Grant Thornton CEO Edward E. Nusbaum has worked with the firm for 28 years, but since he took over the helm, the Chicago-based firm has more than doubled its revenue in the last four years, reaching $940 million in 2006.
Before he became CEO in 2001, he served as the firm's national managing partner of professional services, managing partner of the Philadelphia office, and national director of assurance services based in New York. He has a masters degree in management from Purdue University, and a bachelors in business administration from Ohio State University. He has served on the FASB Advisory Council, FASB Small Business Advisory Council and the AICPA's Steering Committee for the Talent Task Force. He talked to WebCPA about where his firm is going and the state of the profession.
Q: What's been going on with Grant Thornton lately?
A: We're continuing to grow and continuing to do well. I think the accounting profession has become more competitive. There are more resources available, particularly in the audit area, with the changes in Sarbanes-Oxley.
Q: What's your opinion five years out on SOX? How has it helped and affected your business?
A: I think SOX has revolutionized financial reporting and the accounting profession, not just in the audit firms. Even with the way companies approach their financial information, the impact has been massive. We're seeing a little bit of a desire to spin the pendulum back, particularly pressure from the smaller companies more than the bigger companies. But immediately after Sarbanes-Oxley and even before the 404 requirements came into place, companies were taking financial reporting more seriously. Every "i" had to be dotted, and every "t" crossed. There was a massive amount of documentation and maybe massive overkill, in terms of testing every control, even in the general audit. I think what we're seeing now is an element of judgment being put back in. The SEC is pushing for the use of judgment, and balancing effectiveness and efficiency, not to make the audits less effective, but to try to introduce the concept of efficiency into the audit process.
Q: Is risk management a critical issue facing your firm? And what are the other critical issues?
A: There are lots of issues facing this profession in terms of improving the audit and doing more fraud auditing. We're never going to find all the fraud. But risk management is a huge issue. Litigation against accounting firms continues to grow, not shrink. Some of these cases are of course many years old, but they're still out there.
Q: The firm of Smart and Associates just got a private equity investment a little while ago. So far it's an anomaly, but it does indicate there's an influx of money into accounting firms that's different than what we had before. What do you think of it?
A: There's obviously a lot of private equity money around. If you wanted to take private equity money, you could probably get it. The question is, how do you pay off the return, because your partners want to make the profits? It's hard to go public as an accounting firm, particularly if you're serving public clients. It might be easier if you're more of a low-end tax kind of firm where you're doing a lot of 1040s because there's no joint investment. When you're doing audit work for public companies, the conflicts of interest and the independence rules are so complex and so difficult that it really becomes a nightmare to try to get private equity money or certainly to go public.
Q: What is your opinion of the recent inspection reports from the PCAOB? Your firm had written a letter protesting them.
A: We didn't write any special letter. We always have to write a response, and we just decided that we would be more vocal in our specific objections to their issues. I think in prior years we've always had a sense that it didn't pay to really fight with them. We try to be as cooperative as possible and we are very supportive of the inspection process. The PCAOB, as frustrating as it is for our partners, has added value to the audit process. All of the firms, including Grant Thornton, do a better audit because of the PCAOB. I hate to admit that, but it's true. What we did in this particular case was to say that they got some of the facts wrong. That doesn't necessarily change any of the conclusions, but we thought it was appropriate to go on the record and say that we disagreed with some of their judgments. There's a lot of judgment that goes into the process.
Q: Do you find it disheartening that most of the Big Four reports have eight to 10 deficiencies, if not more?
A: I think the PCAOB continues to learn and we continue to learn. Our element of frustration is on the issues related to judgment. The judgments are good, but nevertheless you tend to second-guess them. The PCAOB and the SEC are pushing us to be more efficient with the documentation. To the PCAOB's credit, at least they get the reports out on time. The frustration is that it takes two years. The PCAOB sees what all of the top firms are doing, and they know or can identify what the best practices are. And we have encouraged them time and time again to share those best practices.
Q: What about the Center for Audit Quality? Will that serve as a way to share best practices?
A: I think it will. It's still in its early stages. I'm a member of the board. I'm certainly encouraging the Center for Audit Quality to do that. I believe many of the other members are as well, and we certainly are getting the firms to work more collectively on the issues in terms of how to improve the audit. We haven't gone so far as to serve best practices yet, but there's certainly a rumbling to try to do that, getting into areas such as how you can improve the process to detect fraud.
Q: Without revealing too much of your secrets, in what areas are your best practices?
A: I think we have best practices in a lot of different areas. Our audit technology and tax technology are leading edge and certainly very strong, which includes our risk-based approach to the audit. In the research area of tax, I'd say we're very strong. One of the things we believe we are strong is in our people experience. We spend a lot of time focusing on how we can improve the experience for our people from the day they start compared to their peers. I think we've been very successful at building morale and a culture that people generally feel is extremely positive.
Q: Do you have part-time partners at Grant Thornton?
A: Grant Thornton has a number of part-time partners throughout the country, in all different situations. The one you hear about the most is the working mother who wants to take some time off, and sometimes working fathers. Sometimes we have people approaching retirement who say, we still want to be partners, but we don't want to work as hard as we did.
Q: Do you think the concept of putting in 2,800 hours a year to make partner is in the Smithsonian now?
A: You certainly have to work. I'm not suggesting you don't. And you know what, you have to work just as hard as a partner as you did to make partner. The first year as partner is probably the hardest year I've ever worked. It's like being a new senior auditor. You really have a lot that you're juggling.
Q: When do you think you are going to be able to join the Big Four and make it the Big Five?
A: Our plans are to continue to grow and do what we're doing. We want to be a leader in the middle market, but we also want to get bigger clients as we have in the past. We now do tax advisory work for many companies within the Fortune 500 and we do audit work for some larger companies and we want to continue to get larger clients. But we do not have the Big Four as some kind of target. They do a great job at what they do, but we think we are good competitors in certain areas and really don't compete in other areas. We want to continue to be who we are.
Q: Do you have any plans for acquisitions?
A: We have no acquisitions in the United States scheduled. We have done some acquisitions overseas. In the U.K., Ireland and Australia, we've acquired or merged with the RSM affiliates. In Hong Kong, we acquired the Moores Rowland practice. We've made acquisitions in China. There are no mergers planned in the United States, but we're certainly open to the concept of mergers. If a firm is interested in merging with us and has good people, we're interested.
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