Author: Caleb Newquist

Founding editor, Going Concern.

Accounting News Roundup: Substance at Utah IRS Building Was ‘Non-hazardous’; Goldman Sachs Discloses Its Bad Publicity Risk; Resort Where Tiger Gave Apology Files for Bankruptcy | 03.02.10

• Suspicious substance at IRS called non-hazardous [KSL5]
After everything that has happened lately that is IRS-related, somehow that white powdery substance showing up at an IRS building and three employees having seizures is one giant coinky-dink.


• Goldman Discloses a New Risk: Bad Publicity [DealBook]
Team Jehovah pushed the button on its 10-K yesterday and because they’re the type of company to keep everything on the up and up, they put it out there that when every media source calls you out each time you break wind, you have a entirely new problem:

“Press coverage and other public statements that assert some form of wrongdoing, regardless of the factual basis for the assertions being made, often results in some type of investigation by regulators, legislators and law enforcement officials, or in lawsuits.

…adverse publicity…can also have a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations.”

You don’t think the name calling and nuclear testicle jokes can affect the bottom line? Think again. PwC bought it. Shouldn’t you?

• Sawgrass Resort Linked to Tiger Woods Apology Files Bankruptcy [Bloomberg]
At present, avoiding any contact with Tiger seems to be prudent.

Hazmat Crews, FBI Respond to IRS’ Ogden, Utah Office

We get it. No one likes the IRS.

Hazardous materials crews and the FBI were on the scene Monday at the IRS building in Ogden, Utah, where two people were removed on stretchers and several others were undergoing decontamination showers. The FBI released no information about the incident.

We don’t have to remind you about what’s been going on lately with regards to Doug Shulman’s shop.

Statement from the IRS:

At approximately 11:15 AM MST, we detected an unknown substance at the IRS Campus located at 1973 Rulon White Boulevard, Ogden, UT. A local Haz-Mat team was dispatched and standard procedures for responding to such an incident were implemented. At this point we cannot provide additional details because we are continuing to assess the situation.

Hazmat crews respond to Utah IRS office [MSNBC]

Ernst & Young Auditors Accused of Missing ‘Tax Loan’ for Investment Adviser’s Stripper Girlfriend

Today in unaudited stripper expense news, two Ernst & Young auditors have been accused in an SEC enforcement action for not investigating a “tax loan” that was misappropriated by a Chicago investment adviser.

John Orrechio founded AA Capital, Inc. in 2002 and he immediately started wining and dining potential clients (primarily unions) in Detroit and Las Vegas. In August of ’03, Orrechio started dating a Detroit stripper (as these stories often go) and he started spending truckloads of money on her and her family. Shortly thereafter, in 2004, Orrechio started taking money directly from client’s tax accounts to fund said his lifestyle and the lifestyle of said stripper.


Orrechio’s stripper fund must have ran dry at some point and he decided to pursue other methods of financing his family fun time. Since he probably wasn’t too keen on letting everyone in on his little problem, Orrechio told his CFO, Mary Beth Stevens, that he owed a grip to the IRS because of his ownership in one of the affiliate private equity fund and that E&Y screwed up filing one of his tax returns:

Orecchio told Stevens that he needed to borrow money to pay his taxes. At Orecchio’s direction, Stevens withdrew $602,150 from AA Capital’s client trust accounts and then wired the money to Orecchio’s personal bank account.

Between May and December 2004, Stevens made three additional disbursements to Orecchio to pay his purported tax liability. During 2004, Orecchio received a total of four separate disbursements under the guise of the “tax loan” totaling approximately $1.92 million.

Ms Stevens, probably not wanting upset the boss (i.e. get in the way of a man and his stripper girlfriend), played ball. When the two auditors in question, Gerard Oprins and Wendy McNeely, learned of this tax loan, they are accused of doing, well, not much:

20. After learning about Orecchio’s purported “tax loan,” Oprins and McNeeley failed properly to evaluate the transaction or require other audit team members to do so. The audit team did not obtain any documentation reflecting Orecchio’s tax liability or the terms of the “tax loan.” They did not discuss the “tax loan” with Orecchio. They did not take steps to confirm Stevens’ statements that Orecchio “made a payment to the IRS for $1,921,050” or that the “tax loan” would be repaid by Orecchio or the IRS during 2005. They did not take steps to assess the collectability of the “tax loan.” They also failed to discuss Orecchio’s tax liability with their colleagues in Ernst & Young’s tax department who prepared the tax filings for AA Capital and its affiliated private equity funds.

21. Oprins and McNeeley also failed to scrutinize Orecchio’s “tax loan,” or require other audit team members to do so, in light of several red flags that the audit team encountered related to Orecchio’s spending habits.

This all led to an unqualified opinion issued by Ernst & Young on AA Capital’s and AA Capital Equity Fund’s (the affiliated private equity fund) 2004 financial statements. Because of the undisclosed stripper piggy bank, the actions of the auditors amounted to financial statements that weren’t in accordance with GAAP and an audit that wasn’t performed in accordance with GAAS.

An Ernst & Young spokesperson declined to comment.

The two auditors are accused of “improper professional conduct” which could result in the two not being allowed to appear or practice before the SEC, which, if you were to ask Harry Markopolos, will save you the trouble of working with idiots.

ACCOUNTING AND AUDITING ENFORCEMENT [SEC]
Ernst & Young Auditors Accused in Investment Case [Web CPA]

Nas Slowly Approaching Nicolas Cage Tax Trouble Levels

Actually he has quite a ways to go to get to the nearly $14 million that NC agreed to pay the IRS and isn’t even close to the $33 million that “Douche of the Decade” Joe Francis owed (that has now been dropped we should add) but a $3 million tax lien is nothing to sneeze at.


On the other tax deadbeat hand, Nas easily eclipsed other recent tax scofflaws including Snoop Dogg’s lien of $600k, Jose Canseco’s $320k and Eve’s $357k. But actually, it’s not really that hard considering, “sources say Nas doesn’t have a clue he’s going under financially…He was at Sundance recently and raked in $50,000 for a performance, which, we’re told, he blew before he blew out of Sundance.”

Presumably the IRS won’t let it get too much further out of hand. After planes and bulldozers, we’re thinking they’ll stay on the offensive with regards to resistance.

Reality to Nas — ‘Memba Me? [TMZ]
Recent Celebrity Tax Scofflaws:
Tax Deadbeat of the Day: Jose Canseco
Why Snoop Dogg’s Latest Tax Problem Isn’t a Surprise
The IRS Wants a Piece of Eve
Joe Francis Continues to Get Hassled by the IRS
Nicolas Cage’s Catastrophic Financial Situation May be Coming to End

(UPDATE) Jim Turley Breaks Out the Fancy Footwear for His Interview on Bloomberg

~ Update includes quote from Britt Aboutaleb of Fashionista

We meant to get to this on Friday but there was a social engagement occurring that couldn’t be avoided; you know how it is. Anyhoo, the Ernst & Young CEO sat down with Bloomberg last Friday to talk tax policy and we found a few things rather interesting. Watch and we’ll chat about some things after the jump:


First things first: How about the two hotties that Bloomberg threw at JT?

Second: why does the MSM always refer to the “Big 4” as the “so-called Big 4”? Does Big 4 carry some negative connotation in some corners of society or is it meant to be a not-so-subtle dig, like when you call the token short guy on your team “big guy”?

Third and of utmost importance: what’s with JT’s footwear? Are those Timberlands? Does he just put on whatever the wife lays out for him or did she happen to take all of his wingtips to the cobbler this week? OR did he just get back from hiking the Appalachian Trail à la Mark Sanford?

Whatever the situation is, they look like they’ve gotten some good use. We’re not sure what Jimbo likes to do for recreation but it must involve some rugged backdrops that may involve him wearing a flannel shirt and chopping wood.

Britt Aboutaleb, one of the editors of our sister site, Fashionsita, had these thoughts, “I can’t even see the shoes — they look like they’ve emerged from a swamp! Maybe he forgot the shoes he was supposed to change into after trekking through the snow? Or maybe he didn’t realize his feet would be caught on camera…”

God, we hope JT could have arranged for some car service rather than schlepping through the snow. On the other hand, maybe walking to interviews is part of a green initiative? Either way, he could have brought the shoes along and changed into them. Just a thought.

On the other, to say that this is a fashion faux-pas would be an understatement akin to saying “E&Y had a few layoffs last year.”

SHOCKER: GAO Says the Federal Government Has Weak Internal Controls

Talk about a blow. Everyone here at GC soiled themselves after finding out this piece of news.

The mother of all auditors, the General Accountability Office, released its FY 2009 Financial Report for the U.S. Government last week and things are, shall we say, typical. How typical? How about things are such a mess that the GAO can’t render an opinion on the consolidated financial statements?

“The U.S. Government Accountability Office (GAO) could not render an opinion on the consolidated financial statements of the federal government (other than the Statement of Social Insurance) because of widespread material internal control weaknesses and other limitations.”


That’s from the press release and while we were expecting a shitshow spread amongst all the agencies of the government, it’s due to the weaknesses in four agencies: the Defense Department, Homeland Security, State Department, and NASA.

Here’s the full rundown on the agencies from the report:

You may remember us noting the Defense Department’s audit problems back in the fall when we said:

For one of the 69 reviews the GAO performed, the audit report cited eight significant deficiencies in the contractor’s accounting system but since the contractor wasn’t really cool with that, the auditors dropped five of the [significant deficiencies] and recommended that the other three be “improved without additional work”.

So this really, really, really does come as a surprise. It is good to know that the GAO — never shy on tooting its own horn — is still out there earning it’s “taxpayer watchdog” badge.

At 256 pages, this thing is a beast. We’re plowing through it to find the more interesting tidbits where we can and if you’re on cruise control today, take a gander for yourself to see your tax dollars at work.

Fiscal Year 2009 Financial Report of the United States Government [GAO.gov]
U.S. Government’s 2009 Financial Report Shows Significant Fiscal Challenges [Press Release]
GAO Cites Weak Financial Management in Federal Government [Web CPA Debits & Credits]

Accounting News Roundup: Is the ‘Era of Sloppy Accounting’ Over?; Rangel Running for Reelection; Supreme Court to Hear Skilling Appeal | 03.01.10

• Companies are making fewer accounting mistakes [USA Today]
“In another potential boost to investor confidence, the era of sloppy accounting appears to be ending,” declares USA Today. Okay but perfection is unattainable people, so until machines take over for you, keep at it. In the meantime, the results presented by Audit Analytics certainly indicate that things are going in the right direction.

We don’t want to be the party pooper here but if accounting is less sloppy, i.e. more sophisticated, doesn’t that mean that the methods for massaging the accounting are also more sophisticated? Just chew on that while you check the the findings.

The article lists three reasons for the improvement in reporting:

• There is steady and ongoing improvement. The number of companies with restatements and the number of restatements have declined in each of the past three years.

• Mistakes are getting caught sooner. Among the companies with restatements, errors covered a period of 476 days, or less than a year and a half. That’s down 7% from 2008 and well below the 716 days, or nearly two years, of problematic numbers restated in 2006.

• Restatements are less serious. Restatements reduced companies’ reported earnings by $4.6 million on average last year, down dramatically from the $7.2 million and $23.5 million hits in 2008 and 2006.

Even though it’s virtually impossible to eliminate restatements, we must admit that these are encouraging trends. Another thing to keep in mind is that accounting rules are becoming increasingly complex so it’s not like things will be on cruise control from here on out.

• Defiant Rep. Charles Rangel vows reelection bid despite uproar over alleged ethics violations [NYDN]
Ethics violations be damned! The 79-year-old announced over the weekend that he would be seeking reelection. It would be his 21st term in Congress, first winning election in 1970. Even if Rangs is able to do another victory dance, holding on to his Chairmanship of the Ways & Means will be a different matter entirely. PBO has already distanced himself from Chuck and some are saying that even Nancy Pelosi is getting creeped out a little too.

• Skilling Asks High Court for New Trial Minus ‘Tar and Feathers’ [Bloomberg BusinessWeek]
The Supreme Court will consider Jeff Skilling’s appeal today in the Enron scandal that he was convicted of four years ago. Skilling’s attorneys will argue that the trial should not have been held in Houston where it would have been “impossible” to get a fair trial.

Skilling’s appeal says the atmosphere in Houston when the trial began in January 2006 was one of hostility toward him, fed by unrelenting and “searing” media coverage. The appeal points to a Houston Chronicle column titled “Your Tar and Feathers Ready? Mine Are” and a local rap song, “Drop the S Off Skilling.”

The 12 jurors reflected that antipathy, Skilling contends. During pretrial questioning, three said they were “angry,” three said they had negative feelings toward Skilling or doubted his impartiality and one said that all CEOs were “greedy,” according to his appeal.

Skilling is currently doing far worse than tar and feathers (probably NBD in this day and age), serving a 24 year sentence in a Colorado prison. If the SCOTUS rules in his favor on the “jury-bias” issue Skilling would get a new trial which open old wounds and could create a media circus (we hope).

Quote of the Day: Are Great Liars Powerful or Are the Powerful Great Liars? | 02.26.10

“I was shocked to see how beautiful the results are. I literally can say with total accuracy that high-powered liars are so good at lying that they look like truth-tellers in every way — physically, psychologically, emotionally, etc.”

~ Dana Carney, assistant professor of management at Columbia Business School, on the results of an unpublished study that shows that people in powerful positions have a knack for fibbing.

Women Accountants Earn 60% Less Than Men in UK

Somehow female accountants over 45 in the UK earn 60% less than their male counterparts. The disparity is so ridiculous it defies understanding, but according to a study conducted by the ICAEW and Robert Half, men earn more than women at all stages of their careers and the gap widens with increased experience. This finding is consistent with the 2008 report. So ladies, if you’re on the partner track and thinking, “London might nice,” we’d advise against it. As for our female readers from the UK, you can always jump the pond, we’d love to have you here …


From the report:

Overall, male [Associate Chartered Accountants] are better remunerated than females – an average basic salary of £88,200 for males (median £76,000) is almost 50% higher than their female colleagues’ average of £60,500 (median £53,000) (Fig 3). The average male salary is up by 7% on last year, females by 10%. However, the average bonus of £24,700 for males has dropped slightly compared to last year, while that of their female colleagues, at £11,600, has increased by 33% (median £6,900 males and £2,400 females). The bonus received by male ACAs represents 28% of average basic salary, while females received only 19%.

The differential reflects in part at least that male ACAs are typically older (46 against 40 for females), longer qualified (18 and 14 years respectively) and more likely to be in a permanent full-time role (88% and 72%). They also spend longer hours at work (45 v 38 hours per week).

It’s especially cute how this is “in part” chalked up to age and experience. It would probably be terribly bad form for the ICAEW and Robert Half to come right out and say that the difference in average pay is say, absolutely ridiculous and blatant evidence of patriarchal institutions exhibiting clear gender bias when it comes to compensation.

ICAEW/Robert Half Career Benchmarking Survey 2009 [ICAEW via Accountancy Age]

KPMG Knows You’re Feeling Like a Fatty

Yes. You. Spending day after day at that desk, consuming a steady diet of red meat, bagels loaded with cream cheese that is going straight to your [insert problem area] and, of course, caffeine. Sweet, sweet caffeine.

It all adds up to a bunch of tubby Klynveldians, and tubby = not happy. This is not lost on the leadership at KPMG. They want you to know that they want to help you lose that paunch ASAP and they are prepared to offer you a human being to assist you.

According to the Centers for Disease Control and Prevention, more than one-third of American adults are overweight, and many people are actively seeking a solution for weight loss. Losing weight isn’t just about looking better in the mirror—being overweight can contribute to a range of health issues, including heart disease, diabetes, hypertension, and even certain types of cancers.

Lots of us have tried to lose weight, but find ourselves giving up because it can be tough to do. But what if you had your own weight-loss coach, someone who could provide personalized guidance about nutrition and exercise, and provide strategies geared toward your specific situation? What if you could call that coach as many times as you wanted over a six-month period, when you had a question or needed some encouragement?

You can have just that, at no cost to you, thanks to KPMG and LifeWorks through the iCanChange program. iCanChange gives you access to a dedicated, experienced and credentialed health coach who will help you identify goals, strengths, challenges, and strategies for managing your weight.

You will be able to receive four scheduled calls from your coach, and you can call him/her as many times as you would like over a six-month period. Your coach will help you track your progress and set realistic goals to lead you along the road toward losing weight.

So, just who exactly is KPMG recruiting to help these numbers nerds get back in fighting shape? Richard Simmons? Chuck Liddel? Phil Mickelson?

Assuming this doesn’t have to wait until after busy season you best get crackin’ in case Radio City announces its own Canadian Tuxedo reprieve. Fat guy in a little denim coat is not a good look.

Five Questions with Edith Orenstein of FEI Blog

Anyone out there have to comply and/or pay attention to the anything and everything that is dropped by the SEC, IASB, FASB, or PCAOB? Does the mere thought of reading anything that these bodies cause you consider drowning yourself in the nearest toilet? Us too.

That’s why we like Edith Orenstein so much. She is the Director of Accounting Policy Analysis & Communications at Financial Executives International and the author of the FEI Financial Reporting Blog. Edith has the amazing ability to take all this regulatory wonky goodness and put it into a wonderfully concise package. She saves you to the trouble of drowning in minutiae and gives you what you need to know.

Plus, she’s really nice. Think of it this way: in terms of temperament, Edith sits on one end of the accounting blogger spectrum; on the other end is the Jr. Deputy Accountant.


Why should accountants read your blog?
To learn about what FASB, the IASB, the SEC, or the PCAOB decided yesterday or today, and why it matters. And when Congress, Treasury, GAO or another agency gets into the fray, that’s always something of interest.

If someone had to read just one post of yours which one would it be?
Auditors in Love (which links to an ‘accounting music video’ which has received over 5,000 views, by the way.) No! Just kidding! It would be “Why Accounting Matters.” But, in all seriousness, some of my personal favorite posts are the ones in which I could tie in a musical theme, like Under Pressure, Unstuck From the Moment, and Say-Say-Say On Pay.

A good blogger is…
Someone who can give you really good facts on a timely basis, or really good insights, or both.

Who is your favorite blogger?
Francine McKenna of Re: The Auditors. I don’t always agree with what Francine says, and it’s not unusual for us to have opposing points of view or perspective on certain matters, but I respect what she writes given her extensive background in practice, and I enjoy reading her blog; let’s face it, she’s got that tabloid quality that makes reading about auditing fun.

The biggest issue facing accountants today is…
The volume and complexity of accounting literature (GAAP), throw in a dash of SEC, PCAOB, AICPA regulations and standards, and a pinch of COSO, (not to mention IRS rules and regs and other regs) and I have to give a lot of credit to practicing accountants and auditors who are faced with keeping current on and correctly applying all of these standards and rules. And IFRS is looming over the horizon; as someone said recently on an academic listserv I read (the AECM listserv), IFRS is significant whether or not the U.S. moves to adopt it, given that most of the rest of the world has.