Author: Caleb Newquist

Founding editor, Going Concern.

After Constant Lehman/Ernst & Young Press Coverage, the PCAOB Is Ready to Get Serious About Audit Committee Communication

So maybe you heard about Ernst & Young and how they kinda, sorta didn’t bring up the shady accounting going on over at Lehman Brothers to the audit committee until a Matthew Lee, your fired whistleblower du jour, brought it up. Some people have suggested that if E&Y had made a single peep about this prior to, say, 2008, maybe we wouldn’t be having this discussion (okay, we’d probably still be having it).


The controversy over this incommunicado has now jolted the PCAOB into action as the they have announced an open meeting for Monday at 9:30 am sharp. Basically, they want to feel everyone out on a standard for required communication for auditors with the audit committees.

As Emily Chasan of Reuters notes, “The PCAOB has considered issuing rules on this issue for the past several years to formalize ways that auditors are expected to communicate with the audit committee of the company they are auditing,” but in classic reactionary fashion, nothing has been done up to this point. Now that we’ve had bankruptcy reports, recycled stories in the press, E&Y hating back the haters, and everything else in this shitstorm, the PCAOB is ready to talk about this.

So, if you’ve got no plans on Monday morning and happen to be in DC, head over to hear the discussion and throw in your $0.02. In the meantime, we’d love to hear some of your suggestions for mandatory talking points from the serious (e.g. accounting treatment that makes the partner even slightly queasy) to the über-ridiculous (e.g. biggest whore on the audit team).

Accounting News Roundup: The Tanning Tax Isn’t Fair; Dubai World Gets Another Life; Guy Hands Won’t Have to Go to London | 03.25.10;

• Does New 10% Tanning Tax Discriminate Against Whites? [TaxProf Blog]
Are you being unfairly taxed just because you want some extra Vitamin D?!?


• Dubai World, Nakheel Get $9.5 Billion Injection [WSJ]
For now at least, it appears that Aidan Burkett, Deloitte’s rock star restructuring expert has saved the day at Dubai World. DW will get $9.5 billion from the Dubai Government and plans to pay $26 billion to its creditors that include HSBC, Lloyds, Standard Chartered and RBS.

The complex deal that has taken months to draw up involves Dubai World issuing two tranches of new debt and converting $8.9 billion, or 38%, of its existing obligations into equity, the company said.

The new debt won’t be guaranteed by Dubai government, which has previously been a thorny issue between creditors and the city-state’s advisors.

• Citi Loses Bid to Move EMI Trial [WSJ]
Remember Guy Hands, the founder of Terra Firma Capital, who hates taxes so much that he asks that his family come to visit him in Guernsey so that he doesn’t risk his non-resident status for England?

Well, you’ll be happy to know that Citi’s bid to get the trial moved to London was rejected by Judge Jed Rakoff so Hands won’t have to worry his pretty little head. Had the motion to move the trial been granted, Hands’ non-resident status could have been jeopardized and he may have had to pay taxes due to England. And, God forbid, do some of the traveling to see his family.

The IRS Isn’t Resting on the Sabbath

If you refuse to use the White House’s tax savings tool purely out of spite then you’ll be happy to know that 180 IRS locations across this great land will be open this Saturday to help you out with things like the Homebuyer tax credit, the American Opportunity Credit, the Making Work Pay credit, and the Expanded Earned Income Credit.

Now we realize that the mere thought of setting foot inside an IRS location will cause many you to break out in boils, the other option is to go to a VITA location and get assistance from one of the many college students out there that are giving amateur advice so that they have one more activity on their resumé. They’re available throughout tax season. They are volunteers, after all.


The Service is trying to make this sound way more fun than it actually is by calling them “open houses”:

“We are holding these special open houses to give taxpayers who are struggling in these difficult economic times more opportunity to work directly with IRS employees to resolve their tax issues,” said IRS Commissioner Doug Shulman. “We will host more than 180 open houses this Saturday.”

Whether Dougie will be on hand at one of the many locations to shed out his wisdom (or maybe get some advice) hasn’t been made clear.

More than 180 Local IRS Offices Open this Saturday to Help Taxpayers [IRS.gov]

You Don’t Want to Imagine the World Without Sarbanes-Oxley, Says Michael Oxley

We really don’t foresee any scenario where a politician would denounce a piece of legislation with his/her name on it but since the MSM has the tendency to bludgeon the Enron/Andersen/Sarbanes-Oxley mantra into everyone’s gray matter, Ox figured he’d better get on record saying that SOx might be the most important moment in U.S. history since the Louisiana Purchase.

When asked if pols can ever stop corporate malfeasance, Ox more or less, compared it to Law & Order, “We have laws against homicide and people kill one another every day. That doesn’t mean that you back off and stop fighting.”


When asked if SOx was a success, we expected a resound, “You bet your ass it’s a success!” but he was a slightly more reserved saying that you should only imagine a world without SOx if you want to scare the bejeezus out yourself:

Sarbanes-Oxley was all about accountability and transparency and restoring investor confidence. We lost almost $8 trillion in market capitalization in 2001 and 2002 because of fraud at places like Enron and Worldcom.

Even though the recent meltdown has hurt confidence again, things could have been much worse if accounting regulations had been as lax as financial regulations.

There’s the magic E word! Maybe we should try focusing on the Tonys as opposed to being so negative when it comes to Enron?

So what about this financial regulatory reform, is this a drag or what?

Critics and the financial press said that Sarbanes-Oxley was rushed through, even though it actually took eight months from the time of the first hearing on Enron until the passage of the bill.

Now, more than a year since the financial crisis, Congress hasn’t dealt with regulation and people are criticizing politicians for moving too slowly. But by taking more time Congress has had a chance to delve into complicated and multi-faceted issues like too-big-to-fail, over-the-counter derivatives, and bank regulations. This is heavy lifting and I give the Congress a lot of credit for working hard to put something together.

Do you think Congress would work on something for eight whole months and it would end up being a failure? If elected representatives work on something for that long it’s bound to be an unmitigated success.

Is Sarbanes-Oxley a failure? [Fortune]

Stephen Chipman Begrudgingly Wore Green on St. Patrick’s Day

Stephen Chipman’s blog post from last week got lost in the shuffle but you’ll be happy to know that you didn’t miss anything. Our lack of enthusiasm is not shared however, as the daily grind for a globe-trotting CEO seems to be enough to entertain some of the GT faithful. How do we know?

He shared one reader/fan’s thoughts this week, that’s how, “So, you really don’t just drink coffee and check e-mail!” While SC neither confirmed nor denied this particular allegation, one could assume that this is a big part of his day.

Moving on…Of the near 1,000 words in this week’s masterpiece, the only thing really worth mentioning is that the GT CEO spent his first St. Patrick’s Day in Chicago last week. And guess what Chi-town? You didn’t let him down; Steve-o was impressed.

This is my first time living in Chicago to experience St. Patrick’s Day; it was very interesting to see the Chicago community’s commitment to this holiday. Dutifully I wore my green tie, in respect of St. Patrick, which was very challenging to do for an Englishman. Nevertheless, I thought it appropriate…even though the Irish did beat the English at rugby a couple of weeks ago in the Six Nations Championships…which was a crushing disappointment…but I digress.

Digression! He’s really getting the hang of this. Maybe Chip’s blog readership is increasing?

The real question is what did SC see on St. Pat’s that piqued his interest? The green river? The turnout at the parade? The vast number of people vomiting in the streets? More details Stevey!

On the biz-nass front, SC did have a conference call with all the GT global leaders and he had to get up bright and early to get on the call at 8 am Chicago time. He did admit that this is NBD because when Steve-o was in China, he had to do the call in the god-awful morning hours to accommodate the BSDs in the U.S. and London.

Speaking of China (and digression), does anyone think Steve knows where mini-Madoff of Hong Kong Gabriel Azedo is? Dude has been missing for awhile.

Dennis Nally: PwC’s Credibility with Our Clients Is Doing Just Fine, Thankyouverymuch

Awhile back we told you about PricewaterhouseCoopers Global CEO Dennis Nally admitting that the PwC brand had been damaged because of the whole Satyam fraud.

DN has done another interview with the Indian press and he says despite this litng is on the up and up in India for PwC. The long/short of it is that Dennis & Co. are going to keep giving their clients the P. Dubs experience now and forever.

Pretty wide range of questions but we’ve presented the highlights for you.


Was the PwC Magic 8ball broken?

Q: When you look back at it do you think you could have avoided all that happened?

A: I don’t know if we could have avoided it. As we all know this was probably one of the most significant frauds that suddenly has taken place here in India but even in the global market place. So I do not know how you avoid that type of situation.

Where was the P. Dubs swagger when the shit hit the fan? Did you realize that everything was f’d and didn’t know what to do?

Q: [T]he firm didn’t seem to respond in a confident manner. The impression was that it didn’t know what it had been hit by. Do you think it could have been handled better?

A: I think with hindsight you can always do things better and that is part of learning and trying to deal with issues. But quite frankly this was a major event and of course it took us time to understand the pattern and what transpired.

In fact we are still learning and everybody is still learning. Now all the facts aren’t quite out yet but I think we are in the business of being out in the public and when something like this happens and it happens in a negative way, we are part of that. That is just a reality of being in a profession that we are involved with.

Why is this PwC’s fault?

Q: What role did the auditors have to play?

A: You are into an interesting debate and discussion because what is the role on a professional standards for the detection of a fraud. That is one of the areas that has been the focus not only on Satyam but a broader profession wide issue and we certainly welcome that debate.

I think there is an expectation out there in the public that auditors uncover every single fraud that they are involved with and that is not what professional standards call for but there is the public perception that that is what we are there to do. I define that as the expectation gap. If that is the expectation then we need to make sure that we are focused on the right kind of procedures, the right kind of standards, the right kind of reporting which is quite frankly really different than what we do today.

Will you stop all future frauds in India forever and ever and ever?

Q: Can you tell us if India will never see a Satyam again?

A: I wish I had a crystal ball but I don’t. As I said when you have a situation like Satyam or a major fraud I suspect somewhere in the world of corporate reporting, you are going to see another situation like that. Our job is to make sure we are doing everything we can possibly do consistent with the standards that are out there to ensure that we play our role in that process to avoid them.

The new India managing partner came from Singapore? You got something against Indians?

Q:But he has not come from India, you didn’t appoint him from the India firm – he was brought in from Singapore?

A: Gautam is originally from India which is great so it’s little bit of coming home programme.

Q: But it’s not a vote of confidence on the India management?

A: It is not. This is all about ensuring that we get the very best talent to focus on an important market like India and that’s exactly what we have done.

You let everyone down. Speak to them!

Q: A word to all those investors who felt disappointed with PriceWaterhouseCoopers for not alerting them to what was going on in Satyam. What is your message to them today?

A: Whenever we have situation like this, right or wrong, whatever standards are we are part of that and for that we regret what has happened. But this firm is about quality. It’s about doing the right things, it’s about being here for the investor community and we are very much focused on that.

Satyam fiasco has not dented credibility with clients: PwC [Money Control]

Accounting News Roundup: The SEC’s Porn Problems Somehow Get Worse; The Daily News Offers Free Tax Help While the Sun-Times Has More Obvious Tax Advice | 03.24.10

• SEC Employees Were Masturbating to Kiddie Porn While Your Economy Tanked [Gawker]
So this whole SEC/Porn fiasco has taken an unsuspecting and disturbing turn for the worse. Gawker has obtained documents that show that there have been sixteen investigations of SEC employees surfing the web for the likes of ladyboyjuice.com, kinkycomments.com, sexyavatars.net, cafebuckskin.blogspot.com and the list goes on and on and on and on.

Even more awkward is that it was discovered that one of the Commission’s porn connoisseurs computers contained videos that “potentially contained child pornography” and was referred to the FBI. Protecting our markets, people. Protecting our markets.


• Readers turn to Daily News Tax Hotline for free help filing tax returns [NYDN]
Can’t afford a CPA? NBD. Just call up the Daily News. Their annual tax assistance hotline runs today and tomorrow from 10 am to 4 pm. The DN partners with the NY State Society of CPAs so you can rest easy that it won’t be Rush & Malloy.

• Don’t pay taxes with credit card [Chicago Sun-Times]
Not such a good idea.

A Tax Lien Is a Much More Manageable Problem Than Say, Apologizing to Your Oscar Winning Wife

Since Jesse James’ tax lien is relatively small — $3,918 — you can probably chalk this up to a mistake. However, since the taxes are related to 2007, could it be that it was an oversight? A mistake? Poor judgment?

Poor judgment akin to say, inviting a tattoo model/stripper/rumored white supremacist into your bike shop to cheat on your wife? Is that sort of the same thing?

Tax debt adds to sex scandal for Sandra Bullock beau [Tax Watchdog]

(UPDATE) John Veihmeyer to Succeed Tim Flynn as Chairman of KPMG’s U.S. Firm

UPDATE/Correction, Wednesday 3.24.10 – Previously, headline stated that John Veihmeyer was succeeding Tim Flynn as Chairman and CEO. John V. has actually been the U.S. CEO since 2008. Sorry JV, for not giving you credit there.

The suspense is over. Johnnie V. has been serving as th the U.S. Firm since 2005 and he has the full confidence of TF, “There is no finer individual to lead the U.S. firm and build upon the progress that has been made over the last five years…John is equally passionate that KPMG continues to be a great place for our people to build their careers, in a culture that embraces diversity.”

JV will be succeeded by Henry Keizer in the Deputy Chairman role. Hank will also be the U.S. firm’s Chief Operating Officer. Timmay is also excited for Keizer Soze’s promotion, “His leadership and professionalism will be vital to ensuring the firm meets the challenges and capitalizes on the tremendous opportunities ahead…he has championed the use of technology and off shoring to enhance our operational effectiveness and efficiency in an increasingly competitive marketplace.”

Tim will be focusing on his roles as the Chairman and Senior Partner of Klynveld International, dashing our wishes for him to be the next Secretary of the Treasury. He was “strongly endorsed” by the Global Board to get down to business in this “unprecedented global economic and regulatory environment.” You can probably plan on more Davos interviews next year, chatting up royalty, caddying, etc.

I am extremely pleased to announce that the partners have ratified the election of John Veihmeyer as Chairman and CEO, and Henry Keizer as Deputy Chairman and COO, of the U.S. firm. John and Henry will assume their new responsibilities on June 10, 2010, when my term ends as U.S. Chairman. John and Henry bring strategic insight, deep leadership skills and extensive experience in serving clients to their new roles.

While it was a difficult decision for me not to continue in my role as Chairman of the U.S. firm, it has become increasingly clear to me that my additional role of Chairman and Senior Partner of KPMG International requires a full-time commitment. Last week, the Global Board strongly endorsed that I serve full time as Global Chairman in this unprecedented global economic and regulatory environment and period of tremendous opportunity for our member firms and people.

Having the privilege to work side by side with John during our five-year term as Chairman and Deputy Chairman, I have seen first-hand his professionalism, leadership and commitment to KPMG, its people and clients. There is no finer individual to lead the U.S. firm and build upon the progress that has been made over the last five years.

In addition, Henry will bring a tremendous amount of operating experience and energy to the Deputy Chairman and COO role. His leadership and professionalism will be vital to ensuring the firm meets the challenges and capitalizes on the tremendous opportunities ahead.

John has served as Deputy Chairman of KPMG since 2005, and he brings a unique combination of skills and experience, across all aspects of our strategic priorities, to the role of chairman. John is equally passionate that KPMG continues to be a great place for our people to build their careers, in a culture that embraces diversity.

Henry comes to his new role after serving as U.S. Vice Chair, Audit since 2005 and Global Head of Audit since 2006. In these roles, he has championed the use of technology and off shoring to enhance our operational effectiveness and efficiency in an increasingly competitive marketplace.

John and Henry’s professional depth, integrity and commitment to our clients, partners and the people of KPMG will serve the U.S. firm well as we move forward. Please join me in congratulating John and Henry and welcoming them to their new roles.

In closing, there was never a day that I was not grateful and humbled by the opportunity to lead and work with the truly exceptional people of KPMG. I have been awed by your talent, proud of your accomplishments and appreciative of your dedication. It truly has been an honor to serve as Chairman of the U.S. firm for the last five years.

Thank you for all that you do every day to support our firm and deliver on our promise of professionalism to each other, our clients and the capital markets we serve.

All the best,

Tim

Is the Shortage of Good Accountants in the Sex Industry an Opportunity?

Okay my friends, this is a serious problem in our country that needs addressed. The vast shortage of competent, professional, tax advisors and accountants for escort service businesses, brothels, and your run-of-the-mill houses of ill repute can go on no longer. If not for the business opportunity, then for the good of your fellow Americans and maybe your state’s dire fiscal situation.


Today we learned that the one of the proprietors of Companions, “a call-out escort service” in Salt Lake City that was convicted of one count of tax evasion. Jodi Hoskins and her husband Roy were both convicted of dodging taxes (he in May 2009) for the year 2002. They managed to underreport their gross receipts by $1,204,354 which resulted in evaded taxes of $485k-ish. As you can tell, this is a bit of a problem. And with all challenges/problems/giant pains in the ass, therein lies an opportunity.

Our position is that these businesses simply cannot go on without more accountants and tax professionals stepping up to help these pillars of the business community run their whorehouses better. This means you, GC readers. Your knowledge of the double-entry accounting, inventory, derivatives, and payroll will be invaluable for these entrepreneurs and their employees.

Plus! If more of these businesses are in compliance with state and federal taxes, that’s one more step to states becoming fiscally solvent AND Tim Geithner can give the cash printing machine break. Everyone wins!

Escort Service Operator Convicted of Tax Evasion [Web CPA]
Companions Website [Warning: NSFW]