Author: Caleb Newquist

Founding editor, Going Concern.

Accounting News Roundup: Here Comes Private Company GAAP; Corporate America’s Big Quarter; South Carolina’s Gun Sales Tax Holiday | 11.24.10

Jury Rules SAP Owes Oracle $1.3 Billion [WSJ]
SAP AG must pay $1.3 billion to rival Oracle Corp. for copyright infringement, a federal jury ruled Tuesday, following a high-profile court battle between the business-software makers.

The eight-person jury reached the verdict a day after it adjourned to deliberate. The companies presented closing arguments Monday in U.S. District Court in Oakland, Calif.

Oracle Co-President Safra Catz said “this is the largest amount ever awarded for software piracy.”

Why Do Bank Results Slump in the Fourth Quarter? [Floyd Norris/NYT]
Is it because auditors are giving them the stink-eye?

9th Cir.: Minor Child (Secondary Beneficiary of Father’s Retirement Account) Liable for Tax on Distribution After Mother (Primary Beneficiary) Kills Father [TaxProf Blog]
This is probably the least of the child’s problems.

Panel Poised to Recommend Separate Board, U.S. GAAP Exceptions for Private Companies [JofA]
The blue-ribbon panel on private company financial reporting is poised to recommend that the Financial Accounting Foundation (FAF), FASB’s parent organization, move to U.S. GAAP with exceptions for private companies and that those standards should be set not by FASB but by a separate board under FAF’s oversight.

Big Business Has Its Greatest Quarter EVER?! [JDA]
From our esteemed colleague, “Filed under: totally unbelievable headlines that are even less believable once you actually dig into the truth behind the big fancy headline.”


Happy 25th Birthday to Microsoft Windows [CPA Trendlines]
Clippy would enjoy this.

South Carolina’s gun sales tax holiday kicks off on Black Friday, Nov. 26 [DMWT]
Presumably sales will be weaker this year now that every single gun in the country is safe, thanks to the GOP overtaking the House.

All Those Frazer Frost Christmas Cards Will Go to Waste Now

Last Friday, we linked to a Reuters article that told the story of Chinese clean-tech firm Rino International Corp. admitting that their books weren’t exactly in tip-top shape.

In fact, Rino has some hella-fraud going on, as the CEO is quoted, “[T]here might be problems with 20-40 percent of [customer contracts],” according to a letter from the company’s auditor Frazer Frost. As is the natural progression of these matters, an 8-K was filed informing anyone who cares to know that restatements are happening and that previously issued numbers are more or less worthless.


Then came the news from Financial Investigator’s Roddy Boyd, that Frazer Frost – the offspring of a merger between Moore Stephens Wurth Frazer and Torbet and Frost PLLC – was not really Frazer Frost:

One day shy of the one year anniversary date, the accountancy is scrapping a “trial merger” and is splitting back into Frost LLP of Little Rock, Ark. and Raleigh, N.C. and Moore Stephens, which is headquartered in Brea, Ca.

“Trial merger” kinda sounds like a two accounting/finance types hooking up for the first time. It’s nothing major, just testing the motion in the ocean. But if you go by the Accounting Today article from last year, there doesn’t appear to be anything “trial” about it.

Anyway, Boyd reports that Frost managing partner Dan Peregrin told him that a ‘culture clash’ led to the break up and that, “There is a lot of [issues] right now in [Chinese reverse mortgage] practice area and we just felt it would be smarter to wish them luck and stick to our practice areas.”

Right. The old, “it’s not you, it’s me” routine. But there’s more! Over at Citron Research, it’s not entirely clear just what is going on:

If you call Frost today in Arkansas, they answer “Frost & Co” and say they’re no longer associated with Frazer. Citron spoke to managing partner Dan Peregrin and twice he told us that the two firms have gone their own way. ….but if you call Frazer, they answer “Frazer Frost” and in a brief conversation with Susan Woo, the RINO auditor, she told Citron that Frazer Frost is still an operating entity.

Really? If you go to the Frazer Frost website, you see a homepage with no content in the about us section.

Which is quite true. This is all very strange/sad/pathetic because everyone else seems to be aware of the situation. It’s like Frazer doesn’t know they’ve been dumped and are just going along like everything is find and dandy.

Could someone let them down gently?

News From Auditorville [Financial Investigator/Roddy Boyd]
Dude! Where’s My Auditor?? The Curious Case of Frazer Frost [Citro Research]

The CFO That Was ‘Exhausted’ From Defending Obama Lost Her Job

Remember? She was thisclose to living on franks and beans.


And now she’s even closer to the mystery meat reality because she has been laid off by the nonprofit for whom she worked:

Velma Hart, the chief financial officer for Am Vets, a veteran services organization based in Maryland, said Monday in an interview with CNBC that she was laid off as part of the nonprofit’s effort to cut expenses.

“I want to focus on the positive and be optimistic,” said Hart, who lives in Upper Marlboro, Md. “And assume that somehow things will work out, that there’s an opportunity out there with Velma’s name on it that’s right around the corner.”

A positive outlook, we like this gal. We’re sure you’ll be back to the corner office in no time. One word of advice though when you’re in the hot dog aisle – Hebrew National is not kosher, not matter what the package says.

Velma Hart Laid Off: Woman Who Told Obama Of Financial Fears Loses Her Job [HuffPo via DI]

Chris Van Hollen Isn’t Buying the “Tax Cuts Create Jobs” Story

In case you needed another sign that we are heading full speed towards a stalemate on tax policy, the Representative from Maryland would like to be recognized for calling BS on the popular Republican rhetoric:

“It’s clear that the tax cuts for the folks at the very top have not created any jobs. After all, we’ve had them in place now for more than eight years, and we know what the jobs situation is,” Van Hollen said during an interview Monday on MSNBC.

“The notion that you’ve got to continue them in order to somehow boost the economy, when those are in place right now and we have a lot of people unemployed, is a clear indication that they are not a big job creator.”

Eric Cantor’s rebuttal will sound similar to this:

“Taxes shouldn’t be going up on anybody right now.”

[…]

“This election … was really the American people saying they are tired of the lack of results in Washington,” he said. “They want to see more jobs for more Americans. They want to see us … cut government spending, rein in the size of government so we can get this economy growing again. That was the prescription, that was the mandate that came from the people.”

So there’s no middle ground to be found here, guys? No chance you can put down the ideological rhetoric for the sake of, ya know, screwing the American people?

Van Hollen: Tax cuts for wealthy ‘not a big job creator’ [The Hill]

CFOs Are More Optimistic About Business Now That the Democrats Don’t Control the House

Yet the majority of these CFOs don’t believe that the federal government’s financial policy has had any effect on their business.

So does that mean CFOs are indifferent about which party is in actually in power but more generally speaking, Republicans give them the warm fuzzies while Dems give them the heebie jeebies?

Despite the fact that more than 70 percent of chief financial officers (CFOs) at Deloitte’s annual CFO Vision conference earlier this month believe current government financial policy has either had no effect or negatively impacted their business, the tide is turning toward a more positive outlook. A majority (59 percent) of the same group of CFOs expect the recent Congressional midterm elections to have a positive impact on their industry.

Maybe we’re a little slow (especially this week) but Sandy Cockrell (he introduced us to the “bathtub recovery“) attempts to clarify:

“CFOs are confident that they can pull the levers within their own companies to do their jobs, but they are most worried about external issues involving economic recovery and regulations,” said Sanford Cockrell III, national managing partner of Deloitte’s U.S. CFO Program. “The biggest risk they see is a prolonged, stagnant recovery. Industries are also concerned about too much government intervention. If the employment picture does not also improve and if general pessimism continues to rise, we would expect pessimism to start having a larger impact on companies’ earnings and investment expectations.”

Okay so 70% of the CFOs polled “believe current government financial policy has either had no effect or negatively impacted their business,” yet they still fear government intervention? And if what Cockrell is saying rings true with the majority of CFOs polled, the second John Boehner holds the gavel as the new Speaker of the House, the employment picture may slowly begin turn around? Do we have that right? Really, finance chiefs of America? That’s what you’re pinning your hopes on?

Are they all confused or did Deloitte just throw together a poorly designed poll? We’re stumped but if you’ve got the time and energy, we’ll entertain some theories.

Accounting News Roundup: BAE Admits to Shoddy Accounting; IFRS Roadmap to Nowhere; Tax Tips for Poker Players | 11.23.10

BAE Admits Guilt in Accounting Case, Faces December Sentencing [Bloomberg]
BAE Systems Plc, Europe’s biggest defense company, said it failed to keep proper accounting records of payments in a case that tests U.K. fraud prosecutors’ ability to negotiate plea deals.

BAE lawyer David Perry said today at a hearing at a Magistrates Court in London that the company will enter a guilty plea at a higher court next month. The company has entered into a plea deal, Louis Mably, a lawyer for the Serious Fraud Office, which is prosecuting the case, told the judge.

Cowen Tries to Placate Opposition, Rebels [WSJ]
Irish Prime Minister Brian Cowen pressed opposition parties and independents to back a financial aid package for the country and hold off from seeking an immediate election, even as he found himself on the defensive against rebels within his Fianna Fail ruling party on Tuesday.

The opposition parties and independents are struggling to decide if they should support Mr. Cowen’s government in the upcoming budget, which is crucial to securing a bailout worth tens of billions from the European Union and the International Monetary Fund. Their other option is to push for an immediate election that could delay a rescue package.

Forget About Touching Junk, You’re Going To Piss Yourself When You Hear This [JDA]
The terrorists have won.

SEC Staff Report on IFRS Roadmap: The Public Deserves to Know More [Accounting Onion]
Tom Selling isn’t impressed so far, “It’s appalling how little the SEC staff has accomplished over the ensuing eight months. If I were the SEC’s ‘thesis adviser’, I would be torn between two painful conclusions: this progress report was a rush job from a student with an attitude problem; and/or, she is just not capable of getting the job done.”


Welcome to the Tax Blogosphere: Tax Tips for Poker Players [TaxProf Blog]
For those considering it.

Bush tax cuts: What happens if Congress punts [CNN]
Punch and pie for everyone!

Questions You Should – and Shouldn’t – Ask in an Interview [FINS]
A perfect opportunity to showcase your knowledge about quantitative easing.

Watchdog abandons Hogan chase [Sydney Morning Herald]
Victory for Mick Dundee.

Cuba Gooding Jr’s Dad sued, allegedly didnt pay his accountant [NYP]
Celebrity parents should really know better.

Green Mountain Coffee Roasters: Gosh, We Ended Up Having Way More Accounting Errors Than We Thought

Back in September, Vermont-based Green Mountain Coffee Roasters put the world on notice that the SEC was asking some questions about their revenue recognitions policies. Despite the SEC Q&A, analysts we’re cool with the company and the GAAP the crunchy accounting group was putting out.

Also at that time, the company disclosed that there were some immaterial accounting errors that were NBD. That was until they dropped a little 8-K on everyone last Friday!


Turns out, there was a whole mess of accounting booboos and the company will be restating “previously issued financial statements, including the quarterly data for fiscal years 2009 and 2010 and its selected financial data for the relevant periods.”

From the aforementioned 8-K with all the bad news:

The Company has discovered the following errors:

• A $7.6 million overstatement of pre-tax income, cumulative over the restated periods, due to the K-Cup inventory adjustment error previously reported in the Company’s Form 8-K filed on September 28, 2010. This error is the result of applying an incorrect standard cost to intercompany K-Cup inventory balances in consolidation. This error resulted in an overstatement of the consolidated inventory and an understatement of the cost of sales. Rather than correcting the cumulative amount of the error in the quarter ended September 25, 2010, as disclosed in the September 28, 2010 Form 8-K, the effect of this error will be recorded in the applicable restated periods.

• A $1.4 million overstatement of pre-tax income, cumulative over the restated periods, due to the under-accrual of certain marketing and customer incentive program expenses. The Company also has corrected the classification of certain of these amounts as reductions to net sales instead of selling and operating expenses. These programs include, but are not limited to, brewer mark-down support and funds for promotional and marketing activities. Management has determined that miscommunication between the sales and accounting departments resulted in expenses for certain of these programs being recorded in the wrong fiscal periods.

• A $1.0 million overstatement of pre-tax income, cumulative over the restated periods, due to changes in the timing and classification of the Company’s historical revenue recognition of royalties from third party licensed roasters. Because royalties were recognized upon shipment of K-Cups by roasters pursuant to the terms and conditions of the licensing agreements with these roasters, Keurig historically recognized these royalties at the time Keurig purchased the K-Cups from the licensed roasters and classified this royalty in net sales. Management has determined to recognize this royalty as a reduction to the carrying cost of the related inventory. The gross margin benefit of the royalty will then be realized upon the ultimate sale of the product to a third party customer. Due to the Company’s completed and, when consummated, pending acquisitions of third party licensed roasters, these purchases and the associated royalties have become less of a factor, since the post-acquisition royalties from these wholly-owned roasters are not included in the Company’s consolidated financial statements.

• An $800,000 overstatement of pre-tax income, cumulative over the restated periods, due to applying an incorrect standard cost to intercompany brewer inventory balances in consolidation. This error was identified during the preparation of the fiscal year 2010 financial statements and resulted in an overstatement of the consolidated inventory and an understatement of the cost of sales.

• A $700,000 understatement of pre-tax income for the Specialty Coffee business unit, due primarily to a failure to reverse an accrual related to certain customer incentive programs in the second fiscal quarter of 2010. The over-accrual was not identified and corrected until the fourth fiscal quarter of 2010.

• In addition to the errors described above, the Company also will include in the restated financial statements certain other immaterial errors, including previously unrecorded immaterial adjustments identified in audits of prior years’ financial statements.

So naturally you shouldn’t rely on anything out there. Despite the discovery and disclosure of this massive fuckup and warnings from Sam Antar including some possible insider trading (it’s a theme today) and disclosure violations, an analyst at Bank of America Merrill Lynch thought it would be rad to upgrade the stock which has sent the price soaring. Why not, right?

In directly related news, anyone on the PwC audit team shouldn’t make any Thanksgiving plans.

Big 4-Bound Associate Needs Rainmaking Tips

Welcome to the we’ve-already-checked-out-for-the-week edition of Accounting Career Conundrums. In today’s edition, a Big 4-bound associate is looking for some rainmaking opportunities as a young up-and-comer. Is this typical young grasshopper idealism or can this young man be helped?

Need some career advice? Recently been let go and want some ideas on how to go out on top? Looking for an interpretation of the latest message from your firm’s CEO? Email us at advice@goingconcern.com and we’ll translate thrning to the rain dancer:

I start with a Big 4 firm in January. I have no public accounting experience (not really counting 2 internships I had 3 years ago). I have gotten lots of advice/tips from people in the last few weeks concering advancement. “You have to be a rainmaker” to move up.

I’ve read articles (some on Going Concern) about making sure you can show your value to your employer when negotiating raises/advancement. My questions are: how can a first year staff member begin to take steps to developing their value in a firm? What can a first year do to begin to develop “rainmaking” qualities? Is it even possible to be a rainmaker so early in a career?

I imagine networking, volunteering, and getting involved are all things that I’d normally hear regarding this topic. But I’m wondering if you have any more tangible, practical advice.

Dear Rain Dancer,

Not sure why you assume “networking, volunteering and getting involved” aren’t “tangible” but those all seem like a good places to start. As for “practical,” your firm will probably give you plenty of opportunities for all of these, so again, not sure why those options strike you as inconvenient or unrealistic.

That being said, we’ll elaborate a little bit. For starters, this “rainmaker” talk is bullshit for someone in your position. Whoever is telling you this is giving you clichéd buzztalk that is frankly, useless. Advancement, at this point in your career is more about making the most of opportunities that are presented to you (networking, community involvement are good examples).

Furthermore, you’re correct to assume that it’s pretty difficult for a new associate to walk in and bring in a slew of new business. It’s a partner’s job to find new business, not yours. You can’t become the next Piet Klynveld without knowing what a tickmark legend is, now can you?

However, this shouldn’t dissuade you from looking for opportunities to build relationships with the professionals around you. Keep your eyes and ears open and build your network. You never know who will become a decision-maker and if you happen to have a good relationship with said decision-maker, you could land your firm some new business down the road.

Same goes for volunteering. If you’re helping in the community, you’re likely to meet people you wouldn’t otherwise, so this is another opportunity build your network that will allow you to shower your firm in cash in the future.

Do you honestly think you’ll can cold-call every business in town and charm them over the phone into accepting your business? Even if you did have them doing back flips on the other line, they’ll strike the deal with a partner at the firm, not you. If you’re lucky, you’ll get a nice little bonus for making the introduction and while that shows initiative that hardly makes you a “rainmaker.”

At this stage in your career, being involved in social activities at your firm, building relationships with clients and co-workers and having a good attitude will help you advance. Oh, and it helps if you know something about your given line of business (audit, tax, advisory).

Building those relationships (and being of capable intelligence) will give you the chance to bring some business to your firm. Then you can get all Pacman Jones on everybody.

Roland Berger Tells Deloitte to Drop Dead

Last week we mentioned that Deloitte and Munich-based Roland Berger were talking about getting cozy with both firms sounding pret-tay excited about the future. Turns out, no one had asked the Roland Berger partners how they felt about the whole situation.

Plans to merge Roland Berger Strategy Consultants with Deloitte Touche Tohmatsu have fallen through after the Munich-based firm rejected the advances.

The two had been in advanced talks but directors at Berger overwhelmingly voted to remain independent.

Talks between the two firms had progressed so far it is believed they had already decided upon a new chief executive and were examining possible regulatory hurdles.

Over at the Financial Times, Adam Jones reminds us that this is a big wrench in Deloitte’s McKinsey-slaying plans, “[Roland Berger’s] decision to continue to go it alone is a blow to Deloitte’s ambition of eclipsing McKinsey in the market for strategic managerial advice.”

It’s a strange turn of events to be sure after last week’s PR lovefest but the FT reports that the Roland Berger was willing to put up his own cash to keep the green ink out of his firm:

Roland Berger said the vote to remain independent had been carried with a majority of “close to 100 per cent” on Saturday.

It added that partners in the firm – including Roland Berger, its founder – had agreed to put in more money to support the renewed go-it-alone plan.

People close to the deal talks suggested Mr Berger had agreed to invest about €50m ($68.5m) to help fund its expansion as a standalone business.

That’s not so much of a “No.” as it is a “Hell no.”