Author: Caleb Newquist

Founding editor, Going Concern.

IASB, FASB Are Really, Really Getting Serious About Convergence

Thumbnail image for merge.jpgDo you have doubts about the IASB and FASB’s commitment to accounting rule convergence? What? The name change idea didn’t convince you?

Well, David Tweedie and Bob Herz both addressed doubters attendees at a joint conference of the American Institute of CPAs and the International Accounting Standards Committee Foundation in New York to let them know that they are redoubling and in some cases, retripling their efforts to get this done.

The boards intend to hold more joint face-to-face meetings, in some cases by video conference, in order to make faster progress.

“We’re going to work on these issues together every month,” said Tweedie. “That’s why we think we’ll make our June 2011 target date.”

Monthly meetings. Some will be face-to-face. When they can’t do that, there will be video conferencing. Is there any doubt how serious they are taking this? This should be a piece of cake now. Oh sure, maybe they’re going to agree to disagree on the fair value thing but who said that’s important?

Wait a minute. Sir David Tweedie’s confidence seems shaky:

The approach may or may not work, and Tweedie acknowledged that some of the standards may take several years to be finalized. In many cases, they will be moving targets. But the goal of achieving a June 2011 convergence of the two sets of standards still seems doable, he insisted, and it would be a once-in-a-generation opportunity.

Good lord. Which is it people? Let’s just agree that accounting standards will be kinda-sorta converged by June 2011 and the rest of them will be converged “at a date yet to be determined”. We understand that the pressure is tough. No need to commit to anything.

IASB and FASB to Meet Monthly on Standards Overhaul [Web CPA]
Accounting Standard-Setters Will Get Much Chummier [Web CPA Debits & Credits]
Earlier: IASB: You Want a New Fair Value Rule? You Got It. Just Don’t Ask Us About Convergence

Caption Contest Friday: KPMG Scary Stories

Pictured below is R.L. Stine, often known as the “Stephen King of children’s literature”. Mr. Stine did some pre-Halloween scary story-telling yesterday while visiting students. The occasion celebrated KPMG’s Family for Literacy distributing its one-millionth book. “I think it would be a very scary world without books,” said Stine.
RL-Stine-and-kids_350.jpg
Rules: Submit possible captions in the comments. We’ll choose our favorites — with preference given to those with a Big 4/KPMG/accounting bent — and then let you vote for the best one.

Madoff Auditor to Plead Guilty Next Week

Reuters:

“The government anticipates that, at the pretrial conference scheduled for Nov. 3, 2009 … David G. Friehling, the defendant, will plead guilty pursuant to a cooperation agreement with the Government,” prosecutors said in a letter to the judge handling the case in Manhattan federal court.

According to the WSJ, “Mr. Friehling is expected to plead guilty to are securities fraud, investment advisor fraud, obstructing or impeding the administration of Internal Revenue laws, and four counts of making false filings with the U.S. Securities and Exchange Commission.” Since he’s flipping, Friehling will likely not face the maximum sentence of 108 years but he still probably shouldn’t make any long term plans.
Friehling will be third person related to the Madoff scheme to plead guilty and this will no doubt be the last time that we hear about an auditor admitting guilt.
Earlier: Judge, Possibly Fearing a TP’d House, Denies Bail for Madoff CFO

Preliminary Analytics | 10.30.09

Thumbnail image for buffet-and-blankfein.jpg• Goldman, CIT Reach Deal to Keep Smaller Credit Facility Open – Not as much as they wanted but we’re not talking about a company with a lot of options here. [Bloomberg]
• White House: Data Likely to Credit Stimulus for 650,000 Jobs – In what appears to be the debunking of the Associated Press’ debunking of the WH data, the administration is claiming that the stimulus has nearly created the 1 million jobs the bill promised. [WSJ]
• Wal-Mart starts selling coffins – The most modestly priced receptacle is $895. [BBC]
• Galleon fears raised in 2001 – A JP Morgan analyst thought something was fishy with Raj and his “cohorts” and recommend that the bank’s alternative asset management unit should “reduce their allocation” to the fund. Apparently a trophy may have been at stake. [FT]
• Stanford Receiver Hopes to Recoup $1.5 Billion – “Court-appointed receiver Ralph Janvey filed a report in federal court in Dallas late Wednesday outlining his plan to go after the $1.5 billion and provide allegedly defrauded Stanford investors a return of as much as 20 cents on the dollar.” [AP via NYT]

Review Comments | 10.29.09

Thumbnail image for geithner-tim.jpg• Fed should lose AIG-style bailout powers: Geithner – The past is the past, huh, Timmay? [Reuters]
• Chrysler to offer live TV service in vehicles up to 20 channels starting in December – Because we can’t squeeze in enough at home. [CT]
• Wall Street Journal closes Boston bureau – Dow Jones and Market Watch will stay for now. [Reuters]
• CFOs on the Move: Week Ending October 30 – Motorola, Nissan, Nokia all have new chiefs. [CFO]
• Not Good Enough – Gotta good job? Still need a second job? [Financial Armageddon]
• Citrin Cooperman to Merge in Carrow Doyle – Combined firm will have $80+ million in revenues and have offices in Philadelphia and New York looking to expand to Boston, and Washington. [Web CPA]

Grant Thornton’s Survey Elves Are Still at Work

Thumbnail image for GT_elves.jpgOur only point is that if it wasn’t for the nice little explanation of the survey on the website, we would have assumed they had a huge room filled with survey elves working day and night.
Anyway, today GT issued its latest press release of its “national survey of U.S. CFOs and senior comptrollers”.


This installment shows that CFOs are homers when it comes to who sets their accounting rules (just so long as it isn’t the government). Seventy-one percent of those surveyed said that rules should be set by “A national independent board supervised by a national regulator” while only 24 percent want an international board. This despite the belief of some that Bob Herz is the most dangerous man in the country.
Only 3% thought a “national legislature” should set rules, which is a relief. Plus it probably gives Barney Frank a little vindication but definitely upsets Newt Gingrich.
The survey also states that the respondents are split on how to report debt on their balances sheets, either amortized cost or fair value, which may be why the FASB and IASB are talking contingency plan.
The last bit of interesting information is that CFOs are still scared shitless of eXtensible Business Reporting Language (“XBRL”) because 84% of those surveyed have no plans to start using it. If you assume most of the CFOs were in Big 4 at one time, then this isn’t so surprising.
The elves are off until spring next CFO survey will occur in the spring when another spectacular round of press releases will inform all of us what is on the minds of financial bigwigs.
Earlier: Grant Thornton Survey: Financial Statements Are Still Too Complex for the Average Shmo Investor
Also earlier: Grant Thornton Survey: 40% of CFOs Never Ever Ever Want IFRS to Replace GAAP

BDO’s UK Managing Partner Has a Strange Definition of ‘Solid’

Accountancy Age:

BDO’s managing partner Simon Michaels is emphatic. Fee income might be down 5% and profits down too, but underlying performance has been “solid”.
“When you look across the international networks, and across domestic firms, that is a pretty solid performance. Our national turnover has seen a modest contraction over the past year but that is purely as a result of lower levels of transactional and other one-off assignments.”

Plus there’s this: “In the end the firm made 10% of partners redundant [i.e. laid off] and around 8% of the UK workforce.”
Still going with solid?

Do Recessions Cause Accounting Irregularities?

Thumbnail image for Cooking the Books.jpgSome people think so. Emily Chasan at Reuters discusses the perceived rise of accounting irregularities today:

“Corporate balance sheets may be showing signs of the wear and tear from the prolonged U.S. recession as accounting irregularities are starting to surface at growing numbers at U.S. companies.”
Okay but don’t accounting regularities happen all the time? If the economy is humming along nicely does that mean that less companies are engaging in accounting hocus-pocus? Hmmmmm.


But there’s more argument for “it’s the economy stupid”:

“Statistically you can show any time you have a recession or some type of tremendous decline in an economy you’re going to see financial pressures on companies,” said Bruce Dorris, program director at the Association of Certified Fraud Examiners, noting that corporate employees can sometimes be motivated to be overly aggressive with accounting or commit outright fraud to meet targets, particularly in difficult economic times.

The article cites Apollo Group’s stock dropping 18% yesterday after announcing that the SEC was starting an “informal inquiry” into its revenue recognition policies. It also lists Overstock.com, Town Sport International Holdings (owns NYSC), Zale Corp and also Huron Consulting whose stock price is still down 40% since the announcement of the SEC investigation. All these companies have delayed earnings reports or had investigations into their accounting practices.

So feel free to discuss your clients and their creative nature in this economy. Are their hard-nosed GAAP puritan ways caving to earnings pressure or are your partners the ones caving in the name of client service? Nobody wants a to be working on a client that’s going through a restatement. Nobody.

Accounting irregularities may be on the rise in U.S. [Reuters]

Homebuyer Credit to Continue Helping People Get into Crazy Debt?

Thumbnail image for overwhelmed.jpgMaybe! The opportunity to take advantage of the current credit expires on November 30th. Luckily, the brain trust known as the U.S. Senate is all over this and is going to get a new plan in place come hell or high water.
The best part is that under the Senate’s latest proposal, the credit will now be “extended beyond first time buyers,” as reported by Bloomberg.
So, if you’ve lived in your current shack for five years and you’re looking to upgrade, you’ll be eligible for a $6,500 credit. First time homebuyers will still receive an $8,000 The new extension of the credit would be available for home purchases under contract by April 30, 2010 and close by the end of June.


But that’s not all! Under the new plan, the credit would be available for individuals earning $125k up from $75k and couples earning $250k up from $150k. Presumably more McMansions will get purchased this way.
More good news: this thing has bipartisan support:

Senate Minority Leader Mitch McConnell, a Kentucky Republican, agreed that most lawmakers support the unemployment and homebuyer measures. “We’re not that far away from an agreement,” he said earlier today.

Who knew it was possible? The problem is, not everyone thinks this is a good idea, including Joe Kristan over at Tax Update Blog:

It’s nice to know that a majority of the millionaires in the Senate think it’s wise to spend $40,000 to $80,000 of our money for each new home sale caused by the credit, even though the credit is rife with fraud.
The credit extension would be tied to an extension of unemployment benefits; the provisions may still be changed, and it has to be reconciled with a House bill that has no homebuyer credit provision.
If they extend it this time, does anybody believe they won’t try to extend it again every time it is set to expire?

And Tax Girl:

Does that cover everybody? Does everyone get a tax credit now? Cause we wouldn’t want to be handing out that free money and leave someone out.

And Don’t Mess with Taxes:

My concern is that if people need the credit to get into a first home or move up to a larger one, are they getting in over their heads in debt? And isn’t that what got us into the economic trouble we’re in now?

Call us party poopers but we’ll go with accountants over the U.S. Senate any day.
Homebuyer Credit Extension a Done Deal? NOL Carrybacks Enhanced? [Tax Update Blog]
First Time Homebuyer’s Credit Likely Expanded [Tax Girl]
Reconfigured home buyer tax credit [Don’t Mess With Taxes]
Also see: Lawmakers Find A Way To Outfox 4-Year Old Tax Cheats [DB]

Judge, Possibly Fearing a TP’d House, Denies Bail for Madoff CFO

Thumbnail image for TP.jpgPoor Frank DiPascali. The man’s name will be forever connected to largest Ponzi schemer (with, allegedly, the smallest penis) in history and he feels terrible about that.
Looks like DiPascali, who was a “CFO” in Ponzi World but in reality was probably just the best liar, will remain eating his meals with a spork until the end of his days.
His attorneys were trying bust the guy out so he can help investigators find a new Madoff cohort to put front and center but a judge denied bail yesterday despite a boatload of conditions:

Mr. DiPascali’s failed bail attempt came despite a new proposal presented by defense lawyers and prosecutors that included a $10 million bond, co-signed by nine people, including members of the DiPascali family, and the pledge of about $2 million in personal property. The new proposal required Mr. DiPascali to wear an electronic device that would plot his location by satellite. It also barred him from leaving home without an escort from the Federal Bureau of Investigation, except in a medical emergency.

Maybe the judge isn’t big on satellite technology but with Halloween on Saturday, it could have been a decision made on a more personal level. Those Madoff victims are a touchy bunch.
Court Denies Madoff Aide’s Request for Bail [NYT]

Lawsuit Against Deloitte Gets New Life

Thumbnail image for DTa.jpgDeloitte has managed to keep its name out of the news lately, except for breaking ground at its version of Animal House and releasing the number of employees it has on LinkedIn.
On a more litigious note, Deloitte has managed to keep its name out of well publicized lawsuits, whether they relate to Madoff feeder funds or subprime lenders. Until now, that is.


According to AM Law Litigation Daily, a judge in Seattle has allowed a revised lawsuit to proceed that lists “Washington Mutual officers and directors, underwriters, and the auditing firm Deloitte & Touche” as defendants.
The revised lawsuit was trimmed down to a “concise” 267 pages from the original 388 that the judge described as “verbose” and “disorganized”.
The plaintiffs allege that “offering documents contained “materially misstated financial returns for WaMu” and that “offering documents contain false or misleading statements as to WaMu’s internal controls”.
Specifically — without getting into too many gory details — the plaintiffs say that WaMu did not have a sufficient loan allowance in a “manner commensurate with the quality of its home mortgage products” and that their “Loan Performance Risk Model” that determined the allowance, was basically bunk.
Deloitte, as the auditors, was supposed to call WaMu on all this shoddy work and the plaintiffs aren’t satisfied with the job they did. Unfortunately, this all amounts to a pretty major (and long) headache for Deloitte but their attorneys at Latham and Watkins are probably grateful.
Let us be the first to welcome Deloitte back to the high-profile litigation party.
Second Time’s the Charm for Plaintiffs in Washington Mutual Complaint [AM Law Litigation Daily via Law Review]
Wamu.pdf