Paul Smith, a tax partner, takes up the position of managing partner of Ernst & Young in Ireland this month, ‘the third largest accountancy and tax practice in the country’, he says. ‘It’s a time of great opportunity for us to play a central role in the enterprise economy.’
‘We want to be fully part of the entrepreneurial culture, getting closer to the people who are in interesting, growing companies, addressing their needs in a new way’, says Smith, with some relish.
How will clients and potential clients notice this change? ‘Well, it’s something we’ve already begun. It’s been evolving over the last five years, but we’ve really got it moving over the last 18 months or so. Our sponsorship of the Entrepreneur of the Year awards is just on sign of it. We’re also setting up an internet community for participants in the Awards Program - called EOYClub.com - which will be both a unique resource and network for the entrepreneurs in Ireland, the UK and then across world.
Intensive ‘float room’
Smith emphasizes his firm’s leading position in Ireland as having been the reporting accountant for 7 of the 12 recent high-tech company IPOs. ‘In the US, we are a leader in the high- tech IPO sector and we are bringing that here too.’
‘At the heart of our approach, we offer a business diagnostic service, especially geared towards companies who are up and running and now thinking about an IPO. One thing we do is what we call a half-day long ‘float room’. We invite a company’s CEO, financial management, chief technology people in for an intensive day of analysis of their business and the path ahead towards an IPO, their readiness for it and what they’d have to do to achieve it’.
This sounds like more than a reporting accountant would do, isn’t it more business advisory or even blurring into a corporate finance role? ‘The interesting thing about the ‘float room’ is that we have all the stages planned out in a timeline, with ‘who does what?’ set out, so that it’s quite clear this is where the lawyers come in, this is what the corporate finance adviser does. I don’t think we blur lines. Clients need clarity and this is what it’s aimed at.
Most of all, the ‘float room’ is about their business and its readiness for an IPO. ‘We have very interesting sessions looking at the business and also at the extent of upgrading for financial reporting and so on. Many companies need this upgrade, but it shouldn’t be seen as an impossible task. It’s not rocket science, but it has to be done to comply with SEC rules if there is a US aspect to the IPO.’
The advice and diagnosis sessions aren’t confined to accounting and reporting issues. ‘To comply with SEC requirements, businesses have to look at all areas. One company was in the float room and explained how the management shared all information with all employees - we had to tell them that their way of doing this would have to change to comply with strict SEC rules’.
Smith is keen to emphasise how the know-how transfer from E&Y in the US helps this service to Irish businesses. ‘First of all, they are not just Irish businesses or Irish IPOs. They are companies based in and started in Ireland, but they are international businesses, working in international markets, seeking international listings. It helps us a lot to offer detailed help to prospective IPO candidates that we know the SEC so well in the US, what it takes a dim view of, what will hold up a process. For example, any advertising at all in the run-up to a share offer will be looked on badly by the SEC. There are a lot of small details in dealing with the SEC and NASDAQ that it is very useful to know to keep the IPO process moving’.
Smith takes satisfaction that Dublin has had even more ‘float room’ activity than E&Y in London. ‘In the last two months, we’ve had eight float rooms for prospective IPOs, whereas in London there have only been two since the start of the year. This shows the increasing role that the entrepreneurial side is taking in our business and in Ireland’.
Going back to the question of upgrades in financial management skills, where do companies now get financial managers who can produce the quarterly reports, understand the accounting standards and issues, and manage company operations to deliver the output for a NASDAQ listing? ‘It is hard to find experienced people who have done it already. Sometimes they are attracted away from accounting practices - but we wouldn’t encourage that! Sometimes they are recruited from other companies. But I’d emphasis that in a good accountant at the company already can often rise to the challenge. As I said, it’s not rocket science, but a lot of detail and control.’
What common themes come out of the float rooms? ‘Each company is different of course, but you could say that most have a reasonably clear objective for what they want to achieve for their businesses, but are often a bit of a muddled on how to get there. And non-one would expect them to know all the details about the path to an IPO. They are technologists mainly, not accountants or corporate finance people. So we help them fill in that knowledge gap of the process of getting to achieve their objectives.
E-testing, testing
Another growth area, away from strict tax and audit, for Ernst & Young in Ireland that Smith wants to emphasis is e-business assurance. ‘This is something that our colleagues in the US have developed very well and we are now doing here too. We offer the service of testing rigorously a client’s e-business security and systems, the ‘attack and penetrate’ mandate to see it the business is secure from real hackers.’
Isn’t that an unusual thing for a firm of accountants to offer? ‘Yes, but it shows that we are in the business of offering business assurance. Basically, to add to the assurance of a signature to the accounts, we are offering clients the assurance of a ‘signature’ to their websites to assure their web customers that the site is secure for e-business. If it’s not secure, we offer advice on how to implement policies and systems to make it so.’
Is it a bit scary to have people on the staff who are capable of wreaking havoc on clients business systems? Smith chuckles, saying it’s better to have them in the tent than outside. ‘I suppose it demonstrate the high degree of trust between ourselves and the client.’
Practice management
Does the amount of systems, business advisory and assurance work suggest that Ernst & Young is working in areas that its former management consulting arm, sold to CapGemini, is also working in? ‘No, we keep it separate from the idea of building a system or business strategy, which is where the CapGemini/Ernst & Young business is. Part of the sale agreement was a non-compete clause and we stick to that. I think the areas are quite separate.’
How is the relationship with Ernst & Young internationally? Will there be a closer integration of the constituent partnerships? ‘First of all, we are not a single organisation like Arthur Andersen. But in North America, we’ve seen the US, Canadian and Mexican practices coming together. This hasn’t happened in Europe yet’, says Smith.
But isn’t closer integration the trend? How long will it take for Europe? ‘Yes, I think so. Certainly within five years. There will be closer collaboration all the time. The final shape is not clear at all yet.’
Would Ireland be a winner or loser from this? The size of the Irish practice would seem to suggest that it would not carry much weight in a globally or European integrated firm. Smith says there are potential downsides, but practically speaking, Ireland is surprisingly well-placed. Why? ‘The link at the level of the economy for foreign investment and entrepreneurial activity between the US and Ireland makes Ireland an important place within the European economy and therefore within a European practice.’
Irish regulatory environment
The recommendations of the Review Group on Auditing are being examined and thought over by all accountancy firms and the professional bodies. Smith says most of the recommendations were sensible. At the high level, he says, the national interest is that there should be a well-regulated and well-qualified body of professional advisers whose mandate in law and regulation is clear. The role of professional advisers who operate at the highest world standards is pivotal as an enabler of new business and new investment in Ireland, he says.
The relationship between professional tax practices and the Revenue is pivotal. It is a mixture of adversarial and co-operative, and I think that in the past the Revenue managed that relationship very well. In the upcoming re-organisation of the Revenue, the need for a productive relationship with professional advisers mustn’t be lost sight of.’
‘In summary, there are a lot of changes to our business and changes in the environment. The boundaries between professional practices are changing, although I don’t think that law firms will ever be able to offer the depth and breadth of tax advice that we do. Still, there are great opportunities in an enterprise economy for all areas of business and professional advice. I am very optimistic.’ |
