Three of the Big Four firms – KPMG, Deloitte and PricewaterhouseCoopers – have elected new Managing Partners this year. We talk to KPMG's Terence O'Rourke.
In the first of a new series, Accountancy Ireland talked to Terence O’Rourke, Managing Partner of KPMG, who took up office in January. Readers can listen in on the full interview at
here.Accountancy Ireland (AI): Can you define what the role of the Managing Parter of KPMG involves?
Terence O’Rourke (T.O’R) “In a partnership, the partners are the owners of the firm but they are also the key executives. The managing partner is elected and the role is to set the strategy, to monitor performance, to make sure everything is going well in the firm, and to report back to your fellow partners. So they’re my bosses and I’m their boss as well. It’s a strange situation but it’s enjoyable.”
A.I. Do you still have time for clients?
T.O’R “I have been an auditor for most of my career in the firm and I’m just doing my last audits at the moment. In future, I won’t have audit responsibility in terms of signing
audit reports but I will continue to work closely with clients. It’s a very important part of the managing partner’s role to make sure that our service to clients continues to be of the required standard and that they are happy. It is also important to keep in touch with what the issues are with clients. So I will attend some client audit committee meetings and I will be keeping a finger on the pulse so that I know what is going on.”
A.I. Are you working more these days?
T.O’R “I’m not sure about that. It’s different rather than more, I’d say. I spend less time on detailed file work and more time meeting with people internally in the firm, meeting clients, dealing with KPMG internationally, and dealing with government and other bodies.”
“I have found the last six months absolutely fantastic. The energy in an organisation with 1,600 very smart people who are always seeking to do their best to develop themselves, to provide top class services to our clients, is very stimulating. All the time, you are kept on your toes by new initiatives, people coming wanting to do things, issues arising
with clients, and so on.”
A.I. Have you introduced any new initiatives?
T.O’R “Yes, for example, I am restructuring our advisory units so that they will work together rather than be small individual units. The idea is to further develop the skills of our people and to be able to help our clients on a broader range of issues by using all the special skills we have in the various units.”
A.I. Do you have much to do with the other Big Four firms?
T.O’R “We meet from time to time but because of competition issues there is a limited number of topics we can talk about. We share views on matters like the content of the training that young Chartered Accountants get and whether the syllabus of the Institute of Chartered Accountants in Ireland (ICAI) reflects marketplace require ments. We also talk about issues that affect the profession like auditor liability, audit regulation and so on.”
A.I. There have been some significant mergers among the mid-tier firms this year. Are you looking over your shoulder in terms of competition?
T.O’R “One of the recent issues is that people are questioning whether four big firms is too few – especially in the context of auditor liability exposures. Competition is always a good thing and the Big Four compete fiercely against each other. There are audit tenders and we often come across what you might call the next tier – the Grant Thorntons,the BDOs, the Mazars – they are very good firms and they are growing, and we are pleased to see that growth. The marketplace will decide who gets the work but the answer to your question is that we have a lot of respect for our colleagues in mid-tier firms and weare keeping an eye out for them.
A.I. How would you define the difference between mid-tier and the Big Four?
T.O’R “It comes down to scale. Each of the Big Four would be able to provide a fully comprehensive range of audit, tax and advisory services and also very strong international networks. The big multinationals tend to look for the scale and scope of service that the Big Four firms have. Some of the firms in the next tier have very good offerings but perhaps wouldn’t have quite the same consistency and scale of service to offer to the biggest companies.”
A.I. You have mentioned auditor liability a number of times. Why is the accountancy profession lobbying so strongly on this?
T.O’R “Auditors in this country are one of the few professions that can’t operate in the form of a limited liability company, so all the partners’ assets, their houses and everything else are on the line every time we sign an audit report. The typical situation when companies get into trouble is that they sue the auditors and the value of the suit can be billions. What we are saying is that this is not sensible and it could actually bring down one of the Big Four firms. It is also unfair in terms of how the risks and rewards are shared in businesses. Our argument is that in order to protect the very important public matter of sound financial reporting, audited by high quality people, it would be sensible to have some limitation of liability.
“It has happened in the past that a company has collapsed, the directors have gone and the auditors are the only ones left to sue, so they get sued. The problem may not have been their fault – they might be responsible for 5% of the company’s losses, but because of joint and several liability they end up paying for 100% of the losses.
“We want to see a fairer regime and we believe that would be good for the Captial Markets.
“We’re very glad to see people like Charlie McCreevy, the European Commissioner, supporting change. The European Commission has recently had a consultation and the feedback has been very good. Lots of investors and shareholders have said ‘yes, we can see the point of this, let’s work on it’. There are different views on how to do it but there is a responsive view in the marketplace. It is not just auditors who are saying let’s deal with the auditor liability issue.”
A.I. And how long do you think it will take for reform to come about?
T.O’R “I think its pretty close. Australia has done it. The US has also been advancing thinking on it as well and I think the framework that Charlie McCreevy is putting in place in Europe and the new Directive on Auditing will help. So, we expect over the next 2-3 years that sensible liability laws will be put in place in the different countries. In Ireland, Minister Michael Ahern has asked the Company Law Reform Group to look at the issue and I believe there is good work being done there at the moment.”
A.I. IFRS has been another big issue. Why was it important to have such a major change in the accounting bible?
T.O’R “Financial reporting is crucial for the global capital markets. When people make money or save money, they want to invest it. Sometimes they buy shares themselves, but a lot of the time their money goes into pension funds and the pension funds buy the shares. All the information about where your money is going and how its doing depends on the performance of those companies you have invested in, and those companies tell their shareholders how they are doing through their financial statements. So it’s very important that the financial reporting is clear and that investors can understand what’s going on. They should be able to pick up a set of accounts from a Japanese company or from a German company and understand them. The global capital markets have not been very co-ordinated up to now so you would get different information from different countries. IFRS is about making sure that you can understand the financial accounts from a German company, the same as a Dutch company, or a Japanese company, or a South African company. It is very important to have a form of financial reporting that everybody can use and you can decide to make your investment decisions and see where you are going to put your money clearly and without the disparity of different reporting standards. Globalisation and information technology mean that you can get information very quickly from all round the world so financial reporting needs to reflect that.”
A.I. Turning from the Global Markets to the local economy, how do you think the Irish economy is doing at the moment?
T.O’R “You see lots of stories about the shakes in the Irish economy but I believe that our economy is fundamentally strong. I’ve heard it said that the Irish economy is set to grow at a stronger rate than the European countries for the foreseeable future and I believe that. We’re not seeing any decrease in the amount of transactions that our clients are involved in or in the amount of advice that clients are seeking. Irish people have made a lot of money in recent times and they are busy now working out how to invest that money and how to grow further value in the Irish economy. KPMG’s pulse on the market is that things are going well in Ireland at the moment and while there may be some clouds on the horizon, the reality is that business is getting on with it at the moment and is continuing to perform strongly.”
A.I. “So what would you say to the scaremongers?”
T.O’R “Most of the concern is about property prices and property collapses. Obviously, the rate of new house construction in Ireland couldn’t keep on going but there is a lot of money going to be spent on infrastructure over the next few years. The issues for Ireland are competitiveness and making sure that our tax regime is sensible. We’re not going to be making furniture and clothes any more, we’re at the high end of the value chain now. Our job as an accounting profession is to help companies as they develop their plans and innovate. KPMG will be right there with those companies as they continue to grow their businesses and help to maintain and develop the Irish economy into the future.”
These comments about auditor liability are interesting. Good article. Thanks!!