KEY ACCOUNTING INDUSTRY INSIGHTS AND UPDATES – APRIL 2023

Jack Anderson     Apr 04, 2023     782
KEY ACCOUNTING INDUSTRY INSIGHTS AND UPDATES – APRIL 2023

KEY ACCOUNTING INDUSTRY INSIGHTS AND UPDATES – APRIL 2023

1. Payroll Outsourcing Services Market Demand Is Expected To Rise: Fact.MR Study

The global payroll outsourcing services demand is likely to surge at a 6.1% CAGR through 2033.
Increased demand for standardized process, technology, governance as well as the growing popularity of employee self-service (ESS) and the payroll outsourcing market with human resources are expected to provide opportunities for the growth of the payroll outsourcing services market.
By region, North America dominates the global market with a market share of 37%.
By customer type, small size companies shall hold a market share of 41%.
By end-use industry, the services segment will remain the most prominent user, accounting market share of 23%. Read More

2. Apple Fined $12.12 Million Over Alleged App Market Abuse

Russia’s Federal Antimonopoly Service (FAS)  has asserted that Apple has abused its Russian market dominance. Apple, the US tech giant has paid a 908 million USD fine in a Russian antitrust case. The case alleged the abuse of its applications in the mobile apps market. The latter said that Apple’s distribution of applications through the iOS operating system allows its products a competitive advantage over the others. The case against Apple was started by the Kaspersky Lab which is a cyber security firm that had mentioned a national security threat by the United States in 2022. Read More

3. Is Buffett protesting GAAP too much?

Warren Buffett — CEO of Berkshire Hathaway, in his latest letter to shareholders expressed his disappointment with a generally accepted accounting principles(GAAP) rule. Buffett warns of the deceptive volatility of the GAAP earnings figures due to the requirement that they include unrealized capital gains or losses from the company’s equity holdings. Instead, he urges his shareholders to focus on operating earnings which exclude those gains and losses. 
However, others feel that Buffet’s statement is in justification to the negative numbers his company is reporting this year.
Berkshire reported a GAAP net loss of $22.8 billion for the full year of 2022, compared to net earnings of $89.79 billion in 2021. Read More

4. Canadian audit regulator issues enforcement action against US accounting firm

The Canadian Public Accountability Board (CPAB) has issued a rare enforcement action — against Marcum LLP, an American accounting firm which is based in New York with no offices in Canada, and prohibited the firm from accepting new “high risk” Canadian clients. In 2022, CPAB censured PwC, and Deloitte, in 2021. 
Marcum is ranked as the 15th largest firm in the United States and has a specifically established cannabis services group with subject matter experts. The Canadian cannabis market has been a boon to Marcum as it has with Canadian accounting firms. The firm also vets the books of publicly traded bitcoin miners and some privately held crypto exchanges.
CPAB inspected two of Marcum’s audit files in 2022 and identified nine significant inspection findings, each being a breach of one or more professional standards and constitutes a “violation event.” Also, the firm was not registered or licensed by the relevant provincial CPA body to perform audits of the financial statements in the respective jurisdiction. Read More

5. IRS: Extension of tax deadline for disaster area taxpayers

Disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments, as announced by the IRS as opposed to the previous date of May 15, 2023. The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA)
This includes: Individual income tax returns, originally due on April 18; Various business returns, normally due on March 15 and April 18; and returns of tax-exempt organizations, normally due on May 15.  Eligible taxpayers will also have until Oct. 16 to make 2022 contributions to their IRAs and health savings accounts.
The Disaster Assistance and Emergency Relief for Individuals and Businesses page has details on other returns, payments and tax-related actions qualifying for the additional time. Read More

6. Private Equity Firms’ Lending Goes Down Even As Interest Rates Rise

Private equity firms that have for years capitalized on the regulatory woes of banks by becoming lenders to risky leveraged buyouts are doing less business just as higher interest rates have made that practice more lucrative. Buyout firms with direct lending businesses, such as Blue Owl Capital Inc, Blackstone Inc and Apollo Global Management Inc, disbursed a total of $151.3 billion in 2022 for so-called middle-market deals -- midsized acquisitions by private equity firms -- according to financial data provider Refinitiv.
That was 23% less than the $195.7 billion lent out in 2021, but still 41% higher than in 2020.
The reasons can be attributed to fewer companies knocking on their doors, with the financing turning more expensive, and the lenders becoming more-risk averse amid concerns about a potential economic slowdown as well as limited bank financing for leveraged buyouts resulting in lesser mergers and acquisition activity in the market. Read More

7. IRS begins new Digital Intake initiative

In a major step in the new Digital Intake scanning initiative, the IRS has already scanned more than 120,000 paper Forms 940 since the start of 2023, this being a twenty-fold increase compared to all of 2022. This effort will expand soon to include scanning of Forms 1040 as well as Forms 941. The scanning effort is part of a multi-form, multi-solution scanning initiative known as Digital Intake.

As part of the Inflation Reduction Act, the IRS has taken steps to improve service, including hiring more than 5,000 new telephone assistors, adding staff to IRS Taxpayer Assistance Centers and holding special Saturday hours, expanding the Document Upload Tool and other features.  The capabilities enable the IRS to digitalize more paper for downstream processing and storage, resulting in greater efficiencies and improved data management outcomes. Read More

8. US consumers starting to struggle to pay off credit cards — Citi CFO

Citigroup’s chief financial officer said that the bank is starting to see signs of weakness in consumer debt servicing.

Speaking at a Wall Street investor conference on Wednesday, Mark Mason said the bank, one of the nation’s largest issuers of credit cards, was starting to see an increase in US consumers slowing or being unable to repay their growing credit card debts.

He said average balances on the company’s credit cards are rising, and that the bank has had an uptick in credit losses, particularly to borrowers with lower credit scores.

Mason said that while default rates on credit card loans remained well below pre-pandemic levels, he expected loan losses to increase. Read More

9. EY split paused amid partner infighting over fate of tax experts

EY has shelved a crucial vote on breaking itself up after a backlash from partners dealt a blow to radical plans to separate the Big Four firm's consulting and accountancy arms amid a fierce dispute over how much of its tax business should stay with the audit side of the firm.

Julie Boland, the head of EY’s US business, who has been picked to run EY after it spins off its consulting arm, told partners that the deal needed to be reworked.

EY proposed the split amid severe pressure from regulators worldwide over concerns around conflicts of interest at the Big Four firms. EY, Deloitte, KPMG and PwC have been heavily rebuked by regulators in the UK and US over a perceived lack of independence in their audit divisions because of the fees they also earn from advisory work. Read More

10. Canadian Bar Association Chooses CosmoLex For Practice Management Software

The law practice management platform CosmoLex has entered into an agreement with the 36,000-member Canadian Bar Association to be the CBA’s exclusive preferred practice management software for members.

In a country known for having strict regulatory requirements for legal accounting, the CBA said that CosmoLex “checks all the boxes” for providing compliant accounting and LPM solutions.

Through the partnership, CosmoLex — which is owned by ProfitSolv, which also owns the law practice management products Rocket Matter, Tabs3 and TimeSolv — will offer CBA members an exclusive discount on subscribing to its platform as well as offer exclusive webinars and educational opportunities. CosmoLex has also recently rolled out CRM and marketing automation. Read More

11. EU telcos ramp up pressure on US Big Techs to pay for the internet

Telecom groups are ramping up pressure on EU regulators to consider a framework where the companies that send traffic over their networks are charged fees to fund infrastructure upgrades. Google, Netflix, Meta, Apple, Amazon and Microsoft generate nearly half of all internet traffic today. European Telcos argue that these large internet firms should pay “fair share” fees to account for their disproportionate infrastructure needs and help fund the rollout of next-generation 5G and fibre networks since they have built their businesses on the back of the multi-billion dollar investments that carriers have made in internet infrastructure.

Efforts to implement network fees have been met with disapproval from tech giants such as Netflix, who view the suggestion of direct compensation to telcos as an internet traffic “tax” which would have an “adverse effect” on consumers. Read More

12. New standard provides risk-based approach to group audits

The AICPA Auditing Standards Board (ASB) recently issued Statement on Auditing Standards (SAS) No. 149 Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors), a standard that introduces a risk-based approach to planning and performing a group audit. SAS No. 149, in superseding Section 600 of SAS No. 122, shifts the auditor's approach in determining the components at which to perform audit work from identifying "significant components" to using professional judgement based on assessed risk.

Further, in SAS No. 149, specifically in the "assuming responsibility for the work of component auditors," the "assuming responsibility" option will now be referred to as "being involved in the work of component auditors" or "when component auditors are involved."

The ASB also issued Statement on Quality Management Standards (SQMS) No. 3,  to conform certain terms used in the quality management standards to language used in SAS No. 149 and provide guidance on differentiating between a resource and an information source. Read More

13. Chat GPT4: Is the world prepared for the coming AI storm?

OpenAI, a non-profit artificial intelligence research group, has unveiled its new and more advanced model called GPT-4, the technology serving as a tool that makes life easier and more seamless, as AI-features on consumer products can anticipate user needs and help accomplish any task virtually.

GPT-4 is a new language model created by OpenAI that can generate text that is similar to human speech. The latest version is more creative and accurate in its response and has better problem-solving capabilities than ChatGPT, which is currently based on GPT-3.5. GPT is the acronym for Generative Pre-trained Transformer, a deep learning technology that uses artificial neural networks to write like a human.

Early clients include Microsoft, Merrill Lynch and the government of Iceland. Read More

14. Lack of accountants risks cities' credit ratings

Municipalities across the U.S. are at risk of having their credit ratings downgraded or withdrawn by S&P Global Ratings because staffing shortages have delayed financial disclosure documents. S&P has placed 149 long-term, underlying and program ratings on a negative credit watch this year because the ratings company hasn't received 2021 financial statements from the issuers.

The overarching reason for the lack of timely disclosure is staffing challenges, according to a report published by S&P. In addition to staffing shortages at auditing firms, staffing issues within government audit and financial departments are also contributing to delays.

The issuers placed on negative watch have 30 days to file their required documents or risk a rating change, namely a ratings withdrawal, suspension or downgrade. Read More

15. SVB Exposes ‘Lazy’ ESG Funds as Hundreds Bet on Doomed Bank

After being caught on the wrong side of Vladimir Putin's war in Ukraine and the Adani scandal, hundreds of Environmental, Social, and Governance(ESG) fund managers are now dealing with the sting of having misjudged Silicon Valley Bank(SVB).

About 915 funds registered under European Union regulations as either "promoting" ESG or declaring it as their "objective" are exposed — directly or indirectly — to the now-collapsed bank, according to data compiled by Bloomberg.

The bank was a big lender to renewable energy companies, a favourite among ESG managers on the lookout for low carbon footprints. But when it came to governance risks, fund managers seem to have been less attentive. For the ESG investment industry, the collapse of SVB may go down as a textbook case of what happens when an asset manager tries to build a climate portfolio without doing proper due diligence on social and governance risks. Read More

16. IRS fell short on requirement to electronically process business transcript requests

The Internal Revenue Service did not meet a requirement under the Taxpayer First Act to create an online system for processing electronic business transcript requests by January 2023, according to a new report released by the Treasury Inspector General for Tax Administration.

The Taxpayer First Act required the IRS to update its antiquated technology to make it more efficient and secure and provide better customer service, but the IRS's longtime problems with modernizing its systems, some of which date back to the 1960s, have been difficult to overcome.

The Inflation Reduction Act, which Congress passed last year, does provide an additional $80 billion in funding over 10 years for the IRS, in part for improving technology and taxpayer service, but the bulk of it is going toward enforcement. Read More

17. FASB aims to improve income tax disclosures

The Financial Accounting Standards Board proposed an accounting standards update to address requests from investors for better income tax disclosures from public companies since the existing disclosures don't offer enough information to help them understand the tax position of a company that operates in multiple jurisdictions. Investors, lenders, creditors and other allocators of capital currently rely on the rate reconciliation table and other disclosures, including total income taxes paid in the statement of cash flows, to evaluate income tax risks and opportunities. They suggested possible enhancements to better understand a company's exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities, to assess income tax information that affects cash flow forecasts and capital allocation decisions, and to identify potential opportunities to increase future cash flows. Read More

18. UK: Spring Budget 2023 — Highlights

Some key headline items:

  • The inflation rate is forecast by the Office for Budget Responsibility to fall from 10.1% (January 2023) to just 2.9% by the end of 2023
  • The lifetime allowance for pensions will be abolished from April 2024, with the lifetime allowance charge withdrawn from April 2023
  • In light of the removal of the lifetime allowance, a new monetary limit for the tax-free pension commencement lump sum will be introduced for 2023/24 of £268,275 (equivalent to 25% of the current standard lifetime allowance)
  • The annual allowance for pensions will increase by 50% to £60,000 from 2023/24 and the money purchase annual allowance will rise from £4,000 to £10,000 from 2023/24
  • Companies investing in new plant and machinery in the three years from 1 April 2023 can claim a first-year allowance of up to 100% of expenditure
  • To offset the previously announced reductions in the repayable research and development tax credits for small and medium-sized enterprises (SMEs), loss making that spend 40% or more of their total expenditure on research and development will be able to continue to claim payable tax credits at 14.5% (rather than the new reduced rate of 10%) from April 2023. Read More

19. Taxaroo Launches ZeroTax.ai as 'ChatGPT for Taxes'

Taxaroo, the innovative tax technology company, has launched ZeroTax.ai, an AI-powered tax help service nicknamed TaxGPT that understands tax questions phrased in natural language and outputs actionable tax advice in plain English. It provides free answers to tax questions for individuals and small business owners in seconds, making taxes less stressful. Answers can also be optionally reviewed by a tax professional.

It is trained to weigh in on a wide variety of tax questions, such as the applicability of a deduction, determining eligibility for various tax credits, calculating tax liabilities and refunds, and advising on tax planning strategies for both individuals and small businesses.

The service utilizes advanced AI technology to provide fast answers, ensuring users receive the information they need in seconds. ZeroTax.ai’s AI is trained on a vast dataset of tax laws and regulations to provide users with accurate and dependable tax advice. Read More

20. China hits Deloitte with big fine, closes Beijing office

The Beijing office of Deloitte Touche Tohmatsu has been fined USD 30.8 million for failing to adequately audit a Chinese state-owned asset management company whose former head,Lai Xiaomin, was sentenced to death on charges of embezzlement and taking bribes in exchange for investments, construction contracts and jobs.

The office also was ordered to suspend operations for three months for mishandling audit and other work at China Huarong Asset Management Co. in 2014-19, the Ministry of Finance announced.

The accounting firm failed to properly look into the status of Huarong's underlying assets, ignored compliance approvals on major investments and failed to apply a sense of skepticism in its audit work on Huarong, the ministry said. Huarong had several internal and risk control failures and distorted its accounting which Deloitte missed, according to the statement. Read More

21. Armanino Expands Entertainment Expertise By Merging In Two Music-Oriented Firms

Accounting and consulting firm Armanino, a Top 25 Firm based in San Ramon, California, is expanding its entertainment management practice by adding two veteran music industry organizations to its portfolio, beginning April 1: music business management company Blue Sky Group and rights and royalty auditing firm Royalty Compliance Organization.

This move enables Armanino to provide the entertainment industry with a variety of services, including traditional business management, tax and audit services, along with more specialized litigation and royalty compliance auditing. It also expands Armanino's entertainment practice into Nashville, giving it locations in the country's three main music and entertainment hot spots, including its existing New York City and Los Angeles offices, to serve its growing client base in the entertainment industry.

Armanino ranked No. 18 on Accounting Today's 2023 list of the Top 100 Firms, with $595 million in annual revenue. The firm has over 220 partners and approximately 2,400 employees. Read More

22. Xero’s start-up buyout, Waddle, went from $31m to zero within three years

Xero will cut up to 800 jobs globally and shutter its lending platform Waddle to reduce costs and achieve a “better balance of growth and profitability.”

The move was part of a wholesale reorganisation to reduce costs that would involve up to $40 million in write-downs this financial year and up to $35 million in restructuring costs in FY24. It comes just weeks after tech high-flier Sukhinder Singh Cassidy took over as chief executive from Steve Vamos, who moved aside at the beginning of February. Management was targeting an operating expense to revenue ratio in FY24 of around 75 per cent and would issue updated guidance in May. These would mainly be incurred in FY24 although exiting cloud-based lending platform Waddle – which Xero acquired in 2020 – would involve a write-down of $30-40 million this financial year.

Xero has 3.5 million global subscribers for its software which takes in accounting, payroll, workforce management, expenses and projects, along with around 1,000 apps. Read More


About The Author

Jack Anderson

Director, Marketing

Jack is the Head of Strategic Marketing at Entigrity Offshore Staffing with a demonstrated history of working in the financial services industry. Skilled in Tax Accounting, Income Tax, Management, Payroll, and Auditing. Strong sales professional with a Bachelor of Arts - BA, Business Adminstration focused in Accounting and Finance from California State University, Fullerton.

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