Download the 2010 ACCOUNTING FIRMS List (pdf)
Orange County’s biggest accounting firms shed workers in the past 12 months due to the continued slowdown in Sarbanes-Oxley work, nonexistent initial public offerings work and less transaction work.
But accounting firms appear to have turned a corner in the past six months as many clients look to deals predicted for the latter half of the year.
“We’re starting to see an increase in the number of IPOs and an increase in transactions,” said Knute Kurtz, office managing partner of the Irvine office of No. 4 Price-waterhouseCoopers LLP. “We are seeing a lot of the capital that has been on the sidelines being deployed for transactions.”
The anticipated work hasn’t done much for firms that continued to shed workers in light of the downturn and the slowdown in government-mandated work.
Local employment at the 41 largest accounting firms here declined 5% to 3,852 people during the past 12 months, according to this week’s Business Journal list that ranks accounting firms by local employees.
That’s a bit better than last year’s list, where the largest firms that are headquartered or have large offices here shed nearly 7% of their local workers.
Twenty-three of the companies on this year’s list, including three of the Big Four, showed declines in local employee counts in the past year. Ten added workers, three held employment flat and five were Business Journal Estimates.
It’s a change of pace for firms that, in the last decade, grew local employment on the heels of work generated by the Sarbanes-Oxley Act of 2002.
“Our business is only as robust as our clients,” Kurtz said. “The general slowdown in the corporate world certainly impacted the accounting business.”
The county’s largest firms also shrunk their numbers of certified public accountants by 3% to 1,428.
Last year, firms saw a major drop-off in government-mandated work—which had driven the industry’s growth during the boom years.
For the past eight years, increased scrutiny from the Securities and Exchange Commission and the Sarbanes-Oxley Act were major sources of work for many accounting firms.
With most companies now in compliance with Sarbanes-Oxley, the falloff was felt at most accounting firms, including the Big Four—No. 1 Deloitte LLP, No. 2 KPMG LLP, No. 3 Ernst & Young LLP and Price-waterhouseCoopers.
The Big Four dropped more than 130 workers among them in the past year. (KPMG buoyed the four a little with the addition of 16 workers here for a total of 397.)
Deloitte is the biggest accounting firm with 720 local workers, which is down 10.3% from 803 a year earlier.
Unlike the other top firms, Deloitte didn’t break off its business consulting practice into a separate company and has 274 consultants in its total headcount.
Deloitte also was the biggest decliner by actual number of workers, losing 83.
Local clients include Quiksilver Inc. of Hun-tington Beach and Pacific Sunwear of Califor-nia Inc. of Anaheim. Both have been hurt by the downturn.
Other Decliners
Another big decliner on the list was No. 13 Brea-based Frazer Frost LLP.
The firm, formerly Moore Stephens Wurth Frazer & Torbet LLP, combined with Frost PLLC of Arkansas last year, shedding 30% of its workers and bringing Frazer Frost’s total local headcount to 74. It was the largest decline by percentage on the list.
The firm moved its office from Orange to Brea this year. Dean Yamagata, managing partner at Moore Stephens, took over West Coast operations for Frazer Frost.
Frazer Frost built its practices specializing in the animal agriculture industry—specifically dairy production, animal agriculture, food processing and construction industries.
PricewaterhouseCoopers also saw a decline, dropping 7.7% to 360 workers.
Local clients include Santa Ana-based title insurer First American Corp. and Irvine-based medical device maker Edwards Lifescience Corp.
Accounting firms that focus on business deals are starting to see a bump up in business, according to executives.
Many anticipate a crush of businesses looking to sell assets later this year to buyers who have been sitting on the sidelines. This rush likely will be encouraged by a raise in capital gains taxes that’s set to take place in 2011.
“The transactional type of work should start heating up in the end of 2010 thanks in part to the capital gains tax increase and with all the money idle for 18 months, there is a wave of companies looking for an exit,” said Wayne Pinnell, managing partner of No. 15 Irvine-based Haskell & White LLP, which dropped eight workers for a total of 60.
Some companies are looking to grow by buying other companies or units.
“Quality companies are taking advantage of the market opportunities. If a company is looking to start a new division, acquiring it might be a better price point than building it,” said John Belli, office managing partner at the Irvine office of Ernst & Young.
Ernst & Young has seen activity in real estate and public offerings after two years of drought.
“There has been significant activity with a lot of companies doing real estate investment trust filing and a lot of companies that aren’t big splash IPOs,” Belli said.
For the past year, Ernst & Young saw its workers decline 6.2% to 378 workers.
Local clients include Irvine-based chipmaker Broadcom Corp., Irvine drug maker Allergan Inc. and Santa Ana-based vocational college operator Corinthian Colleges Inc.
The tax practice at accounting firms is starting to see an increase of work as well.
“We have seen a pickup on the emphasis of tax,” said Roger Weninger, managing partner of the Irvine office of No. 9 Seattle-based Moss Adams LLP.
Moss Adams dropped three spots on this year’s list after shedding 10 workers for 110 total.
Hiring
The increase in work and the slow uptick of the general economy has prompted some firms to add employees.
No. 5 Minnesota-based RSM McGladrey Inc. was the list’s top gainer increasing workers 18.5%, or 25 positions, to 160 workers.
“We had trimmed our staff the year before,” said Don Natenstedt, executive managing director at the Irvine office. “We’re been hiring on the uptick in the economy and starting to fill up with some projects.”
The employment numbers also include Costa Mesa-based McGladrey Capital Markets LLC, McGladrey’s mergers and acquisitions arm.
KPMG also bucked the trend of shedding workers by increasing its workforce by 4.2%.
“Our headcount is up a little bit,” said Dean Samsvick, managing partner of the Irvine office of KPMG. “We are starting to see some improvement in areas where companies ratcheted back in discretionary spending.”
Local clients include Lake Forest-based disk drive maker Western Digital Corp., the U.S. arm of Japan’s Mazda Motor Corp., Brea-based medical device maker Beckman Coulter Inc. and Irvine’s Taco Bell Corp., part of Louisville, Ky.-based Yum Brands Inc.
Companies that last year hit the brakes on discretionary spending for technology projects and business growth have started to pursue opportunities, albeit on a smaller scale, according to Samsvick.
“A year ago, clients weren’t spending any money on those types of project,” he said. “We’ve started to see some of that come back and companies, for the most part, interested in ways to manage cost.”.
