Economy, Negativity Is Positive for Some Accountants

The down economy has left a high number of disgruntled investors wondering where their money went; heaps of bankruptcies; contract disputes; companies in desperate need of financial restructuring and business owners significantly more cautious and suspicious abut their money. All of these have fueled growth in the fields of forensic accounting and litigation support and boosted activity for accountants specializing in turnaround situations. “As a whole forensic investigation and litigation continues to be a growing area, we’ve certainly seen a lot of calls from disgruntled investors, we’ve seen disputes and transactions that have gone sour,” said David Connelly, partner at SingerLewak. Connelly, who is both a CPA and an attorney, leads the firm’s FABVLS division, which stands for forensic accounting, business valuation and litigation support. Among other things, accountants in this division scrutinize and investigate and make sure the financial representations being made in a dispute pending litigation are in fact accurate. This division also focuses on royalty and participation audits for clients in the media and entertainment industries. This field has been growing at an accelerated pace. “In our practice where we really expanded in the last year and a half has been in this film profit participation and royalty audits practice area,” Connelly said. “That’s been a real pleasant surprise that has led to more opportunities than I had envisioned. At least 50 percent of the cases that are coming to me these days deal with royalty or participation issues.” This boom may be driven by a desire to recoup in this economy, said Connelly. Checking for accuracy Companies that license a brand are looking to verify that the sales upon which their royalty is based are accurate. Similarly, actors, producers, directors and other entities that have participation rights on the profits of a particular film or television project are looking to hire an accountant to go in and examine the reported receipts and distribution expenses for that particular project. “I think there is a demand for these services because there’s been a shift to back-end deals in the industry and also because there are few firms that provide these services and those that do seem to have a backlog, it takes in some cases years for them to get started on a profit participation assignment,” he said. “Industry-wide my suspicion is there is a need in this economy to get the most out of your dollar, so people are hiring accounting firms to identify assets.” Miller Kaplan Arase and Co, LLP. is also seeing significant growth in its royalty and licensing group working with clients in the music field, and TV and film industries who are requesting audits much more than they had in the past. Beyond royalties and licensing, high net worth individuals are also increasingly asking Miller Kaplan Arase and Co. accountants to audit key people handling their finances. Effect of Madoff “For instance, attorneys, agents, managers and so forth will call me and ask me if I can audit a business manager for one of their clients,” said partner Michael Kaplan. “All this comes to pass because of the Bernie Madoff scandal, and other investment scandals we’ve heard about in the last couple of years, so that area of our business has grown quite a bit too.” The economy is also boosting turnaround activity at accounting firms. Tim Skillman, a principal and practice leader of Grant Thornton’s corporate advisory and restructuring practice in Los Angeles, said the division grew dramatically from two turnaround professionals in 2008 to ten professionals today. As the number of financially and operationally troubled companies has increased, so has the demand for Grant Thornton’s services. Skillman’s team specializes in developing and implementing viable turnaround strategies for manufacturing, distribution and financial services companies. Skillman helps clients manage cash flow; operations and employee relations among other things. “We are very unique. There are very few firms like ours that focus on middle market companies and have the ability to provide the resources needed to help businesses with their turnaround,” Skillman said. And there is still a lot more restructuring to be done in the next years even as the economy begins to recover, he said. “Banks have been reluctant to force change upon their borrowers, instead they’ve simply amended credit agreements under the expectation that when the economy recovers a rising tide will float all boats,” said Skillman. “Demand for our services will improve as these banks get healthier and are therefore able to be more aggressive with their troubled borrowers.”