Aurelia Butler

Top US companies managed to hold increases in audit fees below the rate of inflation last year, adding to the squeeze on large accounting firms whose consulting arms have slowed down.The total fee haul from companies in the S&P 500 index was $5.3bn for audits of the 2022 financial year, according to data from Ideagen Audit Analytics, just 3.2 per cent more than in 2021.That compared to a 6.5 per cent headline inflation rate in the US, and defied predictions that fees could rise to accommodate higher salaries in a profession where qualified accountants are in short supply.Executives and researchers cite multiyear contracts that have locked auditors into lower fees and pushback from clients at a time when companies are also wrestling with rising costs.PwC, which makes the largest total of audit fees from S&P 500 clients among the Big Four firms, brought in $1.9bn in 2022, according to Audit Analytics, no more than the previous year.Deloitte, which won T-Mobile US as a client from PwC midway through the year, increased its total by 8 per cent to $1.2bn, pulling closer to EY, which audits the largest number of S&P 500 companies and brought in $1.5bn, 5 per cent more than in 2021. KPMG’s fee haul was $739mn, up a little less than 2 per cent.Audit fees have now fallen in real terms for three years. They fell for the average US company in absolute terms in 2020 when the pandemic hit, and the benefits to the Big Four of a small rebound in 2021 were wiped out by soaring inflation, according to Audit Analytics data.Dillon Papenfuss, director of research at Financial Executives International (FEI), which represents chief financial officers and corporate treasurers, said audit firms would likely push for shorter contracts in the future, so they can more quickly pass on cost increases to clients. Changing audit firm on a regular basis is not mandated in the US, and the complexity of switching firm gives the incumbent a strong negotiating hand. But IT improvements have also had an effect on fee negotiations, Papenfuss said. Companies have digitised more of their finance functions, so can argue external auditors do not need to do as much work to check the accounts, while audit firms, too, have improved their technology and companies have pushed for a share of the efficiency gains, he said.“Companies view audit fees as a compliance cost, rather than a value-add,” said Jeffrey Johanns, a former Big Four audit partner who teaches accounting at the University of Texas at Austin.Inflation and threats of recession have led companies to focus more heavily on costs in the past year, and executives have been putting significant pressure on all kinds of professional fees.Consulting firms have borne the brunt, as clients rethink the value of projects, pausing or even axeing significant amounts of work.Deloitte, EY and KPMG have all announced staff cuts in the US this year, following a slowdown in parts of their consulting arms, and KPMG last week announced a second round of lay-offs that would extend into the audit side of the business.Audit fees are disclosed in US companies’ proxy statements ahead of their annual shareholder meetings, which have occurred in the past two months at most S&P 500 companies. The average masks significant increases and decreases at some companies, which can reflect changes to the scope of the audit based on M&A activity or other factors.Companies and auditors alike had expected 2022 could mark the beginnings of a shift in fees. Audit Analytics said in its annual fee study last October that auditors might need to increase rates to reflect the extra complexity of new accounting rules. FEI said in November that “demand for qualified accounting and finance talent continues to increase, as do increases in wages across the accounting profession . . . and we anticipate they will be a key driver in the changes in audit fees in future periods”. More

Practical focus: Céline Cheval-Calvel’s DBA allowed her to study green issues in procurement while working in the watch industry © Alex Stephen TeuscherHaving spent several years working for iconic luxury brands, Céline Cheval-Calvel has observed a problem with the watch and jewellery industry’s sustainability programmes. Most of the carbon emissions come “upstream” in the supply chain, from sourcing raw materials and manufacturing components. Yet many procurement managers struggle to ensure “responsible purchasing”, or making buying decisions that take into account not only the price and quality of raw materials, but also their effects on society and the environment. “When responsible purchasing is managed poorly, suppliers see it as commercial hypocrisy. So the final effect is zero,” says Cheval-Calvel.Now a commodity purchasing manager at Audemars Piguet, a luxury watchmaker in Switzerland, she decided to investigate this issue further — but not through a traditional PhD. Instead, she chose to pursue a doctorate of business administration (DBA) because of its emphasis on applied research and solving real-world business problems. It was also structured to accommodate her career, allowing her to continue working at Piguet while pursuing the degree. Cheval-Calvel opted for the Business Science Institute’s Executive Doctorate in Business Administration, a programme designed for executives with an MBA and at least five years of management experience, run jointly with France’s IAE Lyon School of Management. Students receive the DBA from both institutions. Between 2019 and 2022, Cheval-Calvel acquired strong research skills that enabled her to study the watchmaking supply chain in Switzerland under the supervision of an academic tutor. By interviewing 60 stakeholders, she noticed that buyers lacked the competencies needed to source responsibly, including knowledge of the traceability and origin of raw materials. That made it hard for buyers to work together with suppliers to clean up the supply chain. But, rather than seek to merely publish her findings in an academic journal, as many researchers do, Cheval-Calvel decided to apply them in practice. She created a training and consulting organisation called Buyer Beware that educates purchasing managers and encourages responsible procurement. “A decade ago, purchasing managers were seen only as cost killers, but now they are having to tackle sustainability along the value chain,” she says.

Her practical focus is typical of many DBA candidates, according to the business schools that train them. Executives are often drawn to DBA programmes because they are eager to address challenges within their industries systematically through applied research.“They are very good at spotting opportunities,” says Brecht Cardoen, director of the DBA programme at Vlerick Business School in Belgium. “They have access to data and industry perspectives, which ultimately increase the practical relevance of the research question.”Moreover, their seniority at work means DBA candidates have the resources to not only originate, but also implement their research. “Of all degree programmes, the DBA is probably the best place to transmit research into practice because of the nature of the students,” says Fabio Fonti, the associate dean for faculty and research at Neoma Business School in France. “DBA candidates are typically senior managers who have the authority and network to build on the research to help nurture better businesses and societies.” By contrast, PhD candidates are typically younger — and many choose to pursue an academic career, notes Jinnie Hinderscheit, marketing and business development manager for doctoral programmes at Grenoble Ecole de Management in south-eastern France. DBA candidates often pursue consulting, providing organisations with advice based on their thesis. “They serve as a vital bridge, connecting the business and research communities, and facilitating positive change,” Hinderscheit says.Indeed, roughly half the Business Science Institute’s executive DBA candidates have a thesis that is linked to the UN’s Sustainable Development Goals, according to Michel Kalika, the institution’s president. It is mandatory for them to include a chapter on how the research can be useful for business and society, and while he also encourages them to publish books or articles in publications aimed at people in business. “The main issue in management research is the gap between the business world and the academic world,” Kalika says. “The explanation is that we encourage researchers to publish only in academic journals. But we all know that many business leaders don’t read them.”

This gets to the heart of a debate among academics about whether research should be more relevant, not just rigorous. “If it’s not applicable, what is the value of it?” asks Anastasiya Saraeva, DBA programme director at Henley Business School in the UK. “True theories only make sense when we apply them to the real world. If we don’t, it’s just a graph on a bit of paper.” But she adds that practitioners need to engage more with researchers, if the output is to be more applicable.Other academics stress the importance of cutting-edge theoretical contributions. “It’s still important to have research that is theoretical, to advance the frontier of knowledge,” says Fabrizio Castellucci, director of the DBA at SDA Bocconi School of Management in Milan. “There is still room for pure academics.”But many DBAs, such as Amanobea Boateng, see their research as merely the foundation for wider societal impact to emerge. Boateng founded the Women’s DNA Fund and its non-profit foundation in Ghana to help women entrepreneurs succeed by improving their business acumen. The initiative grew from her research while pursuing the DBA at Grenoble between 2012 and 2016. It showed that entrepreneurship can help alleviate poverty in deprived communities.“Those findings were simply too important to leave in a folder on a shelf,” she says.  More

Cyber insurance rates more than doubled in 2021 during the COVID-19 pandemic, driven by a rise in so-called ransomware attacks, Howden said.Ransom software works by encrypting victims’ data and typically hackers offer victims a pass code to retrieve it in return for cryptocurrency payments.But the number of global ransomware attacks fell by 20% in 2022 from a year earlier following the start of the conflict between Russia and Ukraine, as hackers in those countries focused on the military effort, Howden said.Insurers have also demanded their clients do more to protect themselves against attacks, lessening the risks and encouraging underwriters into the market, after a period of nervousness. “Everybody is back with appetite for writing cyber insurance,” said Shay Simkin, global head of cyber at Howden. Increased competition has contributed to lower rates, Howden said.Cyber insurance premiums totalled more than $12 billion in 2022 versus $10-11 billion in 2021, Simkin said, and Howden forecasts the market to increase to around $50 billion by 2030, given the size of cyber crime.Ransomware attacks rose 47% in the first quarter from a year earlier, as hackers focus once more on commercial gain.”At the end of the day, they need to make money,” said Simkin. More

China’s new central bank head Pan Gongsheng is set to take the helm at a critical moment for the world’s second-largest economy, as it fights to reset a post-Covid recovery that looks increasingly unsteady despite relinquishing some of its powers in a regulatory shake-up.Not only has the PBoC’s authority been weakened, with some supervisory functions hived off to another regulator, but China’s economy is suffering from weak investor confidence that many experts believe cannot easily be remedied by monetary policy. Analysts said the technocrat’s appointment this weekend as the PBoC’s powerful Communist party chief — he is expected to soon also be given the more public additional role of governor — was nevertheless welcomed by market participants because of his extensive experience in the sector and western contacts and training.“The consensus seems to be that Pan is the path of least resistance, as he represents policy continuity,” said Carlos Casanova, senior Asia economist at Union Bancaire Privée. Pan takes over from Guo Shuqing, the PBoC’s former party chief who also served as head of the country’s banking regulator, and is set to replace Yi Gang, the outgoing governor who has held the role for more than five years. Both are respected technocrats who were expected to be replaced in March when Xi Jinping embarked on an unprecedented third five-year term as president, but were retained in an apparent move to shepherd through financial sector regulation. 

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One immediate challenge for Pan is a mounting debate over the timing and scale of monetary policy stimulus to boost China’s flagging recovery, with a range of indicators from manufacturing activity to exports losing steam in the second quarter. Despite minor interest rate cuts, Beijing has been reluctant to follow the example of central banks in developed countries by sharply easing monetary policy. Analysts cautioned that despite Pan’s international training, his appointment would not signal a radical shift in monetary policy. Publicly, Pan has defended the central bank’s current stance to “keep a normal monetary policy” and “not make dramatic changes to interest rates”.Aggressive monetary stimulus might not even necessarily spark a much-sought-after revival in demand, said Arup Raha, chief Asia-Pacific economist at Oxford Economics. He said Beijing’s strategy was to target credit to certain areas and reduce interest rates to soften the blow for some creditors until the global economy picked up.“It’s more of a cushioning exercise going on now,” he said. “They are in a situation where you could cut interest rates as much as you want but the demand has gone and it’s not certain that it will turn the economy around.”

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The PBoC’s policy limitations are due to more than just economic issues — changes in China’s financial regulatory landscape have also stripped the bank of some of its former powers, experts said. Under reforms in March to China’s financial regulatory structure, the government reduced the PBoC’s responsibilities to focus on the traditional functions of a central bank: monetary policy, financial stability and foreign exchange.Under Guo and Yi, the PBoC had expanded its mandate to include digital payments and cryptocurrencies and other forms of credit such as property financing. The Chinese Communist party has always exerted close control over the country’s government institutions. The same officials often occupy senior roles for both the party and parallel government bureaucracy. But the PBoC’s policymaking ability will be further constrained by Xi’s efforts to consolidate the party’s direct oversight over the financial sector, establishing a new Central Financial Commission.

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The CFC, an overarching Communist party body headed by vice-premier He Lifeng and veteran state banker Wang Jiang, will supervise all financial watchdogs, giving institutions such as the PBoC less sway in formulating policy.People who interact with Yi Gang said that in the past, he and his immediate boss in government, former vice-premier and economic chief Liu He, made most of the important decisions on monetary policy.Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, said that now, however, China’s financial and market regulatory landscape was at an “impasse” as the party leadership was increasingly taking control from state institutions. “It doesn’t really matter who leads the PBoC,” said Herrero. “It is the party running the show.“Whether it is Pan Gongsheng or another, he will do what is expected of him. The fact that we have not had any stimulus yet, despite the poor data, shows that nobody wants to take risks.” 

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Those who have met Pan, who has held research positions at Cambridge and Harvard universities and undertook training at UK-headquartered Standard Chartered Bank, said his focus was more on “operations”, such as managing international reserves and exchange rates, while Yi was more experienced in macroeconomic issues and monetary policy.Still, the appointment of a pragmatic official with wide-ranging experience in financial regulation has helped reassure markets rattled by China’s lagging recovery. “[Pan’s] experience will be instrumental in steering the PBoC through the next leg of stimulus and should be supportive of the yuan [exchange] rate in the medium term, although we can’t exclude the possibility of additional depreciatory pressures in the short term,” said UBP’s Casanova. The renminbi has been under pressure this year against the dollar as the US has raised interest rates. 

Casanova forecast more support measures by July, including indirect mechanisms such as cuts to the reserve requirement ratio — the amount of cash banks must set aside — and balance sheet expansion, meaning more central government funding to support sectors in distress.“Pan appears to be a firm believer in the idea of gradual and targeted opening,” said Chen Long, co-founder of Beijing-based consultancy Plenum.“Nobody would think his appointment heralds a sudden opening of China’s capital market, but the good news is, under Pan’s leadership, the PBoC is unlikely to take steps backward.” More

The British Standards Institution, which commissioned the survey, said the results showed the need for employers and the government to take steps to help older women remain in the labour market.The poll of around 1,000 women aged over 18, which was conducted in May, found 29% expected to leave the workforce before retirement for reasons other than personal choice with 42% of them citing health or well-being and another fifth mentioning the menopause.Caring responsibilities and a lack of flexibility in work were both cited as barriers to work by about one in five respondents. “There are many factors that can lock women out of the workforce but there are also clear strategies to address this,” Anne Hayes, the BSI’s Director of Sectors said.Those strategies included providing support for workers experiencing the menopause and steps in other areas such as working flexibly and breaking down stigma, Hayes said.Britain is trying to boost the number of people in work after around half a million people left the workforce during the coronavirus pandemic, making it harder for employers to fill vacancies and helping to fuel the country’s high inflation rate.Some 32% of British women aged 50 to 64 were not in work or seeking work in the first quarter of this year, compared with 22% of similarly aged men, official data shows. For men and women aged 25 to 34, the comparable rates were 16% and 8%.The BSI did not survey men to see how their reasons for leaving the labour market as they age compared to women’s.More than half of the women surveyed by BSI – which provides standards on a range of products and services – said it would be hard for them to raise issues including menopause with their employers and three fifths would feel uncomfortable bringing up health and wellbeing issues with a male manager. More

LONDON (Reuters) – A lack of data on electric vehicle (EV) batteries continues to challenge insurers who are forced to scrap EVs after mild accidents, potentially undermining EV adoption, Thatcham Research said on Wednesday.The British automotive risk intelligence company cited a “concerning lack of affordable or available repair solutions and post-accident diagnostics” in a report entitled “Impact of BEV Adoption on the Repair and Insurance Sectors” the UK Government’s innovation agency Innovate UK funded to examine differences between EVs and fossil-fuel models.Insurers have complained that many EVs have no way to repair or assess even slightly damaged battery packs after accidents, forcing them to write off cars with low mileage – leading to higher premiums and undercutting gains from going electric.Batteries can make up half of an EV’s cost and Thatcham found a replacement battery can cost more than the used price of the vehicle after only one year, making replacing them uneconomical.Adrian Watson, Thatcham’s head of engineering research, said in an ideal world insurers could make informed decisions about whether to repair EVs or write it off based on access to data on its state of health after an accident.”The reality is that’s not the situation we’re in at the moment,” he told Reuters. “The diagnostics we have do not enable you to really know what the status of the battery is.”Only around 1.65% of cars on Britain’s roads are electric, but Thatcham said EV-related insurance claims are already 25.5% more expensive than for fossil-fuel equivalents and take 14% longer to repair. Due to their potential fire risk, damaged EVs awaiting repair must be stored outside at least 15 metres (49 ft) from other objects. An outside facility for 100 fossil-fuel cars today would have space to safely quarantine just two EVs, Thatcham said. More

We instinctively understand others through projection: by assuming they think and feel like us. Countries often make the same mistake in their foreign policy. At the heart of China’s relations with Europe over the past two years lies a cognition gap: its foreign policy elite underestimated the extent of European support for Ukraine.China’s international relations experts, dominated by a strain of realism that emphasises economic interests and power above values and political culture, largely assumed that the Ukrainians wouldn’t put up much of a fight. When they did, they assumed Europe wouldn’t want to pay for it or cut its energy dependence on Russia. As a result, Chinese elites also underestimated the damage done by Xi Jinping’s “limitless” friendship with Vladimir Putin to Beijing’s foreign relations.These elites have since come to understand the depth of European support for Ukraine. But they now explain it through the “return of ideology” in Europe. “The extent of the current bout of ‘re-ideologisation’ is more serious than that in the cold war,” warned Jiang Feng, the party secretary of Shanghai International Studies University in an essay last year, saying it had become a “confrontation at any cost”, for which “Germany would rather break off its own arm”.The dominant Chinese narrative says that ideology has confounded European abilities to assess their true interests. For example, Premier Li Qiang’s remarks on his first European tour last month suggested that he believes European companies would have no interest in de-risking their supply chains if it were not for the politicisation of the issue. But one person’s ideology is another’s principled belief. And if there is, indeed, a driving ideology behind European support for Ukraine, it is the value of peace, sovereignty and collective self-defence.Europeans can call an invasion an invasion. China’s historic suspicion of Nato means that its narrative has to be similar to that of the Russians: Nato is the aggressor, threatens Russia’s existence through eastward expansion, and provoked Moscow into a war of self-defence. To the average Chinese person, the salience of the 1999 US bombing of China’s embassy in Belgrade during the Nato operation against Yugoslavia is vastly higher than the salience of Ukrainian sovereignty.Since China reopened its borders in January after the end of its zero-Covid policy, a succession of political figures, diplomats and academics (often, in China, the three groups are elided) have travelled to Europe in an attempt to discover its thinking. Last year the Chinese narrative was one of Europeans sleepwalking into economic chaos. Now, Chinese observers believe they have an opportunity to weaken European alliances on Ukraine.I raised the topic during a recent Chinese embassy gathering in London between journalists and Chinese academics. One, Zhang Shuhua, from the Chinese Academy of Social Sciences, ventured that the extent of European support for Kyiv lay in the “ideas of politicians about democracy versus autocracy . . . but is Ukraine a democracy? Is it controlled by outside forces, or an oligarchy? This is debatable.” He added that some western politicians wanted to use the war as a pretext to topple Putin. This ideological approach to geopolitics, he said, is not good for world peace.The framing of a clash of systems is deeply troubling to China, which “wants a system where autocracies feel safe, rather than unsafe,” says Steve Tsang, director of the Soas China Institute. But this framing is more American than European: Ukrainian president Volodymyr Zelenskyy has captured it well in speeches to the US, describing aid to Ukraine as an “investment in global security and democracy”.Last month, China’s Li chose Europe as the destination of his first overseas trip, and softened Beijing’s habitually frosty language when talking to German businesses about “de-risking”. But the softness will not last. Beijing sees Europe as diplomatically useful only to the extent that it can be drawn away from the US. As a result, China’s European charm offensive rests on a strategy of divide and conquer.Beijing sees France as a prime target for this effort: President Emmanuel Macron caused consternation in European capitals when he remarked, in relation to Taiwan, that Europe must not be caught up in crises that are “not our own”. But what Macron may not realise is that China does not see Ukraine as “of Europe’s own”, and expects solidarity on the defence effort to splinter over time. Whether it does is down to Europeans to [email protected] More