Category: Audit

Is Taking Cash Out of the Hands of Young Auditors a Good Idea?

As global cash transactions have become increasingly complex, both the familiarity and training of accountants in the cash area may have actually declined. Most young adults no longer keep check books, and consequently, no longer perform the reconciliation process on their personal accounts. Instead, they simply check available balances either online or at an automatic teller machine, and adjust their spending habits accordingly. [SmartPros]

And Now, the Auditor’s Version of ‘No Sleep ’till Brooklyn’

Recently we came across a version of Ke$ha’s “Tik Tok” for auditors. The battle over who actually coined this ode to opining was up for grabs but now it’s been brought to our attention that throwback tunes are also being rewritten to express the plight of auditors.


Surely there’s a divergence of opinion – right down generational lines – on which rewrite is better but working in “fat finger” and “Friends think I do tax ’cause of the ‘CPA’ ” scores big points in our book.

To the tune of “No Sleep ’til Brooklyn” by the Beastie Boys

(chorus) No sleep ’til – Filing

Hand on the tenkey – never a fat finger
Got work to do, I hope this client don’t linger
My job ain’t a job – it’s a damn good time
Gonna get this tied-out to the dime
On location – cursing damnation
Why’re my client contacts always on vacation?
Eight of us crammed around this audit table
I do what I do best because I’m willing and able
Ain’t no fakin’ – audit fees I’m rakin’ in
Goin’ coast to coast vouching money you’re makin’
While you’re at the job working nine to five
I’m still at the office when you arrive

(bridge) No sleep ’til –

Another spill, another thrill
Another freaking fire drill
Caffiene gum – another SUM
I wish this Diet Coke had some rum
Now where’s my contact? – he always disappears
This is the guidance, why can’t he just adhere?
Been so long since I’ve seen my fam’
I wish my computer had more RAM
We’re thrashing financials like it’s going out of style
Getting paid along the way cause it’s worth your while
Quarter after four – IA’s out the door
I’m chained to my computer for six hours more
We got a drawer with a lock to hold our files
Aside from the ones all over our table in piles

(repeat bridge)

(repeat chorus)

Ain’t seen the light since we started this audit
All we need is in this room- we got it
Born and bred to document all day
Friends think I do tax ’cause of the “CPA”
That’s not right but I don’t care
‘Cause whenever I explain it they just stare.
Got coffee, cola, chips and candy
I’ve gained ten pounds ain’t it just dandy?
Step off homes – get out of my way
‘Cause our signed opinion is the final say
Waking up before I get to sleep
Cause I’ll be rocking this party eight days a week

No sleep till filing ….
No sleep till filing …
No sleep till filing …
No sleep till filing…
No sleep till filing…

And just in case you’ve got no idea what this should sound like:

Some Companies Willing to Drop a Big 4 Auditor Like a Bad Habit…For Another Big 4 Auditor

Auditor musical chairs isn’t something that happens too often but Reuters reports that more and more U.S. companies are looking to save a little extra scratch on their audit fees:

Bucking a long-standing preference by most companies to stick with the same auditor for years, some companies are putting their audit work out for competitive bids to win better deals on fees, or to get fresh teams looking at their books. “It’s a change in the competitive landscape among the audit firms where they have the ability and desire to take on more clients,” said Mark Grothe, an analyst at consulting firm Glass Lewis. Public companies also seem to be more willing to switch auditors, as long as one of the “Big Four” firms will be doing the work, he said.

The article cites Apple (dropped KPMG for E&Y) and Tysons (kicked E&Y to the curb in favor of PwC) as two prominent examples. We’re also aware that Credit Suisse is slowly transitioning a good portion of the audits performed by KPMG to PwC, according to sources familiar with the situation. Companies of this size willing to change their auditors demonstrates that some companies aren’t too concerned with the learning curve that may face their new auditors. In fact, some CFOs are more than okay with it, including Linster Fox of Shuffle Master who claims, “There’s no degradation in service — the service is actually higher.”

PwC’s Tim Ryan, however, doesn’t buy the idea that fees are the driving force behind the auditor switcheroo, “When a company does go through a change, it is almost always driven by something other than fees,” he told Reuters. Instead, a change is more likely to happen when, for example, a major fraud gets missed or there’s a difference of opinion on a crucial issue OR the CEO is a finicky character OR some other mysterious reason unbeknownst to all of us.

Regardless, the real concern is that all this auditor swapping puts a lot of pressure on fees:

Fee pressure has been intense worldwide, but especially in the United States, according to the International Accounting Bulletin, which tracks global audit fees. “The U.S. is a very competitive market, easily the largest audit market in the world, and the Big Four have competition from a much larger pool of firms,” said IAB editor Arvind Hickman. “Last year we received reports of fees being cut between 5 and 15 percent on average on audit work, and there were extreme cases where fees were being cut up to 40 percent,” he said. Fee pressure appears to be easing somewhat, “but there will still be fee pressure this year and we don’t predict it will go away any time soon,” he said.

This has Big 4 firms undercutting regional competitors and is no doubt, partly responsible for the parking lot at the Senior Manager level in some markets. With this level of competition and, as a result, a slowly decreasing portion of the Big 4 revenue stream, it doesn’t necessarily mean a career as an auditor is a dead end but it sure doesn’t help.

Auditor shopping helps U.S. companies cut fees [Reuters]

China MediaExpress CEO Responds to Fraud Allegations by Falling Back on ‘Reputable and Well-Known Auditors’

For anyone out there concerned about Chinese companies who have less-than solid accounting practices, you can rest easy, as Gary Weiss reported in his TheStreet.com column yesterday:

All you have to do is believe in the infallibility of Big Four auditors!


Case in point, China MediaExpress Holdings is the latest company who hasn’t convinced everyone that their numbers are kosher, so their CEO, Zheng Cheng, went on the offensive:

Responding to allegations that the company is a “fraud and reported revenue is exaggerated by tens of millions of dollars,” China Media’s CEO Zheng Cheng said in a letter to shareholders: “The company is strong and doing well. Its revenues and cash position have been audited by reputable and well-known auditors who have confirmed both.” [Emphasis is GW’s.]

Those ‘reputable and well-known auditors’ just happen to be Deloitte, thankyouverymuch. Don’t think for a minute that we were dealing with Frazer Frost or some other firm that has had problems.

With China Small-Caps, It’s Shorts vs. Auditors [The Street]

Apparently There’s a Food Chain for Satyam Blamestorming

The head of the Institute of Chartered Accountants in India seems to feel as though 2009’s massive Satyam failure was not, in fact, a failure of the auditors but levels before the auditors and then the auditors. “There were promoter shareholders, executive directors and directors, and the auditors were the last rung. On the other side, there were independent directors, one of whom was a dean of the Indian School of Business, but nobody questions the role of independent directors.”


Amarjit Chopra feels corporate governance (or should that be complete lack of…) is to blame, not the PwC auditors who somehow missed the following:

• $1.09 billion in artificially inflated cash and bank balances (psst, baby auditors, that’s called a material amount)

• $81.59 million in accrued interest that was accrued out of thin air and never existed

• An understated liability of $266.91 million

• An overstated debtors’ position of $575.27 million that was more like $106.33 million (oops)

Maybe PwC should have waited for Chopra’s comments. Had they done so, they wouldn’t have already come out and admitted they missed a few issues on the September 30, 2008 Satyam balance sheet:

The former [Satyam] chairman has stated that the financial statements of the company have been inaccurate for successive years. The contents of the said letter, even if partially accurate, may have a material effect (which is currently unknown and cannot be quantified without thorough investigations) on the veracity of the company’s financial statements presented to us during the audit period. Consequently, our opinions on the financial statements may be rendered inaccurate and unreliable.

So if that’s the case, someone remind me why we even have auditors then? Sure financial statements belong to management but aren’t auditors there to give everything a good once-over to ensure giant fraud is not staring them directly between the eyes? You’d think at least one of those brilliant Indian first years would have realized that cash was a tad high once they started doing the work.

Nightmare Audit Rooms Have Their Consequences

The following post is republished from AccountingWEB, a source of accounting news, information, tips, tools, resources and insight — everything you need to help you prosper and enjoy the accounting profession.

With no place to work in the office of the housing authority of a major city, the audit team was provided tables and chairs in the hallway of a renovated apartment building that connected the swinging front door with the elevators. In the middle of winter in a city located on a bay, the wind swept into the hallway driving temperatures to near freezing. Clothed in parkas, scarves, wool hats and gloves, the audit team struggled through the engagement.

Auditing rural hospitals, CPA firm personnel were ordinarily assigned to a patient room for workspace since there was no room for them in the hospital office. This year there were no patient rooms available so they were assigned to the morgue! Steel tables and high stools were their accommodations. Formaldehyde, dead bodies draped in sheets and the medical examiner’s buzz saw greeted them each day.


The auditors of a plumbing contractor were assigned a dark, damp room in the basement for workspace. The room was two flights of stairs and several hundred yards from the accounting office.

Two auditors were assigned workspace at a desk adjacent to and facing the controller. The controller smoked, they didn’t.

I could relate more true stories on and I suspect you could add your experiences to this list of inadequate fieldwork workspace. Here are some obvious questions:

1. Did any of these scenarios increase time charges on the engagements?
2. Who had responsibility to correct or prevent these circumstances?
3. When should corrective action be taken?
4. What actions should have been taken?

Question 1: Of course time charges were increased! The auditors of the housing authority said the audit required almost twice the amount of time it should have. The hospital auditors lost numerous hours going for fresh air and to the restroom to vomit! Going back and forth to the accounting office wasted enormous amounts of time, although the team did lose weight. Not only was the health of the non-smokers impaired, they wasted time leaving the room to discuss audit issues and securing all working papers and electronic equipment every time they left the room.

Question 2: The in-charge accountants on these engagements had responsibility to run the fieldwork but their “stick” wasn’t big enough to get the managements to change their workspace. It was the engagement leaders’ responsibility to speak with managements to correct the situations.

Question 3: If the workspace could not be improved internally, a nearby motel room, a recreation vehicle parked outside a client’s facility or an electronic air filer could be remedies. The cost of these alternatives is likely far less than the unbillable wasted time.

Question 4: This is a planning activity! Proper workspace should be arranged by the engagement leader before the fieldwork begins. Engagement profits can be increased considerably by using foresight and arranging for proper workspace!

Thankless Audit Client: Tui Travel Edition

Tui Travel is “an international leisure travel group” (which is fancy-speak for a travel agent) out of the UK. KPMG has been audited the books for awhile but this year they found a booboo that resulted in a £117 million write off. At the time the company copped to the error, although you don’t get the impression they were grateful.


From today’s report in the Guardian:

Just two months ago, Tui chief executive Peter Long said: “KPMG identified some system weaknesses and ledgers that had not been reconciled … Yes, they identified some of these control weaknesses which had then manifested themselves into the issues subsequently identified through a detailed investigation.”

Nothing unusual really, these things happen, clients usually grin and bear it but not our “international leisure travel group.”

KPMG said its relationship with “certain [Tui Travel] directors became increasingly strained” following “extensive discussions with the directors”. Among the areas where KPMG had raised concerns, the letter added, were the implications arising from the restated accounts and “their disclosure and accounting treatment in the financial statements”. Relations had reached such a low ebb, KPMG concluded, that “we are not confident that in the future we could carry out an audit of the company to the appropriate standard, but others may be able to do so.”

So it kinda sounds like their annoyance with the whole thing slowly boiled over into flat-out bitterness, leading to some increasingly unpleasant conversations. Sure, the directors in question would start out acting cool about it, “You know [chuckling], you really didn’t do us any favors there.” But eventually it became, “Boy, you’ve really outdone yourself, this time.” And finally, “For crissakes! You couldn’t leave it alone, couldja? [extremely patient KPMG partner explaining on the other end] What?!? [increasingly steamed, drumming fingers] We don’t care if it’s your job; we don’t like being embarrassed. [Pause, eyeroll] Stewards of generally accepted accounting principles?!? What does that even mean? [brief pause] Whatever, you can plan on us being uncooperative going forward.”

Or something like that.

Tui drops KPMG after it found £117m hole in accounts [Guardian]

It’s Not Impossible To Make Money on Small Audits

The following post is republished from AccountingWEB, a source of accounting news, information, tips, tools, resources and insight–everything you need to help you prosper and enjoy the accounting profession.

Most small firm practitioners can offer lots of answers as to why it is difficult to profit from small audits. Ever-changing professional standards, increasing quality control requirements, using standard “one-size-fits-all” audit documentation and increasing legal liability are a few of the common answers. The problem is that knowing the answer doesn’t solve the problem!

Maybe we need to change the question to solve the problem. A better question may be, “What changes do we need to make in our audit practices to profit from small audits?” Answer this question correctly and we solve a major problem!

Here are changes in audit practices some smaller CPA firms are considering:


• Developing the technical and leadership abilities of engagement leaders is at the top of the list. Recognizing this takes time and money, small firms are making increasing investments in training and consultations to expand the knowledge resource base of their leaders and the firm. Making sure leaders are technically current in all professional standards affecting auditing engagements is a first step. Teaching leaders to pass their knowledge on to all assistants is the second.

• Designing firm policies and procedures within existing professional standards that provide reasonable assurance audited financial statements are not misstated. While we’d like to achieve absolute assurance the financial statements are not misstated, we have to assume some risk they may contain misstatements. In short, we have to give up some of our traditional approaches to audits in exchange for uniquely tailored audit strategies designed to gather the minimum amount of evidence necessary to verify relevant financial statement assertions. Gathering the minimum required evidence in the most efficient ways results in maximum profits!

• Creating proprietary audit documentation packages by eliminating or modifying documentation purchased from major publishers. Extensive audit documentation is not a substitute for the knowledge of staff personnel! We cannot afford to complete practice aids and other documentation containing everything we need to know on every engagement, particularly on small audits. Many small firms are realizing they can modify their quality control documents to permit engagement leaders to tailor documentation on every audit. Using major publisher’s practice aids for reference is the most any firm should do on small audits. When we know the requirements of professional standards, it isn’t difficult to tailor or create basic practice aids to guide small audit performance.

These are just a few of the small audit changes CPA firms must consider to increase profits. I’ve designed my Small Audit Series of live and on-demand webcasts to provide holistic solutions that will enable practitioners to make more money on small audits. You can obtain over 300 pages of instructional text materials and illustrative practice aids designed for CPE credit on the left sidebar of our website, www.cpafirmsupport.com. Don’t be left behind! Small audits can generate BIG profits!

Duoyuan Printing Is All Kinds of Screwed Up After Firing Deloitte

By “all kinds of screwed up” we mean “screwed 17 ways to Sunday”. After firing Deloitte last week, two top DY executives (CEO Christopher Holbert and CFO William Suh) have bailed, DYP shares are in the tank (down 47% as of publication) and, oh, they’re going to need to find a new audit committee chairman as their last one, James Zhang, ran for the hills.

Before running, however, he sent this really nice note explaining his motivations:

To: The Board of Duo Yuan Printing(DY).

6th Sept, 2010.

Dear Mr. Chairman and the follow directors of the Board:

Subject: My resignation as Company Audit Committee (AC) Chairman and Independent Director with immediate effect.

It has been almost one year since DY listed in the NYSE. I have to say that working closely with the Chairman, CEO and CFO of the company has been a great pleasure for me.

From Roughly one month ago, I got the phone call from Frank Li, the Audit Partner of Deloitte (DT) to express concerns to the Audit Committee over several financial irregularities and management control weakness. After hearing the full story, I immediately called an AC meeting and upon receiving unanimous approval from the AC as a well as support from the Chairman, the AC immediately engaged Latham Watkins, the US Law Firm, to handle the independent investigation not only to report back to the AC, but also as a part of the audit process requested by DT to give an opinion to the 2010 DY company financials. As our Chairman put it in the board Meeting just now that maybe due to the cross culture differences between US style work and maybe because of the second tier management don’t fully understand the US listing requirements, the investigation has not progressed in the last month. This delay could potentially render the company not filing its annual financial statements on time to the SEC.

In the past week, the Management has suggested to change the auditors of the company from DT to Frazer Frost (FF) who was the company prior auditors. This proposal has just been resolved in the full board meeting and Full AC meeting with voting taking place of 4 against 3 in favor and 2 against 1 in favor.

As the AC chairman and independent Director of the company, I respect the company democratic decision process as stipulated by the company Memorandum and Articles of Association. However, as a qualified UK Chartered Accountant and a trained Professional, I have brought to the attention of the board the following potential risks related to the change of auditors. These risks can be summarized as follows:

1. FF has not yet signed engagement letter with the company which is a risk to the company.

2. Change of auditors during the investigation process could potentially lead to further investigation from the SEC.

3. To change from a Big4 audit firm to a non-Big4 could have very negative impact in the investment community in terms of corporate governance thus lead to potential share price drop and subsequent US class law suit.

4. Even the Company US counsel has indicated in the meeting against change of auditors at this particular time frame.

Keep it classy, JZ, and good luck wherever you end up after this disaster of a company.

(UPDATE) Dick Bové: The KPMG Citi Team Is ‘An Exceptional Acceptable Group of Auditors’

And you know he’s not messin’ because that’s what he told Charlie Gasparino and God knows you best not lie to the Fox Business Network’s ace reporter. Sure Bové didn’t actually say “KPMG” (hell, he’s probably never heard the name) but he’s giving credit to auditors which is about as unheard of as Tiger Woods using Trojans with hookers.

Bové may have mentioned some other things about Mike Mayo, Citi, Deferred Tax Assets so on and so forth but we’re sure you’re not worried about that.


Btw, if you need to get caught up on just who Dick Bové is, go here. Courtesy of FBN:

On Citi’s apparent cold shoulder towards analyst Mike Mayo:
“It’s totally wrong. Mike Mayo is a brilliant analyst. He’s been in this business for a long period of time and does a superb job of following the industry. To say he can’t come in and speak to the company in my view is absolutely and totally incorrect.”

On whether Mike Mayo’s accusations against Citigroup’s risk management lapses are accurate:
“Absolutely. In September of 2008, Citigroup was effectively bankrupt. The reason why it was bankrupt was the reason that Mike cites. It was that the risk management procedures had completely broken down and it was not effectively managing its portfolio. Mike is right on that comment.”

On why we should believe Citi on its accounting reports:
“We don’t have to take Citigroup’s answer to Mike Mayo. We can take a look at the fact that this company is audited by an exceptional group of auditors. They are regulated by a large number of bank regulators…and they actually are being audited for their tax issues right now by the IRS. All three of these groups agree with the public statements of Citigroup concerning DTAs.”

“What is the basis for saying that these three groups which have seen the numbers don’t know what they are talking about, whereas people that have not seen the numbers, do know what they are talking about.”

On whether Citi has been given a clean bill of health by the SEC, IRS and the Fed:
“We do have an audited financial statement which is not questioning the DTAs. We do have bank regulators who could have memorandums of understating with Citigroup if they believed there was a problem. Citi is estimated to earn by Mike Mayo $9 billion this year. Next year he estimates the company to show a 33 percent increase in earnings to $12 billion. If there is a DTA problem, why is there a belief that the company can jump its earnings by 33 percent from 2010 to 2011?”

We’ve been assured by the wonderful people at Fox that we will have video of this momentous (and perhaps unprecedented) occasion just as soon as it’s available.

UPDATE: AS WE SUSPECTED! Not only was the initial report mis-transcribed, check out Dick’s reaction to Gasparino’s question, “It’s KPMG I believe, correct?” around the 2:37 mark:

Pretty obvious that the dude has never heard of KPMG in his life.

The Way Things Are Going, Eventually No One Will Have to Comply with Sarbanes-Oxley Section 404

As we trudge toward a Senate vote on he financial reform bill, one issue that is of utmost interest to those in the accounting/audit biz is that of small businesses complying with Section 404(b) of Sarbanes-Oxley.

As it stands, only a small number of non-accelerated filers are voluntarily in compliance with 404. Those not jumping at the voluntarily complying with 404 have enjoyed the repeated delays by the SEC since the legislation was passed in 2002.

But if reform bill passes in its current form, all companies with market caps of less than $75 million will be exempt from complying with the requirement to have an audit of their internal control system. And even those companies that went to the trouble of voluntary compliance, might not continue doing so:

Dan Crow is one of the few small-company CFOs with an auditor’s stamp on his internal controls. Getting it wasn’t as time-consuming or as costly as it would have been several years ago, when large public companies first began complying with one of the most onerous requirements of the 2002 Sarbanes-Oxley Act, known as Section 404.

Still, Crow, who oversees finance for retailer Hastings Entertainment, doesn’t rule out dropping the extra review next year if Congress decides to permanently exempt small public companies from needing an auditor’s sign-off on their internal controls — as it seems poised to do. The Senate is expected to vote this week on the final version of the financial regulatory reform bill, which would exempt companies with market caps less than $75 million from complying with Section 404(b), the rule in question. (The House has already passed the bill.)

But that’s not all! Because 404(b) is clearly “red tape” (a popular rallying cry in an election year) that provides no benefits whatsoever and just crushes the spirit of small business (the backbone of America, we might add!) Congress has called for a study of “how the ‘burden’ of 404(b) compliance for companies with market capitalization between $75 million and $250 million could be reduced, and whether an exemption for them could increase the number of initial public offerings in the United States,” in the bill.

Christ, where does it end? Let’s just study the whole damn thing over while we’re at it. Apparently the entire Congressional body has completely ignored the benefits of Sarbanes-Oxley; never mind that costs of gone down significantly in the past eight years, making compliance less financially painful.

And not to mention that smaller companies are at greater risk for fraud and accounting manipulation. Look at the roster of companies on Sam Antar’s website and you’ll note that many of them have market caps of $1 billion or less. If these companies can’t resist the temptation to get shifty with financial reporting in order to meet (or not) the short-term focus of Wall Street, it’s difficult to reason that even smaller public companies won’t succumb to it.

To 404(b), or Not to 404(b)? [CFO]