Governance and Leadership of Apple - Essay Example

Apple Auditing firms: PriceWaterhouseCoopers (PwC) Vs. Deloitte & Touche Apple Inc is seeking an accounting firm that will analyze and audit all its financial statements and operations. There are many global firms that offer professional service in the market today but there are those that many accept are good in their job. There are those referred to as Best Four and they include Deloitte, PwC, EY and KPMG. Among these, the top two are Deloitte and PwC. The two firms have recorded high revenues in the past financial years and have been expanding their market as well as services in order to meet customer needs. This analytical report reviews the two firms in order to come up with a more informed recommendation. The report analyses financial statements of the two firms in order to understand whether they have been successful in their operations. The client list is also analyzed to get a clear picture of the type of customers the firm deals with. The report has also made an observation on global presence of the two firms. By understanding the global presence, the report is able to review the benefits that come with that. In conclusion, the best alternative would be PwC. The firm has established itself globally and evenly in the regions of interest. The firm has also been aggressive in expanding its market share and customer operations by taking new member firms every year. With acquisition of new firms and mergers, the firm has ensured improved service delivery in a more efficient manner. The client list also has so much impact on the decision. Major global corporations that are world leaders in their industry are working together with the firm and this shows customer loyalty and confidence. Table of Contents Title Page................................................................................................................. 1 Abstract.................................................................................................................. 2 Table of contents..................................................................................................... 2 Introduction............................................................................................................. 3 Resources................................................................................................................. 3 Scope........................................................................................................................ 3 Limitations................................................................................................................ 4 PriceWaterhouseCoopers........................................................................................... 4 Governance and Leadership...................................................................................... 4 Governance structure................................................................................................ 4 Operations................................................................................................................. 5 Products and Services............................................................................................... 5 Numbers and Facts as of 2014.................................................................................. 6 Top Clients................................................................................................................ 6 Deloitte Touche Tohmatsu Limited.......................................................................... 7 Governance and Leadership...................................................................................... 7 Operations................................................................................................................. 7 Products and services................................................................................................. 9 Numbers and Facts as of 2014................................................................................... 10 Top Clients................................................................................................................. 10 Financial Analysis...................................................................................................... 11 Controversies and criticism........................................................................................ 11 Conclusions and Recommendations.......................................................................... 12 Works cited................................................................................................................ 14 Introduction Apple Inc. is a global technology company based in California USA. The company focuses on designing, developing and selling of mobile phones, computer gadgets, online services, consumer electronics among other products and services. Founded in 1976, Apple is currently the worlds second largest technological company by revenue. The company is listed in NASDAQ and on 19th March 2015, it joined the Dow Jones Industrial average. With over 98,000 employees, the company has 437 retail stores globally. In the financial year 2014, the company accumulated a total US DDDD 182 billion in revenue. Apple is the largest company that is traded publicly with operating segments in America, Europe, Asia Pacific and Africa. With such a significant financial operation, there is need to have a proper financial management, audit, analysis and monitoring. The sole purpose of this report is primarily to facilitate the decision making on which accounting firm Apple should work with in carrying out its financial audit and analysis. There are two major accounting firms that will be put into considerations and these are PriceWaterhouseCoopers (PwC) and Deloitte & Touche (Deloitte). Deloitte and PwC are among the worlds top four accounting firms along other companies like KPMG and EY. Resources The report analyses information and data acquired from official financial reports of the two companies, accounting and financial journals, official websites of the two companies and financial magazines. Other literature have been analysed too like books written by more authentic authors. The information acquired has helped compile the report and analyze the two companies. Scope The report is based so much on the financial capabilities of the two companies, the number of accountants in each firm, the number of clients each firm has, the most common industry the company serves as well as the scope of operations for the companies. The analysis will also cover on any other factors that might distinguish the two companies. Limitations The report has only focused on two of the top four best auditing companies in the world. There are chances that there might be other better companies for example KPMG or EY. This research has left out the possibility of any other company being better than PriceWaterhouseCoopers and Deloitte & Touche and this limits the options. The information in the report might be authentic but no formal inquiries have been made to the two companies and hence the final decision might not be fully informed as it would be with information from the two companies. PriceWaterhouseCoopers Trading as PwC, the company was ranked as the worlds second largest professional service network in 2014 based on revenues and is one of the big fours together with other companies like Deloitte, KPMG and EY. The company was founded out of in 1998 out of a merger of Coopers and Lubrand together with Price Waterhouse. The two firms can trace their origin back in the 19th century. Governance and Leadership The leadership and governance at PwC has been based on sound governance and transparency. The firms aim to serve as a force of integrity, good sense and wise solutions to problems that are faced by businesses and other players in the capital market. The firms aim to maintain transparency and good standards of leadership and corporate governance not only to the clients business but also to themselves. Governance structure Global board The board serves to represents interests of all members of the PwC network. It has the sole responsibility to turn and manage the PricewaterhouseCoopers International Limited and most importantly have and oversight and monitor to the Network Leadership Team. This team is made up of 18 members all from different nations of the world. Network Leadership Team The team is responsible for setting up of strategies and standards that will be used by the PwC network. Currently, the team consists of four members from USA, United Kingdom, Germany and China. Strategy Council It is made up majorly of the senior partners to the PwC firms globally and they help in structuring and developing strategies that will help in the operations of the firm. It is currently made up of 23 representatives from the firms major markets globally. The network Executive team This team occasionally reports to the Network Leadership Team, and is responsible for key service line as well as functional areas within the PwC network. It is currently made up of 10 members. Operations The firms operations are global with majority market being Europe. It is based in 157 countries with 158 locations. In the year 2014, the company employee stood at 195,433 a record high. Out of this number, 44,721 were new employees with 20,030 graduates, 20507 experienced professionals and 4,184 being support staff. In the same year, the company had a total of 417,462 clients globally. In the financial year that ended on 30th June 2014, the firm recorded a growth in revenue by 5% to $ 34 billion. According to the Compton (2014), the strong performance and growth was a reflection of improving economy and growing confidence of the companys clients. Products and Services Financial advisory Audit and assurance Entrepreneurial and private clients Family business services People and organization IFRS Legal Sustainability and climate change Tax Advisory This forms 29% of its operations globally and it primarily focus on consulting activities which covers on performance improvement and strategy, transaction services, recovery services, business valuation, sustainability, crisis managements, corporate finance, accountancy as well as actuarial advisory. Numbers and Facts as of 2014 No of Countries Employee Last revenue (Billions) 157 195400 $34.00       Top Clients The firm has clients who form some of the top global brands and this include; Toyota Volkswagen Ford Bank of America IBM eBay CBS Walt Disney Nike Yahoo! Deloitte Touche Tohmatsu Limited The firm known by many as simple Deloitte is one of the big four professional services global firms. It has its head offices in the United States. It has the largest revenue by the number of professionals with over 200,000 professional in more than 150 countries. In the last financial year (2014), the firm had a total revenue of $ 34.2 Billion which was a record compared to other years. The firm was established in 1845 by one William Welch Deloitte in London UK. Governance and Leadership The Deloitte Network consists of firms that are members of Deloitte Touche Tohmatsu Limited (DTTL). The firm has a regular leadership structure that allows the members of the firm network to practice leadership at all levels. The central governance policy in the firm is sensitive to professional environment and also the culture of members from different countries. The members of the network can access skills as well as knowledge from other members of the firm. This allows the member firms to meet the needs of its clients from all over the world considering that Deloitte on its own does not provide the services to the clients. Member Firm Structure Partners of Deloitte Member firms are basically the sole owners of their member firms. Their firms are organized and structured on indivdual country or region. Each firm operates within legal and regulatory frameworks and structures in their specific jurisdiction. These are firms that are owned and operated independently and locally. The firms operate and work under one common brand, client service standards, methodologies and other guidelines and professional’s standards set by Deloitte. The member firms operate and comply and work under rules of local ownership movement governing the accountancy in many regions and countries. This idea reflects the fact that the member firms are not subsidiaries or branches of the global parent. This structure boosts significant strength where firms are able to deeply understand local markets as well as sense of responsibility. Global Cooperation Deloitte Executive Executive officers are ratified by partners of Deloittes member firms and are in office for four years. The CEO has the power to choose the members of the executive team and is subject to approval by the governing committee of the board. The executive is made up f 20 members and it mainly comprises of most senior leaders of Deloitte. The executive has a responsibility to establish visions and strategies for the firm. Decisions in the executive are reached based on consensus. The Deloitte Board In Deloitte, this is the highest governing body in the firm and it has the role of addressing most important issues of governance such as major transactions, global strategies and also the election of the CEO. The board members are appointed by individual member firms that are individually selected based on size, the number of significant and crucial clients they serve among other factor. The board is also made up of three regional seats which are allocated to smaller firms to ensure that there is equal representation in the board. The board is constructed in such a way that it displays multicultural and proportionate representation of member firms. Standing Governance committee This is part of the Deloitte board and is responsible for oversight of the firm’s management. Like the board of directors, the committee is as well multicultural with one seat being allocated to 12 member firms that in the past have shown great impact on the network. The issues in the committee are addressed in open discussion. Each member of the committee has a single vote on matters that affect the committee. The CEO has not vote as he is an ex-officio. As a way of preventing conflict of interest, a member of the governance committee cannot be part of the executive except for the CEO. Member Firm leadership Deloitte has structures and guideline for the member firms to ensure that the leadership is effective. This guidelines and structures are to be implemented by every member firm to its parent firm. They include; Each firm should have a management partner or senior partner who manages the member firm and ensures that the firm achieves and delivers high-quality services in accordance to the policies and standards of Deloitte. Each member firm should have a governing body or board of directors who have a role to facilitate sound governance of individuals within the firm. There should be a representative who will serve as a liaison to Deloitte and represent the member firms at Deloitte global meetings that take place annually to discuss strategies and initiatives proposed by Deloitte. Operations The firm operates globally with 210,400 employees in 150 countries. The firm has pledged to add 4,500 new employees by the end 2015. This will be facilitated by the new digital agency that is to be opened in London UK. The firm achieved record high revenue in the last financial year with $ 34.2 Billion. The 2014 financial statements show that the firm grew with revenue of $ 3.825 Billion for the financial year that ended in 31st May 2014. Net revenue after expenses and disbursement grew by 3% compared to the previous financial year. While the marketplace continues to bring new challenges, the firm has grown by more than 30% over the past four years. Products and services Audit Economics Financial advisory Human Capital Legal Operations Private clients Risks Strategy Tax Technology Audit Auditing forms 30% of the firm’s total operations where it gives accounting services, audit services as well as IT control assurance and internal auditing. To Deloitte, auditing is a highly complex process and the importance of the role played by the auditors as a viral link in the financial reporting chain is very important. The auditors play a key role as trusted advisors. Numbers and Facts as of 2014 No of Countries Employee Last revenue (Billions) 150 2010,400 $34.2       Top Clients The firm has clients who form some of the top global brands and this include; Boeing Verizon Wireless Dell Microsoft Major League Baseball National Football League Levi Strauss & Co. State of California Starbucks General Motors Financial Analysis Firm Fiscal year 2014 2013 2012 2011 2010 Deloitte Revenue (Billions) $ 34.20 $ 31.30 $ 28.80 $ 26.57 $ 26.10 PwC Revenue (Billions) $ 34.00 $ 31.50 $ 29.20 $ 26.50 $ 26.20 Margin   $ 0.20 $ 0.20 $ 0.40 $ 0.07 $ 0.10 For a period of five years, the two firms have been performing almost equally with slight margin between them. In the last financial year (2014), Deloitte reported $ 32.4 billion in revenue and was ahead of PwC which reported $ 32 billion. The rise in revenue was due to gradual increase in the advisory fee income up to $ 4.5 billion since the year 2008. The advisory fee for PwC increased up to $ 2.4 billion within the same period. This puts Deloitte on the front line as the biggest professional service firm in the world but this is to be short-lived after the acquisition of Booz and Co. by PwC expected to boost its revenue. According to Glynn (2008) when companies acquire or go into a merger with new companies, their revenues rises significantly giving the company a better competitive advantage. In the recent years, there has been a wind of shift into more advisory services with audit now accounting for 48% of the total revenues for the big for, and 51% for other mid-size firms. The market has been subjected under strict and increased regulatory scrutiny. In October of 2014, the competition commission reviewed its controversial policies which requires company’s t tender and reapply for a new auditor every five years. Controversies and criticism PwC The firm has been put in the spotlight with so many controversies in the past decades. The controversies range from gender discrimination, tax avoidance, negligent auditing among others has tarnished the firms reputation. An example is a case where the firm was found to have been favored unethically by the World Bank in a bid made to privatize the water distribution system in Delhi. The investigations show that PwC had failed in each stage of bidding but the World Bank pushed for the firm to proceed until they won the bid. Deloitte The firm has been criticized by clients who found the services unreliable. While working with the Australian Tobacco industry, the firm was asked to research and file a report concerning illicit tobacco. The report was termed by the Australian authorities as being misleading and unrealizable. Conclusions and Recommendations Both Deloitte and PwC are world class firms and qualify to be the company to work with. The two companies have grown in revenue in the past decade and have continued to satisfy their customers. The current market trend indicates that the revenues will continue to grow especially considering that most of the firms are diversifying and venturing into new services. The most important factor that all clients want to consider is quality of service and efficiency. The two firms have improved and perfected this area to ensure they remain as the top two best firms. PwC has a well defined management and leadership structure. The operations are closely monitored globally and major decisions are made by the board of directors. Equally, Deloitte has an efficient leadership and management structure which is designed to meet local needs with global approach. By letting the member states operate independently, the firm is able to meet the need s of its clients and member firms from all over the world. Deloitte uses its professional standards and policies to affect the operations. This gives the firm an advantage in that the member firms have the ability to explore new ways of handling situations. Nonetheless, the services offered by PwC might be more effective based on its leadership structures and governance. In conclusion, the best alternative would be PwC. The firm has established itself globally and evenly in the regions of interest. The firm has also been aggressive in expanding its market share and customer operations by taking new member firms every year. With acquisition of new firms and mergers, the firm has ensured improved service delivery in a more efficient manner. The client list also has allotted of impact on the decision. Major global corporations that are world leaders in their industry are working together with the firm and this shows customer loyalty and confidence. Works cited Top of Form Glynn, John J. Accounting for Managers. London: Cengage Learning, 2008. Print. Bottom of Form Compton, John. PwC Annual Report - delivering growth in an improving market 15 September 2014 Web on 23 April 2015 Read More