Sarbanes-Oxley reform again fueled employee growth for Orange County accounting firms during the past year.
But give the strong local economy a lot of credit as well.
Local accounting firms boosted employment by 11% to 3,890 workers during the past 12 months, according to this week’s Business Journal list. The gain is slightly higher than last year’s increase and tops the previous year’s jump of 8%.
Local firms saw their stable of certified public accountants grow 7% to 1,475 during the past year.
One note on the list: The Business Journal reclassified three former entries as management consulting firms. They are Resources Connection Inc., Jefferson Wells International Inc. and Goetzman Group (see story, page 29).
Just three of the 40 accounting firms on the list recorded a decline in OC employees. The Big Four,No. 1 Deloitte & Touche LLP, No. 2 Ernst & Young LLP, No. 3 KPMG LLP and No. 4 PricewaterhouseCoopers LLP,all posted gains.
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The OC employment gain outpaced the 7% increase the firms saw at their global operations during the past year.
Congress passed Sarbanes-Oxley legislation in 2002, requiring new controls and standards to help ensure companies are being forthright to investors and to reduce fraud.
The legislation has been a boon to the accounting industry, which helps public companies comply with the rules.
Some of the growth in work for Sarbanes-Oxley has begun to slow,though not decrease,in the wake of the big initial startup costs companies saw in 2004 and parts of 2005.
The strong OC economy also created more demand for accounting services during the past year, firms said. Companies are getting larger, spending money on consulting and looking to make moves to the public markets, accountants said.
Rick Rayson, managing partner at Deloitte & Touche in Costa Mesa, said the solid economy helped push up employment by 4% in OC during the past year. Deloitte & Touche easily kept its No. 1 ranking with 774 local workers.
Deloitte & Touche has seen a pickup in demand from startups and their venture capital investors, who want the accounting firm to help prepare young companies for an investment round, Rayson said.
The firm also has seen more demand for preparing private companies to go public, though many companies haven’t pulled the trigger on an initial public offering.
Unlike other Big Four accounting firms, Deloitte & Touche hasn’t spun off its management consulting business, which provides technology consulting, among other services.
Holding on to the No. 2 spot was Ernst & Young in Irvine, which saw a 6% rise in employment to 393 workers in OC.
That’s a healthy rebound from last year, when the company lost 4% of its workers, the only Big Four accounting firm to see a decline last year.
A key to Ernst & Young’s results was keeping employees from leaving, said Sally Anderson, office managing partner. Competition to hire accountants has been fierce during the past few years.
Salaries have increased to better reflect “market pressures,” she said. Ernst & Young boosted its training programs for young accountants.
Anderson also credited Sarbanes-Oxley work and gains in the economy for the employment gains.
At No. 3 was KPMG in Costa Mesa, which saw 3% growth in employees to 349 workers. KPMG’s gain follows a huge 19% expansion in workers a year ago.
“We are seeing some increases in the public offering type of work,” said Dean Samsvick, managing partner for KPMG in Costa Mesa. “It’s still not the work of the go-go days of the late ’90s, but we’re starting to see some uptick.”
Mergers and acquisitions work is expanding as well, Samsvick said.
Samsvick said a number of smaller companies have inquired about coming back to KPMG. That bucks a trend that began in the wake of Sarbanes-Oxley when smaller companies sought help from smaller accounting firms because the larger firms were swamped with work. He said it’s still too early to tell how many will return to KPMG.
PricewaterhouseCoopers in Irvine maintained the No. 4 spot on the list with a 17% jump in local employment to 340 workers. Its firm-wide growth was 7%.
The list’s biggest gainer by far was No. 5 Grant Thornton LLP in Irvine. Grant Thornton grew its OC staff by 66% to 211 workers.
The firm’s growth has been broad-based, with gains in audit, tax and business advisory services, said J. Scott Farber, partner-in-charge in Irvine.
The firm’s largest gain is from audit work, which is connected to Sarbanes-Oxley requirements, Farber said.
Grant Thornton beefed up its tax services in several areas, including international, benefits and state and local government.
Like other midsize accounting firms, Grant Thornton added clients when companies left the Big Four following Sarbanes-Oxley.
“We’re continuing to see opportunities in the marketplace for us to take on new clients,” Farber said. “I don’t think there’s a mass migration. I think there continues to be more of what I would call a normal level of activity.”
At No. 6 was Newport Beach-based Squar, Milner, Miranda & Williamson LLP, the top locally based accounting firm.
Squar recorded a 31% increase in OC workers to 130. Like Grant Thornton, Squar saw smaller companies flock to it after Sarbanes-Oxley.
“For years there were a number of companies we couldn’t even approach,” said Stephen Milner, managing partner of the firm. “That mentality is changing.”
No. 7 BDO Seidman LLP in Costa Mesa boosted employment by 19% to 120 workers.
The firm also has won work because the Big Four lost clients. It’s gained from general Sarbanes-Oxley work and growth in finance-related services.
But like many accounting firms, the challenge has been attracting enough workers,and keeping them once they join, said Christopher Tower, partner with BDO Seidman in Costa Mesa.
The firm has increased pay and bonuses and enhanced mentorship programs for young accountants with partners and managers. It’s handed out tickets to restaurants for dinner, theater and sporting events.
The firm also started a summer internship program for accounting students in addition to its traditional winter program.
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The Dreaded 404
The provision of Sarbanes-Oxley that has caused by far the most extra costs for companies and work for accounting firms is known as Section 404.
That section of the act requires companies to first review and report on their internal controls and then to upgrade them to standards laid out in the act.
The largest public companies had to come into compliance with Section 404 in 2004 and 2005. Smaller companies have lobbied the SEC to get their deadline extended to 2007 to 2008.
So, said Wayne Pinnell, managing partner of Haskell & White, “We’re plateauing, but with another wave coming.”
Noting that about 3,500 of the 16,000 public companies in the U.S. came into compliance last year, Pinnell said that leaves some 12,500 companies facing the coming deadline, and they’re the smaller public companies not necessarily using Big 4 firms.
,Roger Bloom
