Since 2001, Edward E. Nusbaum has served as chief executive and executive partner of Grant Thornton, the nation's seventh-largest CPA and business advisory firm. Under his aegis, GT has swelled into a concern that generated nearly $800 million in revenues over fiscal 2005 - a 25 percent climb - with 435 partners and 50 offices.In addition to the firm's growth in revenues and human capital, Nusbaum has spearheaded efforts to raise Grant Thornton's profile on Capitol Hill, calling for increased choices for public companies, enhanced business reporting and defined rules on providing tax services to public audit clients. Nusbaum has also made his voice heard as a member of the Financial Accounting Standards Board's advisory council.
Recently, he sat down with Accounting Today and addressed a number of issues, including his firm's continuing growth, recruiting successfully in a competitive market, international convergence, the failed audit of bankrupt commodities broker Refco, private company GAAP and the Public Company Accounting Oversight Board inspection process.
It was another year of growth for your firm. Do you think that's a function of Sarbanes-Oxley, marketing or something else?
Nusbaum: I think it's those things, but also a recognition of the need for more accounting firms to step up to the plate, along with the concentration of the accounting profession. ...
We have a real commitment to bring in people and encourage a culture that cares about their career aspirations and their career development and their success as individuals.
What I've heard back from clients pretty consistently is that our people are enjoying what they're doing. They're happy about the profession, they're happy about the firm, they're excited to be out with the clients. The clients perceive that. Happy people make happy clients. It sounds a little silly, but it's true. ... The people issue is something you can't dismiss.
What's the key to retaining staff?
Nusbaum: Work/life balance combined with a culture that talks about our guiding principles - respect, integrity, professionalism, sense of leadership. Everybody's got guiding principles on a sheet of paper. It's how you implement them.
We've been very outspoken about embracing changes to the profession. We spoke out before Sarbanes-Oxley publicly. And we've continued to speak out on issues, whether it's stock option expensing, [Sarbanes-Oxley Section] 404 and internal control documentation. We were the first firm to say we're not going to do internal document controls for publicly traded audit clients. Some firms followed us on that and some firms stayed silent.
When do you start recruiting college students?
Nusbaum: Sophomore year. Right when they say they're going to be an accounting major. That's earlier than it used to be. You've got to hit them at the sophomore level. Last month I spoke at Columbia University, Northern Illinois University, University of Texas - we just go around the country, really get out there and speak to them at different levels and tell them about different programs we have to get students really interested in the firm and in the profession and what they want to do within the accounting field.
Do you think the scandals are responsible for the recent resurgence of interest in young people getting into the profession?
Nusbaum: My own view may be a little more skeptical, or maybe just realistic. There's an excitement to the accounting profession, and there's an exposure of the profession that was not there before, but I also think a big part of it is that there's plenty of jobs. ...
The marketing now is not just corporate, it's on the college campuses and getting out and having substantive conversations with professors so they feel connected to our firm. When I'm out talking to the college campuses, I'm not just talking about Grant Thornton. I'm talking about Sarbanes-Oxley, or stock option expensing, or pension accounting or lease accounting.
Do you feel more competition coming from regional firms?
Nusbaum: The concentration in the accounting profession is healthy for our business environment. We think it's good that more firms have stepped up. ... I think all the firms have had more opportunities to get larger and larger clients, and that filters down to the smaller firms as well. What we have said is, every company should look at the right accounting firm for the different kinds of assignments they have.
The right accounting firm might be Clifton Gunderson in some cases, Crowe Chizek in another and Grant Thornton in a third case. In some cases, we'll all be competing against each other; in other cases, different firms will have better resources. I don't think it's a level playing field in the sense somebody's going to say, "A local New York firm can do the same thing Grant Thornton can." Of course not. But for certain clients, [a boutique firm] may be the right answer.
Do you agree with people who say we're in a golden age of accounting right now?
Nusbaum: I don't know if that's the right term or not. ... I think there was a period of time in the 1990s where people dismissed accountants and said, "Who cares?" The accounting person picked up on that, and began doing things that weren't appropriate, cutting corners, reducing guidelines, and we saw the impact of that. People got sloppy with their accounting, the auditors and the audit committees didn't care as much. That trend has more than reversed. ...
There are still going to be some frauds, there are still going to be some significant errors, but it's like a police officer trying to stop every crime. ... I don't know if the pendulum's going to swing back in these next few years. There's talk about reducing the intentions of Sarbanes-Oxley, this push by small companies and lobbyists to get rid of 404 - and we're talking about companies with revenues of $20 million, which isn't so small - that is going in the other direction and decreasing the quality of audits. There's no doubt if the auditor tests internal controls at the level required by Sarbanes-Oxley, the auditor does more work, but does a better audit. And the company does a better job with the controls.
What developments do you see in the next five years?
Nusbaum: The [first of the] two big trends I see are convergence with internal standards. International Financial Reporting Standards have been taking on more and more importance in Europe and through the rest of the world. That trend will continue in the United States in the development of new standards. I'm on FASB's advisory council, I think that FASB wants to work closer and closer with international standards-setters, and we'll see more and more convergence on new standards. ... I think there are problems with market value accounting, but I do think we'll see a growing trend towards more market accounting.
I think one of the hottest issues over the next few years will be lease accounting. ... Lease accounting is so far away from the economics that it's not even funny. I see it as the CEO of our firm. We sign a lease and I get this report on the economics of the transaction and the accounting for the transaction, and never the two shall meet. And I don't know that the accounting will ever completely follow the economics, but it's got to get a little bit closer.
What's your prognosis for private GAAP?
Nusbaum: I do not have a crystal ball on that. We're generally not in favor of it. We think there are some disclosure areas that should be addressed differently for private companies versus public companies, because if the readers of private company financials need to have access to all kinds of more financial information, they can call the owner, the chief financial officer, and get information. For public companies, there are all kinds of restrictions. ... We just don't think it's good to have two sets of GAAP. It's too confusing, and the trend between companies going public, going private, is there.
You have some very large private companies out there; which side of GAAP are they going to use? Or what about private companies carrying public debt? Or companies that are held by private equity groups? Or private companies that get bought by public companies? To me, it's a quagmire. Now, that's probably not a popular answer with our small and midsized clients, but we think it's the right answer and we're pretty emphatic on it. The problem really runs in the way the profession has emerged in public versus private and the bifurcation of the whole profession and the regulators.
To us, the answer is to change GAAP.
The other thing I'll say on that is that in the rest of the world, there are efforts to come up with some different standards, but private companies, many of them are international in scope. There are $25 million companies that have operations in different countries. We need the same standards, ultimately, on a global basis. Accounting needs to be accounting. It's very hard to sit and explain to somebody outside of the profession why the accounting is different in one country versus another.
Is there any update on the Refco lawsuit?
Nusbaum: From the legal standpoint, it's in the very early stages. We don't anticipate any major problems, although I'm sure it'll cost us a lot of money in legal fees, as these cases always do.
Is there anything you would have done differently?
Nusbaum: Always, but there are no indications of anything else we could have done, even with hindsight being 20-20. We have done a pretty thorough investigation of the audit, and as far as we can tell, we did all the right auditing procedures, all the right standards, a lot of work. ...
I think as a profession, there's more and more we can do in the area of auditing for fraud. It does point out that no matter how much auditing you do, even if you do all the right things, if there's collusion at the top, some frauds can still be pulled off. It's very, very frustrating for the profession and for all the firms.
What's Grant Thornton doing in response to the first round of PCAOB inspections?
Nusbaum: One of the things we've spoken out about publicly is that firms should share the results and the tools and the processing of procedures of what they do on internal controls. ... [That's the way] to find some best practices.
If you study all the [PCAOB] reports, they're pretty similar. Some had more comments than others, but it's not the quantity as much as the nature of the comments. But without digging into it, it's hard to reach any conclusions by reading what's on the [PCAOB's] Web site - other than that all the firms can improve their auditing. ... You can't read too much into it, other than that the PCAOB did a very thorough review and really beat up the firms, appropriately so. They did their job. They dug into these engagements and forced all of the firms to do more work and make changes. And we're working on making those changes. ...
One of the things we said in our response to the PCAOB is that the board should use what they learned to help all the firms adopt best practices. I think the PCAOB is really in a unique position. They've seen the underbellies of every firm. The good, the bad and the ugly. [If another firm] is doing something better than Grant Thornton, then we want to hear about it.
