Accounting News Roundup: The U.S.-China Audit Ripple Effect; MD&A in English, Please; Wasted Stimulus | 12.07.12

Posted on by Caleb Newquist

U.S.-China Audit Clash Could Have Broad Reach [Reuters]
The standoff over Beijing’s refusal to give regulators in the United States access to audit records for nine Chinese companies listed in North America has the potential not only to force Chinese companies to delist from stock markets in the United States, but could also put American companies that do business in China in a position where they have difficulty producing audited accounts, according to accounting experts.“ The potential consequences of failure to find common ground are almost too frightening to contemplate,” Thomas Shoesmith, a partner at the law firm Pillsbury, said in a note to clients. This past week, the U.S. Securities and Exchange Commission charged the Chinese affiliates of five of the world’s biggest auditing firms with violations of U.S. securities law, raising fears that it could go further and ban the affiliates from working on audits of companies listed in the United States. “If these five accounting firms are barred from practicing before the S.E.C., it seems certain that companies with major Chinese operations will find it difficult or impossible to find accountants,” Mr. Shoesmith said.

Minding the gap at Deutsche Bank [FT]
Three ex-employees claim that the bank’s books concealed losses of up to $12bn on derivative positions. Had the true situation been revealed, they say, it would have needed to raise a lot of capital, and might even have required a bailout. What is at issue is the way banks account for losses. In recent decades, such optionality as they once enjoyed has been steadily circumscribed. Most trading assets – such as the “leveraged super-senior” derivatives at the heart of the complaint – must now be marked to market. This has reduced banks’ ability to manipulate their balance sheets. Deutsche’s approach, it is claimed, drove a coach and horses through this principle.

Netflix CEO Hastings Faces SEC Action Over Facebook Post [Bloomberg]
Netflix Inc. (NFLX) and Chief Executive Officer Reed Hastings said they may face a U.S. Securities and Exchange Commission civil claim over a July Facebook post that coincided with the stock’s biggest gain in almost six weeks. SEC staff alleges Netflix and its CEO violated rules governing selective disclosure, according to a company filing yesterday. The July 3 post by Hastings said Netflix viewing “exceeded 1 billion hours” of videos in June. The shares rose 6.2 percent that day.
 
Eyebrows Go Up as Auditors Branch Out [WSJ]
Auditing wasn't all Deloitte LLP did for Autonomy Corp., the software firm recently accused of accounting improprieties by its parent company. To many observers, that sort of multitasking is potentially an industry problem. As auditor, the U.K. unit of Deloitte Touche Tohmatsu was in charge of signing off on Autonomy's financial statements before Hewlett-Packard Co. bought the company in 2011. But Deloitte also was paid significant fees for other work it did for Autonomy, like due-diligence work on a potential acquisition. In 2010, Deloitte received $1.2 million from Autonomy for nonaudit work, close to the $1.5 million the firm was paid for the audit itself. […] "If firms become too preoccupied with consulting, I think it hurts the authenticity of the audit," said former Federal Reserve Chairman Paul Volcker in an interview. Mr. Volcker spoke last week at a New York University roundtable on the comeback of consulting by accounting firms.
 
Spaniards cope with crisis by drinking more beer [Quartz]
It's cheaper than liquor, naturally.
 
Fiscal Cliff? France Has ‘Fiscal Mountain’: PPR CEO [CNBC]
Francois-Henri Pinault, chief executive of luxury goods company PPR, said: "When we talk about the fiscal cliff in France it's a mountain, it's much higher than a cliff. And when it comes to France the only solution that has been put on the table is tax raises, nothing about cutting expenses. So it's a completely different situation."
 
“Plain English Works” in MD&A Statements [CFO]

Excessive financial jargon in documents filed with the Securities and Exchange Commission often clouds intended messages, said speakers at an American Institute of Certified Public Accountants conference this week. The sentiment particularly applies to the Management’s Discussion and Analysis (MD&A) section of quarterly and annual reports and other registration statements, where companies generally discuss their business, uncertainties, and market trends. “Everyone likes to prove they’re the smartest person in the room because they understand the jargon,” said Brian Lane, partner in the Washington, D.C., office of Gibson Dunn & Crutcher and former SEC director of the division of corporate finance. “Plain English works.”
 
Watchdog: More than $2B in unused stimulus has expired [The Hill]

The Department of Agriculture (USDA) had the largest amount of the expired funds at nearly $765 million, which can no longer be used for new projects. The money was appropriated to the agency by Congress, but not used by federally set deadlines. USDA said it allocated most of the expired funds to applicants who did not use them. The Department of Defense and the Department of Energy were nearly tied for the second highest amount of expired funds, with each forfeiting about $242 million.  Agencies will keep the expired stimulus funds on their balance sheets for an additional five fiscal years, in case prior appropriations were more expensive than projected. The agencies are not permitted to use the funds for new projects, however.
 
Dude, Should Marijuana Be Legalized and Taxed? [TaxVox]
Howard Gleckman puts it in perspective: "Legalizing dope and making it widely available certainly won’t prevent us from going over the fiscal cliff. On the other hand, maybe we won’t care as much."
 
Brazil Prison Gang Conducted 10-Hour Conference Call [ISC]
A Federal Police recording recently heard by Folha de Sao Paulo involves a 10-hour discussion between five members of the First Capital Command (PCC) gang. The conversation involved two inmates and three gang members based outside of the prison. According to the newspaper, the talk was all business: topics included trafficking drugs to Paraguay and Bolivia, and the distribution of marijuana and cocaine inside Brazil.
Posted in ANR

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Accounting News Roundup: The End of Summers; KPMG Adds More Restructuring Talent; Back to Basics | 09.22.10

Summers exit lets Obama retool team and message [Reuters]
“The departure of economic adviser Larry Summers opens the way for President Barack Obama to shake up leadership of his economic team and show he is taking seriously growing public frustration over the sluggish economic recovery.

Whoever replaces Summers ions constrained by a record $1.47 trillion budget deficit and the possible Democratic loss of control of the House of Representatives in November 2 congressional elections.”

The Obama Tax Plan: Who’s in the Crosshairs? [TaxVox]
“President Obama’s plan to raise taxes on the nation’s highest income households may not quite mean what you think. A closer look suggests that fewer people may get whacked than either Obama or his Republican critics suggest. And for many of the victims, the club won’t be the president’s plan to raise rates to 36 percent and 39.6 percent. Those rate hikes may be getting most of the attention, but the real cudgel would be higher taxes on capital gains and dividends going to high-earners.”

H&R Block Announces New Chief Financial Officer [MarketWatch]
“H&R Block (HRB 12.82, -0.08, -0.62%) announced today the appointment of Jeff Brown as chief financial officer. Brown has been the company’s interim CFO for the past five months. As an eight-year veteran of H&R Block, Brown has played an important role in a variety of financial functions.

‘I am very pleased with the leadership Jeff has provided me and the organization in his interim role,; said Alan Bennett, H&R Block’s president and chief executive officer. ‘Jeff has all the talent and personal characteristics needed to be highly successful as the permanent CFO. He has earned my full confidence, as well as that of the board of directors.’

Most recently, Brown served as H&R Block’s corporate controller. Prior to that, he was the corporate controller and vice president of finance (Americas) at Bacou-Dalloz, now Sperian Protection, and served in key positions at KPMG. Brown has a business administration degree from the University of Nebraska and is a certified public accountant.”


Sentencing of Petters’ accountant is postponed [Minneapolis Star-Tribune]
“Tuesday’s scheduled sentencing of James Wehmhoff, the accountant who helped Tom Petters file false tax returns, has been postponed until sometime in October. The postponement was ordered by U.S. District Judge Richard Kyle at his own behest.

Wehmhoff faces a prison sentence of between 70 and 80 months on tax charges, but federal prosecutors have asked Kyle to consider Wehmhoff’s cooperation in the Petters investigation and his previously “unblemished” career before he hooked up with Petters Group Worldwide. The government also noted that Wehmhoff was not part of the $3.65 billion Ponzi scheme that Petters and others orchestrated for more than 10 years.”

KPMG Continues to Add Restructuring Talent With Appointments of Tony Murphy, Tom Bibby [PR Newswire]
The House of Klynveld must be counting on more companies falling prey to their massive debt loads with the appointment of Tony and Tommy who both have “proven track records” as restructuring professionals.

Accounting Basics: A Guest Post From Robert B. Walker [Re:The Auditors]
“[New Zealand] follows an American model in which people who are to become accountants are ‘educated’ in Universities. There is minimal emphasis on double entry. Most of the courses are dedicated to theory, bullshit sociology, complex management accounting, auditing and so on. None of this makes any sense to a student if they first do not know the basics of accounting and that can only be gained by actually practicing the discipline.”

Comparing the Ethics Codes: AICPA and IFAC [JofA]
“Sharp increases in the number of multinational audits being performed by U.S. accounting firms means that more CPAs are performing services under the International Federation of Accountants (IFAC) audit and attest standards. Although auditors must comply with the specific standards adopted in each jurisdiction, familiarity with IFAC’s International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants (IESBA Code) in addition to the AICPA Code of Professional Conduct (AICPA Code) is a critical first step. When specifications differ, members should comply with the more restrictive of the applicable standards.”