Chinese e-commerce behemoth, Alibaba, reports earnings tomorrow and lots of people have questions about how they account for things, most notably, the SEC. But also, analysts and observers who have a hard time taking the company seriously:
The [SEC] inquiry has focused attention on Alibaba’s structure and the nature of some of its financial measures and disclosure—factors company critics contend make it difficult for analysts and investors to assess its true condition.
“Whether it’s as good as it claims, sometimes it does seem to stretch believability,” said Paul Gillis, an accounting professor at Peking University’s Guanghua School of Management.
One of the more confusing aspects of Alibaba's business is why it doesn't consolidate its logistics affiliate, Cainiao Network; although, it seems that confusion is by design:
Alibaba has a complex structure, including an array of investments, acquisitions and alliances that runs to 19 pages in its annual report. Analysts say that makes it nearly impossible to determine some things about Alibaba—such as whether it should be counting Cainiao’s results as part of its own.
“There’s a lot of obfuscation,” said Donn Vickrey of Pacific Square Research, which has been critical of Alibaba.
There are questions about other affiliates too and whether or not those should be consolidated as well. The company says all these issues are "ginned up by critics who don’t understand how Chinese companies operate." And I admit, I don't know a lot about how Chinese companies operate, but a 19-page entity chart isn't going to make it easy for anyone to understand, not just critics.
PwC on trial
Lawyers for the trustee of Taylor Bean & Whitaker and PwC gave opening statements in a Miami courtroom yesterday and I'm kinda sad that I'm not there to witness it in person:
Steven Thomas, attorney for a trustee representing Taylor Bean creditors and investors, said PricewaterhouseCoopers did seven audits while the scheme was ongoing and failed to find it. That means, he told a jury, the firm should be held liable.
“PricewaterhouseCoopers had a job: detect fraud. And the second thing I’m going to prove to you is that PricewaterhouseCoopers failed to do its job,” Mr. Thomas said.
PricewaterhouseCoopers attorney Beth Tanis countered that the lawsuit was essentially an attempt to get the firm to pay for money stolen in the fraud scheme by Taylor Bean, now represented by the trustee. She said the perpetrators, who were insiders, took elaborate steps to cover up their crimes and that other audits at the bank and mortgage company also missed it.
I don't envy either side in this case — both of them have to explain boring, complex rules to a Florida jury who will probably have trouble staying awake in that South Florida air conditioning.
That said, both sides are as well represented; Steven Thomas has been winning huge settlements against accounting firms for years. Meanwhile, Beth Tanis is no slouch; according to her bio, she has represented all of the Big 4 in litigation matters and was once named “Lawyer of the Year” for “Bet-the-Company” litigation. Frankly, I'm amazed and delighted to hear that there is such a thing as an award for "Bet-the-Company" litigation. But in this case, since the plaintiffs are seeking $5.5 billion in damages, that's probably the type of lawyer PwC wants leading its defense.
Elsewhere in PwC legal troubles: MF Global Suit Against PwC Cleared for Trial
Accountant fantasy lit
If you're looking for an end-of-summer beach read, you might consider Fred, the Vampire Accountant:
Fred was boring in life, in death he isn't much better. Turned into a monster and abandoned, Fred has made a life for himself not knowing much about the vampire life. Fred's cool, he's an accountant! A really good one, too! Problem is a whole clan of bloodsuckers have come to town following some stories about a heroic, mysterious master vampire and all they're gonna find is Fred.
This is the third (!) book in the series and the only question I have is — how have I not heard about Fred until now?! If there was a Going Concern book club, we'd have to convene an emergency meeting in order to plot out the reading schedule for the rest of the year.
Previously, on Going Concern…
In other news:
- Delta Struggles Through Third Day of Computer Problems
- Starbucks cards are having problems of their own.
- Appeals Court Upholds SEC’s In-House Court as Constitutional
- Trial by Jury, a Hallowed American Right, Is Vanishing
- Rick Astley isn’t giving the U.S. up, or letting it down
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