Author: Caleb Newquist

Founding editor, Going Concern.

Accounting News Roundup: SarbOx’s Clawbacks Disappoint;Tax Credits Boost Video Game Industry; Ex-E&Y Partner’s Conviction Sticks | 09.12.11

Clawbacks Without Claws [NYT]
Under the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission was encouraged to hit executives where it hurts — in the wallet — if they certified financial results that turned out to be, in a word, bogus. SarbOx was supposed to keep managers honest. They would have to hand back incentive pay like bonuses, even if they didn’t fudge the accounts themselves. That, anyway, was the idea.

At 9/11 ceremonies, tearful storytelling and still-vivid memories [WaPo]
The anniversary of the attacks — the first since the killing in May of Osama bin Laden — unfolded through tearful storytelling and still-vivid memories. Political and religious leaders urged the nation to recall the spirit of common purpose that defined that day and its immediate aftermath but which has faded amid the acrimonious debate over America’s response to the attacks and the effect that response has had on the nation’s politics, finances and values.

How to Make Business Want to Invest Again [NYT]
According to a 2008 study by the Organization for Economic Cooperation and Development, “Corporate taxes are found to be most harmful for growth.” Tax reform that reduced the burden on capital income and shifted it toward consumption would improve prospects for long-run growth and, in so doing, encourage greater investment today. Yet it would be overly optimistic to think that any single public policy, by itself, could lead to the kind of robust investment spending seen in previous recoveries. Myriad government actions influence the expected future profitability of capital. These include not only policies concerning taxation but also those concerning trade and regulation.

Capital gains tax rates benefiting wealthy feed growing gap between rich and poor [WaPo]
For the very richest Americans, low tax rates on capital gains are better than any Christmas gift. As a result of a pair of rate cuts, first under President Bill Clinton and then under Bush, most of the richest Americans pay lower overall tax rates than middle-class Americans do. And this is one reason the gap between the wealthy and the rest of the country is widening dramatically.

Rich Tax Breaks Bolster Makers of Video Games [NYT]
The United States government offers tax incentives to companies pursuing medical breakthroughs, urban redevelopment and alternatives to fossil fuels. It also provides tax breaks for a company whose hit video game this year was the gory Dead Space 2, which challenges players to advance through an apocalyptic battlefield by killing space zombies. Those tax incentives — a collection of deductions, write-offs and credits mostly devised for other industries in other eras — now make video game production one of the most highly subsidized businesses in the United States, says Calvin H. Johnson, who has worked at the Treasury Department and is now a tax professor at the University of Texas at Austin.

Westchester accountant pleads to tax charge in NYC [AP]
A Westchester County accountant has pleaded guilty to securities fraud, admitting cheating a dozen investors of more than $2 million. Laurence Brown entered the plea in federal court in Manhattan on Thursday. The 64-year-old Katonah, N.Y., resident faces up to 70 years in prison at a Nov. 17 sentencing. Prosecutors said Brown and a business partner carried out the fraud from 2008 to June 2010 by promising that investors’ money would be spent to upgrade a natural gas pipeline in Tennessee.


Ex-E&Y partner’s insider trading conviction upheld [Reuters]
A U.S. court upheld an insider trading conviction of a former partner at accounting firm Ernst & Young LLP, even though the trial judge failed to instruct jurors on a valid defense he had to securities fraud charges. The 2nd U.S. Circuit Court of Appeals in New York on Friday said the defendant James Gansman did not deserve a new trial because he was not prejudiced by the slightly different jury charge given by his trial judge. It also turned aside several other issues raised in the appeal.

‘We Need More Dogs. We Don’t Need No Cats’ [TaxProf]
I have no idea why the TaxProf posted this but I’m glad he did.

Audit Partners Are About to Get Famous

But probably not in ways they would prefer:

In a recently updated standard-setting agenda, PCAOB Chief Auditor Marty Baumann says the board is working on the proposal to address concerns about audit transparency. The board published a concept release in July 2009 that asked for feedback on whether the engagement partner should be required to sign the audit report. Based on feedback to that release and subsequent discussions with the board’s advisory groups, the PCAOB is preparing a new requirement for audit firms to say in their audit reports which engagement partner at the firm supervised the audit and who from outside the audit firm participated in the audit.

PCAOB Plans Rulemaking on Identifying Auditors [CW]

Clearly Avoiding the “Sexy” Route, Young CPA Needs Help with Ideas for “Accounting Police” Halloween Costume

Now that it’s September, people start getting anxious about their Halloween costumes. Regardless of the two months of football, a World Series, and God knows how many GOP Presidential candidate debates, many will agonize over just what outfit they will wear for approximately 2-3 hours, knowing full well that vomit could end up on it. These days Halloween costumes, for better or worse, focus on the “sexy.” The sexy Little Bo Peep. The sexy priest. This year, I’m really hoping to see the sexy Angry Birds. Anyway, a reader is stumped on how best to approach a recent light bulb moment she had for this year’s outfit:

Hi Caleb,

I am hoping some creative CPAs who read your blog can help me out. A month ago, during one of my trainings, a partner came in and spoke to us about how we should not be seen by our clients as the “accounting police.” Immediately, a lightbulb went off in my head and I thought “HALLOWEEN COSTUME!”, but I have no idea how to pull this off so people will understand it! Any ideas out there?

So we have “accounting” and “police.” Not exactly a lot to work with here but we’ll throw a few ideas out there to get things rolling:

1. Ask four of your friends to join you and go as the letters P-C-A-O-B. Of course, you won’t actually do anything.

2. Simply dress up as police officer and walk around the whole night counting things, not unlike The Count (in fact, I suggest you do the laugh). “What the hell are you supposed to be?” some dope will say. You’ll respond, “A counting police.”

3. Get another idea.

Your suggestions are now welcome.

SEC Not Amused By Deloitte’s Failure to Produce Documents Related to Company That Held Their Audit Workpapers Hostage

Remember Longtop Financial Technologies? Deloitte resigned as auditors of the Chinese company back in May after LFT took some actions that were, shall we say, unusual for an audit client. Among them, “interference by certain members of Longtop management in DTT’s audit process; and […] the unlawful detention of DTT’s audit files.” And there may be some financial statement fraud going on, to boot. What’s even slightly weirder is Deloitte’s resignt to Longtop’s Audit Committee that laid out the specifics:

[A]s a result of intervention by the Company’s officials including the Chief Operating Officer, the confirmation process was stopped amid serious and troubling new developments including: calls to banks by the Company asserting that Deloitte was not their auditor; seizure by the Company’s staff of second round bank confirmation documentation on bank premises; threats to stop our staff leaving the Company premises unless they allowed the Company to retain our audit files then on the premises; and then seizure by the Company of certain of our working papers.

Right. The auditors-almost-taken-hostage situation. Quite a doozy, this one. Based on the history between Deloitte and Longtop, one would think that Green Dot would jump at any chance to exact a little revenge on these shady bastards. NOPE!


From the crack squad at the SEC:

The Securities and Exchange Commission today filed a subpoena enforcement action against Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to the SEC’s investigation into possible fraud by the Shanghai-based public accounting firm’s longtime client Longtop Financial Technologies Limited.

According to the SEC’s application and supporting papers filed in U.S. District Court for the District of Columbia, the SEC issued a subpoena on May 27, 2011, and D&T Shanghai was required to produce documents by July 8, 2011. Although D&T Shanghai is in possession of vast amounts of documents responsive to the subpoena, it has not produced any documents to the SEC to date. As a result, the Commission is unable to gain access to information that is critical to an investigation that has been authorized for the protection of public investors.

“Compliance with an SEC subpoena is not an option, it is a legal obligation,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The ability of the SEC to conduct swift and thorough investigations requires that subpoena recipients promptly comply with that legal obligation. Subpoena recipients who refuse to comply should expect serious legal consequences.”

Maybe the email/hand-written letter sent by carrier pigeon (whatever method of communication the Commission is using these days) got lost OR maybe no one at Deloitte Shanghai was in the translating mood that day but it seems slightly strange that Deloitte would just blow this off especially since Longtop screwed them 70 ways to Sunday. Of course these documents could show that Deloitte was really a bunch of pansies and we’re letting LFT run the show until the gross negligence got to the point that they simply couldn’t ignore it anymore. It’s anybody’s guess, really.

UPDATE: The Journal reports that Deloitte claims to be “caught in the middle of conflicting demands by two government regulators,” which could be seen as extremely convenient.

SEC Files Subpoena Enforcement Action Against Deloitte & Touche in Shanghai [SEC]
Court Filing [SEC]
Also see: S.E.C. Asks Court to Force a Release of Papers From China [NYT]

Accounting News Roundup: Obama’s Speech; Thankful Fraudsters; Sandbags for the Email Flood | 09.09.11

Obama’s Bid to Spur Growth [WSJ]
President Barack Obama called on Congress Thursday to pass a $447 billion package of spending initiatives and tax cuts to boost economic growth, in what might be the White House’s last chance to revive its political fortunes before the 2012 campaign kicks into high gear. More than half of Mr. Obama’s plan consists of payroll-tax cuts for employees and employers—an idea the White House hopes will appeal enough to Republican lawmakers—and is the policy that could have the best chance to pass.

Small Business Is Focus of Tax Cuts [WSJ]
[W]hile the payroll-tax cuts figure to appeal to Republican lawmakers, and House Majority Leader Eric Cantor spoke favorably about the idea Thursday, the cuts face some resistance. Many Republicans and even some small-business advocates are opposed to more temporary tax breaks. Some liberal Democrats are nervous about reducing the taxes that are paid to support Social Security, even though the administration promises its plan would have no impact on the program.

New Regulators for Investment Advisers Proposed in U.S. House [Bloomberg]
One or more self-regulatory organizations would oversee U.S.-registered retail investment advisers under a draft bill by Representative Spencer Bachus, the chairman of the House Financial Services Committee. A Financial Services subcommittee is scheduled to hold a Sept. 13 hearing on investment adviser oversight. The meeting follows a Securities and Exchange Commission report suggesting a self-regulatory organization as one option for fixing the SEC’s inability to inspect investment advisers at a sufficient pace. Critics of the SEC have blamed the agency for failing to uncover investment frauds including the Ponzi scheme of Bernard Madoff.

Settlement Said to Be Near for Fannie and Freddie [DealBook]
Regulators are nearing a settlement with Fannie Mae and Freddie Mac over whether the mortgage finance giants adequately disclosed their exposure to risky subprime loans, bringing to a close a three-year investigation. The proposed agreement with the Securities and Exchange Commission, under the terms being discussed, would include no monetary penalty or admission of fraud, according to several people briefed on the case. But a settlement would represent the most significant acknowledgement yet by the mortgage companies that they played a central role in the housing boom and bust.

Why White-Collar Criminals Should Thank President Obama and Congressional Republicans [WCF]
Reports a reformed white-collar criminal.

Friday is D-Day to voluntarily tell the IRS about your offshore assets [Reuters]
A friendly reminder.


U.S. Sees ‘Credible’ 9/11 Terror Threat [WSJ]
The U.S. has received specific and “credible” intelligence that al Qaeda militants in Pakistan may be pursuing a plot to carry out car or truck bombings in Washington and New York City, timed with the 10th anniversary of the Sept. 11 attacks, officials said. U.S. officials said they received the intelligence within the last 48 hours, and that they are taking it seriously because of its proximity to the 9/11 anniversary. As one sign of the importance with which it is being handled, President Barack Obama was briefed on the threat multiple times on Thursday, and directed U.S. intelligence officials to “take all necessary steps to ensure vigilance,” a White House official said.

5 Easy Steps to Stanch the E-Mail Flood [NYT]
Step 1: Admit that you have a problem.

Rick Santelli to Tom Friedman: ‘You’re idiotic’ [TDC]
The discourse remains civil.

Grant Thornton Employee Curious If Fellow Accountants Are Sleeping with Partners, Propositioning Colleagues

Let’s start off with a little anecdote:

I work at GT and recently a male associate began dating a newly named female partner. The associate has since put in their two week notice, most suspect due to his newfound sugar momma who’s divorced with 3 kids, or to give him more time with his other girl. It was recently revealed he not only likes older ladies but hit on a guy at national training offering up “favors.”

Apparently, at the training, the associate repeatedly asked another guy to go to his room with him during a game of pool. Since he was making no progress here, he flat out told his fellow pool player what acts he would like to provide.

Well! That’s quite a busy accountant. J��������������������rying to sleep up the ladder and offering up “favors” that may or may not include a pool cue and/or an 8-ball gag. Sexual activity aside, our tipster is curious as to just how…curious some of you are:

I was wondering if you could start a thread/story about office romances and open it up for comments to see just how alternative some accountants/cpas are. I wonder if this sort of thing is normal, or if society is just changing quicker than I am noticing.

Wait, are you asking if sex is normal? Or if accountants having sex with each other is normal? OR if accountants swinging both ways or engaging in other adventurous activity is normal? I’ll save you the trouble and answer all these questions: “Duh,” “HELL YES,” and “It depends.”

It’s been widely discussed around these parts that a situation that includes: accountants, working long hours, after-work booze will inevitably lead to some accountant sex. Whether you care to engage in sex with another accountant is largely a question of convenience and/or if you’re really interested in someone who’s also an accountant.

As for adventurous activity, you probably all remember Annabel McClellan, a former Deloitte employee accused of insider trading, who prior to her legal troubles, was developing a mobile app called “My Nookie” that basically amounted to Facebook for swingers. There was also the blind item we ran earlier this year about a partner whose fondness of exotic hookers landed him in divorce court. Oh! And then there was the PwC partner in Houston who allegedly made a move on an associate at a happy hour. Can’t forget that one.

As for juggling a divorcée partner with another girl and then offering BJs to a colleague at national training – it’s really hard to say how widespread this type of behavior is. Most accountants barely have enough game (or time) to get one person in the sack, let alone juggle two and then try to explore their bi-curiosity. Plus, are you aware of any of your co-workers that are bisexual or bi-curious? From the phrasing of your question, I’m guessing no.

Let’s not forget that you’re working in a very conservative industry and those in the business that do like a little swing party or simply swing both ways would probably prefer to keep those activities on the DL. Luckily for all of you, GC is the type of place where you can speak about the all the fun you’re having freely.

So, then. If you’re the “alternative” type, as our tipster asks, please elaborate. Do you keep it purely outside the office? Do you look for similarly interested accountants at your firm? Are you open about it or is the culture at your firm a little behind the times? If you prefer not to comment, email us your story (with details!) and we’ll handle the rest.

Competitive Poaching Isn’t Just for Big 4 Firms; Dixon Hughes Goodman Picks Up an Aronson Senior Partner

We’ve chronicled many cases of poaching in these pages, focusing mainly on PwC’s harvest of KPMG partners. You may have thought that this type of competition occurred between the top firms with the occasional outlier of an obscure firm catching a Big 4 fish. Not so! Accounting Today reports that a super-regional [?] firm also doesn’t mind mixing it up with its smaller rivals:

Lisa J. Cines, CPA, has joined super-regional firm Dixon Hughes Goodman LLP as managing partner of the firm’s Rockville office. Previously, Cines had spent almost 30 years with Top 100 Firm Aronson, including serving as managing officer from 2001 to 2010. Most recently she was partner-in-charge of business and corporate development.


Thirty years at a firm including nine years as a managing officer isn’t anything to sneeze at, so this jump from Rockville, MD-based Aronson – a firm with approximately $56 million in revenues – to DHG who has roughly $280 in revenues (both numbers based on the most recent stats) this late in one’s career makes us wonder. Perhaps you can read between the lines for us:

“Dixon Hughes Goodman represents the future of accounting – a firm with a commitment to market niches and depth within its areas of service,” she said. “I look forward to this new phase of my career with such a dynamic organization.”

Maybe pinstripes are a little too prevalent at Aronson? That’s the theory we’re going with at the moment. If you’ve got other ideas, let us know.

Cines Joins Dixon Hughes Goodman [AT]

KPMG Can’t Get Rid of the Countrywide Rash

As you probably remember, Countrywide Financial once owned a lot of shitty mortgages. This wasn’t clear to many of the company’s investors so when the things turned sour, lots of those investors lost boatloads of money and then Bank of America came in to pick up the scraps. KPMG was the auditor of Countrywide and the shareholders sued both companies because, gosh, that’s basically what happens when a bunch of money is lost for no good reason and you had a front row seat for the action. Accordingly, the two firms settled with CTW shareholders last year for $624 million. KPMG, for its part, chipped in $24 million. That’s rumored to be in the ballpark of what John Veihmeyer spends every year on Notre Dame gear, so the firm was probably thinking it got off pretty easy. Unfortunately, things are just getting started since other countries hadn’t had a chance to jump into the mix.


From Zero Hedge:

Norway’s Government Pension Fund, which is another name for its Sovereign Wealth Fund, has just announced it is suing Bank of America for mortgage fraud. Not only that but it is also going after Countrywide, obviously, but far more importantly, is also suing KPGM [sic], the auditor on the Countrywide transaction, and, drumroll, ole’ Agent Orange himself [That’s former Countrywide CEO Angelo Mozilo for those of you not up to speed].

So what, you say? Norway is just some Scandinavian wasteland with a lot of blondes and the occasional psychopath? Not the point!

[J]ust like the US lawsuit spigot opened ever so slowly at first, it is now gushing, and is absolutely certain that every company (ahem insolvent German banks) that ever bought a mortgage from Countrywide, Merrill and Bank of America will serve the local branch of the bank with a summons over the next month.

In other words, this little breakout may turn into a full-fledged epidemic.

Bank Of America’s Legal Woes Go Global After Norway’s Sovereign Wealth Fund Sues For Mortgage Fraud [ZH]
Also see:
The Fund suing large bank in the U.S. for fraud [DN.NO (Beware, the translation is brutal)]

Comp Watch ’11: What Do You Know, BDO?

From the mailbag:

Comp adjustments are coming out this week/ next week can you start a thread?


As we’ve pointed out in the past, BDO is probably the quietest of the top tier firms. Rarely do we get news of hookers, out-of-control happy hours or milestone awards. Sure, we got under the skin of Jeremy Newman once but he has a blog. He was asking for it.

This omertà of sorts by the rank and file has been discussed amongst the GC team and we’ve come up with this: we’vegotnofuckingidea. Not that we haven’t had the opportunity to report on the consolidation of regions or $5 Starbucks cards but the tips are so few and far between that whenever something about BDO come in, it gets us all sort of excited.

But enough about us. If you’re at BDO and you’ve had your sit-down or you’re waiting and are hearing rumors of raise percentages OR you’re simply doubtful as to Jack Weisbaum’s status as most interesting accounting firm CEO in the world, please tell us below.

Accounting News Roundup: The Role of the Interim CFO; Taxes and the War on Terrorism; A Peek at Facebook’s Books | 09.08.11

When CFOs Become Interim CEOs [CFOJ]
The ascension of CFO Tim Morse to the CEO position at Yahoo is unusual, especially when, as with Morse, the interim tag is applied. In the rare instances when a CFO assumes the interim chief executive position, it’s often because the company doesn’t have a more obvious choice among its operational executives, and wants to nonetheless project a sense of stability.

Blunt E-Mail Raises Issues Over Firing at Yahoo [NYT]
In the upper echelons o executives are forever leaving to pursue urgent opportunities, develop important new ventures or, that old standby, spend more time with their long-neglected families. Hardly anyone ever admits to being sacked. Even in cases where the executive has all but been bodily ejected from his executive suite — Rick Wagoner of prebankruptcy General Motors or Tony Hayward of post-oil-spill BP — the most they say is that they have been asked to step aside.

Taxes in the Age of Terrorism: Echoes [Bloomberg]
Since the Sept. 11 attacks, the U.S. has been waging a different kind of war. It’s been both smaller and longer than previous wars, taking less money to fight and more time to win. It’s also been the nation’s first war to be fought entirely on credit.

Tax Cut Extension May Be Tough Sell [WSJ]
President Barack Obama’s push to extend the payroll tax holiday to spur economic growth may not be an easy sell, in part because some economists and lawmakers question if it’s delivering enough bang for the buck. In his speech to Congress Thursday, Mr. Obama is expected to lay out an economic plan with a price tag of $300 billion or more that includes extending the two-percentage point reduction in Social Security payroll taxes paid by employees and reducing the employers’ share.


Facebook doubles first-half revenue [Reuters]
Facebook’s revenue doubled to $1.6 billion in 2011’s first half, a source with knowledge of its financials told Reuters, underscoring its appeal to advertisers while it grapples with intensifying competition from the likes of Google Inc (GOOG.O). Net income in the first half of 2011 came to almost $500 million, according to the source, who wished to remain anonymous because privately-held Facebook does not disclose its results.

Supercommittee May Kick Off Tax Overhaul as It Focuses on Debt [Bloomberg]
The 12-member supercommittee holds its first meeting today in an effort to find $1.5 trillion in cuts in areas including defense spending and Medicare. On taxes, the group is likely to consider setting targets for major changes to be considered over the next year, before Bush-era income tax cuts are set to expire at the end of 2012.

Obama’s whopper of a claim on tax cuts [Fact Checker/WaPo]
The president’s Labor Day speech in Detroit featured an assertion that contained a number of warning signs that it might be an errant fact: “biggest middle-class tax cut in history.” First of all, anytime a politician claims he or she has done something historic, watch your pockets. That’s usually a dubious claim.

Americans for Tax Reform Would Like to Make President Obama’s Jobs Speech a Little More Fun

To mark tomorrow night’s “Jobs Speech” by President Obama, the Ronald Reagan-possessed imps over at Americans for Tax Reform are providing some entertainment to get you through what will be, in all likelihood, a message that will be big on rhetoric with virtually no chance of anyone (Joe Biden included) breaking into song. And because most of the people that will be watching the speech will be either journalist/blabby pundit-types and people who are physically unable to remove themselves from the couch, they went with the simplest (yet oddly enjoyable) game possible. BINGO.


BINGO_Sept 2011 Obama Jobs Speech Bingo Card 1

As you can see, ATR has studiously selected the words and phrases they think will be spoken most often by the President and have created five different cards so that you can play with your fellow lovers of liberty. They even took the trouble to define many of these terms in case you can’t keep everything straight. Based on ATR’s interpretation, you are more or less going to be listening to the President utter “tax hikes” on a loop. Of course if BINGO isn’t your thing, you simply could just turn this into a drinking game, although it’s conceivable this could result in several cases of alcohol poisoning.

The added (surely unintentional) bonus is that you can use this card as a template for tonight’s Republican Presidential candidate debate where many of these terms will applicable. You’ll have to throw in “God,” “Tax cuts,” “Small Businesses,” “Ronald Reagan,” and perhaps a few others I’m forgetting but this more or less will cover the bases.

Time to play Big Speech BINGO! [ATR]