The Accountants: Maintaining Financial Order in Chaotic Times

It used to be known as the Big 8, then the Big 6, then the Big 5. Now it’s four and counting…. Accountantsu00e2u20ac”those venerable green-eyeshade bean counters that can make or break a company’s financial standingu00e2u20ac”have found themselves in the midst of an industrywide revolution. As a result of the Enron debacle, one among their ranks has fallen, leaving the remaining Big 4 firms to clean up Dodge City. With a little nudge from Congress, they will attempt to bring integrity and respectability back to a profession whose cornerstones have become slightly chipped.

Our list of top accounting and auditing firms consists of four national heavy hitters that are best known for the breadth and depth of experience they offer to many industries both domestically and worldwide: Deloitte & Touche, Ernst & Young, KPMG, and PricewaterhouseCoopers. Two other firms are included on our list, McGladrey & Pullen LLP and Grant Thornton, because they have cemented their place in the banking industry’s middle market through dedicated research and service to the community banks throughout the U.S.

Deloitte & Touche
Headquarters: New York City
Number of U.S. partners: 140

Key contact: Paul Wirth, managing partner
Number of U.S. offices: 100, approximately 60 of which have financial services partners
Years serving financial institutions: 109
Representative banking clients: Fifth Third Bancorp; PNC Financial Services Group; Washington Mutual
Selected services for banks: Auditing, accounting, actuarial, and tax services and a broad range of advisory services including strategic, regulatory, mergers and acquisitions, risk management, and management consulting to clients in all financial industries.
Website: www.deloitte.com

Deloitte & Touche’s solid reputation for customer satisfaction combines with a recent ramp-up of banking industry expertise.

Paul Wirth, managing partner of Deloitte & Touche’s national banking practice, is the first to admit that his firm lost a bigger share of the banking market than it gained in the series of mergers that narrowed the Big Eight accounting firms to the Big Four. However, over the last four years, the firm has hired 350 professionals with significant banking industry experience.

“The culture of our firm consistently gets accolades. We’re on Fortune’s list of best companies to work for, and we have the highest retention rate of any of our competitors,” says Wirth.

The firm also has a strong reputation for client service and audit quality. According to Business Week, D&T performed four of the six special committee reviews that were conducted for the companies that sustained the largest one-week losses in market capitalization due to accounting issues during 1997-2000, and in each case, it was later appointed as auditor.

Finally, a 2001 study by the Financial Executives International Research Foundation showed that of the top 10 market-value losses associated with restatements from 1998 to 2000, the dollar amounts of losses and number of restatements attributable to clients of D&T were significantly lower than those attributed to clients of any other (then) Big Five firm during that period.

Ernst & Young LLP
Headquarters: New York City

Number of U.S. partners: 175, with approximately 525 more worldwide
Number of U.S. offices: 90
Key Contact: Barry Kroeger, director of banking

Years serving financial institutions: 99
Representative banking clients for audit: ABN AMRO; Bank of New York; Capital One
Selected services for banks: Risk management and regulatory services; cash management services; transaction support; real estate advisory services; tax services; corporate finance; valuation services; restructuring; actuarial services; technology and security risk services; business risk services and internal audit services; structured finance advisory solutions

Website: www.ey.com

Ernst & Young focuses on tightly integrating regulatory advisory services with risk management for a seamless approach to improving business efficiency while meeting regulatory requirements.

“One reason I joined E&Y when I retired from the Fed is that our risk management and regulatory advisory services are the only ones that are fully integrated,” says Don Vangel, Ernst & Young’s director of bank regulatory advisory services. “We don’t have a separate regulatory practice that deals with black-letter-law regulatory matters. Our practice is fully integrated with experts in all the various areas of risk, because the regulators are monomaniacally obsessed with the management and assessment of risk.”

Vangel defines “regulatory burden” as regulatory compliance that is not integrated with best practices in efficiency and risk management. “After all, the regulators aren’t nuts,” he notes. “Most of their requirements have an ultimate objective of enhancing the way companies do business.”

Ernst & Young is also on the vanguard of technologically savvy professional services firms. The company was ranked as one of the top 10 Most Admired Knowledge Enterprises in North America in a 2002 study conducted by Teleos and The KNOW Network. Ernst & Young was recognized for its collaborative enterprise knowledge sharing, exemplified by a utility called the KnowledgeWeb. From home, office or a client site, Ernst & Young professionals can draw from more than 1,200 knowledge bases including best practices, industry information, success stories and up-to-the-minute news.

In describing Ernst & Young’s banking practice, Barry Kroeger, director of banking for the firm’s Americas practice, notes, “We’ve found ways to expand our audit skill sets to offer significant advisory capacities. We assist our clients in understanding the risk continuum vis-a-vis their peers.”

Grant Thornton
Headquarters: Chicago
Number of U.S. partners: 40
Number of U.S. offices: 44
Key Contact: Paul Pustorino, national financial institutions practice leader
Years serving financial institutions: 78
Selected services for banks: Audit and assurance services; tax planning and consulting services; strategic planning; technology risk management; technology; mergers and acquisitions; IPOs; capital markets
Website: www.grantthornton.com

A middle-market-focused firm with global reach, Grant Thornton has deep knowledge of issues and trends specific to community banking.

“We understand community banks. Our clients range from public companies to mutual holding companies, from $250 million to $1 billion in assets,” says Paul Pustorino, an assurance partner with Grant Thornton’s Boston office and national financial institutions practice leader. The firm’s community bank client base is composed of more than 300 banks across the country.

And that client base is growing steadily. According to a February, 2002 survey by Public Accounting Report, Grant Thornton expanded its audit practice faster than any other national non-Big Five firm for the fifth consecutive year, and was the only national accounting firmu00e2u20ac”Big Five includedu00e2u20ac”to post a net gain in audit clients for 2001. Grant Thornton gained 31 clients from Big Five firms during this time, while losing only seven.

“We value long-term relationships with clients,” says Pustorino. As evidence, he points to the fact that one bank has been a client for so long that Grant Thornton has outlasted the retirements of two bank presidents and continues to serve as the company’s accountant.

With its executive office in Chicago, the firm has a financial services industry group headquartered in New York, as well as an Office of Financial Services headquartered in Washington, D.C., which tracks industry trends and technology developments as well as legislative and regulatory issues.

Grant Thornton publishes a wealth of survey data on community banking trends and issues. For example, the firm conducts an annual survey of community bank executives, the oldest continuous independent study of its kind in the banking industry. It also publishes a biannual survey of middle-market business owners in four industry sectors: community banks, consumer and industrial products, technology, and other companies with revenues between $5 million and $500 million (between $100 million and $2 billion in assets for community banks).

KPMG
Headquarters: New York City
Number of U.S. partners: 300
Number of U.S. offices: 140
Years serving financial institutions:105
Selected banking clients: Citigroup; J.P. Morgan Chase; Wells Fargo
Key contact: Joseph Mauriello, vice chairman
Selected services for banks: Risk and advisory services including benchmarking, information security and system integration. Management assurance services, including comprehensive business risk assessment; strategic performance review for internal audit; strategic sourcing (significant co-sourcing or full outsourcing engagements) and establishing the internal audit function.
Website: www.us.kpmg.com

KPMG is the 800-pound gorilla of the group, with the largest and most comprehensive financial services practice of the Big Four.

Financial services is KPMG’s largest and most successful line of business, and within its financial services practice, the banking segment is the largest industry practice. The firm provides audit services to several of the top world banks including Citigroup, Deutsche Bank, HSBC, and ING; nearly one-third of the world’s top 100 bank holding companies; 40% of the top 10 U.S. commercial banking companies (representing assets of $1.9 trillion); and 46% of the top 100 thrifts, nearly three times the closest competitor.

It’s easy to see why most new KPMG clients cite the firm’s heavyweight reputation as the initial reason for requesting a proposal. What often clinches the deal is the breadth and depth of knowledge brought to the initial meeting by KPMG’s industry partners.

“We have a deep bench, and we serve our clients from a holistic point of view,” says Joseph Mauriello, vice chairman of the financial services practice.

“We’ve long considered our banking practice fully integrated with the rest of our financial industry expertise, well before Gramm-Leach-Bliley removed some of the barriers,” adds Jerry Licari, the firm’s national banking industry director.

Indeed, the firm’s broad client base allows its professionals to produce appropriate benchmarks for banking institutions and put an individual client’s risk profile in context. Says Licari, “Our audit approach is specifically risk-based. Our work is tailored to the risks facing each client, based on its particular operations, enterprise risks, size, and reach.”

McGladrey & Pullen, LLP
Headquarters: Bloomington, MN
Number of U.S. partners: 50 partners serve financial institutions, or 10% of McGladrey’s partner group.
Number of U.S. offices: 100 in 22 states
Key Contact: Jim Koltveit, head of financial institutions practice
Years serving financial institutions: 76
Selected services for banks: Opinion audits; SEC filings; third-party data center audits; trust fund audits; director’s examination; internal audit program development and implementation; internal control evaluations; loan and collateral review
Website: www.mcgladrey.com

McGladrey & Pullen is one of the top CPA firms to serve community banks and other middle-market businesses across the country. The financial industry is one of the firm’s top two primary focus areas, ranking second only to manufacturing in number of partners assigned to the industry.

The firm serves more than 1,200 financial institutions, including approximately 1,000 community banks with $1.5 billion or less in assets. For banks not located near a McGladrey office, the firm offers the McGladrey Network, a network of more than 70 independently owned accounting firms.

“Our focus has been to try to understand the needs of these middle-market banks, and be a resource for those clients,” says Jim Koltveit, who heads the financial institutions practice in McGladrey’s Kansas City office. “Sometimes being a resource means referring clients to other sources for services we don’t provide.”

McGladrey & Pullen provides audit and attest services, as well as certain tax services. To meet clients’ other tax and consulting needs, McGladrey & Pullen is affiliated through an alternative practice structure with RSM McGladrey, Inc., a leading national accounting, tax, and consulting firm which is a subsidiary of H&R Block.

“McGladrey & Pullen’s core business is accounting, auditing and tax work,” notes Koltveit. “On the consulting side, RSM McGladrey’s core business areas would be operations improvement, enhancing efficiency, regulatory compliance and loan review, and information technology.”

When considered together, the separate entities of McGladrey & Pullen and RSM McGladrey make up the sixth largest accounting and consulting firm in the country. Together, the two firms hope to grow to $1 billion in annual revenue by expanding into the top 25 metro markets nationwide by 2005.

PricewaterhouseCoopers
Headquarters: New York City
Number of U.S. partners: Approximately 200
Number of U.S. offices: 125
Key Contact: Tim Ryan, U.S. banking leader

Years serving financial institutions: 150
Selected banking clients: US Bancorp; BankAmerica Corp.; SunTrust; Federal Home Loan Bank (all 12 member banks); Compass Bank
Selected services for banks: Assurance services including audit, accounting and regulatory advice, attest and attest-related services, corporate training, public services audit and advisory, and services for middle-sized companies; E-business trust and security; quality, reliability, compliance and regulation; operational effectiveness; transaction services as a core part of mergers, acquisitions, divestitures, joint ventures, spin-offs, and strategic alliances

Website: www.pwcglobal.com

PricewaterhousCoopers serves banking clients on location instead of working strictly from branch offices and prides itself on its leadership role in the evolution of accounting standards.

“It is uniquely ingrained into our culture that we understand our clients’ businesses,” says Tim Ryan, U.S. banking leader at PricewaterhouseCoopers. “We live in the details. We go by the old adage that you can’t audit from a cubicle.”

Accordingly, PwC’s banking partners log long hours on the road, spending much of their time visiting clients on-site. The firm’s financial services practice is geographically concentrated in several areasu00e2u20ac”New York, the Carolinas, Washington D.C., Chicago, and San Franciscou00e2u20ac”but PwC brings the expertise to clients wherever they may be.

Fifteen years ago the firm reorganized its practice along industry lines instead of geography. Financial services is the largest practice area, followed by consumer and industrial products and technology and communications. Within financial services, insurance and banking are the two biggest segments, each employing about 65 audit partners. The other three segments are investment companies, real estate, and capital markets. Banking is further divided into mortgage banking, regulatory and advisory services, foreign banking, consumer banking, and money-center banking.

“We’ve been able to leverage our knowledge of best practices across our large practice,” notes Ryan. “Our case managers and partners meet monthly across business lines to share best practices, without breaking client confidentiality.”

PwC is also committed to increasing its industry expertise while taking an active role in shaping changing accounting regulations. For example, the firm recently sent a professional on a two-year tour with the OCC, another is just coming back from serving with the FASB, and a third was sent to spend two years with the World Economic Forum.

“We take our leadership in the industry seriously,” says Ryan. “We invest heavily in the evolution of accounting standards u00e2u20ac” that’s not just a national office problem.”