Author: Adrienne Gonzalez

Adrienne is a 15-year veteran of the accounting industry, if by "veteran" you mean "vulture prowling the periphery of the profession waiting for something exciting to happen." She has been spewing vitriol on Going Concern since the site was founded in 2009. A former CPA review employee, she has sat through more FAR classes than any CPA exam candidate ever could -- even one who has failed FAR seven times -- and can still recall most of the mnemonics all these years later.

Non-Profit Organizations Feeling the Pain of Sarbanes-Oxley Compliance

You’ve already seen me rail on SOX and I’m not the only one.

Skeptical CPA, Accounting Onion, Business Insider’s John Carney, Re: The Auditors (and Francine here on Going Concern). Need I point you to more?

I am not classically trained in recognizing Service threats but this certainly feels like one.

Accounting and Tax Tips:

The Internal Revenue Service today reminded tax-exempt organizations to make sure they file their annual information form on time. In 2010 the tax-exempt status of any non-profit that has not filed the required form in the last three years will be revoked.

The Pension Protection Act of 2006 requires that non-profit organizations that do not file a required information form for three consecutive years automatically lose their Federal tax-exempt status. This requirement has been in effect since the beginning of 2007.


The costs of compliance begin to add up and suddenly it starts to reek of 404(b); compliance for the sake of compliance does not equal nor even assist transparency.

I spoke to Chris Leach, a former not-for-profit auditor who has served on several NFP boards, who gave some insight into the problem with the 990. Let me tick off just a few “concerns”:

• Some of the smaller non-profits don’t have anyone on their board qualified to do the 990. It’s not a 1040 and problems are numerous.

• NFP board members are exposed to liability, being forced to “sign off” on 990s. That should sound familiar to any auditor who has been at the job for longer than ten years or so.

• Increased regulatory pressure has been proven to distort true financial condition, not necessarily make it any more transparent.

Any of this sound eerily familiar?

Many boards do not have members equipped to adequately review and sign Form 990, so they are still exposing themselves to liability as a result of improperly filed forms. “Bad publicity is the largest implication in my view, especially for organizations facing financial stress, and even more so in this economic environment,” Chris told me. “Beyond that, from a board member’s perspective, the biggest problem would be misstatements on the Form 990, which could potentially lead to personal liability for the board.”

Chris is slightly more reasonable than yours truly, saying “Just the simple day-to-day administration of tax issues puts pressure on smaller not-for-profit organizations. [However], when a not-for-profit organization isn’t a worthy steward of its donors’ trust, donors feel betrayed, so they want more transparency.”

Fair enough. Bring on the transparency (and the headaches?)!

Jr Deputy Accountant and Michael Panzner Discuss 2010 Part II: The Impotent Fed; An Election Year; Waiting for the Recovery

Thumbnail image for Thumbnail image for Thumbnail image for angry bear.jpgIn case you missed part one of JDA’s 2010 Outlook interview with Financial Armageddon’s Michael Panzner, you can find it on Going Concern here.
For the first half of my 2010 talk with Panzner, I focused on the other shoes left to drop; commercial real estate, political backlash, and the threat of the massive bubble still being inflated in China. But even bears have their bright sides and Panzner is no different. So what do we have to look forward to this year? Oh crap, more doom and gloom; sorry, I got my interviews mixed up.


Panzner points to our leaders’ missteps throughout the crisis as a major factor that could place a damper on any hope of recovery. “Many of the problems and imbalances that helped about the crisis have gotten worse,” he says, “That means people have less in reserve than they did before, and many have not positioned themselves for a ‘new normal.’ That suggests the next leg down, economically speaking at least, could be much worse than what we’ve experienced so far.” If only we’d been prepared for the worst instead of coddled into believing everything is better, eh?
When asked to take a guess as to when the Fed would finally raise interest rates, Panzner gave an interesting answer. “In my view, the Fed is no longer in control – of the economy or its destiny. For the most part, market and other forces, not the FOMC, will determine what happens to interest rates in future.” So I guess it doesn’t matter when they’ll raise rates, markets are no longer listening. Or are they?
A big picture sort of guy, Panzner identifies sociopolitical threats as another major concern this year, and with this being an election year (hello, Scott Brown anyone?), I’m willing to go on the record as agreeing wholeheartedly with him (shock). “Wait and see what happens to the social and political mood if and when the economy rolls over,” he says ominously.
Oh, believe me, JDA is waiting. And waiting. And waiting. Still no rollover but dammit, I’ll still be here twiddling my thumbs.
Hopefully I’ll get a chance to check in with Panzner again come summer to see where we are.
Editor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.

>75: Adrienne Gonzalez Shares Her Tips on How to Study for BEC in Just a Week

Thumbnail image for Thumbnail image for Thumbnail image for panic.jpgI’m not saying you’ll pass, I’m teaching you how to prepare in a week and maybe eke by. You already spent the money, you might as well give it a shot.
Let me be clear: I don’t advocate this. It’s important to give yourself time to study. BEC should take between 64 and 80 hours to prepare for. There are 168 hours in a week – work = 128 (our friend with a week to study for BEC – who requests to remain anonymous – is in tax so he has about 110) – sleeping 6 hours a night = 86 so if you don’t waste any waking hours commuting or eating, you can do it. You shouldn’t.


If nothing else, you’ll know what to expect on the exam in the next window. If you don’t study at all, try to retain what you can when you sit for this exam that you’re not ready for. Even though the AICPA BoE switches questions up from window to window and your next exam will be a little different, just go and pay attention.
There is a small chance you can pass. Do you know nothing about variance analysis? Clueless on economics? Your chances at passing will be smaller though I won’t pretend to have actual figures on that. The better your foundation, the easier it will be for you to fudge your way through it in a week. If you’re going into it blind, you’re probably not going to do well so focus on what came up on the exam.

Using the example above (or whatever your work/sleep/live schedule is), focus your attention on doing as many MCQ as possible. Even if you don’t understand them, sometimes working through them will make things click. You can try a cram course but your brain learns in layers so you can’t approach this like a final you didn’t study for. Sorry to be the bearer of bad news, that’s just what I know.

The best piece of advice I can give you is to plan better next time. Don’t pay for all 4 parts with one NTS unless you have a huge block of time to take exam after exam. Got it?

Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.

Regulatory Agencies’ Final Word on FAS 166/167

rules_1668_1668.gifThe Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of Thrift Supervision released their long-awaited final word on new rules for securitized assets, specifically for bank balance sheets:

The federal banking and thrift regulatory agencies today announced the final risk-based capital rule related to the Financial Accounting Standards Board’s adoption of Statements of Financial Accounting Standards Nos. 166 and 167. These new accounting standards make substantive changes to how banking organizations account for many items, including securitized assets, that had been previously excluded from these organizations’ balance sheets.

What does this mean for banks? In simple terms, they’re no longer going to be allowed to hide massive amounts of SPEs and derivative exposure off their balance sheets. Hit the deck!

Banking organizations affected by the new accounting standards generally will be subject to higher risk-based regulatory capital requirements. The rule better aligns risk-based capital requirements with the actual risks of certain exposures. It also provides an optional phase-in for four quarters of the impact on risk-weighted assets and tier 2 capital resulting from a banking organization’s implementation of the new accounting standards.

In case your ass has been under a rock for the last year, FASB came after banks’ asses over the summer. Miraculously, the Fed encouraged this switch, leading me to believe they’re just trying to cover their tracks.
Quadruple Whammy: Regulatory Agencies’ Final Rule on FAS 166/167 [JDA]
See also:
FASB Changes, Toxic Asset Shuffle

The JDA and Michael Panzner Discuss the Year Ahead

Thumbnail image for 2010.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
The last time I spoke to Financial Armageddon’s Michael Panzner for Going Concern, it was about how to prepare for the worst (while not necessarily hopinin September of last year. This time around, it’s the beginning of the year so even though I’m late, it’s time to discuss the 2010 outlook.
Panzner can also be found writing at When Giants Fall and Huffington Post and if you don’t know his bio, it’s here.
First of all, before we could get to anything I had to have him explain his strong dollar policy again:
“There are a number of reasons why I expect a technical rally in the dollar even though my long-term view remains quite negative,” he said, “The fact is that even if the fundamental outlook is poor, prices can still rise in the short run if too many people — speculators and investors — are short or if other factors temporarily gain in importance.”
This explains why he seemed spooked by recent market behaviors, like everything from March 2009 on. You know, when things started getting wonky. Panzner is a classy bastard so he’s not about to make conspiratorial statements about the behavior of markets but let’s just say his feeling is that they’re performing less rationally these days. No shit. Might be all that fishy stuff going on but who am I to speculate?


He points to massive speculation and gigantic stockpiling in commodities, specifically oil. Gee, wonder who is behind that. He recognizes that China is at least attempting to clamp down on speculation.
He also admits to having underestimated how people will behave with free money. I find that statement incredible; didn’t we see the houses, big screens, and Hummers? It was obvious at the time and it feels obvious now. “Last time they speculated like there was no tomorrow, they were worried tomorrow would never come,” he says. Again, this from the man who brought us Financial Armageddon.
Interestingly, Panzner says if he could do the book over, he would have better predicted the contagious nature of the financial crisis. It scared the shit out of me when I read it for the first time in 2008. It didn’t seem sluggish at all the way he’d imagined it. In fact, I’ve been waiting for the bottom to drop out for months now after seeing how he painted it.
As far as threats go, he pretty much agrees with most of what I identify as the largest (the Fed’s dumb behavior, sociopolitical pressures, blahblahblah) and adds a few. He’s with most of us who feel CRE still has to drop, which places additional pressure on smaller banks. There are also the usual suspects; conflicts in the Middle East putting pressure on energy markets and municipal debt problems. Birmingham, Alabama is not an isolated incident, in other words.
I know Caleb gets pissed when I write too much so I think we’re good on the economic outlook for now, lest he come flame me as Guest. Whatever. Back with Part 2 on Monday: What comes after?

Interns – Where Are They Now That They Could Be Useful?

Thumbnail image for intern-where-is-my-report.jpgEditor’s note: This is the latest post from Daniel Braddock, your friendly Human Resources Professional. He could very well be considered a hypothetical love child of Suze Orman and Toby Flenderson. Following his varsity jacket wearing college days, he entered the consumer markets as an auditor for a Big 4 firm in New York City. He spent three brisk years as an auditor before taking the reins of stirring the HR kool-aid. He currently resides in Manhattan. Daily routines include coffee breakfasts and scotch dinners. You can follow him on Twitter @DWBraddock.
You might agree with the sentiment that now would be a fantastic time to have an extra set of hands ticking and tying through the night. Where are those lovable interns when you could actually put them to good use?
I’ll tell you where they are. They’re sitting in class or – depending when this is published – already at the bar for Tuesday’s dollar beer night. They’re getting their McStudy on, prepping for what promises to be one of the best summer internships in the job market today.
As Francine McKenna mentioned, the Big 4’s intern programs are regarded as some of the strongest. Why? It’s certainly not because the programs offer rigorous, reality-driven experiences. The bulk of interns experience your firms during the summer months; nothing like busy season. Many of you were interns yourselves, spending 8-12 weeks basking in the attractive glow of the 10-year partner track and abundance of work/life initiatives.


The fundamental purpose of an internship was – for a long time – a simple machine: offer students the ability to “test” a career in public accounting while providing H.R. with a fulltime hire “pre-screening” process. Programs have elaborated to the points of gross extreme (more about this on Thursday), but the general principle remains.
This is why I disagree with Francine’s comment that, “hiring more interns instead has big pitfalls, for both the employee and the firm.” Personally, I’d rather my firm hire its entire new fulltime class from the previous intern pool, and why the hell not? As light and fluffy as the experience is, the internship program can weed out the few incompetents that snuck through partner interviews. Of course, that’s assuming management gives half a damn and spends more than 1.7 seconds completing the H.R. performance reviews for each intern.
The root of the problem is that the “best” internship programs have lost touch with the core values of the past. Ten years ago interns were local students working part-time in order to save money for a car payment or next semester’s books. The experience was elementary but worthy nonetheless. Now, the current state of the Big 4’s programs are a product of keeping up with the Joneses. Summer months set the competitive stage for training sessions, mentorships, ball games and beers. Stir in a high paying salary (with the possibility for overtime!) and H.R. wonders where the Millennial Generation’s sense of entitlement originates. The Kool-aid is spiked with the fruits of privilege.
Don’t expect things to change anytime soon.

The Big “Regulation” Joke

laughing.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
In an uncharacteristic move by one of our favorite accounting professors, Prof Albrecht went off on regulation over at The Summa yesterday and personally, JDA was stoked.
The Economic and Regulatory Shadow is recommended in its entirety but here’s a juicy tidbit for you to suck on:

It is frustrating to be an accounting professor and to live in the United States of America. A mind set that triumphs the interests of corporations and auditors over those of investors is entrenched in the regulatory shadow. Consequently, any policies that might favor populist policies have little chance of success.


The federal government’s financial and economic regulatory apparatus is comprised of the Treasury Department (Treasury), the Federal Reserve (Fed), and the Securities and Exchange Commission (SEC). The top positions are political appointees, but the bulk of the work is performed by career and long-term personnel. It is a lot like the situation at the State Department (State), Department of Defense (DoD), and the National Security Agency (NSA).

Know what’s really funny about Professor Albrecht’s timing? The Fed is facing this same regulatory dilemma, even if major financial bloggers missed the point over the weekend. Sure, they care about the spectre of an audit but mostly right now they don’t want the President being the one who puts regional Fed presidents in their positions. I don’t blame them for tripping on that.
So? Our dear Professor has gone out on one hell of a limb here, nearly unheard of when it comes to accounting professionals. The glossy marketing materials CPAs outnumber those who keep it real like Francine, Dennis, Skeptical CPA, and now Professor Albrecht but we’re making progress (he did always get the IFRS thing so this isn’t really all that surprising of a position).
I’m constantly thrilled to see outrage. Maybe that’s because I’m a shit-disturber but I think it is about time the industry get worked into a lather over perceived imbalances in the very regulatory system that we have to tip-toe around. All that tedious stuff you little CPAs do each and every day? It means nothing without the backbone of a regulatory system and as Professor Albrecht so astutely points out, we are sort of lacking in that department these days.
And? WTF are we supposed to do about that? Heads down and keep ticking and tying, kids, there’s not much else to do at this point.

>75: That Time of Year Again: Balancing the Exam and Busy Season

Help!.jpgEditor’s note: This is the latest edition of >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to tips@goingconcern.com and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
Do you have a CPA exam question for >75? Send it in. I’ll be nice I swear. Possibly useful.
So it’s January and some of you are heading into a rough couple of months. With the 18 month clock ticking on the CPA exam, you don’t really have any options but to fight through it. Or argue with people on the Internet. Maybe that’s why you don’t have enough time to study?
Anyway. It’s not easy but remember it is also temporary so as long as you suffer through it a bit (oh please, is it really that bad?), it’s possible. Here are some things I’ve seen work:
• Talking to management and partners – I know. You’re going to laugh me out of here (“wtf version of JDA is this?”) but stick with me. Have you asked? I’m not saying this is always a successful method but it can never hurt to ask or let management know you’re taking the CPA exam. Especially if you work in a smaller firm, just talk to someone above you with some pull. I’ve seen it so I know it isn’t impossible.


• Cutting out the extraneous crap – You know exactly what I mean. Time management for studying is a lot like budgeting for chronic spenders. I used to burn through paychecks until I actually printed out three months worth of debit and ATM charges and saw how I was $2 and $7 and $14ing my way to $0 in no time. In much the same way, you have to figure out where you are spending your time in a week (or a day if that works better for you). Things that take “a few minutes” (Facebook anyone?) add up so count them.
• Not doing too much – One exam is enough if you really are swamped. It’s fine. Just don’t let post April 15th suddenly turn into late August because you were “so wiped out” from busy season. Take a realistic break but don’t get too detached from your goal.
What works for you to get through busy season and the exam? And don’t say trolling accounting websites trying to pick Internet fights.
Good luck? As always, it has nothing to do with circumstance, it’s just discipline.

The FDIC’s New “Risk-Based” Fee Policy. Or, Alternatively, “F&%k You, Pay Me; Banker Edition”

Uncle Sam.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
Listen, we know the FDIC is broke, there’s no use pretending they aren’t. But apparently we’re going to keep doing it so let’s stop for a moment and analyze the FDIC’s latest crackpot scheme to keep bad banks afloat and their balance in the black, shall we?
The summation up to now — for those of you with short attention spans — is that the FDIC is looking to tax banks’ asses based on the risks they take. On the surface that doesn’t sound like a bad idea until you consider the fact that the FDIC, by its very nature as a “safety net”, encourages the exact behavior they’re looking to “penalize”. Keeping in mind also that the Obama administration is coming down on banks from the other end with some tax scheme, it makes you wonder why the hell we bailed them out in the first place.


Blame the academics and these brainiacs in Washington who believe there’s nothing wrong with the fundamental framework of American banking, least of all that any of it could possibly be attributed to the attitude that Uncle Sam will always come to banks’ rescue. Here’s hoping the bankers paid attention in Econ 101 when they went over that whole “no such thing as a free lunch” part.
UPI:

FDIC Chairman Sheila Bair said there was “a broad consensus of academic studies,” that concluded “poorly designed compensation structures can misalign incentives and induce risk taking.”
Bair said called a study of “compensation structure, rather than levels of compensation,” a fair approach.

Maybe I just don’t have the auditor mind needed to wrap around a concept like this but WTF is that supposed to mean?! The FDIC epitomizes moral hazard so how in the hell is it that the FDIC is the one coming in to tap banks to cover said risks? I’m not rationalizing banks’ behavior (I remind dear reader here that the top 5 banks in America hold $275 trillion in notional derivative exposure) but, uh, just because Sheila needs to cover the next round of failed banks doesn’t make it appropriate to start regulating now.
Has she ever heard of too little too late? How about too much too late?
As I have already pointed out, we all know who is going to ultimately pay for this and it sure as hell isn’t the banks. Bend over, the next round is about to hit and it’ll hurt less if you’re prepared.

Double-dipping the Economic “Recovery”

Thumbnail image for tax man.jpgIn case you haven’t heard, it’s go time for the Obama administration to cover its continually-growing deficit with no sign of increased foreign investor demand for unstable and uncertain US debt. What happened to passing a health care overhaul before Christmas? And what about those 140 failed banks in 2009? And hey! What became of that $700 billion in stimulus money that was supposed to save and create bazillions of jobs?
Here’s the solution. Tax their asses.
NYT:

President Obama will try to recoup for taxpayers as much as $120 billion of the money spent to bail out the financial system, most likely through a tax on large banks, administration and Congressional officials said Monday.


In a desperate scramble to come up for cash, the administration has thrown out a couple of unpopular ideas (unpopular if you’re a banker, of course) including excessive taxes on bonuses and bizarre financial transaction taxes. Like squeezing blood from turnips, apparently these guys forget that it was less than a year and a half ago that Hank Paulson appeared on the Hill threatening full-on financial doomsday were TARP not instituted rightf*ckingnow. So much for pulling out the bazooka in his pocket.
And let us not forget that shit rolls down hill. Who do you think would ultimately be responsible for these additional monies? The banks or the idiot customers who continue to shovel out ever-increasing fees to said banks? Exactly.

Lobbyists for bankers, taken by surprise, immediately objected to any new tax. They said financial institutions had been repaying their portion of the bailout money in full, with interest. Losses from the $700 billion bailout fund — estimated to run as high as $120 billion — are expected to come from the automobile companies and their finance arms, the insurance giant American International Group and programs to avert home foreclosures, and the president is aiming to recoup that money.

I really, really hate to side with the bankers here but they are absolutely right. If retribution for the financial crisis is our goal, taxing them to death isn’t the way to achieve that. If paying our government’s bills is the goal, however, I could see how this could easily be spun into populist payback for the pain and suffering of the last 2 years.
Hate to break it to you, America, but any money potentially recouped by this genius scheme has already been spent and certainly wouldn’t result in any long term benefit to us as a country. I’d use the pay day loan analogy again but hell, isn’t it played out by now?

>75: Procrastination

Procrastinate.jpgEditor’s note: This is the latest edition of >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to tips@goingconcern.com and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
First of all, I have to give it to all of you little future CPAs of America, you REALLY know how to put things off until the last minute, don’t you?
I’m going to let you in on a tiny little secret: the exam never goes away.
Let me paint an “imaginary” scenario where CPA Review classes are starting in less than 48 hours. Classes have been on hold for over two months and suddenly, within this 48 hour period, there is a rush of panicked CPA exam candidates realizing they’ve got less than a day left to figure out a plan. Anyone else see what’s wrong with this picture?
I’m not talking about a handful of people, I’m talking about a significant chunk of you. You know who you are and you know exactly what I’m talking about.


So what is it? Do you believe that the exam will pass itself? Or if you put it off long enough somehow you’ll wake up one day a CPA? I hate to break it to you but that’s really moronic.
There are students in our classes that are 50-some years old. Think about that. They graduated 30 years ago and are STILL putting this stupid ass exam off. So don’t think you’re some hero of procrastination just because you let 18 months go by and started losing exam scores, you aren’t special.
The bottom line is this: it is all about what you want to do with your life. Do you really want to be a CPA? Then you’ll suck it up and finish. Don’t do it because your parents want it or your girlfriend wants it or it’s your grandma’s dying wish. You are only setting yourself up for a life of half-assed failure, misery, and disappointment.
Which is kind of like what you’re setting yourself up for with a CPA and a career in public accounting except + tchotchkes. Win* (I think).
Point is, stop. In the time it takes for you to come up with 1000 excuses, you could have already booked your exam and gotten through at least 150 MCQ. Yes, it sucks but guess what? You picked it. You can make it worse on yourself and be that 50 year old guy in the back of our Live class or you can just get through it and stop bitching.
/end rant. Do it.
*I’m obligated to say that because of my day job

The Fed on Glass-Steagall; Me on STFU, Fed Boys, We Got This

Thumbnail image for Solutions.jpgKansas City Federal Reserve President Thomas Hoenig is a voting member of the FOMC this year and apparently he got my note.
He is charging into the year as a cheerleader of long-dead regulation and ending TBTF. This is a song and dance we’ve seen from the Fed about a bazillion times now. Just because regulation is my shit doesn’t mean I’m entertained in the least by this.


WSJ:

A top U.S. Federal Reserve official said Tuesday it’s necessary to consider how banks considered too big to fail can be broken up so they no longer pose a systemic risk to the U.S. economy.
“Beginning to break them, to dismember them, is a fair thing to consider,” Federal Reserve Bank of Kansas City President Thomas Hoenig told a panel at the annual meeting of the American Economics Association.

Well if insisting too big to fail is too big to continue isn’t enough, maybe Hoenig’s declaration of “bring back Glass-Steagall!” will make the panties drop?
Nope.

“We’ve got to start somewhere — and size matters,” Hoening said, calling for rules to address the problem that are simple and easy to enforce.
“We’ve got to strike while the iron is hot … but we must also do it right,” Hoenig said, adding there was a “chance” that new rules could be passed this year.

I’m going to go ahead and resist the easy joke here.
So? Should commercial banking and investment banking once again be absolutely distinct from each other?
I think if we’ve learned anything from this crisis it’s that the lines are blurred; accountants should know finance, finance professionals should know accounting and Christ, no one let the quants near the securitization models again. I have seen a noticeable increase in bankers, CFOs, etc pursuing CPA licensure since 2007. I can’t tell you numbers (if I did I’d be making them up) but a lot more of them call and the line is no longer as definitive as it was.
Our rules need to change. It’s not that we should bring back Glass-Steagall, it’s that two new guys need to write one hell of a regulatory bill that redefines our financial system as we know it and slap their names on it.
The financial system we’ve got sucks and if we don’t do that, Fed guys like this will keep yammering on about interest rates they never plan to raise and popping future bubbles.