Category: ANR

The best way to tackle the Big Four [FT]
Michel Barnier has shocked the Big Four accounting firms. The European Union internal market commissioner wants to ban them from operating as consultants as well as auditors, force them to work jointly with others, and set time limits on how long they can audit each company. It could be the biggest shake-up of accounting since the collapse of Enron laid low Arthur Andersen and led to the 2002 Sarbanes-Oxley Act. Yet it will not amount to much unless the industry’s looming disaster – the failure of another audit firm and contraction to a Big Three – can be avoided.

E&Y Says Greek Defau [Bloomberg]
“The euro zone sovereign-debt crisis shows no sign of abating,” E&Y said in an e-mailed report in London [Wednesday]. “A default on Greek government debt now seems unavoidable. The key question is when this default will occur and how it will be managed.”

To Ease the Crisis, Tax Financial Transactions [NYT]
Governments, both rich and poor, urgently need a way to calm speculation in the financial markets and to raise revenue. On Wednesday, the European Commission president, José Manuel Barroso, proposed a tax on financial transactions. Such a measure, already supported by the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, is long overdue. Indeed, a tax of just 0.05 percent levied on each stock, bond, derivative or currency transaction would be aimed at financial institutions’ casino-style trading, which helped precipitate the economic crisis. Because these markets are so vast, the tax could raise hundreds of billions of dollars a year globally for cash-strapped governments and could increase development aid.

D.C. tax employee’s arrest followed years of warnings [WaPo]
[F]ederal prosecutors charged a D.C. tax office employee with stealing about $414,000 from the city coffers. Mary Ayers-Zander did it, charging papers state, by making fraudulent manual adjustments to legitimate taxpayers’ income tax withholding, resulting in payments to personal accounts she had set up. In other words, Ayers-Zander found a weakness in the system and exploited it, finding a way to enrich herself because the internal controls within the Office of Tax and Revenue were not up to par, according to court records.

Snoop Dogg tax debt goes up in smoke [TW]
Robert Snell’s celeb tax scoop du jour.

Mr. Buffett’s Tax Secrets [WSJ]
[T]he opportunity to educate the public would be even greater if Mr. Buffett would let everyone else in on his secrets of tax avoidance by releasing his tax returns. Going only by Mr. Buffett’s unverified claims, his federal taxes in 2010 amounted to 17.4% of his taxable income, probably because much of his income was from capital gains and dividends. It’s also likely that he took significant deductions for charitable donations. No doubt the millions of Americans who could end up paying more because of this claim would love to see the details.

Medicis, its auditor will pay $18 mil to settle suit [Arizona Republic]
Medicis Pharmaceutical Corp. and its auditing firm, Ernst & Young, have agreed to pay $18 million to settle a shareholder class-action lawsuit stemming from the pharmaceutical company’s financial statements. Scottsdale-based Medicis would pay $11 million and Ernst & Young would pay $7 million under terms of a settlement agreement filed last week in U.S. District Court in Phoenix.

The iPad Decision [JofA]
Ask one CPA, the managing partner of a 160-employee firm, what he thinks of using the iPad in his work, and he tells you “there’s no other way to practice right now.” Ask another, the IT head of a 400-employee firm, and he tells you that his iPad is no more useful than a paperweight.

Gov. Christie vs. ‘Jersey Shore’ [NYT]
Mr. Christie ventured beyond amateur TV criticism on Monday when he blocked a $420,000 tax credit that had been approved for the show’s production company by the state’s E��������������������Authority. With that move, he crossed a basic constitutional line, namely the First Amendment.

Accounting Firms Face ‘Big Impact’ From Draft EU Restrictions [Bloomberg]
Companies that are publicly traded “shall appoint at least two statutory auditors” under the measures, which are designed to improve trust in “the veracity of the financial statement,” according to a draft version of the proposals from the European Union’s executive arm obtained by Bloomberg News. “Many of these ideas aren’t new but we’ve never seen proposals that include all of these ideas at the same time,” Michael Izza, the chief executive of the Institute of Chartered Accountants of England and Wales, said in a telephone interview today. “They’ve been aggregated in one place and that’s where you get the big impact.”

Don’t Count On Europe To Reform Auditors And Accounting [Forbes]
Francine McKenna: “If coalminers operated with as little foresight and acknowledgment of mistakes as the auditors, more would be trapped below ground as a result of “accidents” that could have been averted. If you trusted a doctor with the kind of reasonable assurance approach the auditors claim is sufficient to protect the financial system and the level tolerance for mistakes and being “duped” they believe we should accept, you’d be dead.”

Barnier vows to break the big four [Independent]
“This isn’t about the Big Four versus Brussels. We know from our contacts and discussions with BIS [the Department for Business] and the CBI that they don’t support many of these more radical proposals because they don’t think they will increase quality or competition… [Mr Barnier] has set out his stall and that is the world of politics.”

As InterOil tumbles, actor Shia LaBeouf and John Thomas Financial CEO Thomas Belesis have egg on their faces [WCF]
Those Transformer residuals will come in handy.

Benefits Tax Hits Businesses Twice [WSJ]
State and federal taxes are rising for employers across the U.S. as states struggle to repay federal loans for unemployment benefits, including more than $1 billion in interest due Friday. The increases in state and federal unemployment-insurance taxes—paid primarily by businesses—are hitting as the recovery appears close to stalling, consumer confidence is low and unemployment remains high at 9.1%. These tax increases come on top of measures intended to tame government budgets, including other state tax increases and spending reductions as well as federal cuts.

Tax wars: the accidental billion-dollar break [FT]
The rule is known as “check-the-box.” It allows US companies to shift profits from operations in high-tax countries simply by marking an Internal Revenue Service form that transforms subsidiaries into what the agency calls a “disregarded entity”. Others have labelled them “tax nothings”. Check-the-box allows companies to avoid the normal 35 per cent US corporate tax on certain types of income. The Treasury Department estimates that annual revenue losses from check-the-box have hit almost $10bn. Other countries are also said to lose billions as income is shifted from other high tax jurisdictions to places with low or no taxes, although there is no official estimate.

Chaoda’s Chairman and CFO, Fidelity Manager Accused of Insider Trading [Bloomberg]
Chaoda Modern Agriculture Holdings Ltd. (682)’s Chairman Kwok Ho, Chief Financial Officer Andy Chan and Fidelity Management’s George Stairs were accused of insider trading by Hong Kong’s financial secretary. The government alleges Kwok and Chan told Stairs about a June 2009 share placement three days before it was publicly announced, according to a notice released by Hong Kong’s Market Misconduct Tribunal today. The portfolio manager at Fidelity Management & Research Company allegedly netted HK$1.98 million ($254,000) on behalf of the funds that he managed by selling 374,000 shares prior to the placement and then buying 630,000 shares at a lower price as part of the stock sale.

Auditor defense may have holes in Deloitte case [Reuters]
“It’s always difficult to believe that an auditor that’s been auditing for seven years or more during an alleged ongoing fraud had no red flags,” said Andrea Kim, a partner at Diamond McCarthy LLP in Houston.

Accounting firm Deloitte & Touche sued for $7.6 billion in massive mortgage fraud case [AP]
“They certainly did not do therney Steven Thomas, who represents those suing Deloitte. “This is one of those cases where the red flags are staring you in the face, and you’ve got to do a lot, and they did not.” Deloitte spokesman Jonathan Gandal responded that the company rejects the claims, calling them “utterly without merit.” The lawsuits were filed in Miami-Dade Circuit Court on behalf of the bankruptcy trustee for the fraudulent mortgage firm, Taylor Bean & Whitaker, and by Ocala Funding LLC, a company that purchased hundreds of millions of dollars’ worth of mortgages from Taylor Bean. The bankruptcy trustee is attempting to recover money for Taylor Bean creditors.

Big Four: cut down to size? [FT]
“Accountancy was my life,” ran the old advert. “Until I discovered Smirnoff.” Plenty of auditors could turn to the bottle after they see the reforms Brussels is considering. The changes, according to a draft circulating the European Commission, have caught the industry off guard. Most stunning is the suggestion that the Big Four – PwC, Deloitte, KPMG, and Ernst & Young – should spin off all their non-audit operations. Michel Barnier, internal market commissioner, also plans to mandate joint audits of large companies and make them rotate auditors far more frequently.

Groupon IPO Watch: Groupon Versus the Accounting Blogs [312]
Maybe the deal isn’t on.

Social Security Is a Ponzi Scheme [Grumpy Old Accountants]
From the Grumpies: “The essential feature of the Ponzi scheme, indeed the defining feature, is the payoff of a promised return to an investor class using funds acquired from a later class of investors. This is exactly how social security works. Retirees are paid benefits not from the actual funds that they put into the system (which were “misappropriated” for other government purposes), but rather from funds supplied by current workers. In turn, these current workers presumably will receive social security benefits when social security taxes are contributed by later workers. This works only as long as the government can con future workers (“new investors”) into funding the social security promise. So, yes, social security is a Ponzi scheme.

Obama gets a feel-good moment on jobs package [WaPo]
“My question is would you please raise my taxes?” the man deadpanned, to immediate laughter and applause. “I would like very much to have the country to continue to invest in things like Pell Grants and infrastructure and job-training programs that made it possible for me to get to where I am. And it kills me to see Congress not supporting the expiration of the tax cuts that have been benefiting so many of us for so long. I think that needs to change, and I hope that you will stay strong in doing that.”

Christie Blocks Tax Credit for ‘Jersey Shore’ [NYT]
Mr. Christie said he was “duty-bound” to see that taxpayers were “not footing a $420,000 bill for a project which does nothing more than perpetuate misconceptions about the state and its citizens.”

A Short History of the Income Tax [WSJ]
Whether the “millionaires and billionaires” are actually paying their fair share of taxes is a matter for the electorate to decide. After all, fairness is hardly an objective standard. Before the modern era, however, the federal tax system was manifestly unfair by any reasonable standard, grossly biased in favor of the well off. Ironically, attempting to fix that unfairness is what has brought us to the present moment, with a federal tax system that is grotesquely complex, often arbitrary, and corrupted by mutual back-scratching between members of Congress and influential lobbyists.

SEC Eyes Ratings From S&P [WSJ]
U.S. securities regulators are zeroing in on the use by Standard & Poor’s of fictitious “dummy” assets when it assigned a triple-A credit rating to a $1.6 billion mortgage-bond deal that imploded during the financial crisis, according to a person familiar with the matter. S&P’s parent company, McGraw-Hill Cos., said Monday that it had received a so-called Wells notice from the Securities and Exchange Commission. A Wells notice is the agency’s warning to financial institutions that they could face civil charges. McGraw-Hill said the SEC is weighing civil enforcement action against the firm for its ratings on a collateralized debt obligation called Delphinus CDO 2007-1 issued in July 2007 as the housing market was taking a turn for the worse.

Groupon IPO: Revenue Corrected for ‘Error’ [WSJ]
Now, what Groupon counts as “revenue” is the amount of money it takes in from the daily-deal offers, MINUS the money Groupon shares with merchants. Before, the revenue number included the merchant’s share ony’s revenue figure. “We consistently have stated that the amount we retain—rather than bill or collect—from the sale of Groupons is the key measure of the value we create,” Groupon said in its amended IPO filing. “This change in presentation is consistent with that belief.”

Were Groupon’s and Overstock’s Management and Auditors Stupid or Did They Condone Improper Accounting Practices? [WCF]
Sam Antar: “I believe that the managements of both companies simply chose to avoid following applicable accounting rules and their auditors condoned those practices. Seriously, can they be so stupid? If so, their audits are nothing but window dressing.”

Groupon: Restated Numbers Reveal Failure of Business [Fraud Files Blog]
And Tracy Coenen: “By reporting revenue properly (much smaller revenue numbers!), Groupon’s precarious financial position and operating strategy are exposed. Simply put: The business of Groupon does not work. And I suspect that merchants and consumers are losing interest in the Groupon type of gimmick, which puts even more financial strain on the company.”

EU to propose audit-only firms and mandatory rotation [Accountancy Age]
New European regulation looks set to turn auditing upside down, potentially forcing the biggest firms to choose between audit and non-audit services and ushering in mandatory rotation. A draft of the European Commission’s green paper on audit seen by Accountancy Age indicates a tough line is being pursued by internal markets commissioner Michel Barnier.

Facebook ‘Likes’ Small Business [WSJ]
In a push to gain more small-business users, Facebook Inc. is expected on Monday to reveal plans to launch a new program that includes giving away $10 million of advertising credits. The initiative is being launched in partnership with the U.S. Chamber of Commerce and National Federation of Independent Business, a small-business group. It is intended to educate small businesses on how to promote themselves on the social-networking site, like buying display ads targeted to specific markets, but also through cost-free measures to engage more with customers.

Shutdown looms: Spotlight now on Senate after Boehner wrangled House GOP votes [WaPo]
With time running out, Congress returns Monday to try to pass a short-term funding measure to avert a government shutdown and avoid yet another market-rattling showdown over the federal budget. The Democratic-led Senate, which on Friday blocked a GOP House measure to fund the government through Nov. 18, will vote late Monday on its own version of the bill.

US tax authorities target bank deals [FT]
US tax authorities are targeting cross-border finance deals worth billions of dollars between leading US and UK banks as they step up efforts to clamp down on abusive tax avoidance, a joint investigation by the Financial Times and ProPublica, a non-profit news organisation, has found. Four US banks – BB&T, Bank of New York Mellon, Sovereign (now part of Santander of Spain), and Wells Fargo – are in turn suing the US government over more than $1bn in tax credits that the Internal Revenue Service has disallowed over the past decade. Washington Mutual has settled a similar dispute and Wachovia is pursuing an administrative complaint over a deal. The UK’s Barclays emerges as a pivotal promoter of the complex cross-border deals, which the IRS claims were designed to generate artificial foreign tax credits.

Crocs to Counter Slowdown With New Styles [Bloomberg]
Crocs Inc. (CROX) plans to counter any global slowdown by pushing consumers to shift to new, higher- priced shoe styles from the plastic clogs for which it’s better known, Chief Executive Officer John McCarvel said. “Our whole desire is to go upscale,” McCarvel said in an interview at the World Retail Congress in Berlin today. “This is many years in the making. It has evolved constantly, upgrading the line, trying to stretch the consumer up to 40, 45 euros, pounds or dollars.”

KPMG LLP Names Lynne M. Doughtie Vice Chair – Advisory [KPMG]
Replacing Mark Goodburn who’s now the global head of advisory.

Deloitte reports record 2011 revenue of $28.8 billion [Reuters]
Deloitte’s member firms worldwide reported a record $28.8 billion in revenue, up 8.4 percent from 2010. In local currency terms, not accounting for fluctuations in the value of the dollar, revenue grew 7.7 percent for the fiscal year that ended May 31, 2011. Deloitte will likely post similar growth in fiscal 2012, despite a challenging economic picture, the firm’s global chief executive, Barry Salzberg, said on Thursday. “Our first quarter (fiscal 2012) results are very much in line with what we’ve achieved in the prior year,” Salzberg said in an interview.

[AT]
On Thursday, the AICPA released a sampling of comments in support of creating a separate standard-setting board for privately held companies, and said that 99 percent of the 2,800 comments received so far support the establishment of an independent standard-setter. The Institute has organized a letter-writing campaign urging the Financial Accounting Foundation, which oversees FASB and the Governmental Accounting Standards Board, to create a separate board for private company standards […]. The FAF has set up a trustee working group to review the recommendations of a report released in January by a Blue-Ribbon Panel on Standard Setting for Private Companies, which backed the creation of a separate board under the oversight of the FAF. The working group is expected to release its proposals by early October[…].

SinoTech Says Ernst & Young China Arm Resigns As Auditor [Dow Jones]
-Nasdaq-listed SinoTech Energy Ltd. […] said Friday that Ernst & Young’s China unit has resigned as the company’s auditor, citing concerns over a SinoTech financial transaction with SinoTech’s chairman. The Chinese oil-field service provider said in a statement that Chief Financial Officer BoXun Zhang has resigned. It added that Jing Liu has resigned as chairwoman of the company’s audit committee.

Candor by SEC Cheered in House [WSJ]
Securities and Exchange Commission Chairman Mary Schapiro said Thursday she had apologized to the other members of the commission for not informing them that the agency’s former top attorney had a potential conflict in the agency’s investigation of the Bernard Madoff Ponzi scheme. Her remarks, at a joint hearing hosted by the House Financial Services and House Oversight subcommittees, came as some Democratic lawmakers dismissed the idea that the SEC’s former general counsel, David Becker, committed criminal acts.

House approves spending measure opposed by Senate; shutdown possible [WaPo]
Washington lurched toward another potential government shutdown crisis Friday, as the House approved a Republican-authored short-term funding measure designed to keep government running through Nov. 18 that Democrats in the Senate immediately vowed to reject. In an after-midnight roll call, House Republican leaders persuaded conservatives early Friday morning to support a stop-gap bill nearly identical to one they had rejected just 30 hours earlier.

Obama Takes Aim at Tax ‘Targets,’ Fires Blanks [Bloomberg]
Two weeks ago, President Barack Obama unveiled his $447 billion plan to put Americans back to work. Eleven days later, he told us how he’d pay for it: $1.5 trillion in tax increases over 10 years and $3 trillion in spending cuts — on top of the $1 trillion already agreed to in last month’s Budget Control Act. He outlined the principles of a comprehensive tax reform that would lower rates, broaden the base, cut “inefficient and unfair” tax breaks, encourage job creation and reduce the deficit. In other words, every economist’s dream.

Meg Whitman Is Named Hewlett-Packard Chief [NYT]
Hewlett-Packard replaced its embattled chief executive on Thursday with the former eBay chief executive Meg Whitman, saying that the company’s strategy to transform its business was sound, but that it needed new leadership to carry out the plan. The upheaval at H.P. came after several weeks of mounting concerns among board members, senior executives and investors about how the former chief, Léo Apotheker, had handled a major strategy shift at the company announced last month, according to interviews with several people briefed on the board’s discussions.

14 indicted in massive tax refund scam [KCS]
A three-year scheme that allegedly tried to defraud the Internal Revenue Service out of millions in inflated tax refunds unraveled Thursday in Kansas City as authorities announced charges against 14 defendants from around the country. U.S. Attorney Beth Phillips described it as the largest false tax claims case ever prosecuted in Missouri. “Kansas City was the hub of a nationwide conspiracy that attempted to receive nearly $100 million in fraudulent tax refunds,” Phillips said.

Obama’s Buffett Rule: Keep Your Eye on Capital Gains [TaxVox]
President Obama didn’t quite get around to saying so when he rolled out his latest deficit reduction plan on Monday, but his Buffett Rule—that no one making more than $1 million should pay a lower tax rate than those in the middle-class—is mostly about investment income.

Taxes, the Deficit and the Economy [NYT]
Republicans want to close the entire budget gap by slashing government spending. The president’s balanced approach protects vital services and growth. It includes $245 billion in payroll tax cuts next year for workers and businesses to encourage hiring, investment and spending. It also includes money to invest in infrastructure and to aid struggling states. It only starts reducing the budget deficit in 2013, when the economy should be stronger. As is his wont, the president is still leaving too many details for Congress to decide.

The Spend Now, Tax Later Jobs Bi=”http://online.wsj.com/article/SB10001424053111904194604576583151431651920.html?grcc=88888&mod=WSJ_hps_sections_opinion” target=”_blank”>WSJ]
According to the Sept. 19 White House fact sheet, “The President calls on [the super committee] to undertake comprehensive tax reform, and lays out five principles for it to follow: 1) lower tax rates; 2) cut wasteful loopholes and tax breaks; 3) reduce the deficit by $1.5 trillion; 4) boost job creation and growth; and 5) comport with the “Buffett Rule” that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.” But the administration’s tax plan violates these principles.