SOX, Economy Drive Accounting Firms; Challenge: New Talent

Ongoing Sarbanes-Oxley work and a strong local economy once again fueled employee growth at Orange County’s top accounting firms. 

Local accounting firms boosted employment 6% to 4,138 during the past year, according to this week’s Business Journal list. 

Firmwide employment grew 9% to 563,111 people. 

The county’s accounting firms grew their stable of certified public accountants 5% to 1,446. 

Only two of the 40 firms on the list reported declines in OC workers. Five were Business Journal estimates. 

The Big Four—No. 1 Deloitte & Touche USA LLP, No. 2 Ernst & Young LLP, No. 3 KPMG LLP and No. 4 Pricewaterhouse- Coopers LLP—all posted gains. 

Much of the gains seen at OC’s accounting firms stemmed from Sarbanes-Oxley, which was passed in 2002 after corporate scandals at Enron Corp. and Worldcom Corp. Sarbanes-Oxley, known as SOX, requires new controls and standards to help ensure companies are being forthright to investors and to reduce fraud. 

It’s bolstered the accounting industry with extra work in helping public companies comply with the rules. 

Section 404 is one SOX rule that’s kept local accounting firms busy. It requires public companies to examine and test their internal controls and hire external auditors to check their processes. 

Now, as smaller public companies are expected to comply with SOX this year, accounting firms expect work to remain strong, said Rick Poole, principal of No. 28 Stonefield Joseph-son Inc. 

Stonefield Josephson specializes in industries such as technology, entrepreneurial services and manufacturing and distribution. This year the firm grew its OC workforce 7% to 32 people. 

Rick Rayson, managing partner of Deloitte & Touche in Irvine, which held the top spot again, helped by its consulting practice, said SOX work has fueled the industry’s growth within the past few years. 

Deloitte & Touche, which has clients in the technology, real estate, financial services and manufacturing industries, grew its OC workforce 5% to 811. 

The firm has seen a lot of companies investing in becoming SOX compliant, especially in regards to internal documentation and testing, Rayson said. 

Deloitte & Touche has helped companies establish revised internal SOX testing standards, and has helped larger ones improve their compliance efforts, he said. 

“With increased experience and greater clarity from new guidance, our clients are now focused on deriving increased efficiencies and operational improvement from those investments,” Rayson said. 

Deloitte & Touche expects to grow its audit, risk services, tax and financial advisory services this year, Rayson said. 

A big issue for accounting firms: hiring workers.

No. 14 Haskell & White LLP in Irvine, which specializes in industries such as real estate, manufacturing and distribution and technology, said the accounting profession continues to deal with an aging workforce and a shortage of skilled workers for management positions. 

“The average age of partners in accounting firms is 50-plus,” said Wayne Pinnell, managing partner. “(This) coupled with the current short supply of management level personnel in firms could make succession planning difficult in the next seven to 10 years as firm owners explore their retirement and exit strategy.” 

A shortage of workers will most likely present opportunities for consolidation among accounting firms to help with the necessary growth, personnel and money needed to provide retirement for aging founders and partners, Pinnell said. 

Haskell & White grew its OC workforce by 7% to 78 employees during the past year. The firm plans to continue recruiting this year, he said. 

Michael Bertolino, new managing partner of Ernst & Young in Irvine, said the firm is focused on hiring more workers, though it’s become increasingly difficult to attract and retain skilled people. 

Ernst & Young grew its Irvine office 1% to 396 workers. The firm specializes in technology, real estate, healthcare, retail and entrepreneurial services. 

“We are facing a tight labor market,” Bertolino said. “The war for talent is very real, so we have to work harder to differentiate ourselves.” 

Earlier this year, Ernst & Young launched the first corporate-sponsored page on as a way to recruit, Bertolino said (see story, page 33). 

“In this market, we have to think differently about the way we recruit and retain our people,” he said. 

Bertolino came from Ernst & Young’s San Diego office and replaces Sally Anderson, who stepped down as managing partner earlier this month. Anderson will retire from the accounting practice next year. She headed the office for seven years and started with Ernst & Young back in 1984. 

No. 4 PricewaterhouseCoopers also saw changes in upper management. 

Knute Kurtz joined the firm as managing partner after serving as a partner at the firm’s Los Angeles office. James Kolar, the firm’s former managing partner was reassigned to head the Minneapolis office. 

PricewaterhouseCoopers added 7% to its Irvine office, rounding out its headcount to 365 people. 

Kurtz said the firm expects to grow its revenue 12% this year and should have single digit growth in 2008. 

This year’s decliners were No. 5 Grant Thornton LLP in Irvine and No. 23 Lesley, Thomas, Schwarz & Postma Inc. in Newport Beach. 

Both firms’ local operations’ headcounts declined 4%. 

“I don’t think the growth in headcount has been dramatic as we’ve seen in the past,” said J. Scott Farber, partner-in-charge of Grant Thornton’s Irvine office. “It’s reflective of the stable market for assurance service.” 

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