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.

PCAOB, We are Paying Attention

TOLD YOU.jpgPublic accounting could learn a thing or two from Wall Street. What if we treated the PCAOB like Goldman Sachs does the CFTC and the Treasury? Can you imagine PwC partners dispatched into high-profile regulatory positions doing the dirty work for them? We’d save millions in intern fees (oh wait) since no one would have to run a single shredder.
Case in point, the head of the CFTC (who used to work at Goldman) says, “I believe that position limits should be consistently applied and vigorously enforced. Position limits promote market integrity by guarding against concentrated positions.” And what does he do? Block GS competitors with federal limits while letting his friends run wild in commodities futures. We need one of those on our team!
More, after the jump


Oh wait a minute, we already have that! And it gets better, not only does his work history read “E&Y”, he used to be on Fed payroll as well. Double winner – this is the guy you want heading up the audit board? That’s laughable.
Remember?

Mark W. Olson was recently appointed head of the Public Company Accounting Oversight Board by Chris Cox, SEC Commissioner. This ends months of uncertainty about leadership at the PCAOB or Peekabo as it is popularly known. Mr. Olson was a Governor at the Federal Reserve Board.

In fact, the PCAOB chair’s wife probably hangs out with Goldman wives. A quick glance at his resume reveals the sorts of circles Mr Olson travels in; future partners of Big 4 firms might start setting their goals right about now if they’re trying to out-schmooze this guy.
So if you believe Wall Street and the auditors are that different, you’re wrong. No one is going to call Deloitte the vampire squid but it might be a good idea if we started looking at our own questionable regulatory ties. Perhaps accounting can learn a thing from Wall Street before it hits us like it has them?
And who is letting things go to hell?
Now that Olson has abandoned the PCAOB for bigger and better things, we can only hope his mustachioed replacement and those who come after continue the tradition of questionable business associations set forth by our friends at Goldman Sachs and of course the Big 4. Life just wouldn’t be the same without it.

Dear FASB, I’m Breaking Up With You

begging.jpgEditor’s note: Adrienne Gonzalez is founder and managing editor of Jr Deputy Accountant as well as regular contributor to leading financial/investment sites like Seeking Alpha and GoldmanSachs666. By day, she teaches unlicensed accountants to pass the CPA exam, though what she does in her copious amounts of freetime in the evening is really none of your business. Follow her adventures in Fedbashing and CPA-wrangling on Twitter @adrigonzo but please don’t show up unannounced at her San Francisco office as she’s got a mean streak. Her favorite FASB is 166.
I can’t take it anymore. I’m serious, this is BS. It has been nothing but up and down, agony and ecstasy for as far back as I can remember on fair value and I want off this ride.
More agony, after the jump


Via SmartBrief:

The Financial Accounting Standards Board’s updated fair-value rules will require companies to fully understand fair-value and mark-to-market concepts and extensively document their analysis of illiquid assets, as this article notes. The FASB gave companies some new latitude in applying fair-value principles but stood firmly behind the importance of fair value in preparing meaningful financial statements.

Stop, please. This is getting to be abusive.
Remember when you whispered in our ear, “Certainly, to those who say that accounting should better reflect true economic substance, fair value, rather than historical cost, would generally seem to be the better measure” in 2003, Bob Herz? We totally fell for it. Who wouldn’t? Swept off of our feet and still hurting from Enron, we needed a rebound and fair value totally worked.
Now what?
I truly wish you and IASB the best of luck in whatever you two decide to do with your miserable little lives.
WebCPA:

While FASB may be pushing back in the other direction and mulling the use of fair value and mark-to-mark with bank loans in addition to assets like mortgage-backed securities, the IASB seems to be tacking in an alternative direction. That could be leading them on the road to divergence, not convergence.

And I’m defriending you on Facebook, Bob. At least you know your new girlfriend does fair value.
Love,
AG

Bank Failures by the Numbers

empty-2dpockets-small.jpgThis isn’t mathleticism, this is simply truth in numbers. With Colonial Bank officially R.I.P. and torn to shreds (North Carolina-based BB&T has picked up the branches, the garbage will likely be marked down and sold off to whichever sucker the FDIC can find) this past week, it might be a good idea to look at the mathematical reality of the situation.
Lately, bank failures seem to lead tangentially to accounting in that banks often point the finger at mark-to-market as the key piece which sent them hurtling toward doom. Sure, blame the accounting, that’s always a classy move. But all’s fair in love and value right?
In an era where the word “trillion” hardly raises an eyebrow, let’s put this into perspective and look at the 5 largest bank failures of all time (in terms of costs to FDIC):
More, after the jump


5. BankUnited, Coral Gables, FL: $4.9 Billion
4. American Savings and Loan, Stockton, CA: $5.7 billion – at the time, the amount to cover American S & L cost the FDIC 10% of its “fund” and was one of the largest failures of the savings and loan crisis.
3. Continental deserves its whole epic tale
2. Washington Mutual (we can’t discuss costs to the FDIC for this one since JP Morgan swooped in to get it and there are still active lawsuits around the deal)
1. IndyMac: $10.7 billion. That wasn’t too long ago so you should still remember the tale.
In one day (this past Friday), the FDIC found itself on the hook for an estimated $3.68 billion, and surely that’s a positively-doctored number. Move along now, nothing to see here.

Authorities on August 14 closed down five banks — Colonial Bank; Dwelling House Savings and Loan Association; Union Bank, National Association; Community Bank of Arizona and Community Bank of Nevada.
As per the Federal Deposit Insurance Corporation (FDIC), which is often appointed as the caretaker of failed entities, the collapse of these five banks would cost the agency a staggering USD 3.68 billion.

Maybe now would be a good time to express a doubt.

KPMG UK’s Sweet New JPM Gig

KPMG_chair.jpgNothing like a good (alleged) fraud story to finish up our week, eh?
Just in case you missed the story, it appears as though KPMG UK will be a tad busy in the near term trying to unravel this little mess. I suppose that’s good news for the kids working those 4 day work weeks across the pond, though the same cannot be said for JPM, who is facing an unlimited fine as a result.
UK’s Daily Mail:
More, after the jump

The FSA has called in a top firm of accountants to examine the bank’s London activities after evidence emerged that JP Morgan had mixed customers’ funds with its own.
Banks are meant to maintain a strict segregation of their own money from that which is held on behalf of clients.
But JP Morgan managers in London discovered last month that client and bank money used for trading futures and options – a way of speculating on movements in currencies, share prices and commodities – had apparently been put into a single pool.

This isn’t the first time regulatory authorities have busted firms for pooling client money and using it to play craps in the market but it is certainly the first time the FSA has gone after a big player like JP Morgan.
JP Morgan claims an “operational error” in their options and futures arm dating as far back as 2002 caused the “mix-up” though we aren’t sure we buy that line. “We identified an operational error that was corrected within 24 hours of its discovery. No clients have lost money as a result of this error and we are cooperating fully with the FSA,” a spokeswoman for the bank said.
Sure, okay. Just because no clients lost any money doesn’t make it legal. It’s now up to KPMG to slog through 7 years of transactions (at JPM’s expense) to see if any clients missed out on interest due as a result. Prelim findings are due to the FSA by the end of August, with a final report expected in September.
Have fun, KPMG UK!

Hey Big 4, How’s Gen Y Working Out for You?

I read an article awhile back in CFO mag about Generation Y, or more specifically how large firms were preparing for this ‘special’ crop of soon-to-be new grads.
I’m not sure ‘panic’ is the appropriate word but let’s just say these kids had partners freaking out; technologically-inclined, lazy, and pre-programmed with a sense of entitlement normally reserved for royalty and Nobel prize winners, you knew something was up with these kids if management was stressing their arrival. The Big 4 went so far as to hold trainings for partners on how to tame this hyped generation as they prepared to descend on the corporate world.
More, after the Jump


Now that the first wave of Gen Yers have successfully penetrated the corporate fortress, we figured it might be a good time to check in and see how that’s working out.
‘Screw our SEC deadlines’ may not be an exact quote but that was the typical Millennial attitude impressed upon us by one of our sources, a 40-something CPA lucky enough to be stashed away in private accounting out on the East Coast. He also called working with Gen Y ‘horrid’ but private accounting can be horrid in and of itself so we won’t credit that fully to the Under 30 crowd.
Gen Y is driven by… Well we haven’t figured out if they are driven at all. All reports are that they think ‘work ethic’ means avoiding checking their Facebook pages on company time, expect the corner office as soon as the ink dries on their offer letter, and have absolutely no grasp on the concept of performance-driven bonuses.
What’s worse, say sources, is they don’t seem fazed in the least by economic turmoil. Though employers using performance above seniority as a lay off gauge naturally look to their poor performers as first in line to get sliced, the Millennials are so dosed on the illusion of their own greatness that they seem absolutely stunned when the pink slips come.
So why would the Big 4 continue the tradition of recruiting new hires from college campuses, blocking out the 35 year olds who understand that just getting up in the morning is not cause for a gold star?
You’ll have to talk to the hiring managers if you want an answer to that. Perhaps it’s that we’ve got them all wrong and the generalization itself is what’s driving the conflict.
In the meantime, we are looking forward to seeing how Gen Y breaks out of the stereotype to impress the pants off of us and inherit the empire. With all that ambition and talent, we’re sincerely hoping they learn to apply that to the Big 4 to shake things up for the better. Hopefully they can also bury the billable hour once and for all while they’re at it. Go, kids, go!

Ken Lewis Should Have Been a CPA

KenLewisNOPEb.jpgWe know public accounting is hard. The unpaid overtime (*cough* perhaps PwC can tell you about that *cough*), busy season, the misconception that all CPAs are number-crunching mathletes, and, of course, the inconvenience of having to answer everyone’s obscure tax questions. “Dude, I don’t even WORK in tax, I’m an auditor.” “Yeah but I just have this quick question about a deduction…”
As bad as the CPAs may have it, they’ve got it easy compared to this guy. Poor Ken Lewis. Someone invite him to waste a few years in public accounting please, he’s getting pounded from every angle over here, poor bastard.
Let’s check the timeline – please compare to your busy season and see who has it worse if you’re still regretting your decision.
More on KL’s banner year, after the jump


Ken Lewis’ year started sucking in January after the Merrill bonus scandal erupted. This got NY State Attorney General Andrew Cuomo on his back, eventually leading to the Fedgate scandal in which Lewis claimed Ben Bernanke and Hank Paulson “threatened” the Bank of America CEO or kept him on a short TARP leash or some such “OMG did he really just say that?” revelation. He’d already come off a pretty rough year previous but you already know that story.
Bernanke and Paulson didn’t take getting fronted off too kindly (we can only assume) and Lewis hasn’t really gotten a break since. The guy couldn’t even sell his Porsche without feeling the heat. Now a judge is blocking the $33 million settlement he’d love to make with the SEC and some Citigroup reject is being groomed as his replacement. Burn. Oh, and then there are the JP Morgan analysts saying Bank of America will service the loans that TBW cannot since, well, it was raided by Federal agents and barred from making loans by the FHA.
So how bad do you really have it? We told you it could be worse. Next time you’re out there ticking and tying wondering how in the hell you’re going to spend the rest of your life that way, just think about Bank of America and remember you could be Ken Lewis right about now.
What we’d really like to know is: will Lewis be able to limp along for the next 3 years and make it to retirement before totally flipping out?

The FDIC May Have to Seize Itself

PiggyBank_broken.jpgEditor’s note: Adrienne Gonzalez is founder and managing editor of Jr Deputy Accountant as well as regular contributor to leading financial/investment sites like Seeking Alpha and GoldmanSachs666. By day, she teaches unlicensed accountants to pass the CPA exam, though what she does in her copious amounts of freetime in the evening is really none of your business. Follow her adventures in Fedbashing and CPA-wrangling on Twitter @adrigonzo but please don’t show up unannounced at her San Francisco office as she’s got a mean streak. Her favorite FASB is 166.
In honor of Bank Fail Friday, let’s take a look at our doubt over the FDIC continuing as a going concern. Sure, we know it’s technically a government agency and therefore not subject to the same sorts of worries as public companies but there is certainly something brewing here.
We are not in the business of auditing the financial statements of the FDIC, even if they provided such information. Frankly, if they did, we really aren’t equipped to analyze said statements. Be that as it may, you don’t need to be an expert to see that the FDIC is in a whole shit ton of trouble (yes, that is our qualified opinion).
More, after the jump


Remember Colonial Bank? Surely Sheila Bair has been up late since the news broke on Monday that they’d cooked their books, or something about TARP fraud (though the bank never received TARP funds after that TBW deal for $300 million fell through Friday). Maybe it was undercapitalization? Who keeps track of these things?
Anyway, the point here is that the FDIC well has run dry and there’s no magically conjuring up a Treasury line of credit. While Congress has offered up a $500 billion “line of credit” to our friends at the FDIC, that money technically does not exist. (Psst: hate to break it to Congress but yours truly is only a tad concerned that there may be trouble in the bond market ahead).
I’m no mathlete but this should be fairly simple to understand:
Colonial has about $25.5 billion in assets, while the FDIC has about $13 billion remaining in the fund. According to Sheila’s math, new FDIC fees levied against Too Big to Fail will net the fund about $27 billion this year. To put this into perspective, the FDIC lost $33.5 billion in 2008 to cover 25 bank failures. Add it up, as we’ve had 69 bank failures in 2009 to date. Carry the 1 and I believe we arrive at the following figure: the FDIC is screwed.
Like I said, someone might want to check my numbers but it doesn’t look good.
I could also point out that perhaps the FDIC should have chosen the “proactive” route and collected insurance premiums for the last 10 years instead of assuming the good times would last forever but again, not my jurisdiction.
Disclosure: the author has long since diversified her “investments” in the First National Bank of Her Mattress, thankyouverymuch.

LandAmerica: Victims of Bad Marketing or Ponzi Schemers?

RG-1031.jpgEditor’s note: Adrienne Gonzalez is founder and managing editor of Jr Deputy Accountant as well as regular contributor to leading financial/investment sites like Seeking Alpha and GoldmanSachs666. By day, she teaches unlicensed accountants to pass the CPA exam, though what she does in her copious amounts of freetime in the evening is really none of your business. Follow her adve and CPA-wrangling on Twitter @adrigonzo but please don’t show up unannounced at her San Francisco office as she’s got a mean streak. Her favorite FASB is 166.
There’s nothing we appreciate more than a really juicy tale of crappy auction rate securities, fire sales ignored by regulators, and bankruptcy when the scam runs out, especially when the perps happen to be audited by a Big 4 firm you may have heard of (there are only 4, just throw a dart).
Excuse our bad grammar and run-on sentences, we just don’t know where to start with this.
More, after the jump


Once upon a time not that long ago when a tarp was just something you brought camping, LandAmerica was at the top of the 1031 exchange game. That entire story is a tad too long for today’s 140 character attention span so let’s fast-forward to the part where there are even entire forums dedicated to discussing why regulators missed LandAmerica. In short: LandAmerica exchangers are pissed off.
To get a hint at just how pissed off, take a peek at what the forum has to say:

Then LandAm files Bankruptcy proceedings on their 1031 subsidiary, saying: “…you 1031 clients of ours are ‘…going under the wheels of the Bankruptcy bus” because “we” made bad decisions in $290 million ARSs. Wow! a $300 million “wash.” A “Back-Door” merger without the “toxic” ARS funds. LandAm1031 clients get hosed!

Burn! Those are some wild accusations, is it fair to spit such venom at LandAmerica?
Well… um… yeah, actually. And LandAmerica has due diligence to blame Fidelity has due diligence to thank.
On November 24th, 2008 LandAmerica went into free-fall after Fidelity announced that it would be pulling out of the tentative deal (subject to final due diligence). Given the BBB mark of the beast by Fitch shortly thereafter, LandAmerica slumped off to bankruptcy court. Meanwhile, those who found themselves at the short end of LandAm’s 1031 exchange stick started getting letters from the IRS while their money was off in SunTrust accounts getting killed by illiquid auction rate securities without their knowledge. You’d think more people would be discussing something that involves millions of misappropriated investor dollars but who are we to judge?
As with most (alleged) Ponzi schemes, the “scheme” escapes detection until the money runs out. And when Fidelity backed out of the LandAmerica deal, LandAmerica had what can only be called a Madoff Moment.
Making this saga even better is, that for some completely bizarre reason that escapes us, the Richmond Fed has decided to hire LandAmerica’s former legal counsel Michelle Gluck to serve on their team as Chief Legal Officer (perhaps they are taking a cue from the Fed Board of Governors who hired an ex-Enron PR girl awhile back?). We truly love hate to wildly speculate here but this goes against logic, which we are generally used to seeing from Richmond Fed President Jeffrey Lacker and his bank. “With her broad range of leadership experience and extensive legal expertise, I know she’ll make great contributions to the Bank and to the Federal Reserve System,” he said of his new hire.
So what exactly is Richmond trying to do here? With credentials like that, I’m only slightly concerned now.
We’ll let you know if we ever figure that out. The SEC couldn’t be bothered to comment about it and reminded me why I don’t like picking up the phone.
We did however speak with one angry LandAmerica creditor who has a lot of questions and no answers and we’d be happy to update you with his comments as the investigation unravels. Oh wait, who said there was an investigation? Could someone kindly forward this to the SEC? Some of us have a day job.

What is Going on at Colonial Bank?

thumbs down col.gifEditor’s note: Adrienne Gonzalez is founder and managing editor of Jr Deputy Accountant as well as regular contributor to leading financial/investment sites like Seeking Alpha and GoldmanSachs666. By day, she teaches unlicensed accountants to pass the CPA exam, though what she does in her copious amounts of freetime in the evening is really none of your businesures in Fedbashing and CPA-wrangling on Twitter @adrigonzo but please don’t show up unannounced at her San Francisco office as she’s got a mean streak. Her favorite FASB is 166.
The Colonial BancGroup audit group is going to have some ‘splaining to do when all’s said and done. Proof that you really don’t want to mess around when it comes to $700 billion taxpayer injections.
SIGTARP top cop Neil Barofsky said early on “I hope we don’t find a single bank that’s cooked their books to try to get money but I don’t think that’s going to be the case” but evidently forgot to knock on a nearby piece of wood in the Treasury basement when he did as SIGTARP agents have raided two Florida offices in conjunction with possible TARP fraud.
The whole thing, after the jump


Via Florida’s Ocala.com:

“I can confirm for you that our office, the Office of the Special Inspector General for the Troubled Asset Relief Program, has executed two search warrants today in the state of Florida,” said Kristine Belisle, communications director. “It’s our investigation. It’s our agents that have executed search warrants.”

Belisle said the warrants were sealed.
“I can’t provide any further information because of the nature of an on-going investigation,” Belisle said.
While Belisle is hesitant to get into the details, we’d be happy to catch you up for now.
The story, as we understand it, goes something like this: Colonial BancGroup, finding itself under increased pressure by both federal and state regulators including the FDIC, Federal Reserve, and the Alabama State Banking Department to bump up capital, thought it had a $300 million deal in the bag with Florida-based Taylor, Bean & Whitaker. We’d like to point out here that while the author enjoys stirring up trouble wherever possible, it’s never a good idea to do so when Federal regulators are involved, especially when they toss out demands like this:

WHEREAS, on July 15, 2009, the board of directors of BancGroup at a duly constituted meeting adopted a resolution authorizing and directing Simuel Sippial, Jr. to enter into this Order on behalf of BancGroup, and consenting to compliance with each and every provision of this Order by BancGroup and its institution-affiliated parties (blah blah blah)
(a) The consolidated organization’s and the Bank’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and D of Regulation Y of the Board of Governors (12 C.F.R. Part 225, App. A and D) and the applicable capital adequacy guidelines for the Bank issued by the Bank’s federal regulator;

Our emphasis/edit. Long story short, the Taylor, Bean & Whitaker deal was never a go and Colonial shares have been in full-on death watch ever since. But wait, there’s more!
As of about 11a EST this fine Monday morning, SIGTARP agents have crawled around both Colonial and TBW offices in search of… well, we don’t know exactly what they were looking for as company reps and regulators have been fairly tight-lipped since this story broke but we’re pretty sure they aren’t trying to track down Michael Jackson’s body.
Not so coincidentally, Colonial (CNB) reported a $606 million loss on Friday. The phrase “going concern doubt” was probably invented just for cases like this, although we have our own phrasing that we like to use including “totally screwed!” and “Just Big Enough to Fail”
This is the first large SIGTARP case that we are aware of and if Colonial is closed by regulators, it will be the largest bank failure of the year. No disclosures, though we will be excited to see what else Barofsky’s office is cooking up (no pun intended).
Feds raid Colonial Bank office in Florida [Reuters]