Accounting News Roundup: Panama Papers and Strange Expenses | 04.04.16

Panama Papers

Tax avoidance is all the rage among the wealthy and powerful. For a long time it was mostly kept secret but over the last several years it has become a less secretive thanks to whistleblowers and intrepid journalists. The latest is a data dump being called the Panama Papers, which the Guardian is calling the biggest in history and yes, it's quite juicy:

The documents show the myriad ways in which the rich can exploit secretive offshore tax regimes. Twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.

A $2bn trail leads all the way to Vladimir Putin. The Russian president’s best friend – a cellist called Sergei Roldugin – is at the centre of a scheme in which money from Russian state banks is hidden offshore. Some of it ends up in a ski resort where in 2013 Putin’s daughter Katerina got married.

Among national leaders with offshore wealth are Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt’s former president; and the prime minister of Iceland, Sigmundur Davíð Gunnlaugsson.

Gunnlaugsson apparently was secretly holding bonds of Iceland's banks while negotiating the fate of those very banks so that's awkward. UK Prime Minister David Cameron's late father had worked with the firm at the center of the scandal, Mossack Fonesca. Vox has a brief explainer, of course. People are just digging into this stuff, so I'm sure it'll provide loads of fun for offshore tax geeks.

Expense reimbursement

We've all taken liberty with an employer's expense reimbursement policy, however, it appears that some people push the limits further than others. According to a Robert Half survey of 2,200 CFOs, 23% "said they had seen an increase in inappropriate expense report receipts" and naturally, there are some odd ones:

The CFOs listed a baffling assortment of items, the costs of which employees brazenly tried to wring out of  their firms. The expense requests included dance classes, toilet paper, flat-screen televisions and a half a cow.

There were also the more pedestrian, but still nervy requests for reimbursements including a new car, rental homes, vacations and loans.

That "half a cow" was actually a "side of beef" and who's to say that it couldn't have been used for the networking BBQ? The "half a cow" along with a "welder" and "somebody else's salary" were three items that "defied categorization" in the survey. So how do you stay out of trouble with your HR department? Bob Half has suggestions:

First, make sure the request aligns with company policy. Clear any request that can be viewed as a personal expense with a manager beforehand. Finally, pretend you are asking your parents or grandparents for the money to reimburse the expense: if it’s embarrassing, drop it.

I kinda don't feel like that asking parents/grandparents is the best litmus test for the inappropriateness of an expense. I imagine most people wouldn't have any trouble asking their parents or grandparents to pay for a side a beef. Someone's salary, on the other hand, that might be taking things a bit too far. Depends on the family dynamic, I suppose.

Non-GAAP worries

One fairly new non-GAAP worry that lots of people seem to have is around metrics that are decidedly not related to accounting. Many companies like to share these metrics of membership or users or something else that shows growth in something, however those things usually have nothing to do with financial results:

Commissioner Kara Stein brought up a recent reversal by Herbalife whose stock price declined by 7% when it disclosed a significant error in calculating a previously advertised measure of growth in new customers. “It appears that investors,” said Stein, “in this case, were relying on this metric.” At a meeting in December of the American Institute for CPAs, the accounting industry trade association, White specifically highlightedthis issue. White asked the audience of auditing professionals, “Are there appropriate controls over the calculation of non-GAAP measures?”

Multi-level marketing companies, that's a good one. Another popular industry for this sort of non-GAAP reporting is tech and gaming:

In 2013 at the AICPA annual meeting for auditors and financial reporting professionals, the SEC staff outlined some areas of focus that were on their list. The high-tech and social gaming industries were identified as high risk users of non-GAAP metrics to report trends such number of registered users to a company’s website, number of active users, daily and monthly average users, and average revenue per user and number of paying players for gaming companies.

SEC Chief Accountant James Schnurr is more worried about the "adjustments to arrive at alternative financial measures of profitability, as compared to net income, and alternative measures of cash generation, as compared to the measures of liquidity or cash generation," which is a more classic non-GAAP concern, so it's safe to say if you're a company reporting anything non-GAAP, the SEC is looking at it.

Previously, on Going Concern…

Last Friday was April Fools' Day and the AICPA sent out an email with a probably unintentionally funny subject line. And in Open Items: Big 4 Audit…Which city?

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