Category: ANR

• Financial reporting based on bygone era, Microsoft says [Accountancy Age]
Softie’s Technical Accounting Director Bob Laux says that the financial reporting model is waaaaayyyyy behind the rest of the world in providing relevant information. In a letter to the IASB, Mr. Laux describes the broken model:

“In essence, we have a financial reporting model largely based on a manufacturing economy and the industrial age, while the economy has moved to the information age and the financial reporting model has failed to change accordingly,” he said.

He also said that arcane accounting rules, creative accounting to meet analyst expectations, etc. are all ‘symptoms of a bigger problem – a broken financial reporting model.’

This is probably the most poignant example of the “historical financial reports are of limited use” argument that we’ve ever heard. No one uses historical financial statements to make decisions about investing anymore. Sure there are fundamentals that you can derive from them but ultimately you have outdated information that’s part of a large compliance exercise and in this day and age, few people (including Microsoft, apparently) have little use for that.

• Tax Rates for Top 400 Earners Fall as Income Soars, IRS Data [Tax.com via Bloomberg]
If you’re wealthy (Chris Rock definition) then you’ll be happy to know that your taxes during 2007 were the lowest they had been in 20 years, according to statistics provided by the IRS.

The top 400 earners paid an average effective tax rate of 16.6% during the ’07 while in 1993, the average effective rate was 29.4%. KA-ching. Now before you rich haters get all worked up, there is another way to see this data:

Bill Ahern, director of policy and communications for the Tax Foundation, a Washington research group that advocates lower taxes, said the 2007 data doesn’t reflect the current economic circumstances.

“In a good year like 2007, it’s not surprising to see that the owners and managers of the nation’s largest firms made a fortune,” Ahern said. “Notice that two-thirds of their 2007 income was in capital gains, which have dropped like a rock since then.”

Regardless of how you feel about the widened gap, it’s not a stretch to say these facts will be exploited as populist pandering during the upcoming election cycle, as Democrats see their popularity slipping.

• U.N. Climate Chief to Resign [WSJ]
Yvo de Boer will be resigning his position with the United Nations to join KPMG as an adviser on climate and sustainability as well as working with several universities on the issue.

“It was a difficult decision to make, but I believe the time is ripe for me to take on a new challenge, working on climate and sustainability with the private sector and academia,” said Mr. de Boer, who has led the U.N. Framework Convention on Climate Change as its executive secretary since September 2006…

“I have always maintained that while governments provide the necessary policy framework, the real solutions must come from business,” he said in a statement.

Plus the money is probably good. Pretty impressive for KPMG to bag such a high profile dude on a still-emerging issue. Seems that KPMG et al. are making a seriou push into climate change as the IFRS and XBRL opportunities are slow to develop.

• Convergence plan will ‘facilitate’ possible IFRS adoption [FT]
Apparently the FT piece in yesterday’s Roundup on the IASB throwing its hands up over convergence with the FASB was DEAD WRONG. That is, if you ask the Gerrit Zalm, the Chairman of the Trustees of IASC Foundation. He wrote a letter to the FT telling them that they’re mistaken and that the International Accounting Mavens are super proud of the work they’ve done with the FASB and that they’re pretty sure that Bob Herz and Co. will eventually come around:

I was surprised to read your interpretation of recent enhancements to the governance of the International Accounting Standards Committee (IASC) Foundation (“IASB softens stance on convergence”, February 16), and in particular your assertion that a constitutional emphasis on adoption of International Financial Reporting Standards (IFRS) represents a weakening of the trustees’ support for the ongoing work to converge global accounting standards.

Nothing could be further from the truth. The trustees of the IASC Foundation strongly support the work plan that the International Accounting Standards Board has established with the US Financial Accounting Standards Board, which will reduce the differences between, and improve, IFRS and US standards. By reducing differences and thereby reducing any cost of transition, convergence will “promote and facilitate” the possible adoption of IFRS.

So instead of getting all worked up over the FASB doing its own thing, just sit tight and let the IASB work its magic and we’ll have converged standards before you know it. The whole process is like herding cats on acid, so everyone just cool it.

• Walgreen to Acquire Drugstore Chain Duane Reade [WSJ]
Don’t worry, the Journal is reporting that “nearly ubiquitous” (the “nearly” isn’t necessary) chain will still retain its name in the $1 billion deal. Confusion avoided.

• Former church accountant sentenced to 17 months for theft [Springfield News-Sun]
Have we weeded out all the accountants that steal yet? Diane Maddy stole over $300,000 from her church from January 2003 to December 2006 and in August of 2008 and 2009.

Besides, “WTF lady, who steals from a church?” what caused her to take a break for 18 months and then another break for 12 months? Maybe walking out of a house of worship with huge grips of cash caused her to think twice (three times!)?

Listen up accountants who are thinking it: don’t steal. Just because you have access to money doesn’t make it yours. How many “accountant pleads guilty to theft” stories do we have to read? Now we have church accountants stealing? This is the bottom people.

Ed. note: Many apologies for the downtime yesterday. As I understand it, the combination of Olympic Fever and President’s Day caused our servers to start the weekend a couple of days early. Fortunately we have our best people on it and the servers have been pistol-whipped back into submission (for now). Please bear with us.

• Prosecutors Set Sights on Madoff Kin [WSJ]
Specifically on brother Peter and spawn Mark and Andy who all still deny knowing anything. The charges are said to be tax-fraud which indicates that history’s worst auditor David Friehling, who also prepared the Madoffs’ tax returns, is giving the prosecutors golden information.

Peter worked as the Chief Compliance officer at BLMIS while Mark and Andy worked in the “market-making division”. In Irving Picard’s suit against Madoff family members, it states that between the three of them they withdrew over $50 million after investing under $2 million.

In other Madoff news, ex-“CFO” Frank DiPascali was released yesterday on bail pending sentencing. He is also cooperating with prosecutors and his attorney said that he was ‘thrilled’, presumably since, you know, he’s out of jail for a few days before he goes back forever.

• Satellite TV sues to end taxes [DMWT]
Purveyors of reality TV and other small screen creations, Dish Network and DirecTV are suing Massachusetts over a “5 percent tax on satellite services”.

Along with suing Mass, the companies have put their lobbyists to work:

A federal bill, H.R. 1019, also is pending in Congress. The State Video Tax Fairness Act would prohibit any state from imposing a discriminatory tax on any “means of providing multichannel video programming distribution services.” As for the term discriminatory tax, the legislation defines it as one where the net tax imposed on one program provider is higher than what is assessed another.

And God knows the satellite TV companies can’t be discriminated against. Apparently these taxes will prevent them from providing hundreds of channels that no one watches. We wouldn’t be able to watch Jersey Shore without these companies. Did you ever think about that?

• Reebok Founder’s Accountant Accused of Stealing $25 Million [FN]
Paul Fireman paid his longtime accountant Arnold Mullen $800,000 a year. Figuring he had more coming to him, Mullen stole $25 million more from Fireman and the Reebok founder’s charity for the homeless. Jesus, man. Try asking for a raise.

Obama Says He’s ‘Fierce’ Free-Market Advocate, Rejects Critics [Bloomberg]
The POTUS has a message for everyone that likes throwing around words like “socialist” or “Mao”. He and his gang are pro-business, “President Barack Obama said he and his administration have pursued a ‘fundamentally business- friendly’ agenda and are ‘fierce advocates’ for the free market, rejecting corporate criticism of his policies.”

Now whether or not you buy this story, the Berg is reminding us that things haven’t been so bad since BO took office, “the Standard & Poor’s 500 Index of stocks has risen more than 25 percent and the economy rebounded from a 6.4 percent decline during the first three months of last year to 5.7 percent growth in the fourth quarter.”

Whether you believe that President secretly dresses like Castro or you’re happy that Bloomberg is giving him credit for the “rebound” after a year in office, we expect him to run with the “turn around” story. He’s got to help out all the poor saps running for re-election after all.

EU Leaders Agree on Greece Support [WSJ]
Since things are getting slightly out of hand over in Greece some of the European leaders got together to talk about it. They came to the conclusion that they can lend a hand ‘if needed’.

Since the world seems to be in the habit of bailing out irresponsible behavior — according to the Journal, “Greece for years violated rules against overspending” — we’re guessing the “needed” part is imminent:

Greece’s fiscal problems—a heavy debt burden and wide fiscal deficits—have spurred fears of a sovereign default and sowed worry of serious trouble in the 16-nation euro zone. Thursday’s summit has become the bloc’s clearest opportunity to reassure financial markets.

It wasn’t clear that investors would be soothed. The euro, which has gyrated for several days amid rising and falling hopes of help to Greece, slipped slightly after Mr. Van Rompuy appeared in front of the stately library where the leaders were meeting to read his statement.

Zee Germans aren’t so thrilled with the whole idea since, “The euro zone is built around the idea that each nation manages its own fiscal affairs,” and they’re notoriously thrifty. Of course letting Greece go the way of Iceland is a big risk and EU members apparently have even floated the idea of ringing up the IMF which some feel would be an abomination.

• Service Offers Receipt Scanning for Accountants [Web CPA]
Perhaps you’ve heard of Shoeboxed.com, which if you have, why on Earth aren’t you sharing it with every accountant that you know?

The long/short is that your client walks in with his/her records for the past year so you can prepare their business’ tax return. You give them the crook-eye since you’re already drowning in files. You tell them to send all their receipts to Shoeboxed who will scan them in and “the data is then extracted and entered, automatically categorized, and securely archived online.”

You, the accountant, can now access this information through your Shoebox account in your favorite tool: spreadsheets. Not only will this cut down on the paper in your office, you won’t have to physically threaten as many clients. Everyone wins!

• Former SEC Top Cop Sees More Lawsuits [CFO]
Former head of SEC enforcement Linda Thomsen believes that the Commission will be looking to charge more companies for “aiding and abetting actions,” which means accountants, attorneys and investment banks will find themselves privy to more lawsuits.

Last summer Senator Arlen Spector introduced legislation that would expand the ability of plaintiffs to sue those that indirectly assist the commitment of fraud.

Ms. Thomsen cited the “scheme liability” theory in Enron cases against the likes of Citi, J.P. Morgan, and Merrill Lynch as being the most successful in holding aiding companies responsible for furthering a fraud.

• Morningstar acquires footnoted! [Footnoted.org]
Morningstar, the financial research firm, acquired footnoted.org the blog that digs through SEC filings to find little nuggets of treasure from obscene executive pay packages to shareholders cursing in letters to their board of directors.

Terms were not disclosed on the deal but founder Michelle Leder did state that “While I negotiated mightily for the keys to the Gulfstream, the corporate apartment in Paris, the company yacht, the lifetime consulting contract and, of course, a tax gross up — all crazy perks we’ve written about in various M&A deals — I came up empty handed. That’s because Morningstar doesn’t believe in those sorts of things. Nor do I.”

This was a perfect opportunity for the ultimate ironic moment but alas, it has passed. Congrats to Michelle and the rest of the footnoted team.

• Citigroup Courts Gazprom [FINS]
Being in business with a state-owned energy company can’t be a bad thing. Citigroup has been courting the Russian behemoth, Gazprom “to buy energy-intensity credits from three Tianjin heating utilities that had exceeded efficiency targets set by the city. The savings were then bundled into carbon-emissions allowances that could be sold or traded to other buildings that had over-polluted, according to the Journal.

The bank sees that this is an opportunity to get in on the bottom of the cap-and-trade schemes, “The bank and gas giant are effectively laying the framework for carbon trading to take off in Asia,” and teaming with Gazprom will allow that to happen.

• Investors Dissed as Two Appointed to IASB [The Summa]
Investors appear to have been short-changed by the latest appointments to the IASB. Dr. Elke König and Darrel Scott both have corporate accounting backgrounds and represent decidedly different ideas about what accounting rules should be, according to Prof. Albrecht, “Corporations prefer flexible accounting rules so that similar transactions can be accounted for differently by companies or even by a single company. Investors prefer more rigid accounting rules so that transactions are accounted for in a uniform manner.”

Further, the purpose of financial reporting is quite different between the IASB and the FASB, “In the United States, the purpose of financial accounting is widely viewed as providing information to investors so they can make the best investment decisions. In contrast, the purpose of financial accounting under the IASB is to help companies raise capital.”

• Fixing Seasons of California Discontent [WSJ]
California is approaching the last few months of its fiscal year and that means one thing: another huge budget shortfall! The Journal reports on the State Legislature trying to fix it’s impotent ways:

Two groups are pushing ballot initiatives they say would purge that chaos from Sacramento’s budget process. A bipartisan group, California Forward, is pushing a reform to let legislators pass budgets by a simple majority instead of the current two-thirds threshold. Repair California, which is affiliated with a pro-business group, is gathering support to hold a constitutional convention to rewrite state laws. Such a convention could alter the budget process and other facets of governance in California.

California Forward would like to put a measure on the November ballot that allow the legislature to pass budgets with a simple majority but require a two-thirds majority to raise taxes. That sounds like something, plus these IOUs are just plain embarrassing:

“We just have to stop the madness of these IOUs being issued and these horrible budget delays,” said Bob Hertzberg, a former Democratic speaker of the California Assembly who is co-chair of California Forward. “It sends a message…that California is dysfunctional.”

Yeah, we’ve gotten that message; specifically about the legislature.

• S.E.C. Enforcers Focus on Avoiding Madoff Repeat [NYT]
The Times profiles members of the new SEC Dream Team where Bernie Madoff is not to be spoken, “Many here refer to the scandal…as ‘the event’ or ‘the incident.'”

It was an incident all right.

Of course, the mind-numbing bureaucracy didn’t help, “Under Ms. Schapiro’s predecessor, Christopher Cox, investigators had to get approval from the five S.E.C. commissioners to negotiate financial penalties against corporations. She lifted that restriction. Enforcement lawyers had always had to get permission from the commission to open an investigation involving subpoenas. She has authorized the enforcement division to do that on its own.”

Now that Team Khuzhami can get down to business without all the rubber stamping, we’re expecting great things. It’s not like they can get worse.

• European Union, China Resist PCAOB Audit Inspections [Compliance Week]
PCAOB inspectors have had a helluva time getting access to the necessary information they need in Europe and China and it has caused the international inspections to fall way behind. Because they wanted to be upfront about it, the Board issued a list of the firms that should have had inspections performed in the past four years.

The majority of the firms on the list are international affiliates of the Big 4 and many of the remainder are affiliates of second-tier firms like Grant Thornton and BDO. The PCAOB didn’t give any particular reason that it was being stonewalled in its press release last week, just that “information necessary to conduct inspections was, and continues to be, denied”.

• IRS clears Schwarzenegger of $80,000 tax lien [AP via Mercury News]
As he promised, Arnie has been cleared of the $80k tax lien that was issued to him last November.

At the time, it was claimed that it was a “paperwork snafu” which looks to have been more or less correct as “[Scharzenegger] was not notified until late last year because the IRS had sent mail to his home instead of his office. Due to security precautions, the governor does not receive mail at his home.” For the trouble Ah-nuld has to pay $20.50 of administrative fees which might get the IRS an extra box of shotgun shells.

• Private equity firms brace for tax battle [Reuters]
Private equity firms have a tendency to be easy targets for a federal government that is looking to increase tax revenues. Following that idea, last week’s budget rollout proposes taxing carried interest at the ordinary rate of 35% that would raise $24 billion over the next ten years. As you might expect this is not a popular idea:

while high-profile buyout firms may seem an easy target, the question is a controversial one. Critics argue that raising the taxes paid by the private equity industry will also hit small partnerships and venture capital, and may not even raise as much revenue as governments hope.

$2.4 billion a year for 10 years doesn’t seem to be all that much in federal government dollars and we’re not sure the government will spend it better than the private equity but it serves is an easy target for politicians pandering during their election year “look how I’m taking on the greedy” speeches.

• PwC auditor Srinivas gets bail in Satyam case [The Economic Times]
According the Economic Times, the Supreme Court in India “said since the case was based on documents, all of which has already been seized by the Central Bureau of Investigation (CBI), it would be of no use to keep the accused in jail, where he had been lodged since his arrest in January 24 last year.” They also report that the “chargesheet [runs] over 55,000 pages” which seems like a good enough reason to just forget this whole thing.

Seriously, they were just able to come to the conclusion that he didn’t need to be in jail because the documents were TLDR? What army of accountants is on this thing? Will this never end?

• Ex-Broadcom Officials off SEC Hook [WSJ]
Despite all the horn tooting the SEC has been doing, they still manage to mess things up pretty regularly. After criminal charges were dropped against Broadcom executives due to “evidence in the criminal case showed prosecutors tried to influence the testimony of three key witnesses, improperly contacted witnesses’ attorneys and leaked information about grand jury proceedings to the media,” the civil charges have been subsequently dropped.

The Broadcom case if you recall, involved a back-dating scandal but far more interesting were the allegations that Broadcom co-founder William Nicolas III was “conspiring to distribute illegal drugs, including methamphetamine and cocaine,” and providing prosties to clients in underground quarters built specifically for said purposes.

But now Nicolas is sober and it’s all been thrown out and the SEC once again looks like idiots. Sobriety and an incompetent SEC makes for a feel good story.

• PCAOB Launches a Redesigned Web Site [PCAOB Press Release]
It was official yesterday although the new look seems to have been up all week. Acting Chair Dan Goelzer managed to wake from his nap to throw in his boilerplate statement, although by the looks of the guy, were not sure he knows how to use email let alone give an opinion on the website: “The redesigned Web site enhances the PCAOB’s transparency efforts by making registration, inspection, standard setting and enforcement information more accessible and user-friendly to the investors, auditors and other interested parties who use our site.”

In other news, it appears that despite the decent salary no one wants to be the non-acting Chairman. Not that it’s an important position or anything.

• Global accounting rules may face big delays [Reuters]
Here’s a shocker: the convergence of accounting rules may not get done in a timely fashion. Considering that the SEC seems to be avoiding the issue and everyone seems to be waiting on them:

“The next six months are going to be defining,” said Deloitte Touche Tohmatsu CEO James Quigley, who describes his position as more hopeful than confident that a single set of standards will be agreed soon. “The key is what the SEC’s position is going to be,” he said.

Great to know. Plus, the timeline keeps getting longer. Forget 2011; Bob Moritz says we’ll be lucky if we get this wrapped up by the end of the decade, “[Moritz] said that the original date of 2014 for one set of rules could easily extend to 2020.” A show of hands for just throwing this on the scrap heap along with tax reform?

• Where Not To Die In 2010 [Forbes via TaxProf Blog]
So if you’ve been enjoying the impotence of Congress with regards to the federal estate tax, thinking that it won’t be long before that rich uncle of yours will kick the bucket and you’ll dodge the estate tax. Sure they could retroactively reinstate the tax but it’s worth the gamble isn’t it? Plus, we’re still talking about the likes of Charlie Rangel. It’s possible that he could have forgotten that there’s problem. If a Rangel can forget about his financial situation he can surely do the same for the good of his country, can’t he?

Despite Rangs and Co., there are nineteen states out there that can still get a little piece of your rich relative’s action, whether it’s an inheritance tax or an estate tax:

Maybe this isn’t reason enough to the pull up the stakes but now you can’t say you weren’t warned.

• National accounting competition begins in Winnipeg [Winnipeg Free Press]
We weren’t aware such a thing existed in the world, let alone our own continent. Plus, what does “an accounting-focused case competition” consist of? We’ve obviously not been paying attention because this is the 9th go-round for the Gathering of Accounting Associates Professionals and Students Conference (GAAPS).

Since Winnipeg doesn’t have a hockey team anymore, it’s understandable that they would like to attract people to their city for something; but this?

• Obama’s Budget Plan to Create Government Finance Jobs [FINS]
The biggest beneficiary of CFOs not hiring may be the Federal Government. We mentioned in the routhe SEC got a decent boost in the POTUS’ proposed budget and likewise, so did the Treasury Department, “Department employment levels are projected to increase by 253 workers since 2009. Last year’s headcount of 1,089 workers is expected to grow to 1,266 in 2010, and reach an estimated 1,342 workers in 2011.”

Some of the areas within the Treasury that could benefit have yet to be created under the Financial Reform Initiatives including the Office of National Insurance and the Financial Services Oversight Council. We’re sure that Congress will get their act together in time so some of you can consider these potential employers.

One group in the Treasury that won’t have to wait is the Office of Terrorism and Financial Intelligence who was appropriated just over $1 million for new personnel. Whether or not you get to carry a weapon is not clear so just take it easy with all your 24 fantasies. Besides, financial people are the ones who usually end up dead on that show.

• Why Overstock.com and David Chidester Parted Ways [White Collar Fraud]
Sam Antar would like to know why David Chidester and Overstock.com came to a “mutual agreement” for Chides to leave the company. With new Overstock auditor KPMG on board, someone with eleven years experience at the company, that functioned as both the CFO and the Senior Vice President Internal Reporting and Information, might be able to help make the transition easier. Nope!

Sam postulates that the Chidester might have known too much, ” I believe that their so-called ‘mutual agreement’ is based on Patrick Byrne not wanting David Chidester to stay around and David Chidester not wanting to be around to answer questions as KPMG continues its audit of the company’s financial reports.”

KPMG is playing catch up with this new engagement and now they are dealing with a new CFO, Steve Chesnut, who Sam reports, “joined the Overstock.com in January 2009, was not around when most of the financial reporting improprieties under investigation were committed by management,” and isn’t a CPA. He’s got a less enviable job than KPMG.

• Obama’s Tax Reform Commission: RIP [Tax Vox]
Remember President Obama’s Tax Reform Commission? They asked you, the American Taxpayer, to give them ideas on tax reform and, by God, you delivered. After going through all that ingenuity, the commission announced that it get back to those ideas “after the holidays” to get crackin’ on our tax code.

Well! It appears that was time well spent because now it sounds like the tax reform commission is being put out to pasture. Tax Vox reports this exchange from yesterday’s budget briefing with Office of Management and Budget dreamboat Peter Orszag:

“Q: The President was supposed to receive tax reform recommendations in December and that was delayed indefinitely. Is there a possibility that that could be folded into the fiscal commission’s review, or is it just on the back burner?

DIRECTOR ORSZAG: I would imagine that it will be folded into the fiscal commission. I would imagine that — again, the commission will be examining a variety of things, including tax reform.”

We’ll just assume everyone’s ideas are being thrown on the scrap heap. Thanks for your help though!

• Obama Seeks 12 Percent Budget Increase for SEC [AP via NYT]
Figuring the troops could use some help, PBO’s new budget will increase the Commission’s budget to $1.3 billion, including $419 million for new enforcement personnel.

In addition to the feds generous appropriation, the Commission is also budgeting for $1.7 bil in fees from new stock registration for 2011. Mary Schapiro seemed pleased saying that the truckloads of budget dollars will “do a great deal to help us keep pace with the continuing growth of the markets and provide necessary resources to support important regulatory initiatives in 2011.”

Whether or not $3 billion is going to save the sinking ship will remain to be seen although the “throwing money at the problem” solution seems to be in full effect.

• We need more disclosure from audit committees: PwC [Accountancy Age]
Someone had to say it! PwC seems to have had enough of the give, give, give action they’ve been doing and would like a little transparency sent their way courtesy of the audit committee.

In a submission to the UK’s Auditing Practices Board P. Dubs “believes there should be new disclosures which articulate the principles that audit committees apply in deciding whether the auditor should provide non-audit services.”

It’s not good enough that you won’t engage us for non-audit services, we want to know why! It’s important that we know. And for those of you that feel that non-audit services undermine independence, you simply don’t have all the facts, and therefore should BTFO.

• Madoff’s Ex-Finance Chief to Give Up NJ Home [NYT]
Frank DiPascali, not so much a CFO as he was a really good liar, has agreed to sell his home in Bridgewater, New Jersey. The feds will being doing the honors and it will come with all the appliances, furniture, etc. which probably makes for a decent deal. This is possibly where one would insert a Jersey Shore reference but we don’t know anything about the show other than most people on it aren’t from New Jersey. Happy hunting.