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Accounting News Roundup: Olympus on the Block?; AICPA Not Crazy About Auditor Rotation; Californians Ready for Tax Increases | 12.15.11

Banks use accounting loopholes to inflate profits and bolster bonuses [Guardian]
Banks use accounting loopholes to inflate their profits and bolster staff bonuses, according to a report published on Wednesday that calls for changes to the international accounting rules. According to the paper by the Adam Smith Institute, banks are able to use complex financial products such as credit default swaps to report profits that they might not otherwise be able to. Gordon Kerr, a former banker who wrote the report, said the blame lies with the International Financial Reporting Standards (IFRS) rules that allows banks to recognise their expectations of future income as current profits. "The accounting regulation system needs radical reform so that banks are not encouraged to invest in risky assets to make themselves seem more profitable than they really are. Honest balance sheets are the cornerstone of a healthy financial system – right now, we don't have the transparency we desperately need to avoid a repeat of 2008," Kerr said.

Olympus to Consider Selling a Stake [WSJ]
The scandal, involving the hiding of more than $1.5 billion in losses, has torpedoed Olympus's capital, leaving it with a capital adequacy ratio of 4.5%, versus the 30% plus analysts say is more common for the industry. One option for getting a capital boost would be issuing shares to another "strategic" buyer, Mr. Takayama said at a news conference. Olympus would favor potential buyers with which it could tie up in sales or operations, Mr. Takayama said, though he stressed that nothing is decided.

Euro-Area Will Fall Back Into Recession as Breakup Risk Remains, E&Y Says [Bloomberg]
The economy of the 17 nations using the euro will probably shrink in the current and next quarters, the group said in a report published in London today. The economy will barely grow in 2012, with E&Y forecasting expansion of just 0.1 percent.

Hard Questions Lawmakers Should Ask at MF Global Hearing [Francince McKenna/BankThink]
FM: "Given everything that’s been going badly inside and outside of MF Global, it sure looks like PwC could have raised doubts about the brokerage’s ability to survive the next 12 months, which is the threshold for issuing a “qualified” accounting opinion."

Here’s One Big Thing MF and Jon Corzine Got Right [Jonathan Weil/Bloomberg]
What caused investors to lose confidence in MF in late October? There’s a simple, sensible explanation. Six days before it filed for bankruptcy, MF reported a large quarterly loss, the details of which contained a message: Don’t expect this company ever to be profitable again. The markets responded accordingly.

Why Did the NY Fed Allow Obviously Troubled MF Global Primary Dealer Status? [JDA]
AG wonders, "Surely it couldn't have been because Jon Corzine is such a charming bastard."

SEC Cops Want to Fight U.S. Judge [WSJ]
The SEC's enforcement staff is expected to recommend to the five-person commission leading the agency that it vote to appeal last month's rejection by U.S. District Judge Jed S. Rakoff of a proposed $285 million settlement between the SEC and Citigroup Inc., according to people familiar with the situation.

AICPA Letter to PCAOB Raises Concerns About Mandatory Audit Firm Rotation [JofA]
AICPA Chairman Greg Anton, and President and CEO Barry Melancon signed a comment letter sent by email Wednesday to the PCAOB stating that mandatory audit firm rotation is costly and has the potential to hinder audit quality rather than enhancing it.

Vast Majority of California Voters Like Jerry Brown’s Tax Increase Plan [Tax Foundation]
"Sixty-five percent of all adults and 60 percent of likely voters favor the proposal, while 28 percent of adults and 36 percent of likely voters oppose it."

IRS files new lien on Marion Barry’s house [WaPo]
“I don’t know anything about that,” [Barry] said when reached Wednesday evening.

Green Mountain Coffee Roasters: Where are the missing beans? [WCF]
Maybe someone at MF Global knows?


Posted in ANR