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Thursday, Mar 28, 2024

Making a Return To Core Services

For years, Hutchinson and Bloodgood LLP cultivated a big business in IT consulting. The firm provided everything from customized software to network integration. The Glendale-based CPA firm still does a pretty big business in some of those areas. But lately, officials at Hutchinson and Bloodgood are finding that they are getting calls with a somewhat different slant consulting assignments that are more closely related to the accounting tasks that are the core of their business. “The shift is really back to more core services,” said Jerry Slowey, director of marketing at Hutchinson and Bloodgood, “a lot of audit compliance as opposed to network integration. What we’re really seeing is a big growth within our technology consulting practice with a more traditional blend of accounting.” The firm is not alone. While accounting firms that wanted to expand once looked outside their core business to do so, often focusing on information technology or human resources, today’s heightened regulatory environment and shifting business needs are, in a sense, sending them back to, well, accounting, for expansion opportunities. Consider these examples. >Grant Thornton LLP recently launched a recovery and reorganization services division to provide professional services to underperforming and financially troubled businesses. >Miller, Kaplan, Arase & Co. LLP, which has long specialized in multi-employer benefit plans, has been doing a lot of work auditing single employer benefit plans. >White Zuckerman Warsavsky Luna Wolf & Hunt LLP has seen a recent uptick in its forensic practice, particularly with respect to looking out for fraud. >Hutchinson & Bloodgood has beefed up its cost segregation group, hiring two engineers to help refine depreciation schedules and, ultimately, improve cash flow for investors and business owners. Some of the new opportunities have come about simply as a result of what’s become a fundamental change at the Big Four accounting firms. The passage of Sarbanes-Oxley (SOX), legislation that sets new standards for auditing, has also brought new, stricter conflict of interest rules, and corporations can no longer call on their primary accounting firms for many auxiliary services. That work has flowed to accounting firms that, for the most part, never worked with public companies before. “The accounting profession is still swamped due to SOX,” said Bill Wolf, senior partner at White Zuckerman Warsavsky Luna Wolf & Hunt in Sherman Oaks. “The bigger firms are actually turning away work, and that provides an opportunity assuming I can find the manpower.” At the same time, the events leading up to the passage of SOX, corporate fraud and other irregularities, have also heightened awareness of potential improper or dishonest accounting tactics, and accounting firms are picking up assignments from companies who want to be sure they don’t become victims of such behavior. Miller, Kaplan, Arase & Co., for example, has seen a big boost in its assignments to audit royalty arrangements. “Just last month, we exhibited at the LIMA (Licensing Industry Merchandiser Association) show in New York,” said George Nadel Rivin, a partner at Miller, Kaplan, Arase & Co. “And we have been taking on a great many engagements throughout the world.” The increase is partly due to the sheer growth in licensed products,” Rivin said. But heightened awareness brought on by such high profile prosecutions as those at Enron and Homestore have also contributed to the growth. “I don’t think there’s any question that all the publicity that came out of these companies has brought this into a more top of mind issue for licensors,” said Rivin. The same dynamic is at least in part fueling the growth in demand for forensic accounting at White Zuckerman Warsavksy Luna Wolf & Hunt. “What I’m personally seeing is litigation,” said Wolf. “We’re engaged by a law firm to come in and look for fraud. It’s typically one owner against another. I can think of five times I’ve been engaged that way in the last 12 months.” Much of the work that accounting firms are currently engaged in stems from what has been a robust economy. Greater merger and acquisition activity has required more business valuation consulting. Growing businesses are offering more complex compensation packages to attract and retain executives. Increased interest in real estate investment has put more focus on how partnerships are formed and the way in which proceeds are distributed. But at least one accounting firm is also hedging its bets, believing that the up-cycle will, inevitably shift. “Clearly we believe there’s a cyclical component and, after all these years of expansion, we believe there’s a heightened level for these types of services,” said Harris Smith, managing partner for the West region at Grant Thornton of the firm’s newly formed Recovery and Reorganization Services group. The division will focus on companies that have hit financial bad times and are seeking to reorganize, but Smith also sees an opportunity to help companies that may have made poor acquisition choices during the boom times. The firm expects that Southern California, along with Northern California will be strong markets for its new services, and there are plans to hire about 20 people for the two regions, including two partners in Southern California during the current fiscal year. “We think the market is there,” Smith said. “And not all the accounting firms have gotten back into this because they haven’t been able to figure out the conflict rules.”

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