Accounting Firms Expect Slow or No Growth Next Year

Orange County Business Journal, Jul 21-Jul 27, 2008 by Lee, Jessica C

ACCOUNTING: Decrease in SOX, public offerings curbed hiring to 4%

Orange County's biggest accounting firms saw another gain in workers in the past 12 months due to ongoing Sarbanes-Oxley work, mergers and acquisitions and tax work.

The next 12 months could be a different story.

Last year's subprime mortgage crisis and subsequent credit crunch has many firms bracing themselves for a weaker economy with less deals to work on with fewer acquisitions and initial public offerings.

Local employment at the 40 largest accounting firms here grew 3.9% to 4,285 people during the past 12 months, according to this week's Business Journal list.

A year earlier, the largest firms here added workers at a 6% pace.

Firmwide, employment grew 11% to 622,753 people in the past year.

The county's accounting firms shrunk their number of certified public accounts 6% to 1,355.

Seven of the 40 firms on the list reported declines in OC workers compared to the two firms that posted declines a year earlier. Six firms on this year's list were Business Journal estimates.

The Big Four-No. 1 Deloitte LLP, No. 2 Ernst & Young LLP, No. 3 KPMG LLP and No. 4 PricewaterhouseCoopers LLP-all posted gains of 6% to 7%.

Much of the gains seen at the accounting firms on the list stemmed from ongoing work related to Sarbanes-Oxley, which was passed in 2002 after corporate scandals at Enron Corp., WorldCom Corp and other companies. Sarbanes-Oxley requires controls and standards to increase companies' communication with investors and to reduce fraud.

It's bolstered the accounting industry in the past six years with extra work in helping public companies comply with the rules.

Section 404 of Sarbanes-Oxley requires public companies to examine and test their internal controls and hire external auditors to check their processes.

Slowing Work

But the Sarbanes-Oxley wave is starting to subside as many public companies and accounting firms have fully adapted to its rules and become more efficient in complying, firms say.

"The impact of SOX has moderated," said Scott Farber, managing partner of the Irvine office of No. 5 Chicago-based Grant Thomton LLP, which counted an estimated 200 OC workers. "Companies are better prepared and it's becoming more of a routine maintenance process for them."

In addition to a slowdown in Sarbanes-Oxley work, accounting firms are also dealing with a slow economy that has dampened transactional activity such as mergers and acquisitions and initial public offerings, Farber said.

"There's no question that we're feeling the impact of the economy," Farber said. "Our clients are feeling the impact as their sales volumes and profits are down."

A slower economy is pushing firms to become more competitive with their services, said Glenn Carniello, managing partner of the Irvine office of No. 15 Los Angeles-based SingerLewak.

"A few years ago your phone was ringing off the hook, but now you have to work harder to bring in new business," Carniello said. "It's about being aggressive and working hard because the fish aren't jumping in the boat anymore, you have to fish the old way now."

SingerLewak along with No. 29 Talley & Co. were the biggest percentage gainers on the list with a 21% growth in local workers each.

Singer, which counts clients in the commercial construction industry, grew its local headcount to 74 workers from 61 a year ago.

The firm saw an uptick in work related to commercial construction transactions in the past year along with ongoing work related to Sarbanes-Oxley and tax laws, Carniello said.

A new marketing strategy is also in place as the firm recently shortened its name from Singer Lewak Greenbaum & Goldstein LLP.

Talley & Co. counted 34 people at its Orange headquarters.

Last year the fiim kept busy with audit, tax and mergers and acquisition work, said principal Andrew Talley.

This year the firm expects to see a slowdown in transactions but a boost in work from clients who want to restructure their business plans to adapt to a slowing economy, Talley said.

"Our clients have to address the fact that the growth run is definitely stalled," he said. "We'll be assisting clients in this difficult financing and credit market."

A slow economy could present opportunities for accounting firms, said Dean Samsvick, managing partner of the Costa Mesa office of New York-based KPMG, which grew its OC workers 6.6% to 390 people.

Companies will need help adapting to a slow economy and could tap accounting firms to help them rework their business plans in order to save on future costs, he said.

"In a slow environment, many companies need assistance in improving their cost structure," he said.

Executive Changes

The local accounting industry saw executive management changes in the past year.

Firms in OC that saw some management changes include Deloitte, Ernst & Young and No. 14 Tustin-based HMWC CPAs & Business Advisors.

Deloitte brought in a new managing partner in June.

Robert Lucenti has taken over for Rick Rayson as managing partner of the accounting firm's Costa Mesa office.