goes, that if the Big Four firms did make these "unlicensed" associates work beyond their normal times of working and then denied them overtime since they were (allegedly wrongly) classified as exempt, they are not following the law; hence these associates can as a class claim overtime pay in arrears from the Big Four firms.
We looked at the KCR website, where we found this:
KCR has already filed a class action suit against the largest Big 4 Accounting Firm, PriceWaterhouse Coopers (“PwC”) to recover overtime for its unlicensed associates. The case has been pending for more than a year, and the issue of whether the case will be approved as a class action should be decided shortly. If the Court agrees to certify the class, this will be the first time that a Big 4 Accounting Firm will face the threat of actually having to comply with laws mandating the payment of overtime on a company-wide basis. A successful verdict in this case could potentially change the way all Big 4 Accounting Firms do business nationwide.
Apparently, KCR has already initiated action against PwC and is waiting on the Courts to see if they will allow it to become a class action suit. KCR is also seeking such associates so that it can bring together large number of such plaintiffs to bolster its position. The money at stake can be quite large as the Big Four firms do employ a large number of associates and as all alumni know, everyone at a Big4 firm works quite hard.
Of course, it is not clear at this time whether the Courts will allow this to proceed. In Canada, other Big Four firms and banks have been taken to court for this same reason. It does put the whole situation in a very interesting light - how will the Courts swing -in favor of KCR or the Big Four....we have to wait and see how this develops
The fundamental issue claimed against the Big4 is essentially the same - employees supposedly made to work long hours without being paid overtime pay. In this case, Kershaw, Cutter & Ratinoff (KCR) appears to be investigating a potential class action lawsuit on behalf of these associates against the Big4 accounting firms.
KCR claims that under federal Fair Labor and Standards Act (FLSA), and state laws, including the California Division of Labor Standards Enforcement employees classified as “exempt” can be denied overtime pay and mandated meal and rest periods. In the special case of accountants, according to these laws, only those who have a CPA license can be truly marked as “exempt” employees. Thus, associates who do not have a CPA licence (and hence "unlicensed") cannot be classified as "exempt" and thus cannot be denied overtime pay. So, the reasoning goes, that if the Big Four firms did make these "unlicensed" associates work beyond their normal times of working and then denied them overtime since they were (allegedly wrongly) classified as exempt, they are not following the law; hence these associates can as a class claim overtime pay in arrears from the Big Four firms.
We looked at the KCR website, where we found this:
KCR has already filed a class action suit against the largest Big 4 Accounting Firm, PriceWaterhouse Coopers (“PwC”) to recover overtime for its unlicensed associates. The case has been pending for more than a year, and the issue of whether the case will be approved as a class action should be decided shortly. If the Court agrees to certify the class, this will be the first time that a Big 4 Accounting Firm will face the threat of actually having to comply with laws mandating the payment of overtime on a company-wide basis. A successful verdict in this case could potentially change the way all Big 4 Accounting Firms do business nationwide.
Apparently, KCR has already initiated action against PwC and is waiting on the Courts to see if they will allow it to become a class action suit. KCR is also seeking such associates so that it can bring together large number of such plaintiffs to bolster its position. The money at stake can be quite large as the Big Four firms do employ a large number of associates and as all alumni know, everyone at a Big4 firm works quite hard.
Of course, it is not clear at this time whether the Courts will allow this to proceed. In Canada, other Big Four firms and banks have been taken to court for this same reason. It does put the whole situation in a very interesting light - how will the Courts swing -in favor of KCR or the Big Four....we have to wait and see how this develops
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