Orange County’s biggest accounting firms have shed workers in the past 12 months amid slowing Sarbanes-Oxley work, nearly nonexistent initial public offerings and less demand for transaction business.
“It’s a volume issue for many firms,” said John Belli, managing partner at the Irvine office of No. 2 New York-based Ernst & Young LLP. “We are so tied to the business environment and the economy that our business practices are getting affected in different ways.”
Local employment at the 41 largest accounting firms here declined 7.4% to 4,000 people during the past 12 months, according to this week’s Business Journal list that ranks firms based here or elsewhere by local employees.
A year earlier, the largest firms here added 4% more workers.
Twenty of the companies on this year’s list, including three of the Big Four, showed declines in local employees in the past year, compared with only seven companies showing declines on last year’s list.
Seven firms added employees. Seven were roughly flat. Seven were Business Journal estimates.
The county’s accounting firms also shrunk their numbers of certified public accountants by 6.6% to 1,390.
Firms that long have relied on transactional work on real estate deals and mergers and acquisitions have found themselves looking for other avenues of business.
“Given the nature of our practice, we generate a lot of revenue based on clients doing transactions, capital raises, mergers and acquisitions,which there is not a lot of out there,” said Scott Appel, partner-in-charge at Irvine office of No. 28 Denver-based Hein & Associates LLP. “We’ve been relying more and more on our core services.”
Industry Shift
Many of the firms have shifted focus to better performing practices including consulting, advisory and audit practices, which help clients restructure capital and reduce costs.
But that crimps profits at firms as those practices aren’t as lucrative as work on public offerings and deals.
Restructuring, pre-bankruptcy work and helping with debt and cost cutting are some of the things firms have been doing for clients, according to accountants.
What accounting firms haven’t seen a lot of is government-mandated work.
For the past seven years, increased scrutiny from the Securities and Exchange Commission and the 2002 Sarbanes-Oxley Act were major sources of work for many.
“This was the first year in many years that there hasn’t been significant new legislation that drove increases in assurance work,” said Roger Weninger, managing partner of the Irvine office of No. 6 Seattle-based Moss Adams LLP.
That changing demand has affected the Big Four,No. 1 Deloitte LLP, No. 2 Ernst & Young, No. 3 PricewaterhouseCoopers LLP and No. 4 KPMG LLP,which dropped more than 100 workers among them in the past year (PricewaterhouseCoopers added two workers for 390 total).
No. 1 Deloitte is the biggest accounting firm here with 803 local workers, down from 870 a year earlier.
Unlike the other top firms, Deloitte didn’t break off its business consulting practice into a separate company and has 262 consultants in its total headcount.
“We still have our four business functions (under) one roof, which has been a very good thing for us in these challenging times,” said Rob Lucenti, managing partner at Deloitte’s Costa Mesa office. “There are certain niches right now that we’re seeing success with especially with people wanting to control costs.”
The firm’s local clients including clothing maker Quiksilver Inc. in Huntington Beach and retailer Paci-fic Sunwear of California Inc. of Anaheim.
No. 2 Ernst & Young saw its workers decline 4% to 403 workers.
Local clients include chipmaker Irvine-based Broadcom Corp., Irvine drug maker Allergan Inc. and Santa Ana-based Corinthian Colleges Inc.
Ernst & Young, among others, has seen the drop in work related to the changing tax laws, Belli said.
The firm is getting work related to local companies doing more business with companies around the world, he said.
“So many of the companies here in Orange County are very global in their reach and product sales,” Belli said. “They are dependent on those other economies to do reasonable well in order to do better back here.”
No. 3 PricewaterhouseCoopers was the only one of the Big Four to add workers with a 1% gain to 390 workers.
No. 4 KPMG moved its local operations and about 300 workers from Costa Mesa to the Irvine Spectrum in January.
“Most of the discretionary work has done down quite a bit, but there are some changing demands and we actually see some work coming back as the market stabilizes,” said Dean Samsvick, managing partner at the Irvine office of KPMG.
The biggest decliner on the list was the Irvine office of No. 6 Chicago-based Grant Thornton LLP, which saw a 40% drop in local workers to 120.
“The good news is that there was business,” partner Don Dahl said. “We always follow the money, but a lot of money is on the sidelines right now waiting.”
