Author: Caleb Newquist

Founding editor, Going Concern.

BDO Breaks Barrier to Be First Accounting Firm to Land on Obscure Employer List

First off, we can’t remember the last time BDO graced these pages twice in one day. You’d think something would come out of B to the D to the O more often but whatevs. BDO 2.0 today is a little bit of good news for the firm in the form of an exclusive spot on an obscure “Best Places” list.

God forbid our lives be devoid of a ranking in the last half of May but since it’s graduation season and there are some job hunters out there that need to start paying back school loans and credit cards debts, perhaps the timing isn’t so bad. A list we might add, that did not previously have an accounting firm on it. Progress people. Progress.


BDO shattered the glass ceiling on Experience’s “Best Places to Work for Recent Grads” that “picked 20 organizations whose entry-level hiring and retention practices are exceptional.” The list is specifically aimed at those companies that are hip to the Gen Y crowd, although we don’t really know any “recent grads” list that wouldn’t be.

Regardless, BDO has some decent company on the list that includes Accenture, Kellogg’s and Morningstar but BDO is the sole accounting firm. The fact that not a single accounting firm (let alone a Big 4 firm) is on the list is a travesty of the highest order. We then realized that the list’s very nature is severely flawed.

It’s too short. Any employer list with less than 50 companies on it simply cannot be taken seriously.

And since there were no accounting firms on last year’s list, this might as well have been random list of companies thrown together for the sake of keeping communications professionals busy.

This year, the Experience folks must have recognized their gross error and that since no employer list could be taken seriously devoid of a professional services firm. Not wanting to make it too complicated, BDO’s inclusion be probably chalked up to an alphabetical advantage.

Best Places to Work for Recent Grads [Experience]
BDO Press Release

BDO Not Thrilled with the Legal Advice It Got Re: Tax Shelters

BDO’s Tax Solutions Group was going gangbusters back in the late 90s and early aughts. Unfortunately, the party more or less ended in December 2000 when the IRS served notice to the firm that some of the products were not ingenious tax planning strategies but rather illegal tax shelters. The DOJ launched an enforcement action in 2002 and just last year BDO partners started pleading guilty to tax evasion, conspiracy and some other fun charges.

BDO isn’t crazy about shouldering all the shame and embarrassment so it has decided to sue the law firm Morgan Lewis for “professional negligence, breach of contract, breach of fiduciary duty, fraud and constructive fraud.” BDO alleges that ML’s breach amounted to “disastrous results” which is likely referring to the tax shelter shitshow. They just want their $9 million back that they paid in fees and call it a day (they’re saving up!).


Morgan Lewis finds this all very amusing, stating that they advised BDO only on minor issues. ML is represented by Gibson, Dunn, & Crutcher led by James Fogelman, who made his client’s position very clear:

Morgan Lewis called the lawsuit a “sham” and contended it only advised [BDO Partners] on a few minor questions — none of which involved the questionable tax products. “There was nothing that Morgan Lewis knew about to warn BDO concerning BDO’s own conduct. … There was nothing more BDO needed to know,” Fogelman wrote.

The only time Morgan Lewis opined on a tax product, the firm contends, was in February 2000, when BDO asked it to weigh in on a tax shelter dubbed the Sentinal Transaction. Morgan Lewis responded that the tax shelter was “unlikely” to expose BDO to criminal convictions. In its motion to dismiss, the firm said, “[I]t does not appear that anybody has ever been convicted of any federal crime based on the Sentinal Transaction.”

And Morgan Lewis doesn’t simply want to be vindicated in this matter, they want to be right AND they they would like BDO and DLA Piper (BDO’s counsel) to have sanctions slapped on their asses for lying through their teeth in their complaint. ML contends that they presented evidence disproving the allegations but BDO and DLA must have decided that a bitter fight would be more fun.

And it is.

BDO Seidman Seeks $9 Million in Fees Back From Morgan Lewis [The National Law Journal via Law.com]

Accounting News Roundup: Bidz.com’s Financial Reporting Could Have Some Issues; Tax Planning Stays One Step Ahead Financial Reform; Accountant Denied Bail in Terror Case | 05.18.10

Can We Trust Bidz.com’s Financial Reporting? [White Collar Fraud]
We won’t tell you what to think but you should know that Bidz reported “material weaknesses in internal control over financial reporting” specifically those controls over “management oversight and anti-fraud controls specifically in processing of financial transactions, vendor review and payment processing,” in its most recent 10-K and 10-Q As an investor in Bidz, this should make you queasy. Unless, of course, you’re not concerned with such matters.


Sam Antar probably doesn’t care either way but he does put something out there, “Bidz.com cannot effectively prevent anyone from robbing the company blind and cannot prevent material errors in paying its vendors. Yet, the company wants you to believe that its financial reports contain no material errors and comply with GAAP.” But if you’re not sketched out by such things, then by all means, invest away.

But wait, in case that doesn’t earn your skepticism, the SEC began its investigation last year after Sam pointed out inventory irregularities at the company. Shortly thereafter, the Commission expanded its investigation into “the Company’s co-op marketing contributions and minimum gross profit guarantees.” If that wasn’t enough, the company’s auditors, Stonefield Josephson, were cited by the PCAOB for “significant deficiencies in a smaller sample of one of four audits reviewed.” So, again, if you can get over all that, this is probably a fine company to have your money invested in.

Bobbing as the Taxman Weaves [DealBook]
As Congress continues to dispel its wisdom on financial reform, it’s has become the natural order of things for any regulation to be circumvented prior to the passage of any bill.

In the case of carried interest, an incentive paid to hedge and private equity fund managers out of gains on the funds’ investments, Congress would like to tax these incentives at the ordinary rate (soon to be 39.6%). Currently, carried interest is taxed at the capital gains rate of 15%. DealBook reports that, despite threats by House to penalize those who use creative tax strategies that later fail, the maneuvering has not slowed:

The House of Representatives, aware that some titans of finance were already charting a course around any proposed change to their tax status, included a special provision in its version of the new legislation levying a 40 percent penalty for executives who invoked a loophole to cut their tax bill but were later ruled to have been wrong in doing so.

Still, that hasn’t stopped them from trying.

One of the latest machinations being whispered about in the industry goes like this: Private equity executives would sell their “carried interest” to a third party and then use the cash they received to invest directly in the deal so that any increase in value would be a capital gain.

It’s not clear whether this will work or not but it sure seems like fun.

Accountant held without bail in NYC in terror case [AP]
Sabirhan Hasanoff, a former PwC Senior Manager, was denied bail yesterday for his role in an alleged conspiracy that supported al-Qaida. He pleaded not guilty to the charges against him.

Allegedly, a Few Ernst & Young Partners Just So Happened to Join PwC

Never having the pleasure of attending a partner-only soiree, we don’t have much knowledge about the haps at these events but we do imagine catering slightly better than what you would find at an in-house training but served by oompa loompas. And an open bar, natch.

Likewise, we’ve never heard about Big 4 partner mixers where, for example, an PwC partner might chat up a E&Y partner talking IFRS, where they fall on the staff’s hottie list and “oh by the way, waddaya say you join our firm?” To save face, we imagine said E&Yer responding with a “No, I will not make out with you” retort followed by open-faced slaps and ripped Jos. A. Bank until the beefy security pulled the two apart (at which point the P. Dubs partner gives his target the “call me” sign).


We bring all this up because the Times Online reports that there has been a fair amount of defection from Ernst & Young to PricewaterhouseCoopers in the Middle East (no sissies allowed). PwC’s Middle East practice was purchased by the UK firm last year and now the Times reports that 20 E&Y partners have been poached by P. Dubs:

According to people familiar with the situation, the defections — amounting to almost a fifth of Ernst & Young’s partners in the Middle East — were in several locations across the region. Most were from Ernst & Young’s consulting business, The moves began last summer but were kept secret because of a settlement between the two firms. PwC agreed that it would not approach any more Ernst & Young staff in return for Ernst & Young agreeing not to take legal action to block the departures.

Neither firm would comment for the Times article except to boast about their numbers in the region, “PwC confirmed that it had recruited 25 new partners and 400 staff in its Middle East offices in the past 12 months,” and “A spokesman for Ernst & Young said that it remained ‘easily the largest’ of the Big Four in the Middle East,” so both firms’ communication departments seem to be operating as normal.

Whether such (alleged) deliberate defections have happened in the States, we don’t know but we hear it is quite the spectacle (marched out by the OMP the second the news got dropped) when one partner notifies his/her intent to leave for a competitor, so all out war could reasonably be expected.

PwC raids rival before Middle East step [Times Online]

Are You Saying That An IRS Collection Agent Might Not Be Completely Honest with a Taxpayer?

You know, you’d think with all the challenges the IRS faces – airplanes, llelo/baking powder scares, virtual Tea Partiers – one would think that when on a collection call, agents would apply a spoonful of sugar to help the financial rectal exam go down.

Sadly, we’re informed over at Tax Lawyer’s Blog that it’s typically much more devious than that:

Often, when a taxpayer speaks to a low-level IRS official about a tax issue the official tells him one or more of the following:

• You must pay the debt or you will be criminally prosecuted
• If you don’t pay the debt in full within so many days, your assets will be seized
• It’s a waste of money to hire an attorney

As noted Peter Pappas notes, these three points are, in a word, gobbledygook.

Despite how much you might not want to admit it, attorneys are always useful in legal situations, especially complex ones. You might be able to get out of a traffic ticket on your own but probably not a tax case. An expert is needed (whether it’s a lawyer, CPA or EA). Further, as the post notes, these collectors are not the tax sages that they might present themselves to be, “[T]hese IRS officials are wholly unqualified to give legal advice to taxpayers. They aren’t lawyers, CPAs, or IRS Enrolled Agents and in the great majority of cases lack a substantial background and education in the intricacies of federal tax law.”

And there is the small matter of the agent acting in the best interest of the Federal Government so the modern day Matthew isn’t exactly in the best position to be giving the taxpayer advice.

IRS Collection Officials Intentionally Mislead Taxpayers [Tax Lawyer’s Blog via Tax Update Blog]

KPMG’s Leadership Is Not Determined By Rock-Paper-Scissors

KPMG Leadership has been on a communication rampage this month, answering questions from inquiring Klynveldians about the firm’s performance and compensation.

This time around, thd by COO Henry Keizer) discuss their roles in the firm and the election process because, presumably, it might make for a good ice breaker at your upcoming Memorial Day BBQ.

Inquisitor 1: Congratulations on your new roles – Chairman and Deputy Chairman. What can you tell us about the process that you go through in having that occur? And what’s the differentiation between your two roles?

Flynn: The board has a responsibility to have a succession planning process in place to elect the Chairman and Deputy Chairman. That is then put to an up or down vote of the partners for ratification. Chairman and Deputy Chairman are – today – a five-year term jointly and then a three-year second term, should they so choose. The board elects them to a second term.

John and I were elected in June of 2005, for a five-year term. I was elected as Global Chairman on October 1, 2007. I came to the conclusion through the fall that I really couldn’t do both roles full time.

In recognizing that in a complex, changing world today, we really need a full-time U.S. Chairman and Deputy Chairman to take care of what has to get done here in the world that we’re in—and as well, we’ll talk more about it, but we have to evolve the global firm, a $20 billion organization – shouldn’t there be a full-time executive team that wakes up every day on how to carry out the responsibilities of a $20 billion organization?

Veihmeyer: In terms of specific responsibilities – as Chairman, I’m the CEO. Henry chairs the Management Committee and a lot of what we talked about in terms of executing effectively and making sure that we are – from an operational standpoint – a very high-performance organization, Henry will lead through his role as Chief Operating Officer.

In other words – the process at KPMG isn’t exactly the electoral college. It’s basically a fight until the (near) death and the winner gets the thumbs up/thumbs down, Gladiator style, from the Board. Then they shake hands, slap each other on the ass, etc. and get back to work.

For this past cycle it does sound like T Fly was a little burned out from the globe trotting and keeping the peace Stateside so it was natural for JVeih to step up to the big chair for the U.S. after the terms expired. A $20 billion company is nothing to sneeze at so we thought that maybe we should start taking this “global firm” thing seriously (even though we’re all independent of each other and are legally not one firm) and let somebody tackle it full time.

Inquisitor 2: How will the succession process work within the next three months?

Veihmeyer: In terms of the specific things that have to take place, obviously we have some things around the leadership team that we have to get in place. Henry comes out of his role leading our Audit practice. So we will get all that in place as we lead up to early June, what team will be in place as we go forward post-June 10th, leading the firm. Henry…

Keizer: The transition that Tim and John described sets us up in a very good position to make sure as we move through fiscal 2010, we won’t be focused internally. It will allow us not only to continue to build on the foundation that we’ve built over the past several years, but more importantly, to really stay focused on making sure when we look back on 2010, it will be a year where everyone could say we’re on our way to recovery. The things that we all want, in terms of a more vibrant business, more rewards for our people, are all beginning to come back into the picture, and that that’s what we’re all committed to, I’m sure.

We’re taking applications for Hank’s position. You have to be able to stick to talking points, send out a mass amount of emails (via admin assistant natch) and smile a lot. Oh, and you can’t gush when Phil shows up for photo ops; you’ve got to keep it cool.

Just to Clear It Up: Grant Thornton Is an Accounting Firm Not a Law Firm

We stumbled upon this letter recently that appears to indicate that there was some confusion between the Grant Thornton Atlanta office and a Judge in Florida about what kind of services GT provides.

GT Atlanta


So it appears Mr Bowles has a little bit of responsibility here since he admits, “I did not submit a written request to appear as an other qualified representative in the form specified in [rule] which would have triggered a specific determination by you about my qualifications to go forward.” The lengthy explanation that follows kinda sorta indicates that maybe, he feels like this was his bad that the mistake got made. If you disagree and would like to blame the judge, fire away.

That being said, we figured that GT had enough of a reputation as an accounting firm to be recognized as such with little or no investigation. Apparently that is not the case. We left messages with both Judge Holified and Mr Bowles to get an explanation but so far neither of them have returned our calls.

In Washington State, a Kit-Kat Bar is Not Considered Candy for Sales Tax Purposes

[caption id="attachment_10643" align="alignright" width="260" caption="Not candy"][/caption]

Listen up people. Since many of you regularly get either your breakfast, mid-morning snack, lunch, pre-midafternoon snack, afternoon snack, pre-leaving work snack or – during busy season – your dinner out of a vending machine this could be cause for concern.

States are strapped for cash so t��������������������ve you joy is a logical and effective conclusion. Accordingly, sweets, sodas, booze, cigarettes, strippers are all fair game. Some of these are old hat (e.g. booze, cigs) and some are becoming more popular (e.g. candy, soda). Washington state is rolling out its candy tax on June 1, 2010 and as you might have guessed, it’s not nearly as simple as you would think. There are many questions.


First off, candy needs a definition, so Department of Revenue de Washington presents its version:

“Candy” means a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces. Candy does not include any preparation containing flour. Candy does not require refrigeration.

OFTLOG. Couldn’t it just boil down to: “Anything handed out on Halloween”? But wait, the questions get better:

Are bags of trail mix containing small amounts of candy subject to sales tax?
No, trail mix is not considered to be candy if it contains only small amounts of chocolate chips or other candy.

Are sweetened breakfast cereals considered candy if they do not list flour as an ingredient?
No. Breakfast cereals are non-taxable food, even if they are sweetened and do not list flour as an ingredient.

What about prepackaged combination packs of candy? I sell bags of mixed candy bars for one, non-itemized price. Some of the bars contain flour, while others meet the definition of candy. Do I collect sales tax on the bags of candy?
The sale of the bags of candy represents a bundled transaction. See RCW 82.08.190 for more information on bundled transactions. Because one of the items in this bundled transaction is subject to sales tax, the entire bundle of products is subject to sales tax. See RCW 82.08.195 for more information.

However, you can exempt the bundled transaction from sales tax if you demonstrate that the purchase price or sales price for the taxable candy is 50% percent or less of the total purchase price or sales price of the bundled food products. See RCW 82.08.190(4) for information about how this 50% exception works.

Are nicotine gum and analgesic gum candy?
They are not candy, but they are subject to sales tax because they are over-the-counter drugs. Over-the-counter drugs refer to any drug sold with a label that identifies the product as a drug and includes either of the following:

A “drug facts” panel; or
A statement of the “active ingredient(s)” with a list of those ingredients contained in the compound, substance, or preparation.

Nicotine gum and analgesic gum (gums containing aspirin) meet the description above and should be treated as taxable over-the-counter drugs unless purchased with a prescription. See RCW 82.08.0281 for more information regarding over-the-counter drugs.

How are products in the baking aisle treated?
Below is information on selected baking aisle products [we’re skipping the table but fact that there is a table to explain the candy/non-candieness of the baking aisle is ridiculous]

Are fruit snacks such as fruit roll-ups and fruit leathers subject to sales tax as candy?
Fruit roll-ups and fruit leathers are subject to sales tax if they contain any sugar, honey, or other natural or artificial sweeteners and do not contain flour or require refrigeration. The fruit added to such item is not considered a sweetener (fruit is not intended to refer to concentrated fruit juices).

Are sweetened dried fruits candy?
Yes, dried fruits are candy when they are sweetened with natural or artificial sweeteners. This is true whether the product is sold prepackaged or in a bulk bin, by weight. Unsweetened fruits are not candy.

Is halvah candy?
Halvah is a confection usually made from crushed sesame seeds and honey, but in some instances may be made with grain based ingredients. It has been a traditional dessert in India, the Mediterranean, and the Balkans. Halvah that is based on nut butters (or seeds) and contains no flour is candy. Halvah that is flour-based is not candy. You should read the ingredient label if you are unsure.

Are energy bars and protein bars candy?
Energy bars and protein bars that contain no flour and require no refrigeration are taxable as candy. Bars that contain flour or require refrigeration are not candy.

Are cough drops subject to sales tax as candy?
Cough drops are not taxable as candy if they have either:

A “drug facts” panel; or
A statement of the “active ingredient(s)” with a list of those ingredients contained in the compound, substance, or preparation.

In such situation, the cough drops represent over-the-counter drugs. These cough drops are subject to sales tax unless purchased with a prescription. See RCW 82.08.0281 for more information regarding over-the-counter drugs.

Cough drops that do not have either of the above are candy.

Some takeaways: 1) Careful with the trail mix that has lots of M&Ms, it could possibly be taxable 2) Lucky Charms, et al. are safe 3) If anything has the word “gum” in it, it’s up for debate (e.g. Nicotine gum). Strangely enough, condom gum, edible undies, etc. is not mentioned 4) Fruit Roll-ups, energy bars, halvah and cough drops are all in the gray area.

And in case that doesn’t clear it up, there’s an entire spreadsheet that you can refer to (file below) but no, a Kit-Kat bar is not considered candy. Neither is a Milky Way. Got it?

Quick Tax Quiz: When Is a Candy Bar Not a Candy Bar? [Tax Policy Blog]
Washington State Candy List

Accounting News Roundup: KPMG Considering Credit Rating Business (Not Seriously Though); You Can Stop Worrying About SaaS Security; Brief Tax Stories Are Possible | 05.17.10

KPMG and PwC eye rating move [FT]
KPMG has casually kicked around the idea of getting into the rating agency business according to the FT who quotes John Griffith Jones, the firm’s UK Chair, as saying the firm was “‘passively considering it” and that “it is something that we talk about as a plausible thing to do. It is effectively something we would be proficient at doing.”

The FT also seems to think that the PwC is toying with the idea although it’s even more tepid than KPMG, “Richard Sexton, UK head of assurance at PwC, said it continually looked for areas to grow its business from its ‘core skills that include assurance, opinions and underpinning public trust.'”


And yes, the skeptics are duly noted, as Jones said, “We are aware that people think we have conflicts of interest already. It probably makes it impractical. But if the world wanted another strong ratings player, there you are. Maybe the debate could be started off.”

In other words, we’re just thinking out loud.

Can we please get over the security issue? [AccMan]
As we’ve been touching on SaaS recently, some of you may be wondering about the issue of security. This issue rightly irks Dennis Howlett, as he points out, “We’ve had online banking for years. We have numerous other online services such as GMail. Does anyone think twice about using those?”

Further, would a company that was providing SaaS – whether for accounting, CRM, or ERP, payroll whatevs – that was having security issues really have a business? “SaaS accounting HAS to be secure. Why? Almost all services currently on offer are on a pay as you go basis. If the provider screws up then they’re dead in the water. Why would a provider be stupid enough NOT to build enterprise grade (and better) security into their platform?”

Just make sure to do you due diligence before pulling the trigger on anything. And don’t just rely on a SAS 70.

Who Knew? There’s an IFRS News Widget for Mac Users [CPA Trendlines]
For anyone that needs up to the second IFRS news on their Mac. Download here.

Hemingway and Tax [TaxProf Blog]
If you can make a tax story out of six words then you’ve got other talents (besides taxes) that need to be explored. Tax Prof put out the call for some brief tax tales. A few submissions:

“Deduct it. Fight Later. Then Settle.”
“Let’s do a delayed three-way.”
“I work. I file. I pay.”

Swiss banker turned whistleblower ended up with a prison sentence [WaPo]
Whistleblower Bradley Birkenfeld handed UBS to the DOJ and all he got was a nice 40 month prison sentence out of it.

Deloitte’s Walt Disney World Dream Ends: Firm Going “Virtual” in Orlando

Deloitte Disney World joins PwC’s tax practice which took the dirt nap effective May 3rd. The Orlando Business Journal reports that the office will become “virtual,” a term that still has not been defined to our satisfaction.


We called Deloitte Orlando for more information but the employee we spoke to “was not authorized to comment.” We were forwarded to a voicemail box of someone else and we haven’t heard back. According to the report in the OBJ, Deloitte is the third largest firm in the area; according to Deloitte’s website the location has 60 employees.

One source familiar with Deloitte told us that this could possibly be a move by D (and possibly other firms) to “centralize their operations in an effort to cuts costs,” while still maintaing a minimum “physical presence” in a city. Whatever the reasoning the most likely scenario is that no one wants to be within a stone’s throw of a certain resident.

Accounting firms rumored to be paring down area operations [Orlando Business Journal (subscription)]