Accounting News Roundup: Audit Committee Meetings and Marvell’s Troubles | 04.06.16

Inversion dealbreaker

The Treasury Department announced some new rules on Monday to curb corporate inversions. Tax analyst Robert Willens said they "addressed literally every benefit that one attempted to gain from an inversion" and, don't look now, but they seem to be working:

Pfizer Inc. has decided to kill its planned $150 billion takeover of Allergan PLC, after the Obama administration took aim at a deal that would have moved the biggest drug company in the U.S. to Ireland to lower its taxes, according to people familiar with the matter.

The companies are expected to announce the deal’s termination as early as Wednesday morning, after Pfizer’s board voted Tuesday to halt the combination and the New York-based pharmaceutical company then notified Dublin-based Allergan, the people said.

Pfizer will pay Allergan a small breakup fee, the people said. The merger agreement called for a fee covering Allergan’s integration-planning expenses of up to $400 million in the event that tax-rule changes rendered the deal unworkable.

Lots of people say that the new rules were directed at the Pfizer/Allergan deal and who knows, maybe they were. But even if the government is being disingenuous about its move, the same can be said for Pfizer, a company that's been desperate to relocate outside the US and claimed that this deal was all about SYNERGY that just so happened to have some tax benefits. Victor Fleischer explains the details of the new rules well and admits that he "isn't sure the new guidance will survive a legal challenge." So there's more fun ahead.

Audit committee meetings

I'm not on an audit committee, but if I were, I think I'd enjoy peppering the engagement partner with questions filled with PCAOB rule citations that made me sound smart. Or at least show that I was with it enough to not let on that I'm completely overwhelmed with the other responsibilities that come with sitting on the junk drawer committee.  But never mind my corporate governance fantasies, the PCAOB released a report yesterday stating that communication between audit committees and auditors since AS No. 16 has been going great:

The Public Company Accounting Oversight Board today released a report on inspection observations of registered audit firms' initial implementation of and compliance with the PCAOB auditing standard on Communications with Audit Committees, describing that in 93 percent of the audits inspected in 2014 for which the standard applied, no failures to comply with the requirements were identified. Preliminary results from 2015 inspections show similar results.

This is not insignificant as, "Some audit committee chairs noted that after the effective date of the standard, there had been improvements in the robustness and formality of communications with their auditors." That might suggest that conversations prior to AS No. 16 were superficial and awkward which is pretty much the nature of any conversation that auditor has. Still, I'm sure lots of committee members are there for the paycheck and not the 42-page letters.

Marvell's troubles

Recently, I've remarked on a couple of occasions that Valeant is probably the worst public client for busy season 2016. While I still stand by that assertion, it sounds like Marvell — microchips, not superheros — is pretty terrible right now as well:

Marvell Technology Group Ltd. directors fired the husband-and-wife management team that founded and led the chip maker for two decades, responding to a series of reverses including accounting issues that prompted investigations by the company’s board and government agencies.

The termination of Chief Executive Sehat Sutardja and President Weili Dai, announced in a company filing Tuesday, comes one month after an investigation by a board audit committee identified “tone at the top” problems, including significant management pressure on sales and finance personnel to meet revenue targets.

Marvell's been in trouble for various things for years: stock option backdating, patent infringement and the aforementioned accounting irregularities. PwC resigned as the company's auditor last October after advising that the 2016 audit needed to be expanded. Deloitte was hired back in February but that came with some conflicts. And now the board has fired the founders! Don't go near this if you can help it.

Previously, on Going Concern…

I made some observations on Valeant and a CPA who stole from a church. And in Open Items: Did Hulk Hogan's forensic accountant calculate his damages correctly?

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