Allegedly!
First sign of danger should have been the desire to meet a Starbucks.
The spokesman for the IRS’ Fresno location referred us to the New York spokeswoman (for reasons that we don’t quite understand) who has yet to return our call.
Author: Caleb Newquist
Founding editor, Going Concern.
SCOTUS Rules PCAOB Unconstitutional; Auditors’ Lives Will Continue to Suck
What does this mean (besides the fact that more than a few partners are eating their hats, shaving their heads, coming to work naked, etc.)?
The Board itself is not unconstitutional and thus will continue operating (sorry E&Y) so it’s not going anywhere. The problem is, Congress will have to get involved in order to and who knows what the brain trust will cook up.
Francine McKenna has some suggestions (including making the part 2 of the inspections public) and Matt Kelly at Compliance Week reported on May 31 that no one really knows what the hell is going to happen now:
I asked SEC Commissioner Luis Aguilar how the SEC might want to resolve the issue. He said the commissioners know the problem is out there and they have “Plans A, B and C” to respond, but declined to say what any of those plans might be. I asked [Barney] Frank as well, and he essentially said his committee would work with the Senate Banking Committee to craft some legislative response, depending on exactly what the Supreme Court’s ruling says.
The Court ruled 5-4 (Roberts, Scalia, Kennedy, Thomas, Alito Dissent: Breyer, Stevens, Ginsburg, Sotomayor)
From Chief Justice Roberts’ opinion:
The President cannot “take Care that the Laws be faithfully executed” if he cannot oversee the faithfulness of the officers who execute them. Here the President cannot remove an officer who enjoys more than one level of good-cause protection, even if the President determines that the officer is neglecting his duties or discharging them improperly. That judgment is instead committed to another officer, who may or may not agree with the President’s determination, and whom the President cannot remove simply because that officer disagrees with him.
And Justice Breyer’s dissent (citations omitted):
The Court holds unconstitutional a statute providing that the Securities and Exchange Commission can remove members of the Public Company Accounting Oversight Board from office only for cause. It argues that granting the “inferior officer[s]” on the Accounting Board “more than one level of good-cause protection . . . contravenes the President’s ‘constitutional obligation to ensure the faithful execution of the laws.’” I agree that the Accounting Board members are inferior officers. But in my view the statute does not significantly interfere with the President’s “executive Power.” It violates no separation-of-powers principle. And the Court’s contrary holding threatens to disrupt severely the fair and efficient administration of the laws.
So day-to-day auditors lives won’t change but some new wrinkles could be thrown in now that the law will have to be tweaked. So who knows what will happen! In the meantime, here’s your light reading for the day:
BearingPoint Trustee Shaking Down Old Employees for Sketchy Expense Reimbursements
The Washington Post recounts Deloitte’s purchase of BearingPoint’s Federal Services business last year and as you might imagine it’s mostly a glowing piece about various aspects of the deal.
These include revenue growth “The company posted about $1.65 billion in federal revenue this year — up from combined revenue of about $1.43 billion before the acquisition,” the increase in headcount, “Deloitte hired close to 1,400 people, and the firm is now planning to add 160 to 170 more per month,” and expansion of services, “Deloitte had a more expansive set of services and products than BearingPoint — including tax, audit and consulting services — but BearingPoint, with more than 35 years in the federal business, had access to a larger set of clients.”
Sounds swell but there are some loose ends to tie up, most notably the trustee of BearingPoint’s liquidating trust is sending letters to former BearingPoint employees under the Deloitte roof to get some cash back for expenses that were deemed unnecessary for doing typical business in DC Metro:
John DeGroote, whose firm serves as trustee to BearingPoint’s liquidating trust, confirmed his company is now trying to reclaim BearingPoint expenses that were improperly reimbursed — either because the expense should not have been reimbursed or because the employee did not provide the right documentation.
The trust has sent out between 400 and 500 letters to former BearingPoint employees seeking $750,000 in expenses, $250,000 of which has already been returned, DeGroote said.
Since the “the expense should not have been reimbursed or because the employee did not provide the right documentation” you can safely assume that these were the standard three martini lunches at the District’s finer establishments, rub ‘n tugs and other expenses that would normally be a-okay but less-so when a rival buys you out.
BearingPoint acquisition has extended Deloitte’s reach [WaPo]
Accounting News Roundup: G-20 to ‘Stabilize’ Debt by 2016; Auditors May Be Forced into Whistleblower Role on Banks; Yes, Taxes Are Historically Low | 06.28.10
G-20 Agrees to Cut Debt [WSJ]
“The wealthiest of the Group of 20 countries said they would halve their government deficits by the year 2013 and ‘stabilize’ their debt loads by 2016, a signal to international markets and domestic political audiences they are taking seriously the need to wean themselves from stimulus spending.”
Once you catch your breath from laughing, the President also cited the tax code specifically and his threatening to put some (i.e. Congress) in a tight spot:
“They might have to make deeper cuts in deficits to comply with its pledge. A White House statement said that government debt in the fiscal year 15, would be at an “acceptable level.” President Obama said that next year he would present “very difficult choices” to the country in an effort to meet deficit goals.
The president cited his disappointment with the U.S. tax code. ‘Next year, when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step up, ’cause I’m calling their bluff,’ Mr. Obama said.”
Bank auditors eyed for whistleblower role [FT]
A paper from the UK’s Financial Services Authority puts forth the discussion of requiring auditors to work more closely with regulators on irregularities found during the bank’s audit engagement.
“Experts say bank executives are nervous about the prospect of increased bilateral discussions between regulators and auditors. Auditors have been fearful the paper could thrust the profession into a regulatory spotlight it has so far avoided.”
Koss Fraud: We didn’t bother to look at the endorsements on our own checks, but Grant Thornton should have! [Fraud Files Blog]
Fraud sage Tracy Coenen presents her latest view on the Koss fraud mish-mash and how Koss management has managed to make themselves “look like absolute morons.”
BP Loses $22 Billion in Legacy of Share Buybacks [Bloomberg]
“The sum represents the hole after the 52 percent plunge in BP shares since the Deepwater Horizon exploded and sank, resulting in the worst oil spill in U.S. history. BP bought back more than $37 billion of its stock in a bid to return money to investors between 2005 and 2008. Those shares are now worth $15 billion, excluding dividends.”
Martin Ginsburg, Noted Tax Lawyer and Husband of Justice Ginsburg, R.I.P. [ATL]
Mr Ginsburg was a tax law professor at Georgetown for many years and was known for his great sense of humor, as evidenced by his faculty bio, noted by our sister site, Above the Law:
Professor Ginsburg is co-author, with Jack S. Levin of Chicago, of Mergers, Acquisitions, and Buyouts, a semi-annually updated treatise which addresses tax and other aspects of this exciting subject. The portions of the treatise written by Professor Ginsburg are, he is certain, easily identified and quite superb.
Open Letter to the Securities and Exchange Commission Part 9: Overstock.com’s Excuses Simply Don’t Add Up [White Collar Fraud]
It appears Sam Antar has caught Overstock.com in another disclosure snafu but this time it isn’t really clear whether the company gave the wrong excuse, lied to the SEC or simply doesn’t know what they’re doing, “Overstock.com’s 2008 10-K report claimed that a reportable “gain contingency” existed as of November 7, 2008. However, the company contradicted itself and claimed to the SEC reviewers that reportable reportable ‘gain contingency’ did not exist on November 7, 2008.
If Overstock.com’s 10-K disclosure is true, the company’s explanation to the SEC Division of Corporation Finance can’t be true. Likewise, if Overstock.com’s explanation to the SEC Division of Corporation Finance is true, the company’s 2008 10-K disclosure can’t be true.”
Accounts bodies revise workplan [FT]
Convergence 2.0.
Today’s taxes aren’t too bad [Don’t Mess with Taxes/Kay Bell]
Kay Bell provides some perspective on tax rates over the last century. The following graphic should help clear up any confusion.
“[It will] help prevent another financial crisis like the one that we’re still recovering from.” ~ President Barack Obama on the financial reform bill. If it wasn’t for WS, there would be no vampire craze. Sure the last Blade film was six years ago. And sure the first in the series was twelve years ago but it doesn’t mean the man still didn’t start the popularization of bloody-thirsty, sexy undead types. However, this prison sentence thing hanging over his head has probably made him a bit of a liability. But thanks to some crafty lawyering, he’s been able to stave off the joint long enough to catch a bit of luck. A federal appeals panel is considering whether the arrest of actor Wesley Snipes’ former financial adviser could pave the way for a new trial on tax evasion charges. Snipes was convicted and sentenced to three years in prison in 2008, but his attorneys asked the 11th U.S. Circuit Court of Appeals in Atlanta to allow a new request to dismiss the movie star’s conviction or grant him a new trial. The motion centers on the arrest of Kenneth Starr, the one-time financial adviser to Snipes and other celebrities. RSM McGladrey reported fiscal 2010 pretax income of $58.7 million, down nearly 39 percent from $96.1 million in the prior year. Revenues declined 4.2 percent to $860.3 million, primarily due to the impact of the overall weak economic environment, which continues to pressure billable rates and hours within the industry. Profitability was negatively impacted by costs associated with previously resolved arbitration proceedings involving McGladrey & Pullen and other costs of litigation totaling $14.5 million in the aggregate, as well as a $15.0 million goodwill impairment charge at our capital markets business unit. A 39% drop in profits could explain the nationwide layoffs at McGladrey that we reported on earlier this month. It’s a good thing they didn’t have the ginormous golf cake in this year’s numbers, otherwise the results would have been worse. But if you ignore all that, things were essentially flat and everyone knows that flat is the new up! Excluding these charges, pretax income would have been approximately $88 million and pretax margin for the segment would have been 10.3 percent, essentially flat with the prior year. The shortfall in revenues was partially mitigated by cost reduction efforts throughout the year. These efforts included headcount reductions to reflect lower client demand, as well as other non-client facing cost reduction initiatives. OH! There’s the layoffs and they’re citing “lower client demand.” Thoughts on that, anyone? H&R Block Reports Fiscal 2010 Financial Results [Market Wire] Protestors of this weekend’s G-20 Summit invaded Toronto this week which promoted some companies in the TO’s financial district to take extraordinary measures so that their employees wouldn’t be bothered by all the jobless ruffians. Most shops just sent people home as a precautionary measure as protestors gathered throughout the week but some diehards are camping out, as FINS reports on StatPro North America’s office that is near the red zone that surrounds the Toronto Convention center: Andrew Peddar, chief operating officer of StatPro North America, said that the firm wanted to ensure that its clients, which include asset managers and hedge funds, could be assured of uninterrupted service during the week. The campout was the employees’ suggestion. That way, they’ll avoid potential disasters on the client front and also sidestep protestors. “We have sleeping bags, lot of food and lots of liquid,” said Peddar. The axes? “In case we need to break out.” Or chop off some ne’er do well’s arm, you know, whatever is necessary. Obviously these guys are overachieving, bedwetting amateurs that don’t recognize an opportunity when they see one. Fortunately, Deloitte knew better and told all its employees to work from home starting Tuesday. Some used the unexpected time off to get enamored by the security, “Junaid Zia, a risk analyst at Deloitte, had most of the week off. When he left the office Monday night, he said he didn’t see any protestors, only a lot of policemen…’They should just do G-20 every year,’ he said.” But at least one Big 4 veteran saw this as a perfect opportunity to do some weekday drinking: [A] senior analyst at the office, took the opportunity to spend time riding his motorbike and watch soccer… “I went to a British bar for the England game, an Argentinian bar for an Argentina game, a German bar for a German game,” he said. “But I’ve been working.” By Thursday, he was lying down at home, having injured his back. He declined to elaborate on how the injury happened. Probably hurt it tracking that fantasy football team, no? Koss is suing S-squared and Grant Thornton for their respective roles in the alleged embezzlement of $31 million from the Brew Town company. Koss hired one of the best accounting firms in the world, Grant Thornton, and should have been able to rely on Thornton’s audits to uncover wrongdoing, Avenatti said. The suit against the auditing firm says auditors assigned to Koss were not properly trained. The lawsuit lists hundreds of checks that Sachdeva ordered drawn on company accounts to pay for her personal expenses. She disguised the recipients — upscale retailers such as Neiman Marcus, Saks Fifth Avenue and Marshall Fields — by using just the initials. But the suit says Grant Thornton could have ascertained the true identity of the recipients by inspecting the reverse side of the checks, which showed the full name. Forget the fact that the CEO was also vice chairman, chief operating officer, president and chief financial officer. Oh, and he sat on the audit committee at another company. Apparently Koss wanted GT partners auditing those cash accounts rather than implement anything that even closely resembles an internal control system. Grant Thornton, meanwhile, is still sticking to the boilerplate statement as reported in the Milwaukee Journal-Sentinel, “We remain confident that we have met all of our professional obligations and that our work complied with professional standards.” Sigh. Of course no one wants to be responsible, so let’s decide for them. Let’s get a show of hands: It’s worth mentioning that the lawsuit comes just a few short days before Koss’ tardy restated financials are due. If the company doesn’t cough them up, the Nasdaq will banish them like they’ve got lice. Koss sues former executive, auditor over alleged embezzlement [Milwaukee Journal-Sentinel] U.S. Lawmakers Reach Accord on New Finance Rules [WSJ] “After more than 20 hours of continuous wrangling, Congressional Democrats and White House officials reached agreement on the final shape of legislation that would transform financial regulation, avoiding last-minute defections among New York lawmakers that had threatened to upend the bill. After months of uncertainty about how the U.S. would craft new rules, the agreement offers th ince the financial crisis of how markets and the government will interact for decades to come. The common thread: large financial companies are facing a tougher leash.” Just in case you missed it yesterday, former SEC Chairman Arthur Levitt isn’t nearly as excited as some people about the bill. The President is expected to sign the bill before July 4. Sidenote on this one: how the Journal managed to slip Maxine Waters through as one of a dozen “players” in this bill should cause you to question – if even for just a minute – the credibility of the paper. Florida Appeals Court Turns Down Heat, For Now, On BDO Seidman [Re: The Auditors] In other words, the “idea” of fraud being a kickback or a bribe is obvious and was defined. Manipulating mark-to-market and off-balance sheet accounting rules or “something else equally outrageous” were not and thus the law was unconstitutional. Long story/short, Norris writes, is that Funny story on the way to this Skilling outcome – if the SCOTUS rules against the PCAOB (it is expected on Monday), “It will blame Congress for writing bad laws,” Norris writes. And who forced Congress into action on Sarbanes-Oxley? BP: Oil-Spill Cost Hits $2.35 Billion [WSJ] Caturano being acquired by RSM McGladrey [Boston Business Journal] “It is an important step towards a single global principle-based standard that would make it absolutely clear when revenue is recognised-and why.” ~ Sir David Tweedie is pretty happy with how the converged revenue recognition standard turned out. GT follows up with the news of its disposal of its Honolulu office last month, the closure of its Madison, WI location in April and Greensboro, NC earlier this year with this latest sale of its Albuquerque, New Mexico digs. According to the Moss Adams press release Chipman & Co. wanted out of the Land of Enchantment after “evaluating its strategic direction”: ALBUQUERQUE, N. Mex. (June 24, 2010)—Moss Adams LLP and Grant Thornton LLP announce the planned acquisition of Grant Thornton’s Albuquerque practice by Moss Adams on July 31, 2010. In evaluating its strategic direction, Grant Thornton senior leadership determined it will exit the New Mexico market. Kim Nunley, the Grant Thornton office managing partner, will join Moss Adams as a partner along with many of the client service staff and employees. Wayne Brown, Moss Adams Albuquerque office managing partner, will continue to provide local leadership. He said, “I have known and respected Kim for many years and look forward to working closely with her. She is highly regarded within the profession and the Albuquerque community.” This acquisition demonstrates Moss Adams commitment to the Southwest and overall firm growth. According to Chris Schmidt, Moss Adams president, “Moss Adams is focused on growth and the Grant Thornton practice blends well with our Albuquerque industry group specialization in areas such as financial institutions, credit unions, employee benefit plans, technology/life sciences, and manufacturing companies.” Moss Adams is the largest accounting and consulting firm in New Mexico and the 11th largest firm in the United States. With more than 1,700 employees and 230 partners, the firm serves its clients from 21 offices in Washington, Oregon, California, Arizona, and New Mexico. Our email to a Grant Thornton spokeswoman was not immediately returned.
Write It Down: No More Financial Crises Ever
Wesley Snipes May Still Be Able to Get Back into the Vampire Game
Since Ponzi-schemer-to-the-stars Kenneth Starr has been outed as a complete shame (not to mention a complete wuss) Wes can get back to the business of making truckloads of cash in this bloodsucking phenomenon:
He was a key witness in Snipes’ 2008 trial but was charged in May with securities fraud worth $59 million.
RSM McGladrey Can Explain the Disappointing Year
H&R Block announced its earnings for fiscal 2010 yesterday which included the details for the fka RSM McGladrey. The company’s press release basically says that times are tough but RSM had some good reasons for that.
For starters, the small tiff with M&P sort of put a damper on things and a nasty goodwill write-off:
Deloitte Employees Enjoy Boozing, Checking Out Men in Uniform Thanks to G-20 Protesters
Koss Sues Grant Thornton, Blames Firm’s Assignment of Newbie Auditors
Well! You might have thought that Koss would just handle this Sue Sachdeva situation like gentlemen headphonesmiths but you would have thought wrong!
Why? Because Grant Thornton threw a few young associates on the engagement, that’s why!
Accounting News Roundup: Financial Reform Finalized; Banco Espirito v. BDO 2.0; Small Win for Skilling, Big Loss for PCAOB? | 06.25.10
By the end of this one, can’t you picture an exhausted Barney Frank with his tie loosened to mid-torso, pants undone with fly wide open open and some staffer dabbing his sweaty brow?
Francine’s take on the decision by the Florida 3rd District Court of Appeal to order a trial in the Banco Espirito v. BDO case. An event she isn’t thrilled about, “My doubts about the efficacy of a new trial are based on the disappointing, frustrating and completely unsatisfying way the court and the judges in this case have proceeded. Some of the additional comments raised by the Appeals Court do not bode well for this plaintiff’s chances next time around.”
Supreme Court Rolls Back a Law Born of Enron [NYT/Floyd Norris]
In more Congressional ineptitude (at least in the eyes of the SCOTUS), former Enron CEO Jeff Skilling won his case at the high court, arguing that “the concept of committing fraud through depriving an employer of ‘honest services’ was not adequately defined in the law,” Floyd Norris writes.
Has anyone handicapped this? Obviously the $20 billion reserve is a good ballpark figure but the overs have to be a pretty solid bet on that. Takers?
The firm fka RSM McGladrey purchased Caturano and Company, the fifth largest firm in Boston. The deal, if approved by H&R Block, would make RSM McGladrey…the fifth largest firm in Boston.
Imagine a Future Free of Questions on Revenue Recognition
Grant Thornton Sheds Another Office – Albuquerque Sold to Moss Adams