Sarbanes-Oxley legislation again produced a blockbuster year for accounting firms in Orange County.
Local accounting offices boosted staffs by 10% to 4,014 in the past year, according to this week’s list of Orange County’s biggest firms. The results included two estimates.
The gain tops last year’s 8% rise and is the highest growth rate since Congress passed Sarbanes-Oxley accounting reform in 2002.
Only four of the 42 biggest firms on the list failed to at least maintain or expand its overall employee rolls. Local firms also reported an 8% rise in their stable of certified public accountants to 1,000.
Growth rates were steep at several firms.
No. 3 KPMG LLP in Costa Mesa added the most employees, 58, for a 19% boost in the accounting firm’s OC staff.
No. 7 Chicago-based Grant Thornton LLP in Irvine was the biggest percentage gainer with 51% growth while No. 10 Squar, Milner, Reehl & Williamson LLP of Newport Beach posted a 48% gain.
Employee growth wasn’t the only story for accounting firms here in the past year.
In the past several weeks, two of the Big Four accounting firms have seen two new managing partners take over local operations.
At No. 1 Deloitte & Touche in Costa Mesa, former managing partner Robert Grant recently retired after some eight years as the New York-based firm’s top local executive.
Rick Rayson, managing partner at Deloitte’s Phoenix operations, has been tapped to take over. He’s splitting time between OC and Phoenix but expects to complete the move in the next month.
Meanwhile, Dean Yoost, office managing partner at No. 4 PricewaterhouseCoopers LLP, plans to retire at the end of July after three years in the position.
Jim Kolar, a former tax partner in PricewaterhouseCoopers’ Los Angeles office, was named office managing partner in Costa Mesa.
The big accounting story was Sarbanes-Oxley and the work it created,though many firms reported growth from other practices.
In the past year, hundreds of publicly traded companies were forced to become compliant with Section 404 of Sarbanes-Oxley.
Section 404 requires companies to create, maintain and document internal controls that help check the accuracy of its financial statements (see related story, page 24).
Companies say they’re finding Section 404 is much more time-consuming than initially thought. That’s made it more lucrative than expected for accounting firms hired to do the work.
Deloitte reported growth of about 40 people for a 6% gain in OC.
“We have had significant growth in our audit practice, given partly to all the new regulatory requirements (of Sarbanes-Oxley),” Rayson said.
Rayson said Deloitte’s audit unit accounted for about half of its gain. Deloitte is the only firm among the Big Four that still does consulting.
The county’s second-largest firm,New York-based Ernst & Young LLP,bucked the growth trend. It lost 4% of its OC employees, or about 15 people, in Irvine.
The company’s employee trend “may not be completely reflective of the revenue growth,” said Sally Anderson, managing partner of the firm’s OC operations. “In general, the practice is growing in many areas.”
Anderson said the firm taps people from San Diego and Los Angeles for help, and is hoping to hire more people in the coming year. It boosted its certified public accountant roll by 2% in the past year.
Ernst & Young’s OC unit also called in more than 20 workers from global offices to handle some accounting projects in the past year.
Section 404 work spurred growth at KPMG, said Dean Samsvick, the firm’s managing partner in Costa Mesa.
“We have had to aggressively look to hire people who have experience,” Samsvick said.
He said New York-based KPMG has tried to retain employees through salary bumps and more flexible schedules.
PricewaterhouseCoopers posted employee growth of 5%, or 15 people. Kolar said the gain didn’t come just from Sarbanes-Oxley.
“Our growth is not confined,” Kolar said. “It’s really all areas.”
With the demands on the Big Four accounting firms, smaller national firms and large regional ones have picked up the slack. In turn, some of those firms have handed off work to yet even smaller firms.
“The Grant Thorntons,the second-tier firms (by size),have had a tremendous opportunity,” KPMG’s Samsvick said.
Grant Thornton rose three spots on the list thanks to its 51% employee gain.
“We’ve seen a number of situations where Big Four clients have come to us, and we have been successful in getting that new business,” said Mark Bagaason, managing partner for Grant Thornton in Irvine.
Squar, Milner, Reehl & Williamson also made a big jump on the list, rising four spots to No. 10.
“Most of our clients have come from the national firms, such as Grant Thornton,” said Steve Milner, managing partner in Newport Beach.
But the past year wasn’t all about Sarbanes-Oxley, Milner said. The implosion of onetime top firm Arthur Andersen caused companies to tap smaller accounting firms for work.
“The primary reason (for growth) is that companies that have never considered a local firm in the past are now very open to that,” he said.
No. 6 Brookfield, Wis.-based Jefferson Wells International Inc. held its position with growth of 5%.
“Last year Sarbanes-Oxley hit the market by storm, and we were positioned extremely nicely to capitalize on that market,” said Dave Gennrich, managing director of the company’s Irvine office. “It was handed to us on a silver platter.”
Jefferson Wells provides accounting staff on a project basis.
No. 9 Chicago- based BDO Seidman LLP also held its ranking on 16% growth.
“We’ve been expecting for probably two years that this deluge of clients would come,” said Chris Tower, Western regional partner for BDO in Costa Mesa.
