Author: Caleb Newquist

Founding editor, Going Concern.

PwC’s MF Global Audit Team Really Could Have Used This Artificial Intelligence a Few Days Ago

Or maybe months ago. Or years ago. Unfortunately this news just came out today:

Free iPhone 4S at PwC! Well, for some people anyway – Email went out this morning that if your current contract is up for renewal, you can switch your service to AT&T (keeping your existing #) and receive a FREE iPhone 4S 16GB. Only question remains is what will Siri’s bill rate be?

Obviously the opportunity here is to delegate some of the more important intern duties to Siri such as where the team will get takeout, advice on how to fix the copier, among others.

BREAKING: Stress Affects Accountants’ Mental Health

Yep! And apparently there’s new evidence “suggesting” as much:

The Chartered Accountants’ Benevolent Association is logging rising numbers of calls from professionals who appear to be developing mental health issues, or believe they are at risk of doing so. Interim operations team manager Helena Coxshall said the evidence is not conclusive as the helpline does not offer medical diagnosis, but highlighted rising numbers of calls in the second half of 2011. “These are coming from people who feel that they are heading towards a potential breakdown and we also see it from people who call us regarding other issues, but appear to be showing symptoms of mental illness of which they may be unaware,” she continued.

So take care out there, masters of the double-entry system. The last thing we want to see is any of you cracking up.

Accountants’ mental health ‘hit by stress’ [Accountancy Age]

Accounting News Roundup: Deloitte Banking on Asia; New Partners at WeiserMazars; MI: Corporate Tax Rate | 11.03.11

Euro’s Leaders Question Greek Membership [Bloomberg]
Led by Germany and France, Europe’s economic and political anchors, the euro’s guardians yesterday cut off financial aid for Greece until an early December vote determines whether it deserves a fresh batch of loans needed to stave off default. “The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?” German Chancellor Angela Merkel told reporters after crisis talks hours before a Group of 20 summit set to begin today in Cannes, France. French President Nicolas Sarkozy said Prime Minister George Papandren’t get a “single cent” of assistance if voters reject the plan.

MF Global accused over fund transfers [FT]
CME Group, the US exchange operator and supervisor of MF Global’s futures brokerage business, has accused the failed broker-dealer of moving customer funds “in a manner that may have been designed to avoid detection”. MF Global left a $633m shortfall in what are supposed to be protected customer funds, the Commodity Futures Trading Commission said on Wednesday. The disclosure came as lawyers for MF Global’s bankruptcy trustee raced to arrange the transfer of thousands of commodities accounts before the law requires their liquidation.

Deloitte Plans More Asia Growth [WSJ]
Barry Salzberg, global chief executive officer of the international network of accounting, consulting and auditing firms, said in an interview with The Wall Street Journal last week in Singapore that Deloitte’s work force grew by 12,000 last year, and that he expects a similar pace of hiring in the fiscal year ending next May. Deloitte has also said it expects by 2015 to increase the total to 250,000 people, from 182,000 today.

Investors Punish Diamond for Delay [WSJ]
Investors reacted harshly Wednesday to questions about accounting at Diamond Foods Inc. that forced the snack maker to delay its $2.35 billion acquisition of Pringles into next year. The company’s stock fell 18% to $52.79 a share, a level that, if sustained, would make the deal $150 million more expensive than it would have been before Diamond announced the delay. Late Tuesday, Diamond said it would investigate allegations sent to the chairman of the board’s audit committee, Edward A. Blechschmidt, regarding Diamond’s accounting for certain crop payments to walnut growers.

WeiserMazars LLP Promotes Three Senior Managers to Partner in New York City and Lake Success, N.Y. Offices [WM]
Seth Cohen, Guillaume Wadoux and Roberto Viceconte have earned seats at the adults table.

IRS Acquiesces in O’Donnabhain: Gender Reassignment Surgery Is a Deductible Medical Expense [TaxProf]
The court held that because hormone therapy and sex reassignment surgery treat the taxpayer’s disease they are medical care, and the expenses for that medical care are deductible under § 213.

Frantic trading before MF Global UK failure – KPMG [Reuters]
KPMG also said it was working closely with company staff to transfer client positions, and that it had already closed out substantial positions. “Since our appointment we have received thousands of e-mails, telephone calls and letters from clients and related parties with highly complex requests,” Richard Fleming, UK head of restructuring, said in the release.


How Should Auditors Handle China’s State Secrets Law? [WSJ]
In the case of KPMG, it’s decided to issue a “qualified opinion of scope limitation” – essentially not being able to sign off on a company’s books – for its client, Hong Kong-listed China High Precision Automation Group Ltd.

Mission Impossible: Cutting the Corporate Tax Rate to 25 Percent [TaxVox]
It has been an article of faith among most congressional Republicans and many Democrats that the corporate tax rate should be cut from today’s top level of 35 percent to 25 percent—or even less. And backers of the idea breezily suggest this could be paid for by scaling back some corporate tax breaks. But a new report released today by the congressional Joint Committee on Taxation concludes it can’t be done.

KPMG Has Traders in Stitches

One anonymous independent trading client of MF Global said “It’s a joke. I don’t know what’s happening to my positions and when I’ve tried to contact KPMG all I’ve been told is that I can send an email to which I get an automated reply.” [FN, Earlier]

German Finance Minister Says No One Needs to Be Thrown Under the Bus for ‘Annoying’ 55 Billion Euro Glitch

Yesterday we learned that officials in the German government were a little surprised that a 55 billion euro accounting error wasn’t discovered by a “certified audit.” They’ve been quite the laughingstock in the German press, so they done their damnedest to find someone to throw under der bus. Well, today German finance minister Wolfgang Schaeuble basically put everyone at ease – there’s no one to blame!

The Finance Ministry knew “with certainty” on Oct. 13 that an accounting error had occurred after receiving notifications on Oct. 4, Schaeuble said at a press conference in Berlin today, adding the error is “annoying” because its magnitude can unsettle the public. “Here raves the lake and wants to have its victim,” Schaeuble said, citing from Friedrich Schiller’s drama William Tell. “That’s not my understanding” of how the biggest accounting error in Germany’s post-World War II history should be sanctioned, he said.

So rest easy, PwC. You’re off the hook for this one.

Schaeuble Says 55.5 Billion Euro Accounting Error Was a Glitch [Bloomberg]

How Much Trouble Is PwC Looking at for All This MF Global Business?

As has been reported, MF Global may have done some commingling of client money with its own which is a big no-no. This means the Feds are now on the case, which means typically cool-as-a-cumcumber cucumber Jon Corzine could be sweating a bit. MF Global’s auditor, PwC, on the other hand, has it made in the shade (at least somewhat). Why? How? Alison Frankel over at Reuters tells us:

[E]ven if it turns out that MF Global was illicitly dipping into customer accounts, if that commingling of funds helped keep the business afloat, PwC is protected by in pari delicto.


If you’ve never heard of in pari delicto, that’s the obscure doctrine that says a bankruptcy trustee that’s representing the corporation can’t go after another party for stunts pulled by said corporation. In other words, if MF Global commingled funds, if (probably more like “when”) the trustee attempts to recover funds from PwC, the firm will be protected. Francine McKenna has been writing about in pari delicto since early 2010 saying that it’s “like a pair of needle nosed pliers by audit firm defense lawyers to diffuse a bomb” and last year’s ruling for KPMG in Kirschner v. KPMG and the favorable ruling for PwC in Teachers’ Retirement System of Louisiana v. PricewaterhouseCoopers LLP reaffirmed that sentiment. PwC probably isn’t sweating this.

But what about PwC’s audit opinion on MF’s financial statements? The Grumpies pondered the idea of what might constitute grounds for P. Dubs to issue a going concern opinion for MFG:

Might that include four years (2008-2011) of massive losses, as occurred at MF Global? Might that include severely negative free cash flows for three of the last four years? Might that include an exposure to European sovereign debt that will lead to greater future losses? Might that include several downgrades in the credit ratings?

Say you’ve got a broker-dealer client that has no European sovereign debt exposure and isn’t covered by a ratings agency. You simply have massive losses for four straight years and negative free cash flow for three out of the last four and few signs that things are turning around. Do you think there’s any doubt about this business’s ability to continue as a going concern? What about substantial doubt? Throw in the Eurotrash debt and junky bond ratings again and where do you stand now? Yikes.

But PwC was cool with it. We probably know the why (money and client retention, natch). But how? Love to hear some opinions on that. No matter the answer, our lawyer friends will do well by it all.

BDO Knows the Alamo

The most interesting accounting firm CEO would like to welcome the gang at Carneiro, Chumney & Co. to the club. “The addition of the partners and other professionals formerly with Carneiro, Chumney & Co. provides BDO with a fantastic presence in the important San Antonio market. Combined with our existing practices in Austin, Dallas and Houston, Captain Jack said. With this move, all San Antonioa-area professional recruiters are officially on notice that your leads at Carneiro now have incentive to rat you out. [BDO]

ANR: MF Global’s Internal Controls or Lack Thereof; Concern Over Supercommittee Failure; “These French Fries Are Like Crack” – Yep! | 11.02.11

Lack of MF Global Controls Exposed by Missing Money [Bloomberg]
MF Global Holdings Ltd. (MF)’s bankruptcy, the eighth-largest in U.S. history, is exposing a lack of internal controls that may have prevented a last-minute rescue of Jon Corzine’s futures broker. The day it filed for Chapter 11 protection, New York-based MF Global disclosed a shortfall in customer accounts that people with knowledge of the matter said may be about $700 million. CME Group Inc., which has the authority to audit those accounts, said yesterday it didn’t know how much client money was missing.

Judge BlBuying TaxAct [AT]
A federal judge has ruled against H&R Block to prevent the tax prep giant from moving forward with its $287.5 million acquisition of 2SS Holdings, whose 2nd Story Software unit develops TaxAct software, after the Justice Department objected to the deal.

Tax impasse threatens US deficit progress [FT]
Negotiations to strike a deal that could revive confidence in America’s ability to control its public finances are reaching a critical juncture, with a 12-member panel of Congress – equally split between Republicans and Democrats – weighing competing proposals to break the impasse. But so far there is scant evidence that a large-scale fiscal compromise is in the works, with big divisions persisting, particularly over taxes. The so-called “supercommittee” is due to report on November 23, and if a majority cannot recommend at least $1,200bn in savings for the US government over the next decade, a “trigger” will force automatic spending cuts worth that amount starting in 2013.

Deficit Panel Is Warned That It Must Not Fail and Is Urged to Compromise [NYT]
A co-chairman of President Obama’s fiscal commission told members of a powerful Congressional panel on deficit reduction Tuesday that he feared they would fail, and he said the consequences of such failure could be calamitous. Four experts on fiscal policy — two Democrats and two Republicans — told the panel that Congress should reduce the budget deficit by adopting spending cuts and increases in tax revenues. One co-chairman of the president’s fiscal commission, Erskine B. Bowles, said he had great respect for each member of the committee, but added, “I am worried you’re going to fail — fail the country.” Former Senator Alan K. Simpson, the other co-chairman of the commission, denounced Grover G. Norquist, the conservative antitax advocate, and AARP, the lobby for older Americans, saying both were obstructing efforts to reduce the deficit.

Cattles Claims ‘Gross Misstatement’ of Debt in PwC Audits [BBW]
Cattles has claims against PwC tied to the firm’s audits of its finances from 2005 through 2007 that could result in “substantial damages,” according to an outline of the case by Judge Henry Bernard Eder in London, who ruled yesterday on preliminary issues. The company said PwC’s audit led to a “gross misstatement” of the company’s bad debt. While an official complaint hasn’t yet been filed, Cattles was awarded some legal costs against PwC in an evidentiary dispute. Cattles claims groups of loans that were “ostensibly” set aside for debt collection were in reality just buckets for bad debt, Eder said in the ruling, which didn’t address the merits of the case. “Once the misstatements became clear, the group could not continue trading and became worthless.”

MF Global Goes Belly Up, So Where Was the Going Concern Opinion? [GOA]
Grumpies: “To answer the question, yes, we do think PwC probably should have issued a going concern opinion. There were plenty of breadcrumbs to reveal the cupboard was bare.”

Reznick Group Appoints Five New Principals [RG]
Adam Kleeman, Lucas Matesa, Marshall Phillips, Rick Suid, and Joseph Wallace all got their sports coats out for the occasion.


Graduate job applications up 140% at E&Y [Accountancy Age]
Ernst & Young has seen applications to its graduate and undergraduate placements rocket in the last year. Graduate job applications have increased 140% in a year, while undergraduate trainee schemes, which offer work experience at the firm, has also seen a frenzy of activity as submissions grew 215% compared to last year.

Fatty Foods Addictive as Cocaine in Studies [Bloomberg]
You’re all a bunch of junkies.

It Appears That Non-Story of LarsonAllen and Clifton Gunderson Merging Is a Real Story Now

Last month we broke the news of LarsonAllen and Clifton Gunderson feeling each other out about a possible merger. At the time, Clifton Gunderson CEO Krista McMasters told Going Concern that the two firms were simply in “exploratory discussions” and it wasn’t a story. Sorta like when two celebrities are seen vacationing on a yacht together. Everyone just assumes they’re banging, will eventually be a couple and the new celeb couple name game begins instantly. However, it turns out that they are “just friends” who are “enjoying time together.” For this particular round, our sources told us that LA and CG were “50/50,” that LarsonAllen had approved the merger and that the new merged firm would be known as CliftonLarsonAllen. Again, at the time of our discussion, Ms. McMasters denied that anything had been decided.

Well, today, it appears that the “exploring” went pretty well and the name game was right on the money:

Clifton Gunderson and LarsonAllen have confirmed they plan to merge in the New Year into a combined firm known as CliftonLarsonAllen. The two firms said Tuesday they would combine, effective January 2, to create one of the top 10 accounting firms in the U.S., with combined revenues of between $550 million and $560 million.

Not to nitpick but by Accounting Today’s count, the combined revenues would be closer to $470 million. I haven’t punched a 10-key in a number of years but that’s the number I got. I guess sometimes you just gotta take their word, amiright? ANYWAY, since these two firms were simply in “exploratory discussions” it’s pretty impressive that they were able to slap this deal together so quickly isn’t it?

The two firms began discussions in the spring and made rapid progress. “As often happens in our profession, firms get together to talk about what it might look like if they ever were to come together and how they might help each other,” said LarsonAllen CEO Gordy Viere.

Gosh, I must have a warped idea of what “exploratory” means. And by “spring” I assume that’s the period between late March and late June? And by rapid progress, does that mean, in three months they were still in “exploratory discussions” and nowhere near a deal, only to fall into each other’s arms less than a month later? I need help with this.

Clifton Gunderson and LarsonAllen to Merge [AT]

German Government Was Under the Impression That a ‘Certified Audit’ Would Find a 55 Billion Euro Accounting Error

Most people are of the opinion that government can’t do anything right. Education? Bah. Economies? Duh. Wars? YEESH. Oddly, politicians are quite fond of mocking the inefficiencies and mistakes of government to better relate to the common folk who don’t put much stock in the government’s operations. This means that politicians must find other people to hold responsible for the mistakes that are happening all around them. This also means that the art of blamestorming is the most coveted skill in all of politics (well, maybe after being able to lie through your teeth). Do things right and you live to fight another day. Do things wrong and you just look like an ass and then have to weather repeated calls for your resignation.

The German government is taking a fair amount of shit for missing a 55 billion euro accounting mistake. This size of a boo-boo can’t really be swept under the rug so, right on cue, the finance minister has turned on the blamethrower full blast:

Finance Minister Wolfgang Schaeuble has summoned executives from the nationalized mortgage bank Hypo Real Estate (HRE) to explain how they made a simple accounting error that ended up raising Germany’s total debt load by 55 billion euros.Schaeuble, in the awkward situation of being humiliated by the windfall that will cut Germany’s debt levels, will also demand answers at a Wednesday meeting from the PwC accountancy firm that signed off on the report.

Schaeuble’s spokesman Martin Kotthaus tried to deflect any blame, saying the ministry received a certified statement from auditors that the balance sheets had been checked and approved. He said it was too early to tell exactly who messed up.

“It’s annoying, to put it diplomatically, when corrections of this dimension are necessary,” said Kotthaus, who was grilled at a news conference. “We had a certified audit of the annual accounts for 2010 and it said everything was in order.”

Right! A certified audit! If there’s anything we’ve all learned, it’s that audits are the one infallible stamp of approval that we can always turn to for confidence. Just ask Lehman Brothers. Or Satyam. Or Li & Fung. Or MF Global. Or Taylor, Bean & Whitaker. Or Koss. Or Countrywide. [breathe, breathe] Or World Capital Group. Or Sino-Forest. Or Colonial Bank. But aside from those, yeah, audits. Those things are solid.

Germany mocked for 55-billion euro bank accounts error [Reuters]

Accounting News Roundup: Treasure Hunt at MF Global; IRS Employees Going Rogue; Soda Tax By State| 11.01.11

MF Global Collapses as Books Questioned [WSJ]
MF Global Holdings Ltd. collapsed into bankruptcy Monday when a potential buyer bolted over a discrepancy of hundreds of millions of dollars in the beleaguered securities firm’s books, people familiar with the matter said. U.S. regulators are investigating the discrepancy, which relates to money from customers that couldn’t be accounted for as MF Global raced to sell itself, according to people with knowledge of the probe. The probe is at an early stage, and it isn’t clear if the money is missing or if the inconsistencies relate to sloppy bookkeeping. The last-minute dealbreaker came just hours after negotiations led by MF Global Chief Executive Jon S. Corzine had concluded with a tentative agreement on a rescue.

Overstock.com (O.co): Insolvency Looming? [WCF]
This isn’t looking good: “At the end of its third quarter, the Overstock.com had $18.4 million of net working capital (current assets minus current liabilities). However, the company would have reported a mere $1.4 million of net working capital had it not played a shell game and window dressed its balance sheet during the third quarter. Apparently, the company wanted to avoid reporting dangerously low net working capital going into the fourth quarter, while at the same time it is trying to renegotiate terms of its Master Lease Agreement (sale leaseback) with U.S. Bank.”

Tax Breaks for Students [WSJ]
News you can use.

Perry Flat Tax Is Fool’s Gold for Conservatives [Bloomberg]
Perry’s plan is, in short, a flat tax in name only. And notwithstanding his campaign’s absurdly optimistic projections, it seems likely that it would result in much lower revenues than the current system.

A Close Look at the Perry Tax Plan [Economix/NYT]
And for another perspective: “Mr. Perry’s plan cannot be taken seriously. I don’t think it’s meant to be, at least by those of us who don’t plan on voting in Republican primaries. It’s just a signaling device, telling the Republican faithful that they can trust Mr. Perry on the tax issue. Whether the plan makes any sense as a matter of policy is irrelevant to its purpose, which is to win him the Republican nomination.”

IRS Roguery is Not a New Development [Tax Lawyer’s Blog]
You. Tax preparer. Enemy.

Monday Map: Soda Taxes by State [Tax Foundation]
Places where buying the world a Coke™ will cost you a little extra.

PwC Names Dietmar Ostermann as Global Automotive Advisory Leader [PwC]
Dietmar comes by way of…A.T. Kearney.