(Alleged) Ponzi scheme auditors
It feels like it's been ages since an auditing firm has gotten roped into some messy Ponzi scheme, doesn't it? Fear not, Deloitte is being sued by the investors of Aequitas Capital Managment over the latter's alleged $350 million Ponzi scheme:
Deloitte prepared the 2014 and 2015 audited financial statements for Aequitas, which painted a reassuring portrait of Aequitas' financial strength. Deloitte offered a so-called "unqualified" opinion in its 2014 audit that Aequitas' financials fairly and accurately represented the company's financial condition. The U.S. Securities and Exchange Commission now claims that Aequitas by 2014 was little more than a large Ponzi scheme, reliant on new investor money to cover its expenses.
The SEC brought charges against Aequitas last month, alleging that the firm's money in "student loan receivables of for-profit education provider Corinthian Colleges" evaporated when Corinthian defaulted in mid-2014. Despite that little hang-up, the firm's CEO and EVP kept raising money and the CFO concealed the liquidity problems. That's a no-no. EisnerAmper and the law firms of Tonkon Torp and Sidley Austin are also named in the investor suits.
I took the very last written CPA exam back in the fall of 2003. I had the good fortune to pass all four sections in that sitting which means I never had the pleasure of sitting for the computerized exam. So the fact that Montana State University professors Mary Burns and Nathan Jeppson are only going to study factors on scores from the 2004 to the present makes me feel slightly old:
Jeppson and Burns received the accounting education research grant from the National Association of State Boards of Accountancy, or NASBA. The two professors will use the funds to study how student characteristics, accounting program quality and delays in taking the exam affect CPA pass rates. Their project is called: “Are Being Selective and Being Attuned to Top Quality Students All That Matter? The Impact on CPA Exam Performance by Student Characteristics, Accounting Program Quality, and Delays in Test Taking.”
I'll be surprised if research finds a correlation between program quality and higher pass rates, but I'm mostly curious about "student characteristics." For example, do procrastinators perform worse? Do anxious overachievers perform better? Are students who roll into class wearing sweats, reeking of bad decisions sandbagging? It seems like an underappreciated area of academic research.
Audit Analytics takes a fascinating look at Intel's depreciation. Seriously! The company recently disclosed a change in estimate that resulted in quite the short-term boost:
During the assessment performed in Q4 2015, we considered factors such as the lengthening of the process technology cadence resulting in longer node transitions on both 14nm and 10nm products. With those longer transitions, we added a third product to our 14nm roadmap. We have also increased re-use of machinery and tools across each generation of process technology. As a result, we determined that the useful lives of machinery and equipment in our wafer fabrication facilities should be increased from four to five years. We will account for this as a change in estimate that will be applied prospectively, effective in Q1 2016. This change in depreciable life drives approximately $1.5 billion in lower depreciation expense for 2016.
"The $1.5 billion change represents about 10% of 2015 pre-tax income," write Olga Usvyatsky and John Pakaluk. Not exactly insignificant. But also, it could indicate…something?
This is a powerful example of how a seemingly positive change in estimate – providing a relative “boost” to 2016 earnings – could actually signal trouble for the company. The extended useful life signifies a potentially epochal change in the industry, the effects of which are uncertain.
Analysts are even on the fence, with some saying the disclosure is "disconcerting" while another says Intel "has some of the best disclosure," and isn't too worried about it.
Previously, on Going Concern…
Chris Hooper wonders what obscurity hipster accountants will dive into next. And in Open Items, someone has a question about salary for experienced tax staff.
In other news:
- RSM promotes 19 to partner in the UK.
- U.S. Moves to Thwart Use of Foreign Acquisitions to Dodge Taxes
- 56% of North American companies outsource their internal audit function.
- Investors Push for Fuller Picture of Corporate Political Contributions
- "According to the SEC’s complaint, Paul and Ellis created fraudulent marketing materials including some with performance numbers that were “cut and pasted” from another firm’s website."
- The Inevitable Fallout of Naming Your Son 'Hitler'
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