By MICHAEL LYSTER and KATE BERRY
When is an accounting firm not an accounting firm?
If the company is Jefferson Wells International Inc., one of the fastest-growing financial consulting firms in the country.
The matter boils down to semantics.
The Brookfield, Wis.-based company, which counts about 175 Orange County employees, is restricted from calling itself an “accounting firm,” even though it provides accounting services and the majority of its employees are certified public accountants.
The Irvine office of Jefferson Wells ranked No. 6 on our accounting firms list last year. But don’t look for it there this time around (see list, page 33).
Jefferson Wells, which once made a compelling case to be on our accounting list, no longer considers itself an accounting firm. Instead, Jefferson Wells calls itself a “professional services firm.”
Unlike the Big Four accounting firms, Jefferson Wells specializes in internal audits,independent appraisals of a company’s operations that became the missing link in the financial reporting scandals of the past decade.
Enron Corp. and the demise of Arthur Andersen were the direct result of accounting firms taking over the internal audit functions of some clients. At the same time, they provided external audits for clients, effectively auditing their own work.
This year, we’ve removed Jefferson Wells from our accounting list.
For consistency, we also took off a couple of others, Costa Mesa-based Resources Connection Inc. and Irvine’s Goetzman Group.
Those companies provide internal auditors or accountants on a project basis.
We’ve included the companies on our management consulting list (see page 30). Granted, they’re an imperfect fit.
Jefferson Wells even declined to provide numbers for the management consulting list, insisting the company should be on a “professional services” list, a category that’s too broad for an effective list.
Too Big To Ignore
Yet Jefferson Wells, Resources Connection and Goetzman were too big to leave off any list, leaving us to settle for management consulting as the compromise.
The firms weren’t a clear fit on our accounting firms list either, prompting many complaints from accountants at other firms on the list.
This year, the firms on our accounting list are licensed by California’s State Board of Accountancy.
Jefferson Wells had to change its name three years ago,it used to be called AuditForce,because it ran afoul of regulators in Texas.
The name change came at the same time that Jefferson Wells saw a surge in demand for its services with the Sarbanes-Oxley Act in 2002.
Section 404 of Sarbanes-Oxley requires public companies to have a separate, outside auditor who can certify its internal financial controls.
“We offer internal auditing, which is helping companies audit their own results so they can, with confidence, offer them to a CPA firm for attestation or certification,” said Debbi Frazier, the Irvine-based managing director of Jefferson Wells’ Southern California offices. External audits were “something we never wanted to do anyway, and we’ve always thought there was value in a company offering internal audit services that were free of conflict.”
The company’s Southern California offices saw revenue of $30 million last year and net income of $8.7 million.
Big Four Referrals
After Sarbanes-Oxley, many of the Big Four accounting firms that put their stamp on external financial statements sent to the Securities and Exchange Commission started referring their own clients to Jefferson Wells for internal auditing work.
The Big Four don’t see Jefferson Wells as a direct competitor since it doesn’t do external audits. That’s also why Jefferson Wells can’t legally call itself an accounting firm.
Texas Case
William Treacy, executive director of the Texas State Board of Public Accountancy, which regulates accountants, said Jefferson Wells paid a $30,000 fine in 2002 and changed its name from AuditForce because the word “audit” in its name was misleading.
The company does not meet the requirements to call itself an accounting firm in Texas, or in many other states, because accounting firms must be majority-owned by certified professional accountants and structured as a partnership.
Jefferson Wells was “very cooperative” with Texas regulators, Treacy said.
The company never has certified financial statements, nor does it plan on doing so in the future.
The main problem it has encountered is that state regulators insist it cannot advertise or market itself as an accounting firm.
On the Web and in marketing materials, Jefferson Wells calls itself a “professional services firm that specializes in financial controls.”
Berry is a staff writer with the Los Angeles Business Journal.
