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KPMG UK Head of Audit Explains Rentokil Arrangement

KPMG_chair.jpgKPMG’s new arrangement with Rentokil has brought some differing opinions amongst the firms, even prompting PwC to take a not-so direct jab at the Radio Station for scooping Rentokil.
Today, KPMG’s head of audit in the UK, Oliver Tant, wrote a piece for Accountancy Age explaining the firm’s new “extended assurance”:
Continued, after the jump

Under the service, those responsible for corporate governance may ask KPMG to perform work beyond that which is required for the statutory audit, for example by testing a larger sample of controls or additional transactions and balances of lower value than the materiality level set for the statutory audit.
This work does not replace, conflict with or undermine the independence of the external audit it simply extends our understanding of the business and its controls and hence the breadth and depth of insight we can offer. That is why we call it extended assurance.

Mr. Tant also cites the savings passed along to the client, which is so hot these days. He also explains what “extended assurance” is NOT:

The service is not about merging the external and internal audit functions. A company can continue to have its own internal audit function and those charged with corporate governance will still be responsible for assessing the overall adequacy of a company’s control environment and the need for skilled internal audit expertise.
Ethical standards do not prevent the auditor from doing more than the bare minimum to support the audit opinion. We will identify and plan the work necessary to support our audit opinion independent of any further work we may be requested to perform.

As we mentioned, PwC has already made their opinion known and E&Y’s head of assurance in the UK, John Flattery has stated that they will not be “mirroring the arrangement.”
It’s already been speculated that this type of arrangement would not be allowed in the U.S. but there has been no indication that the U.S. firm is pursuing such arrangements.
Since independence is kinda, sorta important for auditors, and many of you are ramming these rules into your brains as we speak (or just waiting to see if you learned anything) discuss in the comments how you feel about the arrangement. Would it pass the smell test Stateside? Is KPMG evolving to the market or are they on thin ice? Are P. Dubs and Ernie being self-righteous dicks since they didn’t think of it first? Feel free to get ugly about it.
KPMG audit head defends controversial Rentokil role [Accountancy Age]

Preliminary Analytics | 09.17.09

graduation.jpg• Clearing skies over U.S. economy open rift at Fed – Let’s just leave everything alone, it’ll be fine. [Reuters]
• Twitter funding would value it at $1 billion: report – It’s not going anywhere, follow us. [Reuters]
• U.S. unemployment not to peak until 2011: Krugman – “He said the global economy seems to be stabilizing at a level that is ‘unacceptably poor’ and added it is possible that the recession will be a double-dip one.” [Reuters]
• He Built America’s First Megamall – Now that he’s gone, we can’t really place blame here for rampant consumerism, can we? [WSJ]
• SEC Announces New Division of Risk, Strategy, and Financial Innovation – The latest duct tape measure from the SEC. [SEC.gov]
• Rolls-Royce Unveils Its Economy Car – Less than $250k. If you had only gotten that bonus… [WSJ]

Review Comments | 09.16.09

Shakeshack_hamburgers.jpg• Why Are We Working Late? – Leave your terrible excuses in the comments. Shake Shack or In ‘n’ Out better be involved. [The Onion]
• New Revenue-Recognition Rules: the Apple of Apple’s Eye? – Revenue recognition for iPhones. If you want the geek Steve Jobs fanboy version, that tries miserably to make fun of accounting, go here. [CFO]
• Where can you curse at your boss and not get fired? In another country: Spain – If you’ve tried and failed Stateside, leave the transcript in the comments. [NYDN]
• ACL Services Releases AuditExchange 2.0 – Don’t say we never tell you about anything useful. [it.tmcnet]
• Cuomo subpoenas 5 Bank of America directors – Someone make this thing stop. If we force Ken Lewis and John Thain to go toe to toe in a KY wrestling match, will everyone let it go? [Reuters]
• Citi to pay back U.S. when recovery more evident – But we could. We just don’t want to. Timing is everything, you know. [Reuters]

PwC Is Sick of You Not Passing the CPA Exam

olinto_cpa.jpgStudying for CPA exam got you down? Tired of choosing between sleeping and listening to Peter Olinto’s melodic voice talking about partnership basis calculations?
Luckily P. Dubs feels your pain. We’ve heard from a couple of sources that PwC is pushing sabbaticals for those of you that are scoring just slighty better than Tiger Woods.
We’ve heard that San Jose is offering tax associates 20% of their salary through the end of the year to get their act together. We also hear the same offer has been made to audit associates in New York. We would assume it’s on the same time frame since both offices will need every warm body available come 2010.
We kindly requested some details from PwC but they haven’t gotten back to us.
If you’ve got more details on this offer from Dubs or are considering participating so you can strike the Pedro and T. Gearty from your gray mass, discuss in the comments.

(UPDATE) E&Y Is Making Good on its Promise to The 2nd Year Associates

News from E&Y in SoCal is that those second year associates that were getting raises to put them at a pay level above the newbies are getting a 1% increase to put them there.
Personally, we’d rather be in pay raise Siberia with the rest of you than get 1% but a firm’s word is its bond. If Zitor has given you similar good news for your office, discuss in the comments or shoot us the details to our tips mailbox.
UPDATE, September 21st, 12:20 pm: Another tip out of Chicago confirms Uncle Ernie’s promise-keeping ways, giving the new 2nd Years, a 1% bump.

Fed Governor Duke: Accounting Should Come With Incentives

motivation.jpgEditor’s note: Adrienne Gonzalez is founder and managing editor of Jr Deputy Accountant as well as regular contributor to leading financial/investment sites like Seeking Alpha and GoldmanSachs666. You see all of her posts for GC by going here. By day, she teaches unlicensed accountants to pass the CPA exam, though what she does in her copious amounts of freetime in the evening is really none of your business. Follow her adventures in Fedbashing and CPA-wrangling on Twitter @adrigonzo but please don’t show up unannounced at her San Francisco office as she’s got a mean streak. Her favorite FASB is 166.
What do you get when you cross a Federal Reserve governor and the AICPA? Well I wish I could say unicorns and rainbows but really all you get is Fed Governor Elizabeth Duke on, what else, regulation.
Regulatory Perspectives on the Changing Accounting Landscape doesn’t exactly sound like a party but what do you expect? Unemployment is up, revenues are down and let’s face it, things aren’t looking too good for the short term. You’ve got to give Duke some level of credit for trying.
More, after the jump


Firstly, we feel it prudent to point out that Duke is no CPA. She couldn’t tell a debit from a credit if her life depended on it, at least in j/e form, but we’re willing to bet as a banker she’s probably better at sniffing out capital requirements than, say, that brainiac Bernanke.

Given my background as a community banker, I feel it is crucial that an accounting regime directly link reported financial condition and performance with the business model and economic purpose of the firm. It is difficult for me to comprehend the value of an accounting regime that doesn’t make that link.
To be frank, it has been frustrating to try to assess that viability when the value of an asset is based on the nature of its acquisition rather than the way in which it is managed or the way in which its economic value is likely to be realized.

What’s so frustrating about assessing an asset? Either it’s worth something or it’s worthless. Any idiot can figure that out, even yours truly.
Duke implies in her speech that fair value is only useful if the instrument (read: creative and probably entirely made-up security) is being sold or desired by some third party (read: those gullible Chinese who bought all of our weak ass mortgage-backed securities back in the good old housing bubble days) and entirely useless for anything else. In other words, the proof is in the cash flows.
Leave it to a banker to assume that balance sheets are so easily manipulated by instruments passing from buyer to seller and somehow entirely irrelevant in the time in between. As a banker, we expected better from her. Surely she understands that capital requirements dictate those “useless” securities on the “assets” side of bank balance sheets count towards the bank’s overall viability? Apparently not.
In fact, Duke seems to think that fair value can backfire on smaller institutions who may not have the borrowing leverage of, say, a beast like Goldman Sachs. Or better, Lehman Brothers. Before they went bankrupt that is.
All in all, interesting thoughts from the Fed Board on this one but until they pull out someone with practical accounting experience, it might as well have come from Perez Hilton for all I care. Next!

Rumor Mill: KPMG Layoff D Days

A little follow-up from our request for the latest on highly anticipated post-September 15th layoffs. Here’s what we’re hearing:
Sources and some comments have indicated that the dates to be wary of are today the 16th, tomorrow the 17th, next Monday the 21st, and next Tuesday the 22nd. The word is that these will be tax and advisory practice cuts only.
KPMG did not immediately respond to our request for comment on these dates. If you have specific information on your anything going down at your office send us the scoop at tips@goingconcern.com.

Is NASBA Torturing You?

fingers crossed.jpgWe got a request to start a thread on the CPA exam results being totally MIA. The last thread seemed to indicate that results were slow to come out but here we are a month later and some of you took your exam(s) back in July.
So what the hell, NASBA? People can’t sleep at night. Get with the program!
Discuss your anxiety in the comments or if you’ve got your scores, just tell us you got between 75 and 79. Anything higher and you might has well be one of those Elijah Watts rocket-scientists.

Preliminary Analytics | 09.16.09

the-end.jpg• Bankers Should Repent, Archbishop of Canturbury Says – And since the bankers and others are blaming the accountants, you all should get with the penance as well [AP via NYT]
• Buffett Says the U.S. Economy Has ‘Hit a Plateau at Bottom’ – This bodes well the Beard’s calling of the match yesterday. [Bloomberg]
• Pimco’s Gross Boosts Government Debt to 5-Year High – Take note, USD haters. [Bloomberg]
• James S. McDonald, C.E.O. of Rockefeller & Co., Dies at 56 – Illuminati theories can commence now. [NYT]
• Facebook Says Its Finances Are Looking Up – 300 million members and free cash flow positive, so you must be on there providing witless comments about how you hate our jobs. Join the GC group. [Bits]

Review Comments | 09.15.09

stanford1.jpg• Will Allen Stanford Wind Up Calling Allen Stanford To The Stand? – We’re totally pulling for Stan to defend himself. That would up the circus rating on this thing to just below O.J. status. [DB]
• Bernanke Says U.S. Recession ‘Very Likely’ Has Ended – Except it won’t feel that way, sayeth Obi-wan Benobi. [Bloomberg]
• The Devil’s Dictionary — Financial Edition – Mark-to-market didn’t make this list so we’re not sure how credible this dictionary is. If you’ve got additions of your own, leave them in the comments. [WSJ]
• CFOs Put on a Happy Face – If you’re not a CFO, maybe not so happy. [CFO]
• Where People Die – Our initial response is: Everywhere. But for FN’s post, West Virginia has the most, which isn’t so surprising and Utah leads in births, which is even less surprising. [Floyd Norris/NYT]