September 24, 2022

The JDA

Are the Big 4 Desperate for Audit Work?

In the latest predatory tactic from our friends at the Big 87654, we see that the recession may not be treating them so badly. Sure, non-profit busywork isn’t exactly a good time to be had by all but it pays the bills and for the Big 4, there is no such thing as bottom of the barrel.

Take what you can get, right?


Crain’s:

The financial crisis blew up many big-name clients, leaving audit firms with excess capacity. Bear Stearns Cos., Merrill Lynch & Co., Washington Mutual Inc. and Fannie Mae disappeared from Deloitte LLP. Ernst & Young saw Lehman Bros. Holdings Inc. implode, while KPMG lost Countrywide Financial Corp. and PricewaterhouseCoopers lost Freddie Mac.

Gary Boomer, a Kansas-based accounting industry consultant, says Big Four firms sometimes are bidding less than $100 an hour for non-profit and public-sector work, down from $175 to $250 for junior auditors. “What they’re doing is buying some work to keep the staff busy,” he says.

That’s hilarious, shouldn’t we stop and think about why they allowed “the financial crisis” (you mean the unstable positions of those financial firms lost in the bloody battle?) to blow up so many of their big-name clients before we let them scavenge the scrapings for a tasty morsel of audit work?

I guess it works, it’s not like you’ve got guys in the cathedral on December 31st counting saint candles.

It could be worse. Here are some really nasty audits that the Big 4 could be doing in lieu of cheap non-profit and public sector work:

Joe Stack – Think about it, KPMG, you have some awfully tall buildings, be grateful.

Blackwater expenses – They really deserve their own audit team. It’ll keep those juniors busy, ifyaknowwhatImean.

C Street – Bonus side work helping Mark Sanford convert his dollars into Argentine pesos.

Whore yourselves out however you have to, guys, even if it means a door-to-door campaign for whatever audit work you can find.

Convergence of Accounting Rules Is Still a Pipe Dream

God forbid I go so far as to say this whole convergence thing is a conspiracy but it’s starting to reek like a bad Saturday morning cartoon plot. First the evil leaders start scamming for world domination, then they form shady alliances in darkened lairs and eventually the population gets sold into slavery until the hero comes and drops the villains in a vat of acid. Or something like that. If global financial “reform” were a Saturday morning cartoon, we’d be horribly overrun with villains and in desperate need of a hero.

Since it’s real life, all we can do is watch.


Compliance Week:

A spokesman for IASB said the two boards are expected to issue their first joint quarterly progress report very soon. A spokesman for FASB said the various project updates posted by the two boards demonstrates “quite a bit of progress” in recent months.

“We remain committed to working with IASB,” said spokesman Chris Klimek. “(We) appreciate the SEC’s leadership and additional guidance on this important matter, and like everyone, we will be studying the work plan carefully in the days ahead and discussing what it means for us.”

It’s cool! There’s a plan for convergence and here it goes: the SEC waits around for the FASB and IASB to figure out how to convert GAAP statement to IFRS without costing American companies billions ($35 million/year x companies converting = well you get it). Eventually, they might just figure this out. In the meantime, kick back and don’t get too worked up over it, the two bodies are still battling it out because of the same cultural barriers that have always stood in the way of a true marriage of FASB/IASB positions.

As Number Insights pointed out in 2007 (see how long we’ve been trying to do this? And what do we have to show for it?), a single set of principles might not be the bad part of this entire plan. GAAP is notoriously constrictive but principles-based accounting requires qualified accountants and I’m not sure our accountants are quite ready either, ignoring the costs associated. And a world without FASB? I can’t imagine it.

It doesn’t look like I’ll have to any time soon.

>75: How Long Should I Study for Each Section of the CPA Exam?

>75 received this week’s question via Twitter DM from a CPA exam candidate who wished to remain anonymous. Whatever. For those of you who prefer being open, almost crude, about your CPA exam experiences in a social atmosphere, try CPAnet’s CPA Exam Club (GC is there). This guy won’t be signing up any time soon.

Candidate halfway through the exam process asks:

“How long does it take to study for each section? Like is two months enough for FAR?”


I get this question a lot, almost too often. It’s an easy answer: that all depends on you.

The general rule (according to the AICPA) is that you should be doing 2 – 3 hours of self-study (MCQ/sims) for each hour of review lecture you watch. So there is no magic timeframe to aim for; some people take a few weeks to prepare for FAR, others need more than 3 months. Since lecture times vary depending on who you’re with, it’s hard to pin down the sweet spot in terms of weeks or months.

If you are going alone without a review course and using just practice questions, you can substitute textbook reading (like Wiley CPA Review textbooks) for lecture hours but you will probably want to count half an hour of reading as the equivalent of one hour of lecture. Sorry, that means more MCQ.

A key point to keep in mind is that studying for the CPA exam is like dieting, you’ll do better if you take it in smaller pieces. If you were trying to lose some of that audit engagement weight, you’d eat several small meals instead of three large ones. Your study plan should be the same, spending no more than 2 or 3 hours at a time plugging away at lectures or practice questions. Anything beyond 4 hours and you’re zoned out.

I know, you’re unemployed and have all this time and want to knock out FAR in three weeks studying 8 hours a day every day. Best of luck with that! You’re wasting 5 hours a day as your brain tunes out around hour 3 and will not be able to draw upon what you’ve studied once you’re actually at Prometric.

As I said, this doesn’t really answer your question because only you can answer that question. Is two months enough time for FAR? Sure. Adjust it accordingly based on whether or not you are employed, dating, engaged in any other activities, and/or have any sort of life whatsoever. Just don’t ever ask me how to study for BEC in a week again, obviously that is not enough time.

Priests Snitch on C Street Center to IRS for ‘Masquerading as a Church’

In case you’re not familiar, C Street is the destination spot for washed up, morally-tainted Republican All-Stars like South Carolina governor Mark Sanford post-Appalachain Trail (it’s called “decompression” and I suppose I’d do it too if I was hooked on an exotic South American beauty that wasn’t my wife) and Mississippi’s Chip Pickering who used the C Street facilities to entertain his mistress.

At least Sanford is classy enough to claim he was there for spiritual advice after his wife found out and started planning her book tour.


I guess we know what the C stands for (hint: it ends in “U Next Tuesday”) and there’s plenty of it running around the joint. Must be all that awesome Bible study.

WaPo:

The owners of a $1.8 million townhouse on Capitol Hill that has been home and refuge to conservative members of Congress are wrongly claiming a federal tax exemption reserved for religious establishments, 13 Ohio clergy members contend in a complaint to the Internal Revenue Service.

The clergy suspect that the C Street Center, which rents living space to lawmakers, is “an exclusive club for powerful officials . . . masquerading as a church,” according to a request for an investigation addressed to IRS Commissioner Douglas Shulman.

The questionable spirituality of C Street is nothing new but this is the first time real live priests have taken to snitching to front off the “organization”. Jim DeMint (another South Carolina Republican) defended the place (though mentioned nothing about whether or not he’d do Sanford’s mistress) saying, “We kind of make that commitment to each other to get together once a week. Sometimes it’s a Bible study; we always have a spiritual or scriptural thought. But sometimes we just talk about each others’ lives, try to get to know each other, remind each other that we are not important, that it’s just a title.”

How about lying, cheating, fake non-profit-status-having family values hypocrites? Is that just a title?

What’s up with C Street? Religious group for morally bankrupt politicians at the end of their rope seeking comfort and companionship or fundamentalist flophouse? I guess that’s for the Service to decide.

So far it doesn’t look good for our merry bunch of can’t-keep-it-in-their-pants GOPers, as DC already revoked 66% of C Street’s property tax exemption last year due to the fact that 66% of the facility was used as a residence and not a church.

Does getting on your knees count for that other 34%? Hallelujah and yay conservative family values!

SHOCKER: Accountants Have a Conservative Outlook on the Economy

Surprise, surprise! CFOs, controllers, and CPAs are only slightly skeptical about the economic outlook these days. Surely it’s not because our industry has been pounded harder than others, in fact we’ve weathered the storm better than most.

The fourth quarter AICPA-UNC Business and Industry Economic Outlook Survey sheds some light on where CPAs’ heads were at in Q4 2009:

Expectations among Certified Public Accountant executives for the U.S. economy remained pessimistic in the first quarter as the recovery proved sluggish amid signs of potential growth in manufacturing and a slightly improving outlook for organizations, according to a new nationwide survey conducted by the American Institute of Certified Public Accountants and the University of North Carolina’s Kenan-Flagler Business School.


“It is good to see signs of optimism, especially from the manufacturing sector,” said Carol Scott, CPA, AICPA vice president for business, industry and government. “Unfortunately 40 percent of our CPA members in business and industry — chief financial officers, controllers and CPA financial professionals – are now telling us that they do not expect their business to return to pre-recession levels until 2012 and beyond.”

Such a conservative bunch, those little accountants.

Interestingly enough, the latest survey shows a shift in the collective thinking of CPAs, who had shown uncharacteristic optimism in previous 2009 survey responses. What gives, guys? Know something we don’t that you’d like to share with the class? Perhaps reality has finally bit down and left a mark on a traditionally recession-proof industry.

In a recent “unscientific” straw poll of AICPA Insider readers, CPA Trendlines’ Rick Telberg shares CPAs’ top 10 concerns, not surprisingly dominated by the number one concern for accounting professionals, the economic outlook. Firms are cutting costs and slicing away the “flash”, meaning no stupid tchotchkes for you!

Will this back-to-basics approach change CPAs’ outlook for the quarters ahead or simply keep everyone afloat until things do genuinely begin to look up? If nothing else it means better service for clients and maybe a little less fear for accounting practitioners who are ultimately the ones who have to deal with any shift in the industry outlook. Clients will always be around, it’s the qualified professionals I’m a tad worried about.

We’ll let you know what happens with the next survey but are not afraid to wildly speculate that respondents will continue to pull back the optimism and stick to conservatism as usual.

Most Aren’t Ready for IFRS on the CPA Exam

Last year, the AICPA Board of Examiners made it clear that though a roadmap for IFRS adoption in US financial reporting might be a ways off, it intended to start testing IFRS in Financial Accounting and Reporting (mostly, we’ll get to that in a second) in the first window of 2011. Just a friendly reminder, that’s only three testing windows away.

But what gives? According to the 2009 KPMG-AAA Faculty Survey, only 8% of respondents felt as though at least half of their accounting faculty were qualified to teach IFRS. Meanwhile, 70% of professors said their most significant challenge to teaching IFRS was finding room for it in the curriculum.

As far as I am aware, State Boards of Accountancy have not shown a desire to require IFRS coursework to be eligible to sit for the CPA exam at this time.

The Big 87654 committed to pushing IFRS in college classrooms as early as May of 2008 (months before the SEC announced an IFRS adoption roadmap) and they are still tossing millions at the initiative.


In December of 2008, The Summa’s Professor Albrecht insisted that the Big 87654 had certainly chosen the right candidate, lobbying Obama to accomplish their IFRS goals. Why? “Obscene profits,” he says, pointing to campaign contributions and Obama’s subsequent pro-IFRS SEC Chair pick as signs that IFRS doomsday is upon us. A little over a year later, the SEC appears too busy chasing “crime” and playing catch up to issue a clear directive on IFRS in the US.

So? How can the AICPA BoE insist on testing information that A) accounting students still aren’t being taught and B) isn’t widely understood or practiced by most CPAs in the US?

I certainly get what the AICPA is trying to do and if nothing else, they probably want to show off that their awesome psychometric CPA exam technology is OMGamazing! and ready to adapt in a timely and efficient manner. But pushing IFRS on unsuspecting CPA exam candidates isn’t really the way to demonstrate that.

Is it just a coincidence that now the AICPA is prepared to reevaluate their scoring process after the first two testing windows of 2011? Even they know this is an awful idea.

Is the AICPA Lowering the Bar on the CPA Exam?

Friendly reminder: >75 is here to answer your CPA Exam questions so send them over.

Sadly, JDA is technically still employed by a CPA Review course (and, of course, not a CPA) but hey, if any of you are looking to protect the public interest, have at it.

This may just be some wild speculating here but I have to admit my first thought upon seeing this was that the AICPA is scared everyone will freak out when IFRS hits the CPA Exam on January 1, 2011 and bomb horribly. Does this mean it’ll be graded on a curve? If so, I’m starting to have some concerns about that “protecting the public interest” bit.


Lowering the bar, AICPA Board of Examiners style:

THE AICPA EXAMINATIONS TEAM IS SEEKING CPA NOMINEES TO SERVE ON CPA EXAMINATION PANELS

When the new Uniform CPA Examination is launched on January 1, 2011, changes in content, format, and structure will be introduced. These changes will require the current passing score to be re-examined. The process to do so will include convening four panels of CPAs – one for each examination section – to prepare the groundwork for the passing score decision by the AICPA Board of Examiners. A new passing score determination is necessary in conjunction with the new examination to ensure that legally defensible CPA Examination pass/fail decisions continue to be made in protection of the public interest.

Panel Nominees

The AICPA is seeking nominations for passing score panel membership. Nominees should be CPAs who:

• have been licensed for between 3 and 5 years
• have supervised entry-level CPAs during the past year
• have NO affiliation with CPA Examination review courses, and
• are willing to participate in an August 2010 two-day meeting in Chicago, IL at the expense of the AICPA.

The selection of panelists from among qualified nominees will be made to ensure broad representation from all segments of the profession and demographic categories. Panelists will be given training at the August meetings on their responsibilities as panel participants.

Submitting Nominations

Nominations may be submitted online at http://vovici.com/wsb.dll/s/4e5ag3f124 or the forms completed and returned by FAX to 609-671-2922. Or, the names and contact information of nominees may be sent by e-mail to [email protected] The information collected about nominees will be used only for the purpose of selecting panel participants.

The deadline for submitting nominations is MARCH 31, 2010.

Like I said, JDA is out; any of you kids in on this?

Bernanke: Bailouts ‘Imposed No Cost on the Taxpayer’

Ben Bernanke claims there is “no net impact” to U.S. taxpayers involved in bailing out the TBTF banks, state unemployment funds, car companies, insurance companies, GSEs; need I continue? You know the list by now.

The impact in question comes from the size of the Fed’s swollen balance sheet, surely you are familiar with the number by now. I don’t have to remind you little beancounters that the Fed writes its own accounting manual, so take that “balance sheet” for what it is worth.

“These programs, which imposed no cost on the taxpayer, were a critical part of the government’s efforts to stabilize the financial system and restart the flow of credit,” said Bernanke in prepared remarks to the House Financial Services Committee. Not even a snow day could keep him from this one.


Have you ever seen a “company” drastically reduce the size of its balance sheet? Me neither. Next.

The indirect “net impact” of all of this, of course, is a drag on unemployment. While on a federal level, inflation will have to run hot enough to cover a growing deficit, bankrupt municipalities and states are bleeding businesses and residents dry. So who will be financing the Fed’s unloading of assets? It is unlikely to be the extinct “middle class”.

As many of you already know, CPA Trendlines tracks accounting unemployment numbers regularly. I know some of you are prone to stick to what we did last year but last year didn’t work and we’re about due for some sort of revolt. The BLS revisions represent a significant material deficiency in what we’re being told versus what is actually happening; you kids wouldn’t eat up the layoff posts if it didn’t exist.

So there is Bernanke’s net impact. Need I continue?

Unemployment taxes are up for those who can still afford a workforce. Encouraging.

Though not measurable in the same way as tax increases and wild inflation, the regulatory impact is also one worth recognizing. How many bad rules will result? I don’t do the math part, sorry. Let’s just sit around and let the rest of the world dictate how we can rebuild the integrity of our financial statements (?)

I’m not sure what “net impact” meant in economics class to our esteemed Fed Chairman but where I come from, bailout measures do appear to have a net impact on taxpayers, whether or not it’s actually called tax. I’m sure some tax accountants can agree with me on that?

Hallelujah! Church Accounting Miracles!

I had no idea how much a minister can make but now I do. Wait a minute, this just tells me how to bypass Service rules by writing checks in the church’s name. I might totally be in the wrong line of work.

Free Church Accounting (I’m not kidding) brings us a question from “Sharon” of Corsicana, Texas:

How much money does a minister have to make in order for money to be reported?

I started my church back up after 12 years vacancy. I do not have very many members. Right now we are 3 active members and other people stop in from time to time. I do not actually receive money. Since the church is striving I use the money to pay the light bill, get the grass moved.


Answer:

According to the IRS website, “Earnings of $400 or more are subject to self-employment taxes.” (that includes qualifying ministers)

If you are a church employee, income of $108.28 or more is subject to SE tax.

It would be better for you, if you opened a checking account in the church’s name and paid expenses out of it. If that’s not possible, just make sure and keep all of the receipts that show where the church funds are going.

Fascinating! I took the preliminary “Are You a Tax-Exempt Church” quiz on their website and failed miserably so I guess I’d make an awful 501(c)(3) but that’s probably for the best.

There are ways to fail at this of course, like the Spokane, WA priest who couldn’t keep his arms and legs (and other parts) inside of the vehicle at all times, financial mismanagement in the University of North Carolina system, and JDA favorite the University of Colorado’s wild credit card user with horrible hair.

I would never imply that more regulation is the answer; I’m merely pointing out that there’s a bit of work to be done in identifying non-profit fraud. Seriously, how can one detect fraud when the core basis of fund accounting is an imbalance between “expenses” and expenditures?

The Church of Jr Deputy Accountant Scientist? I’m down.

>75: What to Do Two Weeks Before Your Exam

Happy Friday CPA Exam munchkins! For the self-loathing types that are going through busy season and sitting for an exam, let’s discuss what you should be doing in the two weeks before your exam, not how to quit your job (not my line of expertise).

At this point, you should be through lecture videos and homework at least once. Really? You have two weeks left! If you’ve been disciplined up to this point, you’re feeling comfortable with most of the MCQ.

A final review at this point is essential. You have enough time to go back over weak areas and give everything a last look over. If you have software or your firm blew a bunch of money on overpriced programs to do this for you, use it. If you’re going with just a book, take a look at questions you’ve gotten wrong more than once and review those areas in the text.


Though we all know it’s illegal to discuss what’s actually on the exam, there are plenty of blogs and forums that share “commonly tested” items, many of which are updated often. The CPANet forums are a perfect example of candidates openly sharing their experiences and identifying common testing patterns. The AICPA Board of Examiners used to give paper and pencil candidates a COPY of their exam as they left so don’t let partners tell you it was way more rough back in their day. Still, there are channels available; it’s up to the candidate to use them.

The BoE has also committed to faster scoring and a continued evolution of exam content. They do not expressly state what that means for candidates, that’s why it’s important to ask questions and know about changes. The only real signals they’ve sent so far are that they are excited to start testing IFRS years before it is implemented in the US and the computerized exam is due for more changes in the years ahead. And? Get it over with now, whether or not BEC will be easier with communications but an extra half an hour.

Anyway, the last week. It’s your last chance to review weak spots and work through practice questions once more. I know you’re pissed at me for not writing “now you can screw off and play PS3 after 16 hours of work” but that’s not really how it works.

At this point, you shouldn’t expect to feel entirely confident and that’s okay; focus only on the last few, most heavily-tested areas. You should already know what these are, if they don’t, put off your exam and start asking questions or reading textbooks. Most CPA Review programs (even the cheap ones) give you some idea of what these areas are.

Hope that helps. On the next >75, we’ll talk about what “simulataneous IFRS implementation” really means for FAR unless you have a CPA exam question, in which case I’ll save my anti-IFRS rant for a different Friday.

New Obama Proposal Would Invest $30 Billion TARP Funds in Small Banks

One can only postulate that since there was no room in President Obama’s bloated 2010 budget for small business initiatives, he instead chose to apply some TARP money that’s just lying around to get small business working again. I wish Mr President the best of luck on that plan as he’ll be needing it.

WSJ:

President Barack Obama proposed a $30 billion small business lending program Tuesday, the latest in a series of administration efforts to jump-start hiring by the nation’s small businesses.

The program, which Mr. Obama detailed at an appearance in Nashua, N.H., would invest $30 billion from the government’s Troubled Asset Relief Program in community banks to encourage them to lend to small businesses. If approved by Congress, the program would incentivize small and midsize banks to provide loans valued at several times that figure.


Didn’t we invest $700 billion in the Too Big to Fail banks for this same purpose? Not that it matters, we’ll try it again with the hopes that community banks will be able to accomplish what TBTF couldn’t.

A proactive sort of administration, White House officials were already prepared to counter the argument that TARP was never intended as a general piggy bank for funding the administration’s whims:

“The law is very clear: The monies recouped from the TARP shall be paid into the general fund of the Treasury for the reduction of the public debt. It’s not for a piggy bank,” [Sen. Judd] Gregg said.

[White House Budget Director Peter] Orszag said new legislation would be required to create the new small-business plan. He said the cost of the plan would depend on the subsidy rate of new activity and wouldn’t amount to a net cost, in terms of the deficit, of $30 billion.

Considering that he’s referring to a deficit of $3.8 trillion, I guess $30 billion isn’t really anything to get stressed out about after all.

Meanwhile, can community banks counter the continued deterioration of commercial real estate weighing on their balance sheets? I guess we’ll have to wait it out and see.

How to Charge the Client: Killing the Billable Hour with VeraSage’s Ron Baker

I’ve long wanted to track down VeraSage’s Ron Baker and pick his brilliant brain; at last, JDA had the opportunity to steal a few minutes with the man credited for killing the billable hour.

In his 15-some years crusading against the ridiculous measurement of “time” as a performance gauge, Ron has made quite a few steps in the right direction. Seven to ten percent of 90,000 firms have moved away from time sheets and toward “value pricing”, with 1,000 or so firms eliminating the billable hour completely. While he admits it’ll be a cold day in hell when the Big 4 follow suit, he’s encouraged by the momentum.


“There is a change and it is coming from customers,” he says, “[unfortunately] the billable hour has survived many recessions.” The rigid “that’s how it’s always been” structure of public accounting, specifically, doesn’t seem to be taking the idea well. “They’d rather be precisely wrong than approximately right,” he says of major accounting firms trapped in the billable hour vice.

Encouraging value pricing in pay structures is a slow process, he says, equating the movement to that of Germ Theory in the 1800s. It was hundreds of years from the time “contact contagion” was theorized to the time it was generally accepted in medicine and eliminating the antiquated pricing structure of employee incentive won’t go down without a fight either.

Billed as “a think tank dedicated to promulgating and teaching Value Pricing, Customer Economics, and Human Capital Development to professionals and businesses around the world,” VeriSage seeks not to revolutionize business but improve it.

“You don’t let your surgeons pierce ears,” says Baker, meaning value pricing implies a company’s best soldiers will be dispatched to serve their respective battalions. In simpler terms, employees are paid results, not for how long they’re sitting in a chair. And in an uncertain economic environment, aren’t results what matter above all else? I’m not sure it could be much simpler.

Baker knows he’s got his work cut out for him but yours truly is 100% behind the idea. As a person who can tear up in one hour what five people can’t even accomplish in two, I get it. Boy do I get it.

Lucky for those who choose to accept what Ron is selling, he’s also a brilliant business mind. Knowing that Michelle Golden may have potentially criticized his website, he chose instead to hire her as a consultant. Genius! (Disclaimer: JDA loves Michelle Golden and isn’t just saying that because she doesn’t want to get torn up on her website – her “Accounting Blog list” is the most comprehensive I’ve ever seen.) She sits on their Board so she gets it. Excellent!

Want more JDA? Check out all of her posts for Going Concern here.

Bernanke’s Next Four Years

We’re skipping >75 this week because apparently none of you have any CPA exam questions. That’s sad. Really? None? Well if you do, send them over. Please. JDA needs to eat.

Anyway, let’s talk about Bernanke’s confirmation!

WSJ:

Ben Bernanke won the backing of the Senate for a second four-year term as chairman of the Federal Reserve by a comfortable margin Thursday. Even with that storm behind him, Mr. Bernanke faces formidable political and economic challenges made tougher by the bruising confirmation fight.

Yeah, ok, let’s ignore the fact that the Fed spent the last week buttering up everyone they could to get to push Bernanke through. WSJ made it really easy with a chart of Senators who were going to vote for him, who weren’t, and who were undecided. It was a fucking Fed Telethon trying to save Bernanke’s ass and with a 70-30 vote, apparently they won.


Dallas Fed President Richard Fisher wrote in the WSJ that Congress is Politicizing the Fed but Market Ticker argued that The Fed is Politicizing the Fed. What do you call making a last ditch effort to convince undecided Senators to keep the Bernanke crack flowing? That’s not necessarily the Fed getting political, it’s just them trying to save their own asses.

I’m not going to rant about Zimbabwe Ben and his mission to destroy the dollar. In some ways, I’m glad this thing is over with and Bernanke is the least of all evils (Larry Summers for one) but it’s funny that markets reacted as they did when Bernanke’s confirmation was “up in the air” (LOL, we all knew what would happen).

I would hate to go all conspiratorial and throw out “manipulation” as the culprit, nor can I pretend to know what charts mean.

Don’t miss The Bernanke Confirmation: Incompetence, Indifference and Institutional Inertia via Huffington Post.

DealBook:

The Senate voted 70 to 30 on Thursday afternoon to confirm Ben S. Bernanke as chairman of the Federal Reserve for another four years, Sewell Chan of The New York Times reports from Washington. The confirmation came minutes after senators voted 77 to 23 to end a debate in which critics excoriated the central bank’s handling of the financial crisis.

The confirmation was a victory for President Obama, who had called Mr. Bernanke a critical leader in the nation’s recovery from recession, but the rancor in the debate also signaled the extent to which the Fed, once little known to the public, has become the object of populist anger over high unemployment and bank bailouts.

Grrrrr.

Jr Deputy Accountant and Michael Panzner Discuss 2010 Part II: The Impotent Fed; An Election Year; Waiting for the Recovery

Thumbnail image for Thumbnail image for Thumbnail image for angry bear.jpgIn case you missed part one of JDA’s 2010 Outlook interview with Financial Armageddon’s Michael Panzner, you can find it on Going Concern here.
For the first half of my 2010 talk with Panzner, I focused on the other shoes left to drop; commercial real estate, political backlash, and the threat of the massive bubble still being inflated in China. But even bears have their bright sides and Panzner is no different. So what do we have to look forward to this year? Oh crap, more doom and gloom; sorry, I got my interviews mixed up.


Panzner points to our leaders’ missteps throughout the crisis as a major factor that could place a damper on any hope of recovery. “Many of the problems and imbalances that helped about the crisis have gotten worse,” he says, “That means people have less in reserve than they did before, and many have not positioned themselves for a ‘new normal.’ That suggests the next leg down, economically speaking at least, could be much worse than what we’ve experienced so far.” If only we’d been prepared for the worst instead of coddled into believing everything is better, eh?
When asked to take a guess as to when the Fed would finally raise interest rates, Panzner gave an interesting answer. “In my view, the Fed is no longer in control – of the economy or its destiny. For the most part, market and other forces, not the FOMC, will determine what happens to interest rates in future.” So I guess it doesn’t matter when they’ll raise rates, markets are no longer listening. Or are they?
A big picture sort of guy, Panzner identifies sociopolitical threats as another major concern this year, and with this being an election year (hello, Scott Brown anyone?), I’m willing to go on the record as agreeing wholeheartedly with him (shock). “Wait and see what happens to the social and political mood if and when the economy rolls over,” he says ominously.
Oh, believe me, JDA is waiting. And waiting. And waiting. Still no rollover but dammit, I’ll still be here twiddling my thumbs.
Hopefully I’ll get a chance to check in with Panzner again come summer to see where we are.
Editor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.

Regulatory Agencies’ Final Word on FAS 166/167

rules_1668_1668.gifThe Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of Thrift Supervision released their long-awaited final word on new rules for securitized assets, specifically for bank balance sheets:

The federal banking and thrift regulatory agencies today announced the final risk-based capital rule related to the Financial Accounting Standards Board’s adoption of Statements of Financial Accounting Standards Nos. 166 and 167. These new accounting standards make substantive changes to how banking organizations account for many items, including securitized assets, that had been previously excluded from these organizations’ balance sheets.

What does this mean for banks? In simple terms, they’re no longer going to be allowed to hide massive amounts of SPEs and derivative exposure off their balance sheets. Hit the deck!

Banking organizations affected by the new accounting standards generally will be subject to higher risk-based regulatory capital requirements. The rule better aligns risk-based capital requirements with the actual risks of certain exposures. It also provides an optional phase-in for four quarters of the impact on risk-weighted assets and tier 2 capital resulting from a banking organization’s implementation of the new accounting standards.

In case your ass has been under a rock for the last year, FASB came after banks’ asses over the summer. Miraculously, the Fed encouraged this switch, leading me to believe they’re just trying to cover their tracks.
Quadruple Whammy: Regulatory Agencies’ Final Rule on FAS 166/167 [JDA]
See also:
FASB Changes, Toxic Asset Shuffle

The JDA and Michael Panzner Discuss the Year Ahead

Thumbnail image for 2010.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
The last time I spoke to Financial Armageddon’s Michael Panzner for Going Concern, it was about how to prepare for the worst (while not necessarily hopinin September of last year. This time around, it’s the beginning of the year so even though I’m late, it’s time to discuss the 2010 outlook.
Panzner can also be found writing at
When Giants Fall and Huffington Post and if you don’t know his bio, it’s here.
First of all, before we could get to anything I had to have him explain his strong dollar policy again:
“There are a number of reasons why I expect a technical rally in the dollar even though my long-term view remains quite negative,” he said, “The fact is that even if the fundamental outlook is poor, prices can still rise in the short run if too many people — speculators and investors — are short or if other factors temporarily gain in importance.”
This explains why he seemed spooked by recent market behaviors, like everything from March 2009 on. You know, when things started getting wonky. Panzner is a classy bastard so he’s not about to make conspiratorial statements about the behavior of markets but let’s just say his feeling is that they’re performing less rationally these days. No shit. Might be all that fishy stuff going on but who am I to speculate?


He points to massive speculation and gigantic stockpiling in commodities, specifically oil. Gee, wonder who is behind that. He recognizes that China is at least attempting to clamp down on speculation.
He also admits to having underestimated how people will behave with free money. I find that statement incredible; didn’t we see the houses, big screens, and Hummers? It was obvious at the time and it feels obvious now. “Last time they speculated like there was no tomorrow, they were worried tomorrow would never come,” he says. Again, this from the man who brought us Financial Armageddon.
Interestingly, Panzner says if he could do the book over, he would have better predicted the contagious nature of the financial crisis. It scared the shit out of me when I read it for the first time in 2008. It didn’t seem sluggish at all the way he’d imagined it. In fact, I’ve been waiting for the bottom to drop out for months now after seeing how he painted it.
As far as threats go, he pretty much agrees with most of what I identify as the largest (the Fed’s dumb behavior, sociopolitical pressures, blahblahblah) and adds a few. He’s with most of us who feel CRE still has to drop, which places additional pressure on smaller banks. There are also the usual suspects; conflicts in the Middle East putting pressure on energy markets and municipal debt problems. Birmingham, Alabama is not an isolated incident, in other words.
I know Caleb gets pissed when I write too much so I think we’re good on the economic outlook for now, lest he come flame me as Guest. Whatever. Back with Part 2 on Monday: What comes after?

The Big “Regulation” Joke

laughing.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
In an uncharacteristic move by one of our favorite accounting professors, Prof Albrecht went off on regulation over at The Summa yesterday and personally, JDA was stoked.
The Economic and Regulatory Shadow is recommended in its entirety but here’s a juicy tidbit for you to suck on:

It is frustrating to be an accounting professor and to live in the United States of America. A mind set that triumphs the interests of corporations and auditors over those of investors is entrenched in the regulatory shadow. Consequently, any policies that might favor populist policies have little chance of success.


The federal government’s financial and economic regulatory apparatus is comprised of the Treasury Department (Treasury), the Federal Reserve (Fed), and the Securities and Exchange Commission (SEC). The top positions are political appointees, but the bulk of the work is performed by career and long-term personnel. It is a lot like the situation at the State Department (State), Department of Defense (DoD), and the National Security Agency (NSA).

Know what’s really funny about Professor Albrecht’s timing? The Fed is facing this same regulatory dilemma, even if major financial bloggers missed the point over the weekend. Sure, they care about the spectre of an audit but mostly right now they don’t want the President being the one who puts regional Fed presidents in their positions. I don’t blame them for tripping on that.
So? Our dear Professor has gone out on one hell of a limb here, nearly unheard of when it comes to accounting professionals. The glossy marketing materials CPAs outnumber those who keep it real like Francine, Dennis, Skeptical CPA, and now Professor Albrecht but we’re making progress (he did always get the IFRS thing so this isn’t really all that surprising of a position).
I’m constantly thrilled to see outrage. Maybe that’s because I’m a shit-disturber but I think it is about time the industry get worked into a lather over perceived imbalances in the very regulatory system that we have to tip-toe around. All that tedious stuff you little CPAs do each and every day? It means nothing without the backbone of a regulatory system and as Professor Albrecht so astutely points out, we are sort of lacking in that department these days.
And? WTF are we supposed to do about that? Heads down and keep ticking and tying, kids, there’s not much else to do at this point.

>75: That Time of Year Again: Balancing the Exam and Busy Season

Help!.jpgEditor’s note: This is the latest edition of >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to [email protected] and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
Do you have a CPA exam question for >75? Send it in. I’ll be nice I swear. Possibly useful.
So it’s January and some of you are heading into a rough couple of months. With the 18 month clock ticking on the CPA exam, you don’t really have any options but to fight through it. Or argue with people on the Internet. Maybe that’s why you don’t have enough time to study?
Anyway. It’s not easy but remember it is also temporary so as long as you suffer through it a bit (oh please, is it really that bad?), it’s possible. Here are some things I’ve seen work:
Talking to management and partners – I know. You’re going to laugh me out of here (“wtf version of JDA is this?”) but stick with me. Have you asked? I’m not saying this is always a successful method but it can never hurt to ask or let management know you’re taking the CPA exam. Especially if you work in a smaller firm, just talk to someone above you with some pull. I’ve seen it so I know it isn’t impossible.


Cutting out the extraneous crap – You know exactly what I mean. Time management for studying is a lot like budgeting for chronic spenders. I used to burn through paychecks until I actually printed out three months worth of debit and ATM charges and saw how I was $2 and $7 and $14ing my way to $0 in no time. In much the same way, you have to figure out where you are spending your time in a week (or a day if that works better for you). Things that take “a few minutes” (Facebook anyone?) add up so count them.
Not doing too much – One exam is enough if you really are swamped. It’s fine. Just don’t let post April 15th suddenly turn into late August because you were “so wiped out” from busy season. Take a realistic break but don’t get too detached from your goal.
What works for you to get through busy season and the exam? And don’t say trolling accounting websites trying to pick Internet fights.
Good luck? As always, it has nothing to do with circumstance, it’s just discipline.

The FDIC’s New “Risk-Based” Fee Policy. Or, Alternatively, “F&%k You, Pay Me; Banker Edition”

Uncle Sam.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
Listen, we know the FDIC is broke, there’s no use pretending they aren’t. But apparently we’re going to keep doing it so let’s stop for a moment and analyze the FDIC’s latest crackpot scheme to keep bad banks afloat and their balance in the black, shall we?
The summation up to now — for those of you with short attention spans — is that the FDIC is looking to tax banks’ asses based on the risks they take. On the surface that doesn’t sound like a bad idea until you consider the fact that the FDIC, by its very nature as a “safety net”, encourages the exact behavior they’re looking to “penalize”. Keeping in mind also that the Obama administration is coming down on banks from the other end with some tax scheme, it makes you wonder why the hell we bailed them out in the first place.


Blame the academics and these brainiacs in Washington who believe there’s nothing wrong with the fundamental framework of American banking, least of all that any of it could possibly be attributed to the attitude that Uncle Sam will always come to banks’ rescue. Here’s hoping the bankers paid attention in Econ 101 when they went over that whole “no such thing as a free lunch” part.
UPI:

FDIC Chairman Sheila Bair said there was “a broad consensus of academic studies,” that concluded “poorly designed compensation structures can misalign incentives and induce risk taking.”
Bair said called a study of “compensation structure, rather than levels of compensation,” a fair approach.

Maybe I just don’t have the auditor mind needed to wrap around a concept like this but WTF is that supposed to mean?! The FDIC epitomizes moral hazard so how in the hell is it that the FDIC is the one coming in to tap banks to cover said risks? I’m not rationalizing banks’ behavior (I remind dear reader here that the top 5 banks in America hold $275 trillion in notional derivative exposure) but, uh, just because Sheila needs to cover the next round of failed banks doesn’t make it appropriate to start regulating now.
Has she ever heard of too little too late? How about too much too late?
As I have already pointed out, we all know who is going to ultimately pay for this and it sure as hell isn’t the banks. Bend over, the next round is about to hit and it’ll hurt less if you’re prepared.

Double-dipping the Economic “Recovery”

Thumbnail image for tax man.jpgIn case you haven’t heard, it’s go time for the Obama administration to cover its continually-growing deficit with no sign of increased foreign investor demand for unstable and uncertain US debt. What happened to passing a health care overhaul before Christmas? And what about those 140 failed banks in 2009? And hey! What became of that $700 billion in stimulus money that was supposed to save and create bazillions of jobs?
Here’s the solution. Tax their asses.
NYT:

President Obama will try to recoup for taxpayers as much as $120 billion of the money spent to bail out the financial system, most likely through a tax on large banks, administration and Congressional officials said Monday.


In a desperate scramble to come up for cash, the administration has thrown out a couple of unpopular ideas (unpopular if you’re a banker, of course) including excessive taxes on bonuses and bizarre financial transaction taxes. Like squeezing blood from turnips, apparently these guys forget that it was less than a year and a half ago that Hank Paulson appeared on the Hill threatening full-on financial doomsday were TARP not instituted rightf*ckingnow. So much for pulling out the bazooka in his pocket.
And let us not forget that shit rolls down hill. Who do you think would ultimately be responsible for these additional monies? The banks or the idiot customers who continue to shovel out ever-increasing fees to said banks? Exactly.

Lobbyists for bankers, taken by surprise, immediately objected to any new tax. They said financial institutions had been repaying their portion of the bailout money in full, with interest. Losses from the $700 billion bailout fund — estimated to run as high as $120 billion — are expected to come from the automobile companies and their finance arms, the insurance giant American International Group and programs to avert home foreclosures, and the president is aiming to recoup that money.

I really, really hate to side with the bankers here but they are absolutely right. If retribution for the financial crisis is our goal, taxing them to death isn’t the way to achieve that. If paying our government’s bills is the goal, however, I could see how this could easily be spun into populist payback for the pain and suffering of the last 2 years.
Hate to break it to you, America, but any money potentially recouped by this genius scheme has already been spent and certainly wouldn’t result in any long term benefit to us as a country. I’d use the pay day loan analogy again but hell, isn’t it played out by now?

>75: Procrastination

Procrastinate.jpgEditor’s note: This is the latest edition of >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to [email protected] and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
First of all, I have to give it to all of you little future CPAs of America, you REALLY know how to put things off until the last minute, don’t you?
I’m going to let you in on a tiny little secret: the exam never goes away.
Let me paint an “imaginary” scenario where CPA Review classes are starting in less than 48 hours. Classes have been on hold for over two months and suddenly, within this 48 hour period, there is a rush of panicked CPA exam candidates realizing they’ve got less than a day left to figure out a plan. Anyone else see what’s wrong with this picture?
I’m not talking about a handful of people, I’m talking about a significant chunk of you. You know who you are and you know exactly what I’m talking about.


So what is it? Do you believe that the exam will pass itself? Or if you put it off long enough somehow you’ll wake up one day a CPA? I hate to break it to you but that’s really moronic.
There are students in our classes that are 50-some years old. Think about that. They graduated 30 years ago and are STILL putting this stupid ass exam off. So don’t think you’re some hero of procrastination just because you let 18 months go by and started losing exam scores, you aren’t special.
The bottom line is this: it is all about what you want to do with your life. Do you really want to be a CPA? Then you’ll suck it up and finish. Don’t do it because your parents want it or your girlfriend wants it or it’s your grandma’s dying wish. You are only setting yourself up for a life of half-assed failure, misery, and disappointment.
Which is kind of like what you’re setting yourself up for with a CPA and a career in public accounting except + tchotchkes. Win* (I think).
Point is, stop. In the time it takes for you to come up with 1000 excuses, you could have already booked your exam and gotten through at least 150 MCQ. Yes, it sucks but guess what? You picked it. You can make it worse on yourself and be that 50 year old guy in the back of our Live class or you can just get through it and stop bitching.
/end rant. Do it.
*I’m obligated to say that because of my day job

The Fed on Glass-Steagall; Me on STFU, Fed Boys, We Got This

Thumbnail image for Solutions.jpgKansas City Federal Reserve President Thomas Hoenig is a voting member of the FOMC this year and apparently he got my note.
He is charging into the year as a cheerleader of long-dead regulation and ending TBTF. This is a song and dance we’ve seen from the Fed about a bazillion times now. Just because regulation is my shit doesn’t mean I’m entertained in the least by this.


WSJ:

A top U.S. Federal Reserve official said Tuesday it’s necessary to consider how banks considered too big to fail can be broken up so they no longer pose a systemic risk to the U.S. economy.
“Beginning to break them, to dismember them, is a fair thing to consider,” Federal Reserve Bank of Kansas City President Thomas Hoenig told a panel at the annual meeting of the American Economics Association.

Well if insisting too big to fail is too big to continue isn’t enough, maybe Hoenig’s declaration of “bring back Glass-Steagall!” will make the panties drop?
Nope.

“We’ve got to start somewhere — and size matters,” Hoening said, calling for rules to address the problem that are simple and easy to enforce.
“We’ve got to strike while the iron is hot … but we must also do it right,” Hoenig said, adding there was a “chance” that new rules could be passed this year.

I’m going to go ahead and resist the easy joke here.
So? Should commercial banking and investment banking once again be absolutely distinct from each other?
I think if we’ve learned anything from this crisis it’s that the lines are blurred; accountants should know finance, finance professionals should know accounting and Christ, no one let the quants near the securitization models again. I have seen a noticeable increase in bankers, CFOs, etc pursuing CPA licensure since 2007. I can’t tell you numbers (if I did I’d be making them up) but a lot more of them call and the line is no longer as definitive as it was.
Our rules need to change. It’s not that we should bring back Glass-Steagall, it’s that two new guys need to write one hell of a regulatory bill that redefines our financial system as we know it and slap their names on it.
The financial system we’ve got sucks and if we don’t do that, Fed guys like this will keep yammering on about interest rates they never plan to raise and popping future bubbles.

Apparently the Fed Needs More Money

Thumbnail image for PiggyBank_broken.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
I know, the headline stunned me when I read it the first time too. First via James Turk, I had to stop and look at that for a second. Don’t they make it? How could they possibly need it?
Initially, the Fed called this proposed deposit facility a component of its “exit strategy” (the existence of which, much like Sasquatch, is still up for debate), insisting that by creating an interest-bearing drain for banks’ funds held at the Fed, it could clear out some of the money sloshing around in the system.


Although they also believe asset sales to be an option, I’m still not sure who the hell they are expecting to buy these bonds (unless they’re willing to take a loss, and knowing the Fed that’s not too likely) so stay tuned.
I believed this whole interest-bearing deposit facility nonsense was really just a Bad Bank for Dirty Fed money but it’s actually the Fed begging for deposits, so I guess I was wrong. But why, then, would they paint this as an exit strategy?
From the Turk piece:

The US government needs ‘deposit currency’ – or ‘electronic’ currency, to put it into Mr. Bernanke’s terms – so that it can pay its bills by check or wire transfer. Payment for goods and services by deposit currency are made through the banking system, and nearly all commerce in the United States is conducted in this way. So where will the Federal Reserve get enough deposit currency to enable it to continue purchasing US government debt?

In 2008, “public debt” was considered to be $9.9 trillion dollars or 70.2% of GDP. By 2009, that number had ballooned to over $12.9 trillion dollars, nearly 91% of GDP. Even more disconcerting? This is using governmental accounting rules which — as any of you who have ever worked in government can attest to — don’t necessarily coincide with GAAP logic.
Let’s not forget that a large chunk of this debt is owed to the Fed itself (for some reason) perhaps because inflation isn’t bad enough and we somehow should pay them more for the convenience of having printed money and payment systems.
I’m not 100% on what’s going on here but it’s beginning to look awfully suspicious.

How Bad Unemployment Is Guaranteed to Get Worse

Flush_hope.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
I try most of the time not to jerk myself off but this is important and worth paying attention to. Until the grand money laundering scheme is finally put out of commission, economic “recovery” will continue to drag, unemployment will continue to rise and credit will remain tight.
So check out “How a Jobless ‘Recovery’ Costs You… Quietly” for more on the plan to print our way out of this mess. Sort of like Enron after Ken Lay’s convenient death, it’s obvious what’s been going on once you realize the details are painfully simple.
Anyway, the strategy moving forward into 2010 will be one of cautious optimism. Hell, calling it optimism is pushing it.


Business Week (Why This Business Owner Isn’t Hiring in 2010):

Right now the Administration is proposing income taxes that are still equivalent to the rates during the Clinton era. I’m not sure how long this is going to last before the rates start going up. And I’m reading that many states are quietly raising their unemployment taxes. Some experts are estimating that state unemployment taxes could double or even triple in the next year or two. Is an increase in the Federal Unemployment Tax rate on the horizon? One expert thinks so.

Read that again just to make sure it sinks in. Increased unemployment taxes is bad enough a phrase on its own but add the words “double” and “triple” and suddenly you see small business walking blindly into the train tunnel with the 5p Bridge and Tunnel Express coming straight for it.
AccountingWeb reported the potential increase on December 17:

States that have borrowed money from the federal government under the Federal Unemployment Trust Act (FUTA) to cover their current obligations will need to pay this money back with interest.
According to the Journal of State Taxation, at least 12 states, including Michigan, Texas, and Virginia, with depleted trust fund balances had borrowed from the federal government under FUTA provisions of by the end of the summer, and others are expected to follow suit. States that accepted interest-free loans offered under ARRA (the Stimulus Act) will need to pay interest on these loans after two years.

There’s probably some really offensive translation of the FUTA acronym I’m missing here but frankly I’m just tired of having to report on this depressing shit. Looks like another exciting year ahead! Yay!

Pleasing the Accountants, Road Trip Style

Receipts.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
NYT had a piece yesterday called “Paying With Plastic to Please the Accountants” and I have to admit at first glance, the title annoyed the shit out of me. The accountants don’t care what you use when expensing your stupid airport Starbucks and car rentals, all they want is to be left alone to decode your receipts in peace. At least mine does.
But it isn’t just the accountants. Apparently your expenses are of extra importance to the IRS – though we’ll save the wild speculation that might dictate Timmy the Tax Cheat is just really hard up for some revenues (especially after that $38 billion tax break he gave Citigroup without anyone’s permission).

The I.R.S. is engaged in an initiative to audit tax returns of about 6,000 companies, partly to look at executive fringe benefits, including travel-expense procedures. This takes place as companies are already struggling to get a better handle on overall travel and entertainment management, especially as business travel picks up in a still shaky economic environment.

The article goes on to talk about extra airline fees (I won’t bitch about the $40 I just had to pay to check a suitcase on a recent Chicago trip) and makes expense reports sound like financial statements. The IRS apparently doesn’t care about receipts for charges under $75 while most companies use $25 as their receipt required limit. Is a $4 airport latté material? Maybe not. Are 25 dinners between $20 and $24? You bet your sweet little bean-counting ass.
I will go ahead and state the obvious here because sometimes I feel like you rubes need a BIG SIGN: in this economy, companies can no longer afford the jetsetting of yore, and why the hell should they? With video conferencing, email, mobile productivity and social networking helping to bring an entirely new meaning to collaboration, all of that cross country crap is no longer as critical as it once was. And so go the $4 airport lattés and bad $15 dinner tabs with it.
So remember, kids, keep your receipts, Timmy might want to run some substantive tests on your company rental cars and client dinners on the road. God forbid he not get a piece.

UK Financial Reporting Watchdog: ‘We don’t need no Big 5’

Solutions.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
Once upon a time, there were 8. And then 7. And then 6. And then 5. And now 4. I’ve thrown out the idea of a large audit failure sending one of the Big 4 tumbling but the idea has been met with resistance; and naturally so, they’ve survived this long, right?


Accountancy Age:

Stephen Haddrill, the new Financial Reporting Council chief executive, in his first interview since taking the post, said there was little chance a global challenge to the Big Four – PricewaterhouseCoopers, Ernst & Young, Deloitte and KPMG – would emerge in the near future.
“I don’t think it is achievable in the near term and the priority for us has to be that we are prepared for the worst and that is where I will put my focus,” he said.

To read the rest of Haddrill’s interview with Accountacy Age, one might be inclined to point out that the guy is only a little bit pessimistic and for good reason. The Big 4 cannot exist indefinitely as they have, deflecting fines each time they bumble a big audit. It isn’t a problem exclusive to the UK and in fact, the Big 4 might not realize it but they are fighting the battle to save American capitalism. To that end, sacrifices may be required in the name of “competition”, whether or not the Big 4 are ready to embrace the idea.
They call them the Final Four because it is widely believed that the large accounting firms cannot lose another player but what’s to stop regulators — either Internationally or here at home — from busting down the joint and shutting one down? Anyone forgotten Satyam?
The firms — clever Trevors that they are — already know regulators are on their asses and behave accordingly. Crossing their Ts and dotting their Is, it was incredibly easy for PwC to say “Satyam wasn’t our problem” here in the states just as they’d have done if it had gone down in the UK, Dubai, China… it doesn’t matter, that’s what the lawyers get paid for.
Anyone get the feeling we’ve got a problem on our hands or is that just me? “Preparing for the worst” eh? Sounds like a plan.

>75: Seriously. Enough with the “Am I Outdated?”

Thumbnail image for ben bankes at the NYC marathon.jpgEditor’s note: Welcome to a special Wednesday edition of >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to [email protected] and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
Enough with this question, I’m going to start emailing students this article directly.
First of all, if you don’t send me questions, I can’t answer them. No question is too stupid, trust me, I’ve been in CPA Review for almost 3 years. They don’t tell you kids shit about the exam in college, better to ask than listen to some guy you work with (he’s wrong 87% of the time – or so I have calculated from professional experience via our students). So send them in. I’ll try to be nice and at least sort of useful.


That being said, I keep getting the question at work about materials. 2010 materials. Updates to 2009 materials. Being the most up-to-date in the cubicle farm. I got it, your brain is programmed to think December 31st equals a whole new year. How many of you are getting married this 31st, btw? Happy Anniversary to my boss – the CPA – and his wife on that fine day that you CPAs love so much. Deductions, bitch.
As previously disclosed, the AICPA Board of Examiners doesn’t want you to know they’re cheap. Those difficulty-weighted questions cost a whole shit ton of money to pop in that exam (speaking of which, any IFRS experts out there willing to contribute their time to screwing with CPA exam candidates? Prestige! Honor! No money though.) and the BoE likes questions that have a little more, erm, staying power. Those guys’ “creativity” keeps me in a job so I can’t really elaborate, you get the point.
That means you’ve got a 6 month window to work with from the time pronouncements are announced and when they actually start appearing on the exam. They might appear earlier as pre-test (not counted toward your score and about 15% of exam content) but unless specifically noted – as in SFAS 141(r) – pronouncements trickle into the exam slowly and on a delay.
When new exam content does appear (as it does twice a year, inevitably), it tends to be introduced slowly. Think about it – the only test run those questions got was pre-test, and you were not expected to know that information anyway. How can they gather intelligence from candidates’ collective knowledge of things they don’t know? Seems bizarre to me but whatever, can’t question the wisdom of the AICPA.
Except in the case of the Feed the Pig campaign.

The Return of Capital?

Thumbnail image for Thumbnail image for magic money.jpgAfter last week’s talk with Sam Antar, he got me thinking about our major capital problems, reminding me of something I’d seen earlier in the year on the world running out of capital.
How is that even possible? Isn’t capital just an accounting entry?
In the April piece, it was argued that the global capital trench is not possibly large enough to cater to the budgetary debauchery of the Obama administration. The stimulus. Health care. Afghanistan. Pick one and you can easily identify where the problem lies; put them together and you realize that we are fighting an uphill battle against investor demand for risky assets – including sovereign debt. In other words, T-bills aren’t what they used to be.


So how can regulators impose stricter capital requirements when trillions in fake capital built upon fantasy accounting in the years leading up to the financial crisis was vaporized?
Credit Suisse believes new capital requirements in Europe will cost affected banks £33 billion, some of which will inevitably come from those banks’ clients.
FT Alphaville:

Indeed, one of the theories about why lending by UK banks has yet to pick up — despite the Bank of England’s QEasing efforts — is that banks have been preparing for higher capital rules just like the ones above. That rather implies there are, perhaps less expected, costs for consumers as well.
As the FSA notes in the consultation:As noted in Table 1, costs for firms will rise substantially as a result of these measures and these costs will be passed on, at least in part, to consumers. This increase may manifest itself as lower deposit returns and higher borrowing interest rates. The extent to which this occurs depends on a number of factors, including the extent to which firms may already be able to charge above competitive prices for some products.

Know what’s happening? You’ve got to pay back your share of that fake capital vaporized in the decoupling process. You borrowed against it and bought crap with it and got a raise because of it and now you’ve got to give it back.
That’s all.

>75: The ‘Magical’ Order of CPA Exams

BelushiCollege_CPA.jpgEditor’s note: Welcome to latest edition of >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to [email protected] and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
Just a reminder, if you have a CPA exam question for us, be sure to send them over. No question is too stupid, trust me, I’ve been in CPA Review for 3 years and have heard them all.
For today’s >75, let’s talk picking exam parts, shall we?
I get asked these questions at work constantly: “What part should I start with? Which is the easiest? Which is the hardest?”


My answer is always the same: there is no “easy” or “hard” section, they’re all equally and independently difficult for their own reasons. FAR is “hard” because of the sheer volume of information but believe it or not, BEC tends to be the part candidates struggle with most. AUD and REG have a slightly higher national pass rate but that does not make them any easier than the other two.
For now, I’ve been advising candidates to start with FAR so they can get it out of the way before IFRS hits the exam in 2011. In general, however, I advise our students to start with the part that they feel will be most difficult for them since your 18 month clock starts ticking once you pass the first part. If a candidate is going to struggle to pass one section, it’s best to do this before that 18 month period starts since the very last thing you want to do is to retake a section you already passed because you couldn’t pass that final part in time.
Point being, there’s no such thing as easy when it comes to the CPA exam. Nor is there a such thing as a “magical” order for taking the exams. But here are some tips for figuring out which part to start with:
Anxious candidates with a confidence problem – Start with Audit or Regulation, whichever section will be easiest for you since, as I said above, these tend to have a higher pass rate. Passing that first section will be a huge motivator to keep you going.
For candidates looking for “the easy way out” – Start with FAR. Since this section is the largest, getting it out of the way first will make the rest of your CPA exam experience seem downhill.
For candidates planning to take the exam through 2011 – Get FAR and BEC out of the way now. Communications will be hitting BEC in 2011 so if you get it done now, you can take AUD and REG in 2011 when they no longer have communications. Win!
Good luck!

The PCAOB Setting a Precedent…for the Fed?

jump to conclusions.jpgFirst of all, before I go anywhere with this, I know GC already gave her a link but this recent Re: the Auditors post on, well, auditors — or rather the lack thereof — is a do-not-miss. It is especially relevant when we’re talking about the usefulness of audits, PCAOB or otherwise.
Anyway.
As many of you already know, the PCAOB is on the chopping block and bad. While we’ll have to let that one work itself out in court, the case against the PCAOB is actually an all-too-familiar argument.


The Federal Reserve System (much like the PCAOB) pulls its regional bank presidents not under direct Presidential directive but because that’s how it has always been. The President appoints a Fed Chairman of course but beyond that, Washington tries to stay as far away from the regional Fed bank structure as possible. Why? That question is a tad too complicated to answer here, so we’ll get into that another day.
The important part here is that the Fed should be closely watching the PCAOB case in the Supreme Court. If the PCAOB is brought before the people of the United States to answer for its alleged recklessness as an agency free from Presidential influence, the Fed may follow soon after.
WebCPA:

The plaintiffs argued that the PCAOB violates the separation of powers principles in the Constitution because the PCAOB’s members are appointed by the SEC and not directly by the president, and they cannot be fired except for cause. Several justices indicated some sympathy for that viewpoint in their questions.

Gee, that sounds just a little too familiar. Seeing as how two-thirds of regional Fed bank directors are chosen by the very banks those regional banks “supervise”, the Fed may have some ‘splaining to do.
So while Bernanke is out there running PR for the Fed System to keep nosy Congressmen out of their business, where is the PCAOB defensive play against SCOTUS? Don’t they have anything to say in their own defense? Apparently not if my experience is any indication.
While most of you know I am not exactly a cheerleader of the PCAOB nor the Fed, I can’t see how consolidating all of our power in Washington can be a benefit either. There is something to be said for the wacky structure of these agencies as it is a Frankenstein of influence instead of a concentrated wave of power emanating from DC.
So watch the PCAOB case closely, Ben Bernanke, it could be you next and you don’t want to have to explain why the banks you regulate pick the soldiers of your precious System.

>75: What Happens When You Get a 74?

agony.jpgEditor’s note: Welcome to latest edition of >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to [email protected] and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
It might be the worst feeling in the world. Trust me, I know people who have gotten 17s and 24s on the exam – these are not my CPA Review students, of course, these are people who tried to go the CPA exam alone – and a 74 beats their misery any day of the week.


Nearly 99% of the candidates I talk to (I’m making that percentage up off the top of my head, mind you) who get a 74 on any part of the exam did everything they were supposed to do. They did hours of multiple choice and tons of practice simulations and even did the tutorial at cpa-exam.org before test day.
These are people who asked me very early on how they could plan their time, requested updates weeks before they were available and had me emailing 3 years’ worth of previous CPA exam questions for them to practice on. From all appearances, they did everything they were supposed to and yet got a 74, the worst possible score you can get (17 on FAR aside but we won’t talk about that mmmmmkay?).
So what do you do if you’re that person?
Don’t bother requesting a “rescore” from the AICPA Board of Examiners: For all of 2008, not a single rescore request resulted in a candidate going from FAIL to PASS. It’s a waste of time and money and the AICPA isn’t going to admit their CBT is at all faulty (those of you who have actually taken it probably know better but we won’t talk about that either) so accept your score and move on.
Don’t move on to a new section While you have to deal with the fact that you’re going to have to pay re-application fees to the Board and another exam fee, the best thing you can do in the case of a 70 – 74 is to go right back to that section and schedule a new exam as soon as possible. A 74 especially shows that you have an excellent command of the information, just a little more studying and you’re over that hump.
Look at your score report: Your score report is going to give you quite a bit of insight on where you went wrong the first time. When you fail an exam part, they go so far as to tell you where you failed the worst, USE THAT! When you go back over your review materials, there’s no need to watch every single lecture video again fourteen times – just look at the report, figure out where you need more work, and do extra practice questions in those areas.
Finally, don’t beat yourself up. If this exam were easy, everyone would be a CPA.

Can the FTC Even Deliver on Newspaper Bailout Promises?

newspaper-pages.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
For months there has been the underlying hum of a newspaper bailout in the air – not much surprise there given dropping subscriber numbers and dwindling ad revenues. But in lieu of an actual bailout (i.e. a check from the Treasury), how about some tax breaks and anti-trust waivers?
NY Mag:

At a workshop on the the [sic] future of journalism yesterday, the head of the Federal Trade Commission said the agency is studying ways to help struggling media companies struggle a little less. What might this help look like? It could come in the form of new anti-trust laws, tax breaks, government subsides [sic] or even changes to copyright law.

Well if “journalism” involves rampant copy errors like that, we’re more screwed than it appears.
Tax breaks for mainstream media? Why? I’m a fringe journalist and I still have to pay my taxes, if I don’t bother to tailor my content to my audience to the point that it draws enough ad revenue to pay my bills, maybe I don’t deserve to eat that week.
It gets better.
Rupert Murdoch has long fought Internet news aggregation and would love to see a pay-per-view program for news that — holy shit! — might actually save news. Where do you get yours from? Would you pay for it?
In recent comments, he basically called every blogger who has ever clipped a news article a thief, including Arianna Huffington. You may have heard of her.
Fine, charge for it. I’d pay if it was worth paying for. Would you pay for the recent CNN article that said the Big 87654 ended with more employees than they started with? Me neither.
Point being, Murdoch would rather see news sites charging than peddling for a bailout. I don’t seem to recall major media outlets begging for any bailouts recently, which naturally inspires a healthy skepticism towards the FTC’s comments.
Has the FTC checked this proposed mainstream media bailout “tax break” with the Treasury? Because if I heard correctly, we have $30 billion to put towards Afghanistan now, not to mention the fact that the FDIC is broke and Citigroup is probably going to need a Dubai backstop. I’m not sure if Timmy would be okay with this, better ask him first.

Buy Nothing on Friday? How About Cyber Monday?

overtheshoulder.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
I’ve got something lined up for Jr Deputy Accountant this morning on Cyber Monday that I just had to repost over here. Normally it’s the other way around but I wanted to make sure to get this point across.


I always think about the guy who posted the comment about “you idiots worried about flashcards should have been the ones laid off” on a Ernst & Young layoff post we did here when I think about the crowd mentality that motivates bizarre events like Black Friday and Cyber Monday.
We did Buy Nothing Day in the hopes that you all would stay home Friday and save your pennies but I want to make sure my point is being received correctly. If you can afford it, go get it, no one cares. But don’t go just because the shiny advertisements are trying to seduce you with 60% off if you can’t even afford 95% off.
As I said on JDA this morning:

I will be doing my best to resist Cyber Monday since it’d be awfully hypocritical of me after evangelizing Buy Nothing Day but I have a vacation flight to catch in less than 2 weeks and only a few good shipping [sic] days left.
The point has always been this: if you can afford it, by all means, please buy it. If you want it and you bust your ass to pay for it and it won’t put you underwater to get it, have at it! Please!
I have “disposable income” down to a science and it doesn’t take a mathlete to do so: take what you need (I should not have to define “need” for you) minus what you make, putting investments and savings in the “need” column instead of dividing the take after needs – net income and viola [sic]. Go buy some shit.

Come on, CPAs, those numbers check out, right?
Like I said, I’ve got a trip coming up but no mortgage (or CPA exam retake fees. You know who you are — knock it off with the half-assing it through the exam already — it adds up) so I might need some crap for said trip. I’m not saying you should lock your doors and put your credit card on ice but I also have a job and residual writing income. Do you?
Stay away from Cyber Monday also if A) your boss is watching you and/or B) you can’t afford it. Otherwise go forth with my blessing and may all your security codes match your billing address.

A Thanksgiving Reminder from >75

turkey.jpgEditor’s note: Welcome to latest edition of >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to [email protected] and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
For CPA exam candidates, the final few weeks of the year can be a time of extreme pressure and/or procrastination. I won’t name names and bust any of our CPA Review students out (you know who you are) but I can tick off at least 25 people taking the exam today and next Monday, trying to squeeze in one last part before the New Year.
So how exactly is one supposed to show up for an exam the Monday after Turkey Day before the tryptophan coma has worn off?


Plan better next time: This is a terrible time of year to be sitting for the exam but unfortunately it’s also the busiest. More candidates cram into the final testing window of the year than any other window so if you’re testing in the 4th quarter next year, keep that in mind when you’re scheduling your exams. Schedule early and don’t get stuck testing the week after Thanksgiving.
Prioritize: Do you really need to hit your parents house, your in-laws’ house and your best friend’s grandma’s house for Thanksgiving? If you’re really serious about preparing through the weekend (which you should have already been doing weeks before this), cut dinner short, stick to one holiday meal and spend your Black Friday studying instead of getting trampled in the Wal-mart parking lot. It’s better for your brain and better for your wallet.
You might have to have a chat with friends and family: If you’re trying to get a section in right when 2010’s first window opens up, you will be doing some studying through the December holidays and your absence might cause just a little bit of resentment. If you’re serious about getting the exam over with, sit down with loved ones and let them know that you need their support, not their shit. They have no idea what you are going through unless you tell them to back off and give you the time you need to study. And if that doesn’t work, coal for everyone in their stockings.
My final point is this: it goes without saying that the holidays can be a stressful time for everyone and we all know what sort of stress taking the CPA exam causes. Mixing these two can be a dangerous cocktail of end-of-the-year misery if you don’t stay focused and plan your time accordingly. And look at it this way, you might get out of having to wear an ugly sweater or two.

Buy Nothing Day. Just In Case You’re Off Friday (or Unemployed)

creditcard.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
If you’re trying to squeeze in one last section of the CPA exam before December hits, you’ve got four days – a handful more if you’re not running off to see family for Thanksgiving. Are you working through the holiday?
Instead of running off to the store to spend money that you don’t have in the name of “economic recovery”, how about “Buy Nothing Day“?


“We’re asking tens of millions of people around the world to bring the capitalist consumption machine to a grinding — if only momentary — halt,” reads the manifesto. “Advertised” as an international event intended to stop the rape and pillage of the planet in the name of consumption (or something like that), it doesn’t stop with avoiding the Friday after Thanksgiving sales.

We want you to not only stop buying for 24 hours, but to shut off your lights, televisions and other nonessential appliances. We want you to park your car, turn off your phones and log off of your computer for the day.

This particular capitalist wouldn’t do well without her BlackBerry and her credit card for a full day, it’s one or the other, with the credit card much easier to keep in my pocket than the device. But whatever.
Other clever ways to spend the day? How about Whirl-mart; an impromptu conga line of shopping carts in the middle of any large warehouse or retail store (Target would work in a pinch) much to the chagrin of store security?
You can even take it all the way and declare a Buy Nothing Christmas if that’s your thing. Why stop with Black Friday? It’s not like you can afford crap your friends and family don’t want anyway, so just don’t do it. Sock away some money and put it into something useful like gold ETFs or at least new gadgets.
It goes without saying that retail has a long hard slog upward this winter. In fact, some stores are opening on Thanksgiving just to get a jump on the holiday season, hoping they can squeeze out every little bit they can to make it through the end of the year. Yeah, good luck with that.

>75: What am I Supposed to Do With This Ethics Exam?

Editor’s note: Welcome to latest edition of >75, our weekly post on a question related to the CPA Exam. Send your questions to [email protected] and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.

If you are in an ethics exam state and trying to figure out how to pass it (first of all: fail), don’t worry, I’ve got some advice. An email from a reader who prefers not to expose his unethical-ness comes to JDA thusly:

I’m having trouble passing the ethics exam, I’ve failed twice. How can I pass it?


First of all, I’m going to ignore the fact that this question — by itself or to a casual observer not in public accounting — is pretty fucked up. You shouldn’t need help with this. I can understand needing an explanation on how to get your foreign degree evaluated (I still don’t quite get it) but this should be easy. However, for the purposes of this post, I’ll disregard that part.

For starters, the ethical thing to do would be a Google search on the ethics exam, not posting Craigslist ads offering to pay people to take it for you. But if you’re like most public accountants trying to get a license, you copy off of your coworkers. I shouldn’t have to tell you that. If I do, it probably means you’re not cut out for this line of work.

There are other things you can do. Some state societies of CPAs have resources like tips or even experts you can consult to help you. Again, this shouldn’t be hard, it’s supposedly your first mandate in public accounting.

It’s open book, there’s no timer and you can bring a weapon to wherever you’re taking the test (unlike the CPA exam itself). Why are you making such a huge deal out of this?
Abacus said the Wisconsin ethics exam, while being tough, just needed some diligence to get through. What’s scary about that?

If you absolutely run out of ideas, some ethics exams have a “Lifeline”. Here in California, if you bomb three times, you can call CalCPA’s Education Foundation and they might give you a hint or two along with three more chances to pass.

Give it enough time and understand the subtle nuances of the questions, don’t just try to barrel your way through it and you might pass this time. Good luck.

Not Another Task Force

GOVT.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
Our dear President has created a “Task Force” to handle those tricky problems like baby Madoffs so we can sleep at night knowing we are safe from the financial crooks robbing us blind.
Or can we?


WaPo:

Top Obama administration officials on Tuesday announced a new federal task force to combat financial fraud after deciding that the number and complexity of investigations linked to the economic crisis require a more coordinated response from government agencies.
Created by executive order, the Financial Fraud Enforcement Task Force targets fraud related to mortgage lending and modification, securities law, stimulus spending and the government’s bailout of the financial sector.

Meanwhile, in absolutely related news, ABC News discovered this week that Recovery.gov shows stimulus funds saving or creating jobs in Congressional districts that don’t even exist. There are tons of them so no one tell me that it’s a rounding error.
Oh wait, they admitted they screwed up and are now fixing it.
Back to this “task force.” Maybe I’m confused but don’t we already have something like that and it failed to get the first Madoff?
The Department of Justice-led task force will include officials from the SEC, Treasury, and Department of Housing and Urban Development. Sounds like a winning crew.
Attorney General Eric Holder insists that one of the task force’s main targets will be “Recovery Act and rescue fraud,” insisting “we will ensure that the taxpayers’ investment in America’s economic recovery is not siphoned away by a dishonest few.”
A dishonest few?
Like the 95 completely made up people on the Recovery.gov website who worked on that sewer project in Wisconsin?
Or the Georgia Head Start administrator who was advised to claim “317” jobs where his organization had really only gotten raises for its 317 employees?
The AP has been watching the stimulus numbers closely, and they continue to check out wrong. It doesn’t take an accountant, nor a task force, to figure that out.

FASB’s Final Word on Fair Value Disclosures?

silenced.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
Of the 111 comment letters FASB published on Fair Value Measurements and Disclosures: “Improving Disclosures about Fair Value Measurements”, this one was my favorite:

Please don’t require Companies not SEC registered to spend any more money on reports under this rule.
Lloyd Amundson

Amen, brother.


The usual suspects left the usual complaints; BDO said excessive disclosures would be both costly and useless, Uncle Ernie implied it was an interesting concept but an expensive flop in practical application, and PwC prefers once a year disclosures instead of quarterly.
Verizon even got in on the action, insisting, “proposed additional extended sensitivity disclosures would unnecessarily complicate financial statement disclosures without providing any meaningful benefit to financial statement users.”
I think it is entirely reasonable to point out that FASB is feeling the pressure to converge and the IASB is encouraging slightly less optimistic financial statements. The IASB openly admits that it is under outside pressure to adopt such a stance:

Responding to requests by the G20 leaders and others, in June 2009 the IASB published a Request for Information on the practicalities of moving to an expected loss model. The responses have been taken into account by the IASB in developing the exposure draft.

The IASB continues:

The IASB will also cooperate closely with the US Financial Accounting Standards Board (FASB) with a view to agreeing a common approach to the impairment of financial assets.

Since when is this for the IASB to decide?
Political influences are nothing new to accounting rulemakers but what happens when those influences come from foreign bodies far outside of our control? It is a known fact that the European Union has a large stake in IASB, so how can we be sure their intentions are pure as we move forward at their urging?
The Financial Crisis Advisory Group, an international body set up by the IASB and FASB to advise them on standard-setting issues related to the financial crisis, warned recently that that political pressure on accounting standard-setters posed a threat to “the very existence of international accounting standards.”
Integrity in financial statements? Keep looking, not going to find any of that here.

>75: Who Is Going to Pay for My CPA Exam Materials?

empty wallet.jpgEditor’s note: Welcome to latest edition of >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to [email protected] and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
It’s a question I get all the time at work. “I’m starting with such-and-such firm, do they pay for your CPA review course?”


So! A commentator asks >75 the same question:

I did a bit of research, and it turns out that PwC is the most generous – paying for Becker + Flashcards, while E&Y will not pay for the Flashcards, and KPMG apparently requiring [sic] its staff to attend live classes offered by Becker, and have signed attendance sheet to get the reimbursement.

First of all, smarty, what makes you think pre-packaged flash cards are your secret to CPA exam success? If anything, it has been my professional experience that candidates who make their own flashcards do better than those who rely on a review course to make them on their behalf. I had a student who admitted his handwriting was so bad even he couldn’t read it but just the act of creating a set of note cards for FAR helped him reinforce the key topics. So just because you get a bunch of shit for free doesn’t mean you’re any better off than the guy who had to charge his review course or skip a couple happy hours to pay for it.
As you probably know, the firms do not discuss their agreements. I know what they are but I’m not telling either. That being said, in this economy, I’m not sure if you think you’re going to get a free CPA Review ride. Um, you did comment on a layoff post after all.
I deal with quite a few public accounting HR staff as a result of my job and let me give you a hint: there’s no such thing as a free ride on the other end. They are reluctant to hire if they think they will be used for a free review course and a CPA to sign off on hours like some cheap whore.
The firms are tightening their belts and they are most certainly being more conservative about hiring bodies to fill chairs and kicking down $1,500 – $3,000 for review courses. You might be sick of it too if you paid for staff member after staff member only to be abandoned the minute that staff hits 2 years. Those days are over.
My advice? Ask around but don’t count on it and don’t you dare let on that you care in an interview; HR managers that I know will instantly – albeit silently – slide your pathetic little resume to the bottom of the pile in favor of someone who has already started on the CPA exam process without their hand out.
As someone on the original post from which this question came said:

all of you, seriously, this is the most important thing right now to you?? suck it up and take the exam. it is not your god given right to get reimbursed for everything. and besides, you morons missed the biggest things about the exam and passing it – the bonuses firms pay to pass it. the reimbursement is the smallest piece of it. the bonus is the bigger issue. but you are so busy talking nonsense about flashcards you miss the big picture. you should have been part of the lay offs

Amen! (Someone please tell me that guy passed??)

New Material for the CPA Exam: Am I Outdated?

Thumbnail image for cpa exam.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter. See all of GC’s posts on the CPA Exam here.
As most of you know, my day job involves teaching unlicensed accountants how to pass the CPA exam so everything I’m about to tell you comes from experience. One of the most frequent questions I’ve been getting these days revolves around new material to correspond with the new year, so let’s debunk some of those common rumors about new exam material, shall we?


• Stop thinking IFRS is going to hit the exam in 2010. You have at least another year to procrastinate, and that’s the best case scenario. The AICPA said “some time in 2011” which means “when we get around to it”. Even when IFRS hits the exam its impact will be minimal at best so stop freaking out.
• Yes, new CPA exam materials are the best when available but keep in mind AICPA pronouncements take at least two windows to hit the exam, meaning if you take the exam in the first quarter of 2010 you will be tested on information released in June of 2009.
Trust me when I say this: the AICPA Board of Examiners is cheap (no offense AICPA BoE but you know you are). Although review courses would love to tell you to get the latest latest info, chances are the AICPA BoE will prefer testing standard questions over introducing excessive amounts of new content. Sure, they test new things all the time but don’t expect them to overhaul the exam every quarter just for shits and giggles. New questions cost a lot of money and the AICPA BoE would rather recycle old questions than pay to create new ones. Use this to your advantage.
So, that being said, what’s the big deal about IFRS hitting the CPA exam? Stop panicking, it’s not as bad as you think.
IFRS is actually much more principles-based than rule based, which means you have a pamphlet to study instead of two dictionaries worth of GAAP. The AICPA is offering courses on IFRS for professionals or any simple textbook can suffice if you need a primer. However you look at it, the AICPA BoE does not expect you to know IFRS like an accountant in China. All they want to know is if you know the differences between IFRS and GAAP. Easy, right?
Lastly, if you have a review course, you should be able to request updates to the material as long as you’re a student. So don’t worry for the first two testing windows of 2010 but come June of 2010, ask for an update and you should be good. New AICPA pronouncements are released twice a year so ask again in December if you haven’t finished this thing by now.

Dear Richmond Fed, What Were You Thinking?!

stupid.jpgGoing Concern’s own Jr Deputy Accountant did a pretty interesting piece this week via the Mortgage Lender Implode-o-Meter (which brought us such fabulous bloggers as Option ARMageddon – now at Reuters – and Mandelman Matters) that might be of interest to GC readers, at least those with a lawyer bent.
Can anyone tell me what Richmond Fed was thinking?! Anyone? Please?
Anyway. Just a reminder, GC did LandAmerica long ago.


How did LandAm’s Gluck end up at the Richmond Fed?

“With her broad range of leadership experience and extensive legal expertise, I know she’ll make great contributions to the Bank and to the Federal Reserve System,” said Richmond Fed President Jeffrey Lacker in July of the Fifth District’s new Legal Counsel Michelle Gluck. It leads one to wonder how thoroughly Lacker was briefed on Gluck’s sordid history at Richmond-based LandAmerica Financial Group previous to his statement. I still can’t understand why the Bank would hire her, maybe by the time I’m done with this I will.

For the not-so-quick background on Gluck and both previous and current employers, do check out LandAmerica: The final days appeared like a Ponzi scheme, The Good, the Bad, and the Less Bad for Richmond Fed and her bio that still sits on the LandAm web site:

“Executive Vice President – Chief Legal Officer Michelle has more than 20 years of experience in the legal profession. As General Counsel, she contributes sound legal reasoning and practical insights into legal issues facing LandAmerica. As Corporate Secretary, she oversees the governance of our Board of Directors. Michelle joined LandAmerica in 2003 after serving Kmart Corporation as VP – Associate General Counsel & Assistant Secretary. She holds a juris doctor degree from the University of Michigan Law School and a bachelor’s degree in English from the University of Michigan, where she graduated with honors.”
This Tuesday is the deadline for LandAmerica 1031 exchange victims (LES – dubbed exchangers amongst themselves) to accept pennies on the dollar for funds lost in LandAm’s bankruptcy proceedings. It is suspected that many Exchangers will vote for the plan, which guarantees at least some monies returned to victims instead of an excruciating court battle that many of LandAm’s unsecured creditors simply cannot afford.

For the rest of Michelle Gluck’s not-so-pretty resume and more musings on WTF Richmond Fed was thinking, head over to the Implode-o-Meter for the rest. I warn you, it’s ugly. Financial terrorism never is pretty you know.

A FASB Override Button?

Thumbnail image for Thumbnail image for Thumbnail image for panic.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
Over the weekend, I covered an obscure financial reform proposal that may mean taking away final responsibility of accounting standard-setting from FASB af “emergency” switch for use solely in situations of undue financial stress. This type of “escape hatch” might be familiar; the practical application of the Fed’s 13(3) rule left the door wide open for Bear Stearns and AIG.


In regards to Meet the FASB Override Button, I received a note from reader Ron with the simple rhetorical question:

Do you think a system this corrupt can survive in its present form?

He even gave me an out, qualifying the email with “No need to reply.”
Well thanks, Ron, but how in the hell am I supposed to ignore a loaded question like that?
In the article, HuffPo calls it “Civil War in Corporate America”:

Amid the ongoing financial regulation overhaul, the banking industry is hoping to pull off a quiet power grab that has eluded its grasp since the Great Depression, by stripping the independence of the board that sets financial accounting standards.
The mechanism is contained in an amendment set to be introduced in mid-November by Rep. Ed Perlmutter (D-Colo.) that would move final authority over the Financial Accounting Standards Board (FASB) from the Securities and Exchange Commission to a new body, a so-called “oversight” board, that would include the officials charged with managing systemic risks to the financial markets.

The Center for Audit Quality came back with a nasty letter to Barney Frank — among others — insisting that accounting setters must remain independent (implying that they have been all along). I assume that the CAQ has forgotten about FAS 157-e by now.
So do I believe in financial reform at this point? No, and I can’t say I ever did. Did I ever believe we could duct tape our way through recovery with a little accounting magic and some confident words from Tim Geithner? Yeah right.
And that therefore betrays my opinion on saving our financial system in its current form. FASB merely exists under the guise of independence, and while European accounting standard setters have a far worse reputation when it comes to allowing themselves to be politically swayed, something must change moving forward.
I doubt that an emergency FASB override button is a step in the right direction to that end.
But if they’re trying to sneak in accounting standard escape hatches, that means something must be working correctly with the currently regulatory framework – they wouldn’t be looking for ways to bypass it if it was totally useless.
Past GC coverage of Congress meddling in accounting rules:
Congress Needs More Testimony on Accounting Stuff They Won’t Understand
Barney Frank Doesn’t Legislate Accounting, He Only ‘Exerts Pressure’
Newt Gingrich Doesn’t Like the FASB

>75: Study. Sit. Pass. Get on with Your Life

Thumbnail image for cpa exam.jpgEditor’s note: Welcome to >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to [email protected] and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
Alright. So this guy comments and his question is too long and complicated to keep my attention. Kindly SUMMARIZE your question, send it to us and >75 will get to it when she stops pounding her head on her desk.
Now then, please pay attention.

I need help from some vets. I did my undergrad in finance, but spent the last 7 yrs in the family business, hotels. Always hated it. Being an owner, I know what it’s like to be the ‘man’ and having to manage a manager, i also know what it’s like to be an overworked slave to a business as a property manager myself. I’m effective as a manager, win awards, employee turn over below industry standards, profitable, etc…on the macro level as an asset manager, i have a pretty good business savvy from HR/training, finance, basic accounting, leadership, capital raising, basic auditing. In the hotel business, your inventory has a 24 hour shelf life. I can think quick on my feet under stressful situations, and think stragetically as well. So at 30, i have the business IQ of someone close to 40. I’m a worrier and 24 hour business dealing with public has burned me out as i like people, but i’m not that much of a ‘people’ person..though i can turn it on when needed. i have recently been diagnosed with ADD which explains, while capable, i had trouble in school.

Stop. Just stop. First and foremost: the CPA exam isn’t an IQ test so please remove that from the equation, brainiac. We are talking about discipline and how well you can plan out your time.
I congratulate you on your illustrious career but no one cares about that at the Board of Accountancy. You have to meet the educational and experience requirements in the state you apply to and sorry, life experience doesn’t count in any of those states.
If you have the units and prepare correctly, you can do it. But get all this “wordiness” out of your plan, just learn the information, sit for the exam, get 75s on everything and move on with your life + CPA.
That’s my humble suggestion.
As for not being a “people” person, congratulations, you’re already on your way to being a CPA.
If anyone has a CPA exam question for >75, let us know. I’ll try to be nice but at least informative.
Here’s the obligatory CPA Review disclaimer (I work for Roger, how do you think I figured all of this out? TT BPO 75 or 90, bitches).

Cutting Out SarbOx for Small Business? Here’s a Better Idea: Take the PCAOB…Please

pcaob.jpgHR 3817: Investor Protection Act of 2009. We’re going to stop worrying about HR 1207 since “auditing the Fed” was always a fundamentally moronic idea (even when I cheered it in lieu of ending the Fed outright) and worse, just here, since no one even knows what it means anymore) is on the chopping block now, and for some reason a ballet dancer with a serious grudge against the world is going after it. Fine, he’s just a little later than some of us.


HuffPo reports:

The White House is quietly working to undercut a key post-Enron reform, significantly weakening protection for everyday investors and threatening the administration’s image as a champion for financial regulatory reform.

I’m not sure whose image they are referring to but it certainly cannot be this administration’s (and I say that in the most politically asexual way possible). The only part that bothers me about this is the “quietly”, don’t make it so sinister, please.
HuffPo continues:

White House Chief of Staff Rahm Emanuel has been telling Democratic members of the House Financial Services Committee that he supports amending the Investor Protection Act of 2009 — a bill designed to beef up protection for investors — in order to exempt small businesses from a requirement in the Sarbanes-Oxley Act that mandates audits of internal controls. The Sarbanes-Oxley Act was enacted in 2002 in the wake of accounting scandals at Enron and Worldcom that rocked investors and damaged confidence in the markets.

Accounting Onion explains the effectiveness of Sarbanes Oxley in a little more detail than we care to, and if it doesn’t feel like you’re chasing your tail yet, wait, we’re not done.
Former SEC Chairman Arthur Levitt made it sound as though investors’ balls — and our only hope of getting out of this mess — were instantly twisted at the news.
Call me absolutely out of my fucking mind but this sounds like a small business bailout to me, at least indirectly. Save small business the costs (and benefits) of extensive audits and allow them to pocket the difference?
Good. While we’re at it, fire the PCAOB to save more money.
The PCAOB seems to think that we’ve got an audit problem. I contend here that the problem is with the auditors, and how many of them are being asked to go in there head down and pretend they don’t see a thing? I talk to them all the time. Does the PCAOB? I tell all of them to take notes when they ask me what to do. You PCAOB people should really see some of this, you’d be absolutely appalled.
Skeptical CPA argues that this was bullshit all along and I agree. He shares a moment at a Houston Financial Reporting Symposium. The PCAOB’s own Charles Niemeier (CN) is kind enough to explain his agency’s uselessness:

Someone asked, “Are PCAOB CPAs competent”? CN fumfered that one. Someone else noted most PCAOB CPAs were “former” Big 87654 partners. CN has no problem with that, since only those with large client audit experience could inspect the Big 87654’s work. Hey, CN, I’ve got some oceanfront property in Arizona to sell you. CN explained Sarbox was passed to prevent fraud. I ask, has Sarbox improved bank accounting? Some CPAs do what I call “disclosure” audits, i.e., they never dig into “non-accounting” data to ascertain the correctness of a client’s accounting records. For instance, looking at industrial engineering reports which might underlie a manufacturing company’s inventory costs. The Big 87654 is full of CPAs who do not understand cost accounting. CN reminded us the “PCAOB can’t reveal its findings”. I ask why not. Who or what is the PCAOB protecting?

I agree, they don’t know cost accounting. Do you know how many of them fail BEC every CPA exam testing window? It gets tiring.
The point is, I’m not sure this is worth bemoaning. Or maybe it’s just not worth caring anymore, they’re going to do whatever they want with accounting.
Worse, Citigroup, Bank of America, SunTrust, LandAmerica (the list goes on and on) all of these large, unstable financial firms continue to get unqualified audit opinions while 1,790 of 1,800 CPA firms have these guys breathing down their necks. Well not LandAmerica, they already failed miserably.

Accounting ‘Irregularities’ or Total Fraud?

Thumbnail image for Thumbnail image for Cooking the Books.jpgOn Friday I did a post for Jr Deputy Accountant on Accounting “Irregularities” on the Rise in the Recession after I saw a piece in Reuters about battered financial statements:

Corporate balance sheets may be showing signs of the wear and tear from the prolonged U.S. recession as accounting irregularities are starting to surface at growing numbers of U.S. companies.

Going Concern also covered this so it’s been decided by the blogosphere that this one deserves your attention.


Friend of both yours truly and Going Concern, Financial Armageddon’s Michael Panzner caught this tale and tied it in to one he’d done the day before on banking shenanigans.

In yesterday’s post, “Bad C’s,” I highlighted a few reports that lent further weight to the notion that the financial sector has not been a paragon of virtue, to put it mildly. Yet while many banks and brokers have engaged in some pretty bad behavior — which, among other things, helped bring about the worst financial crisis this century –they are apparently not the exceptions to the rule, as jr deputy accountant reveals in “Accounting ‘Irregularities’ on the Rise in the Recession”:
Reuters is reporting accounting fudging and fraud are on the rise in the US as a result of “pressures” for companies to perform despite the hostile economic environment.

The previous post he refers to sums it up nicely:

In an interesting twist of fate, the firms that have traditionally decided who should get credit have been put in the position of needing extraordinary amounts of other people’s money just to stay alive. Unfortunately, based on what we’ve seen so far, including reports like those that follow, it’s doubtful whether most, if not all, of today’s troubled financial institutions would even qualify for a loan based on traditional measures of suitability — like “character,” for example — if their friends in high places weren’t so intimately involved in the process.

Going Concern agrees in “Homebuyer Credit to Continue Helping People Get into Crazy Debt?
Worse, large banks (or rather Regions Financial) are willing to lend to bankrupt municipalities and bank regulators will not step in and say “Hey, WTF are you doing?” (yes, I’m talking to you, Atlanta Fed). This is your bank and it’s quite obvious even to the common man what they are doing – you don’t loan money to someone who has no money and has not paid their sewer bill in 16 months. Red flag!
It’s ugly out there and it doesn’t appear to be getting any prettier any time soon.
Oh and Economic Populist has some additional ideas on the subject. You’re welcome.

CPA Exam Question of the Week: Review Courses for the Working Stiff

Thumbnail image for cpa exam.jpgEditor’s note: We’re going to start a weekly post on questions that you have related to the CPA Exam. Send your questions to [email protected] and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
A lawyer with an accounting undergrad wants to know the following:

What is the most efficient CPA prep course/books etc., for an individual that works during the week for about 45-50 hours. I understand that we can take the exam in separate parts, so that will be very helpful.


Caleb reminds me that this answer should be objective so let’s get the “I’m a CPA Exam Expert because of my day job” plug in here.
First of all, lawyer guy, congratulations on diversifying and pursuing your CPA. My experience is that more finance, mortgage, law, and other professionals are gravitating towards the CPA these days (especially since 2007) and that’s a great sign that the industry still carries a level of prestige. Win for us, though some of us think the industry as a whole has some work to do (see also: Dennis Howlett on the Big 4 being TBTF)
So my answer is I don’t have your answer. What you need as a CPA exam candidate is important, and I don’t know you well enough to figure out what you need. Professionally I’ve learned that those from other industries or educational backgrounds tend to have “special needs” like something more intensive than a simple review or additional support in formulating a study plan. CPAnet has an entire forum dedicated to CPA review courses, that’s a good place to start for research into the matter.
Taking the exam in separate parts doesn’t really help because once you pass the first part, the clock is ticking. 18 months doesn’t seem like a long time but it will be over before you know it. I don’t even experience it and sometimes I am amazed when I realized I talked to someone at work when they graduated and now they have a month left to pass FAR or they’ll lose their first credit. Don’t be them. You will have to plan out your time.
That’s my second point for you. 45 – 50 hours? I know people who passed the entire exam in 4 months with two kids at home and a fulltime job at the Big 4. That’s overachieving but if she did it, you can certainly do it working less than I do a week. Plan out every hour of your week and fit in studying where you can. If you say “I will just do it after work…” but don’t have a schedule, trust me, you’ll never do it after work.
Figure to spend about 132 hours on FAR, 96 hours on REG, 80 hours on AUD and 64 hours on BEC. That’s watching review lectures 1 time and doing the AICPA recommended 2 – 3 hours of homework. You might need more, you might need less, that’s for you to figure out. Pencil that in between every other hour of your life – and I mean every hour, from sleeping to work – and get your exams scheduled early. Do some kind of final review 2 – 3 weeks before your exam dates and make sure you studied.
The last thing I can remind you is something my boss has hammered into my head 10,000 times. The CPA exam is not an IQ test, it’s a test of discipline. Keep that in mind and you’ll have nothing to worry about.

Five Really Simple Facts About the CPA Exam

Five.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
The CPA exam is full of myth and legend due in large part to the fact that you’re not supposed to discuss what’s actually on it. Of course everyone does and rumors fly around firms (“I heard IFRS is being tested in simulations…” “Tim in tax was thrown out of Prometric for wearing a hoodie to the exam…”) until they’ve been transformed into CPA exam nightmare tales based entirely in fiction. Knock it off, kids, let’s stick with the facts.


Of the two communications, only one is graded. Lucky you, you don’t know which one. Candidates get all bent out of shape over the communications but all you have to do is write a standard business letter. You don’t even have to answer the question correctly, you just have to stay on topic! Easy ten points, don’t blow it and do the communications first.
The research portion is only worth 1 point so if you don’t have time, blow it off. Yes, I said blow it off. If you’re crunched to complete a simulation, this is the last thing you want to spend your time on. Skip it unless you have lots of time.
The CPA exam is NOT graded on a curve, your score is not a percentage and is on a “plus point” basis. This means if you don’t know an answer, guess. Never leave a question blank, everyone starts with 0 points and earns up from there. More difficult MCQ earn you more points when answered correctly and no, the AICPA doesn’t reveal the secret psychometric formula that it uses to determine this.
There are no “easy” multiple choice. You only get moderate or difficult. Every exam starts moderate and MCQ testlets will get more difficult if you are doing well or stay the same if you’re bombing. So yours could be moderate, difficult, moderate or moderate, difficult, difficult or if you really didn’t study: moderate, moderate, FAIL. Sorry, made that last one up. You get the point.
14 – 16% of the exam isn’t even graded. Outrageous as it may seem, the AICPA loves pre-testing things that you have never learned just to scare the shit out of you. Actually, they’re testing new questions and gauging candidate reaction so good for you if you know XBRL but sorry, you’re not getting any credit for it. If you get bizarre MCQ, now you know why.
Thanks to my day job, I guess I’m some sort of CPA exam expert so I encourage Going Concern readers who are interested in CPA exam content to get in touch with us and let us know if there’s something you’d like to see us cover on this subject. Good times, kids, good times!

Meet the Fed’s New Bully

bully.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
There’s a new regulator in town and if his recent comments are to be taken seriously, he’s not kidding around.
The Fed gets plenty of face time these days as the regulatory face of the financial crisis, leaving the SEC, PCAOB and auditors limping behind. Unlike federal regulators, the Fed has a unique muscle due to its dual role as central bank and supervisor and Fed governor Daniel Tarullo would like you know that he is not afraid to flex it.
That’s great, but Tarullo might be getting a tad ahead of himself. I believe one former Fed official called him an “egotist”.


In recent months, Tarullo has been fairly quiet since he was installed at the Board of Governors in January of this year but he seems intent on speaking out lately, positioning himself as an early hero of commercial real estate and a regulatory force to be reckoned with. He even kicked off his week with a thorough Wall Street Journal rub:

The rise of Daniel Tarullo, a lawyer with a longstanding interest in bank regulation appointed to the Federal Reserve Board by President Barack Obama, is a sign the era of light-touch bank regulation is over.
New guidelines on bankers’ pay proposed by the Fed last week reflect Mr. Tarullo’s influence. He is shaking up the Fed’s 2,858-person army of bank supervisors, weighing in on issues ranging from the way regulators deal with troubled commercial real estate loans to the rules that will govern global banking for years to come.

Oh please, how ominous.
Regulatory rewrites might not be the first thing on his to-do list as newbie Fed governor, Tarullo’s first big takedown may be the Atlanta Fed.
As Tarullo came in, Atlanta Fed’s head of banking supervision went out, with the Board in Washington dispatching a few Board goons to keep an eye on Atlanta’s supervision department until they find a new sucker to head things up over there. With 20 Georgia bank failures for 2009 (out of 106), you can see why Daddy in DC might be worried about what Atlanta is (or isn’t) doing.
Tarullo appears to be positioning himself as a bad ass regulator ready for war and I wouldn’t take that threat lightly if I were Atlanta Fed, especially since they already know what it feels like to be on his shit list.

Auditing the Fed? Good Luck with That

in_greed_we_trust.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.

I have often been accused of taking the term “audit” in “Audit the Fed” a tad too literally. Thinking as an auditor might stem from spending far too many hours in Audit class (I’m not a CPA, I just play one on teevee). Nevertheless, I cannot help but wonder what proponents of a Fed audit think they’ll find once they crack open the books.


My primary concern is that Fed accountants do not use GAAP but rather a bizarre hybrid of GAAP, governmental, and WTF accounting. In fact, they write their own 325 page manual on accounting for Federal Reserve Banks and if you’re really really bored you can find that document here. What auditor is qualified to audit those statements? In no other situation would the client hand you their accounting manual and say, “Do us a favor and make sure we prepared our statements in accordance with our own special rules, would you? Thanks!” except in this case. And maybe that’s where I’m hung up on the word “audit.”

Some have argued that the “audit” in “Audit the Fed” actually means “crack open the books and figure out where the bailout bodies are buried.” Okay, that’s all well and good but even if that’s the case, how would an independent, outside source identify these bodies? It goes back to the client-provided handbook and we’re back at square one: defining the Fed balance sheet as a freak of nature.

It’s right there in the footnotes – pulling out the closest Fed annual report I’ve got (Richmond Fed 2007), both Deloitte and PwC agree that the Fed is a special case in Note 3: Significant Accounting Policies:

Accounting principles for entities with unique powers and responsibilities of the nation’s central bank have not been formulated by accounting standard-setting bodies.

The note goes on to explain why government securities held by the Fed are presented at amortized cost instead of GAAP’s fair value presentation because “amortized cost more appropriately reflects the Bank’s securities holdings given the System’s unique responsibility to conduct monetary policy.” Right there, you can see why auditing this thing might be a problem.

Proponents of HR 1207 and now newer proposed legislation to storm the Fed’s financials say that we need transparency from our central bank but I have argued time and time again that we’ll never get there poking around their statements trying to find the bloody glove. We’re
going to have to do better than an audit. Hell, Citigroup can pass an audit.

For more on Fed audits from yours truly, check out Fed Economic Rocket Scientists on Auditing the Fed, Liquidity Crises, They’re Comin for Dat Ass, Bernanke: Defining “Federal Reserve Accountability”, Auditing the Fed: Redux, and You Want to Audit the Fed. But Why?

The IRS Has Control Issues

peeing_control.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
The IRS is going after off-shore tax shelters and international banks to get its cut (presumably to make up for some tax revenue it has been missing out on in the last, oh, 8 years or so) but according to WebCPA, the IRS might want to tighten up its game on refunds.
It isn’t that the IRS is cutting checks for the heck of it – it turns out that the Treasury Department may need a quick refresher on controls for payments.


WebCPA:

[The Treasury Inspector General for Tax Administration report] found problems in the IRS’s handling of taxpayer payments that are subsequently dishonored by the banks in which they are deposited. Dishonored payments are not processed by banks for a variety of reasons, the report noted, including insufficient taxpayer funds. The IRS occasionally issues a refund to a taxpayer who had submitted an overpayment of taxes before the IRS realizes that the taxpayer’s check has been dishonored by the bank. This results in the taxpayer receiving an erroneous refund.
Between Jan. 1, 2008, and July 17, 2008, the IRS generated refunds as a result of dishonored check overpayments totaling approximately $53 million. TIGTA estimates that the IRS was unable to stop more than $20 million in refunds from being erroneously issued to nearly 14,000 individuals.

Well wait a minute, it was going to issue $53 million but was able to figure out $33 million were cut in error. That’s not so bad, is it?
The IRS cop out is that tricky stimulus check business of 2008 in which several dishonest taxpayers stopped payment on tax checks and made off with the stimulus booty instead of the money going towards offsetting the taxpayer’s tax liability. Sneaky!
Seriously, in the age of electronic funds transfers and billion dollar money market runs that cripple the financial system in a matter of minutes, how is it the IRS is still so far behind the times?
The TIGTA report claims that resolving this issue with proper controls on the IRS’ end could “protect approximately $102 million over the next five years from being issued to taxpayers in error.”
What’s $102 million nowadays anyway? That’s not even a fraction of an AIG bailout. No wonder the IRS isn’t trying too hard.

Outrage? Against Whom?!

pitchfork.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
Don’t Mess With Taxes had an interesting piece over the weekend on populist rage – you know, angry mobs with pitchforks ready to come after the first Goldman rat who even whispers the word bonus – and some interesting numbers to chew on, specifically when it comes to taxing the rich:

The top income tax rate of 35 percent is the lowest it’s been since 1992. For a good chunk of the 20th century, the wealthiest U.S. taxpayers handed over much more (90-plus percent from 1950 to 1963) to Uncle Sam.
Capital gains rates also are at historic lows. And richer folks tend to take advantage of capital gains (and losses) more often than the general populace since wealthier individuals usually are more active investors.

DMWT’s column was inspired by an NYT piece entitled All This Anger Against the Rich May Be Unhealthy in which the rich bemoan their tricky fate:

For the wealthy, their public image is a secondary concern since so many of them seek to live anonymously.
“They feel mischaracterized,” Mr. LaMothe said. “They know the time and effort they contribute. They fund scholarships and all the things they do routinely, and then to be characterized as not doing their fair share begins to wear on them.”
From the outside, the wealthy seem to be one big money-minting group. But how they came upon their wealth differs greatly. And those who did not make their fortunes in finance seem just as angry as everyone else about what Wall Street has wrought.

NYT’s got a good point. Outrage against Wall Street is one thing but what’s this blanket sentiment of anger towards rich people in general?
A recent Bain and Co. report projects a 8% drop in luxury good purchases (or about $227 billion) for 2009 with a “full” recovery in the luxury sector by 2011. Were it not for “populist outrage” against the wealthy, perhaps we’d see slightly more growth in this area moving forward but the wealthy have – wisely – trimmed down conspicuous purchases, presumably to keep the angry mob off their backs.
Worse, once Geithner and Co. wise up and realize how low tax revenues from the wealthy have been in recent years, it will be like a brand new financial vein to tap with or without much-needed tax reform.
Looks like a pretty convenient time to be broke, eh?

Lloyd Blankfein Does Fair Value

Thumbnail image for buffet-and-blankfein.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
It’s official, I’m sick of hearing “experts” weigh in on fair value. After my anti-PCAOB rant earlier this week, I thought I’d heard all there was in terms of the fair value argument.
Leave it to Goldman Sachs’s fearless leader to pull this little rabbit out of his hat and shock the shit out of me. In a Financial Times op-ed earlier this week, Blankfein doesn’t directly toot Goldman’s horn, though anyone who knows the lotion in a sock trick might recognize this as a blatant jerk-off.


For a man whose institution lurks in the cesspools, erm, dark pools, Blankfein is awfully incredulous as he criticizes both regulators and institutions for slacking on their valuations. GS calculates the fair value of their positions daily? Christ, no wonder they’re making buckets of cash.
FT:

It is not enough even that all exposures be identified. An institution’s assets must also be valued at their fair market value – the price at which willing buyers and sellers transact – not at the (frequently irrelevant) historic value. Some argue that fair value accounting exacerbated the credit crisis. I see it differently. If institutions had been required to recognise [British sic] their exposures promptly and value them appropriately, they would have been likely to curtail the worst risks. Instead, positions were not monitored, so changes in value were often ignored until losses grew to a point when solvency became an issue.
At Goldman Sachs, we calculate the fair value of our positions every day, because we would not know how to assess or manage risk if market prices were not reflected on our books. This approach provides an essential early warning system that is critical for risk managers and regulators.

FT’s own John Gapper even gets in on the Goldman fapfapfap, defending their practices as not exactly illegal, just really, really clever.

Its run of success since its 1999 initial public offering has not been based on “pump and dump” broking but on sticking obstinately to the institutional, less-regulated elite end of the market.
One rival Wall Street executive describes Goldman (with rueful admiration) as “a bunch of clever thugs”. He means that Goldman has been tough about seizing profitable opportunities even if that involves, for example, bidding for an asset against a former client.
Whatever Goldman is doing to make money, it works.

Crack dealers and prostitutes also make a lot of money but that doesn’t make it right. Just sayin.

The PCAOB Sticks Its Finger in the Fair Value Jar

peanut-butter-ss.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
You know that annoying roommate you had in college who always stuck his finger in your peanut butter jar? That’s the PCAOB meddling in fair value and it won’t be pretty.
On October 14 – 15th, the PCAOB’s Standing Advisory Group (SAG) is slated to meet to discuss the particulars of fair value and starts off by admitting that “The Board has no authority to prescribe the form or content of a public company’s financial statements.” OK, so WTF are they doing then?


Via CFO.com:

For the past couple of years, regulators have nudged auditors to get more skeptical when it comes to evaluating fair-value measurements. In the meantime, the controversial accounting rules governing how companies apply fair value have been tweaked and companies’ use of judgment for assigning fair-value price estimates to their financial instruments has grown.
The Public Company Accounting Oversight Board is dipping into contentious waters again by suggesting that new fair-value auditing rules are necessary. The board’s staff has long contended that the use of estimates based on market value — rather than historical cost — adds uncertainty and subjectivity to financial reporting and an added risk of material misstatements. At the same time, the regulator has been slow-footed on previous attempts to change its rules when it comes to auditing fair-value calculations.

So what gives, PCAOB? Don’t you trust that auditors are trained to do their damn jobs?
Apparently not. The PCAOB is concerned that auditors lack the technical skill to evaluate complex financial instruments and frankly I could see why they might be a tad concerned.

Regardless of the applicable accounting requirements, it is a fundamental requirement that the auditor obtain sufficient competent audit evidence to provide reasonable assurance that fair value measurements and disclosures are in conformity with the applicable accounting principles.
The staff believes that a standards-setting project to revise its existing standards on auditing fair value measurements and using the work of a specialist may be appropriate for a number of reasons. Information obtained from the Board’s inspection and enforcement programs indicate that some auditors might not be exercising sufficient professional skepticism when performing audit procedures and evaluating results in higher risk areas of the audit.

Well that’s fabulous. Isn’t it already in an auditor’s job description to approach an audit with professional skepticism and to obtain sufficient audit evidence? So, uh, is the PCAOB implying that auditors have no idea what they are doing? Why doesn’t the PCAOB just do all the audits?
It’s a brave new world, kids, and the PCAOB knows it. Perhaps if regulators had done their job in the first place, auditors wouldn’t be facing increased pressure to somehow decode increasingly complex securitization, off balance sheet entities, and absolutely bizarre financial instruments. But since that’s our reality these days, might as well pop a few Xanax and start ticking and tying your way through those billions in derivatives. Quick, the PCAOB is coming!

Comverse: One More Epic Regulatory Failure

epic-failure.thumbnail.jpgTelecom company Comverse hasn’t filed financial statements in 4 years and the SEC has just now gotten around to settling with them. Does that make sense to anyone?
Continued, after the jump

Three years after getting caught in a huge stock-options backdating scandal, technology company Comverse appears to be nearing the end of its crisis. The company recently reported that it had come to an agreement with the U.S. Security and Exchange Commission, consenting to a permanent injunction over any future violations by the company of American securities laws.
Comverse will also have to meet its periodic reporting requirement to the SEC no later than Feb. 8, 2010.
The agreement acknowledges that Comverse neither admits nor denies the allegations that the SEC filed against the company, and no fines will be imposed. The settlement is subject to court approval.
Comverse President and CEO Andre Dahan called the settlement an important step forward. “With these matters resolved, we remain focused on our plan to be relisted and on carrying out our strategies for the long-term success of Comverse Technologies,” he said.

(source)
That’s all well and good but no fines? That sounds like encouraging bad behavior to me. What the SEC is saying, in effect, is that companies don’t really need to file financial statements, and if they do they can backdate all they want and perhaps the SEC will come around eventually to slap them on the wrist. Sounds like effective regulating to me.
Comverse subsidiary Ulticom finally filed 2005 – 2008 financial statements with the SEC this month and the company promises it will resume issuing quarterlies to the SEC in 2010. Well shit, why?

During the probe of the effects of the options backdating affair, following which Comverse CEO Kobi Alexander fled Israel to Namibia, Ulticom discovered additional accounting irregularities in the company’s financial statement preparations. Mistakes had been made in the recognition of postponed revenues in the years 1998-2004, and the expenses on intangible assets during 1999-2004 had been incorrectly assessed.
The correction of these irregularities resulted in a $6.8 million write-off from revenues prior to 2005, after which the company filed complete statements.

(source)
What’s the lesson here, kids? Do whatever the hell you want, it’s not like the SEC is going to stop you. It’s the IRS you’ve got to be afraid of, not the children over at SEC Elementary.
Also see: Where’s the Sex Tape, Comverse?

The CPA Exam: It’s Too Late Now

Thumbnail image for Thumbnail image for panic.jpgIt’s October which means CPA exam candidates have about 7 weeks left to sneak in one more exam part before the end of the year. If you’re like most candidates, you blew off this entire year with excuses or got disappointed by failing scores early in the year and haven’t given the exam much thought since. Well you better start because you’ve got about 1,248 hours until the final window of the year is closed.
Sometimes procrastination pays off but in this instance, the exam will never get easier and you’ll never get through it if you keep putting it off.
Continued, after the jump


Typical prep time for the sections is as follows*:
BEC – 64 hours
AUD – 80 hours
REG – 96 hours
FAR – 132 hours
With 1,248 hours remaining until the December blackout, you should easily be able to fit in FAR, right? Wrong. If you’re working fulltime, lets just take out 50 hours a week, leaving you with 898 hours. But you’ve got to sleep, right? So if you get 6 hours a night, that leaves 580 hours. Well hell, you could prepare for two sections in that time, couldn’t you?
Not so much. Do you think you’re the only one who waited until the last minute?
The lesson for next year? Schedule early. Chances are if you’re trying to fit in one more section before the end of the year, you will not be able to sit at the Prometric test center of your choice, or may not be able to get the time/date that you desire. Well, that sucks for you, so hopefully you remember that for next time.
If you don’t start studying now, you’ve probably blown it for the year and should just wait for the first window of 2010. Remember the CPA exam isn’t like college, you can’t just stay over-caffeinated for a weekend and cram everything in that you need. Think of the information like a fine wine, it’s got to ferment in your brain to be useful come test day. Your brain learns best in layers anyway and without the foundation, you’re going to get tricked by the easiest MCQ simply because you don’t have the background on each concept.
Otherwise it will be November before you know it and you won’t have cracked a single CPA Review book between now and then. Trust me on this one, kids, start early and start slow. I’m trying to help you.
*Time based on video lectures and AICPA recommendation of 2 – 3 hours of self-study MCQ/sims for every hour of lecture but we’re sure you’re all Einsteins when it comes to this stuff so it’s probably less.

Apple’s Carbon Accounting Trick

steve-jobs-plush-toy-1.jpgWhat’s next, a FASB for carbon accounting? Should companies be required to report carbon emissions and if so, who is going to audit these statements? After all, data is only as good as the substantive tests that prove its accuracy.
Apple has never been at the top of environmentalists’ list as a green company but for the first time it is now publishing corporate carbon data on its website for all to see.
Continued, after the jump


Business Week:

Apple’s real goal is to change the terms of the debate. Company executives say that most existing green rankings are flawed in several respects. They count the promises companies make about green plans rather than actual achievements. And most focus on the environmental impact of a company’s operations, but exclude that of its products.
Apple argues that broader, more comprehensive figures for carbon emissions should be used–for everything from materials mined for its products to the electricity used to power them–and it’s offering up its own data to make the case. Executives say that consumers’ use of Apple products accounts for 53% of the company’s total 10.2 million tons of carbon emissions annually. That’s more than the 38% that occurs as the products are manufactured in Asia or the 3% that comes from Apple’s own operations. “A lot of companies publish how green their building is, but it doesn’t matter if you’re shipping millions of power-hungry products with toxic chemicals in them,” says CEO Steve Jobs in an interview. “It’s like asking a cigarette company how green their office is.”

Again, I’m skeptical of any self-reported data that doesn’t go through the usual channels like financial statements would. Imagine if a company like Apple was also allowed to slap together some cash flows without the little auditors crawling all over the numbers, “Hey investors! Check us out, we made $52 bazillion this quarter in iPhone sales alone!” Yeah, ok.
I’m not even sure what this carbon argument is all about so I’ll just let this one go. Good job, Apple. I think.

Times They Are a-Changin’, at Least for the CPA Exam

cpa exam.jpgHaving come down from a two-day smackdown of Live CPA Review classes this weekend, I’ve got CPA Review on the brain. It’s sort of like spending the weekend doing rails off toilet seats with strippers (not like I’d know) except I can’t see what sort of nutjob would wake up at 5 am for coked-out whores like I did for BEC on Saturday. Whatever, I do it for the kids.
Anyway, I thought it important to point out here that major changes to the CPA exam are coming down the pipe – so now is the time to get off your lazy ass and get this thing over with already. Seriously.
Continued, after the jump


My dear editor here at Going Concern already covered this briefly and frankly I share his concern that perhaps you kids will still be struggling with variance analysis by the time the AICPA Board of Examiners’ changes actually hit the exam.
Don’t worry, I speak AICPA BoE so let’s decode this, shall we?
First of all, the adoption of IFRS in the United States is still up in the air. The AICPA BoE wants you to know that they aren’t playing around when it comes to International Financial Reporting Standards.
They are already pre-testing IFRS questions on the exam (allegedly, or so my gut says) so don’t get shocked if you get an XBRL question in BEC. Unless you didn’t study, you already know 15% of CPA exam questions are pre-tested. This shows the AICPA isn’t shooting rubber bullets, they’re serious about this IFRS stuff.
While IFRS will eventually revolutionize the FAR exam, for the first few testing windows it isn’t likely that you’ll see much more than comparison questions (e.g.: “under GAAP, an asset is recognized thusly… in IFRS, it is recognized…”).
So it isn’t like you’re going to take FAR in the last testing window of 2009, fail, and then suddenly have to be an IFRS expert come the January window. In fact, the AICPA BoE has a pretty sad track record as far as these things go (if they weren’t painfully predictable, I might be out of a job) so don’t feel let down if you end up taking FAR in the last window of 2010 and only get a handful of tame IFRS MCQ.
As for this whole business about communications in BEC? Be grateful. This will likely cut a half hour off of Audit (as of now the longest exam) and tack it on to BEC. As always, communications are the easiest component of the exam since you don’t actually have to know what the hell you’re talking about, you just have to stay on topic and write correctly.
CBT-e means communications will disappear from AUD, REG, and FAR because apparently writing skills aren’t important to a CPA and 2 of the 3 writing portions will count towards your BEC score.
So stop panicking but take this as a huge hint that you should hurry up and knock this thing out once and for all. The computerized CPA exam is still relatively new and the AICPA is still working out the kinks. This may be the largest change to date but it’s certainly not the last.

The PCAOB Wants to Know Which Superhero You Are… Later

annoying list.jpgWhat’s with the PCAOB being all up in everyone’s business? Is this the most effective way to tackle total financial failure or just more bureaucratic red tape?

The good news is that there may be some, er, technical difficulties in the implementation of the PCAOB’s latest move. But don’t think you’re off the hook just yet, they’ve got their little web monkeys all over it.


Journal of Accountancy:

The PCAOB postponed the effective date for registered public accounting firms required to report under its new rules to Dec. 31, 2009, from the previous date of Oct. 12, in order to resolve technical issues related to deploying the board’s new Web-based system for processing and publishing filings on the new forms, according to a news release.

Forms 1, 2, 3 and 4 must be filed electronically through that system.

The postponement will not affect the timing of the first annual reports required from registered firms, which will still be due on June 30, 2010, for the 12-month period ending March 31, 2010.

Under the new rules, approved by the SEC on Aug. 13, 2009, certain events– ranging from administrative matters such as changes in a firm’s contact information to more substantive matters, including certain types of legal proceedings against a firm or its personnel–that occur on or after the Dec. 31 effective date must be reported by a registered firm in a special report on PCAOB Form 3 within 30 days after the event.

Since the PCAOB appears to be on a roll, we have a few more suggestions for reports that they may find useful, while we’re on the mandatory reporting tip, and hopefully implementation of these won’t cause the PCAOB Internets to go all wonky:

• All management must submit weekly urine samples, and samples must be signed off by partners, who must also submit weekly samples.

• All new hires must complete Ropes Course team-building exercises, as well as sensitivity training. First years will also be required to watch the Gilmore Girls box set and will be required to submit hours dedicated to this to the PCAOB each month. No cheating, Golden Girls is not a substitute and firms who do not comply will be fined $25 for each DVD in the box set.

• Firms must report staff Facebook status to the PCAOB on a weekly basis, as well as what staff “likes” and the results of “Which Superhero are You?” quizzes. Twitter status updates from firm staff are optional reporting, and the PCAOB will accept public comment on this issue (via @ reply only) until December 31st, 2009.

If you have suggestions for more PCAOB mandatory reporting that will just make for more headaches at work, do let us know in the comments (and no, “shove it up your ass, PCAOB” is not a good suggestion, and frankly we’ve suggested that one already ourselves).

Be Prepared if the Recovery Fails, Part II

Thumbnail image for Thumbnail image for angry bear.jpgIn the first part of our two part interview with Financial Armageddon’s Michael Panzner, we dealt with the ugly part, but what about the bright side? I guess one wouldn’t expect a doom and gloomer to have a silver lining tucked into his rain cloud but trust me, it’s there and it’s not nearly as bad as it seems.
In case you mi=”http://www.goingconcern.com/2009/09/do-it-like-an-eagle-scout-be-p.php”>it may be found here.
Of all of the things we got out of speaking with Panzner, two key points resonated above all the fear and panic and fright: A) though it’s bad and will likely be bad for quite some time, what results once we flush out the garbage will leave us better off than we were before the shit hit the fan and B) it’s actually really not as bad as it appears.
Huh?
Continued, after the jump


Panzner insists that while China may have the upper hand at the moment, they are also of the pack mentality; meaning that they may not be entirely equipped to cut and run like investors in the West and instead loyal to an ideal that dictates following the pack is sometimes the safest move one can make. What the hell does that mean?
A little bit of Panzner wisdom:

China and other emerging economies have for years used various methods to “protect” domestic industries, including managing foreign exchange rates and creating lots of hoops for outsiders to jump through to do business in domestic markets. So it is probably fair to say that the notion of widespread protectionism is not something new. But with economic circumstances becoming decidedly more hostile, it shouldn’t be surprising to see more and more countries adopting strategies that give local concerns an advantage over outside firms. Not all of them will look like traditional trade barriers, however.

Protectionism is a threat but not all that unlikely of a scenario. Some – Panzner among them – argue that bailouts could be translated as protectionism, and it is no small wonder that sovereign nations would adopt such a strategy in times of economic turmoil. But China doesn’t appear to be prepared to pull the trigger on the economic WMDs, at least not now.
“In the short run, I don’t see the Chinese resorting to the ‘nuclear option,’ where they decide that the strategic advantages of dumping the dollar outweigh the damage they might do to themselves,” he says, reminding us that screwing the US means screwing themselves, something Asian investors tend to find distasteful, to say the least.
As we pointed out in the first part of this Panzner brain-picking, the best strategy to adopt is one of preparedness in the face of uncertainty. This means you, little accountants.
“If the events of the past few years have not convinced people to ask plenty of questions and challenge any sort of assumptions, I don’t know what will,” he tells us. “I would suggest that everybody — including accountants and CFOs — take the Boy Scout motto to heart in their personal and professional lives. That is, hope for the best, expect the worst, and be prepared for whatever happens.”
The “expect the worst” isn’t pretty, at least from Panzner’s qualified perspective, and whether or not you agree with his assessment (as yours truly does), it can’t hurt to be reasonable about the long hard slog called “recovery” ahead of us. “In the end, wishful thinking won’t make it go away, but having a firm grip on reality might make the experience a lot less painful. Ultimately, there is a light at the end of the tunnel, but I personally think that point could be up to a decade away.”
His is but one opinion of many and as always, it is all in perspective. Regardless of what you believe lies ahead, it can’t hurt to consider the many possibilities that we find in our particular fork in the road. With unemployment climbing and the fate of the dollar in the hands of financial crack addicts at the press, it makes sense that he and others would believe in a future that is only slightly less rosy than the one painted by the powers that be in hopes that we’ll hit the mall and kick consumer spending in the ass once again.
The days of big screen TVs and SUVs are gone but your future remains. It’s all in how you handle that.
We are not here because our central bank did or didn’t do anything, Panzner reminds us, we are here because there has been a crisis of faith in our money, in markets to work their regulatory magic naturally, and in the traditional weapons of monetary policy and politics to scare events into compliance along the way. Does that mean it’s all hopeless and we should just curl up in a ball and cry?
Well no. Didn’t you read the damn interview?
Thanks go out to MP for letting us pick his brain, and we’d love to revisit again 6 months down the road if everything hasn’t fallen apart by then. Just a reminder, you can find him blogging over at Financial Armageddon and When Giants Fall, as well as Huffington Post, Seeking Alpha, and pretty much all over the Internet. Love ya, MP, even though you make me cry sometimes!

Do it Like an Eagle Scout: ‘Be Prepared’ if the Recovery Fails

Thumbnail image for angry bear.jpgEditor’s note: This is part one of a two part interview. Look for part two tomorrow.

I recently had the absolute honor of interrogating Michael Panzner, 25-year veteran of the global stock, bond, and currency markets who has worked in New York and London for such leading companies as HSBC, Soros Funds, ABN Amro, Dresdner Bank, and J.P. Morgan Chase.

If you are familu know that to call him a doom and gloomer might be a tad of an understatement. Besides his body of literary work which includes Financial Armageddon and most recently When Giants Fall, he maintains blogs by the same name (Financial Armageddon and When Giants Fall), documenting each stage of our continued unraveling.

What struck me upon first finding his work was that though he wasn’t exactly subscribed to the “unicorns and rainbows” school of thought for our inevitable future, he managed to present his vision for our destiny in a way that even the most misguided sheep among us could understand.

To call him your average doom and gloomer does a disservice to his ability to paint our path in detailed horror. Trust me kids, to borrow Panzner’s own parlance, it’s always better to know than not to know and we’d much rather you know where we might be headed instead of stumbling along blindly towards slaughter.

Keep in mind that I already knew how Panzner would answer but I do it for you kids who have no idea just how bad things might be out there. But you’re in public accounting so you should already be more than aware. Panzner isn’t trying to scare you and neither are we, it’s all about preparing for the worst and hoping for the best. Hope can only get you so far but preparation can get you a whole hell of a lot farther when the two are combined.

So the first important question is how the hell did we get here?

His answer is simple: negative incentivisation (or an absolute lack of reasonable punishments for unreasonable behavior) and an enabling mentality. He paints the analogy that Wall Street behaves like a bunch of crack addicts; instead of cutting them off of the financial crack pipe, the powers that be fed their addiction with easier money and more securitization, essentially handing over the dope to the dope fiends instead of serving their regulatory purpose and saying “enough is enough, now give me your keys and sleep it off.” The combination has, of course, proved to be deadly, at least in the financial sense.

Says Panzner, “The many imbalances that still exist in the U.S. economy and the aggressive actions that Washington has taken so far means that policymakers will find it harder and harder to keep the ship afloat without resorting to maneuvers, like cranking up the proverbial printing presses, that lead to even bigger problems down the road. Meanwhile, it’s only a matter of time before already stretched individuals and bottom-line-focused businesses either run out of resources or patience — or both — and decide to cut and run.” Meaning the dealer is running out of product, leaving the addicts stumbling around in the street unable to get their next fix.

“Constant stroking out of Washington” can only lead to a let down later on, he says, pointing out that Wall Street appears to have run out of hands to juggle the balls in the air.

“The problem now,” he says, “is that all the bullets are gone.” Monetary policy and political ammunition have left the powers that be with nothing in the chamber now that they’ve shot their load. Figuratively, we hope.

The mistake we appear to be making now is in assuming that this is your average downturn or a series of events that we’ve seen before, the sort of economic slump that academic brainiacs like Ben Bernanke penciled out on worksheets in their early doctorate years.

What they seem unable to wrap their big heads around, he says, is that this is not your traditional sort of recessionary episode. Until they accept that tiny detail, we will only exacerbate the issue, digging a deeper hole and merely staving off the real fallout when we could be better spending our time working towards picking up the pieces. Adding fuel to the fire, Panzner points out, “no one got fired and people think they beat the system.” Where’s the punishment in that?
So where does that leave us now? I guess you’ll just have to wait for the second part of our interview to find out.

Dear PCAOB, Are You For F&^$ing Real?!

morans.jpgMaybe the problem here is not that the audits are not being performed correctly but that the PCAOB has no idea what it’s doing in the first place.
Continued, after the jump


WebCPA:

Many accounting firms are doing a good job of following new standards for conducting risk-based audits of internal controls, but others are not applying the standards properly, according to a new report by the Public Company Accounting Oversight Board.
The PCAOB examined portions of approximately 250 audits of internal control over financial reporting by the eight largest domestic registered firms in 2007 and 2008. The report assesses the first year of implementation of the risk-based Auditing Standard No. 5.

Listen, internal control isn’t like sex education, you can’t just say “listen, kids, be careful out there lest you end up with a funny rash on your cash flows” and leave a jar of condoms on the desk hoping management uses them. How does the PCAOB hope to be taken seriously when it slashes the minnows to death and leaves the sharks patrolling the waters for oblivious swimmers?
Case in point, in late 2008, GM settled with shareholders to the tune of $277 million for “accounting irregularities” (gee, this sounds familiar), and presumably for shits and giggles, Deloitte tossed another $26 million in there since, you know, as auditors they should have caught said irregularities. Irregularities? More like blatant fraud. But GM trudged on and ended up costing the American taxpayer $23 billion, most of which we shouldn’t expect to see any time soon, if ever. Would Deloitte like to kick in a few billion for that, perhaps?
The PCAOB should have stormed Deloitte and shook the auditors like crying babies until they confessed their sins at the regulatory pulpit. Instead they are going after puny firms and levying increased fees against them in the name of compliance – compliance! Compliance with what? Isn’t it criminal for the PCAOB to turn the other cheek? Compliance?! I’m not sure where the PCAOB comes from but where I come from, we call that being in cahoots. In some courts, it might be considered accessory to the crime but who the hell am I to judge?
So while the PCAOB is busy deciding whether or not it’s appropriate to require an auditing partner to sign off on audits (thereby invalidating the entire purpose of an audit committee in the first place), the blatant criminal behavior continues and no one seems to be minding the store, not even the guy who refills the condom jar.

Your Hire Date is Delayed, Now What?

Waiting.jpgInspired by recent events which I shall not get into here because of CPA Wrangler/client privilege, I figured now might be the time to do a quick “how to survive if you thought you were starting with the Big 87654 but suddenly won’t be until 3 quarters from now” refresher. Here you thought you got a sweet gig and now it’s all about making it until your delayed start date.
First and foremost, you’ve got your parents. They might have even put you through school. Your Dad may have called me at the CPA Factory asking if he could put your CPA Review course on his credit card (awww what a nice guy). Maybe they aren’t totally disappointed in you yet and haven’t lost their savings to Alan Greenspan’s bubble fixation. Whatever the situation, you should know by now that this is the first place to tap for extra cash, not your couch.
More, after the jump


Secondly, maybe the Universe is trying to tell you something. Is this really what you want to do with your life? Public accounting? Really? No one’s saying you’ve got to have a spiritual awakening or anything but maybe this is the time to evaluate the direction your life is trying to take. If nothing else, take it as a sign that you could use a Sabbatical.
Let’s not forget that you should be employable somewhere else. So instead of sitting around on the Xbox 360 eating ramen until you show up all pretty and polished for your first day at the Big 87654, go shop your shiny ass to other firms who might have the cash to cover your paycheck. If you’re looking for an easy way to meet the experience requirement and get your CPA and are lucky enough to have a trust fund, you’re totally fine sitting around pwning 12 year olds at Halo. But if you actually want to be an accountant for the rest of your life, go out there and sell yourself to a smaller firm who might appreciate your skills, not leave you waiting like a bad Craigslist blind date.
The last thing to keep in mind here is that sometimes it really is not you but me. Firms are scrambling to keep the quality staff they have and replenish the stock that are moving out of public accounting; take advantage of this. As we pointed out here on Going Concern already, don’t trip on the recruiters, they might be out of a job in a few months. It’s a bloodbath out there so slap on your gloves and try not to get any on your nice blue tie.
And if things get really bad, you can always froth lattes at the local coffee shop for the next few months. Give me a discount on my quad black eyes and I’ll tell you what *I feel* might be on the FAR exam next window *cough*
Hang in there, kids!

FASB Does Apple a Giant Solid

Apple-II.jpgEditor’s note: Adrienne Gonzalez is founder and managing editor of Jr Deputy Accountant. You can 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.
Holy crap, wait a minute, is FASB trying to do something useful?
If you’re the sort of person annoyed by having to pay for software updates for your iPod, then perhaps. As with anything FASB does, intention and practical application are always two distinct and not necessarily related items. It remains to be seen whether or not this frees Apple of the strange accounting noose critics of the FASB rule claim has stifled sales.
Continued, after the jump

If you’ve ever been irked at the small charges you’ve had to pay for an iPod touch software upgrade, this may be about to go by the wayside. According to Ars Technica, a rule governed by the Financial Accounting Standards Board, that’s been heavily lobbied for by Apple and other electronics companies, may be enough to lift the charge that iPod touch owners have had to pay for updates of significant features to their devices. The rule focuses on “subscription accounting”, or devices that gain “significant new functionality” after their sale, like the iPhone, have to be reported over a series of years rather than all at the same time (presumably because the revenues associated with the product were the result of a series of updates, not just one lump sum).

(source)
Those same critics (or the financial reporting nerds, we’re not sure) claim that Apple has technically been underreporting its iPhone earnings as a result of this rule, a reversal of which would fortify Apple’s balance sheet of steel. That’s great for Apple, I suppose.
The rule is as yet in comment draft form, so go nerd on over to FASB and tell them what you think.
Does this mean billions in iPhone revenues will have to be restated going back to 2008? Rub it in, why don’t you?
This is where it gets really magical.
Stefan Sidahmed via Seeking Alpha:

The projected EPS really shows the true impact of the iPhone on Apple’s earnings. The FY10 EPS of $16.80 includes $4.02 in deferred income, so the ‘real’ EPS would be $12.78, more than double FY09 projected GAAP earnings. Likewise, the FY11 EPS contains $1.92 of deferred EPS. This should not be interpreted as Apple doubling their EPS, but rather that their current EPS is artificially suppressed by subscription accounting.

Good news for them and maybe FASB has at last done some good. Guess we’ll see when the deferred earnings run out.

When Good Audits Go… Good. (+ Sex Scandal)

oil!.jpgThis is the sort of story that you can’t make up. Like the story of the guy who tried to write off prostitutes and porn as a “medical expense”.
Wait a second. Oil “programs,” federal misconduct, drugs, sex, AND bad accounting?! This might be the best thing I’ve read in weeks.
Continued, after the jump


NYT:

The Interior Department announced on Wednesday that it was ending an oil and gas royalty program that ignited a scandal last year when it was disclosed that federal employees had engaged in corruption, drug use and sexual misconduct with oil industry officials.
Ken Salazar, the interior secretary, told a House committee that he was phasing out the royalty-in-kind program, which is administered by the department’s Minerals Management Service. It allows oil companies to pay the government in oil and gas rather than in cash for the right to drill on federal lands. Recent audits have shown that the government has failed to collect tens of millions of dollars worth of royalties owed it under the program.

Everyone knows I am not the mathlete but tens of millions seems fairly clear to me. Did NYT really have to use “right to drill” in that too? This might be the seediest accounting scandal I’ve seen since the phone sex company that booked revenues too soon (I think that’s called the premature double entry method):

Four Star Financial was another firm with results too good to be true. Once a thriving financial services firm that paid as much as 18 percent on returns to investors, Four Star performed well for years. The closely held firm had invested in 900-numbers and collected on their unpaid receivables. It also made short-term loans at high interest rates. But when the 900-number industry began to slide in the mid-1990s, the firm (then called 900 Capital Services) sought new ways to pay off investors.
A class action lawsuit alleges that Four Star undertook a Ponzi scheme described as the “‘Argentina arbitrage transaction” defrauding investors of at least $40 million. The deal purportedly involved the sale of long-distance telephone arbitrage contracts in Argentina.
According to the Web site Four Star Fraud.com, which apprises former investors of ongoing litigation and company news, most investors–largely concentrated on the Westside–believed Four Star dealt exclusively in telecommunications. The suit further claims that both 900 Capital and Four Star had questionable investments from their inception.

Too easy. It’s almost as if they write themselves sometimes.

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!

Don’t Raise Those Taxes Just Yet, Timmy!

eraserhead_geithner2.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 exames 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.
I don’t know about you guys but when I’m trying to avoid spilling the beans, I’ll skirt around the issue as much as possible. God forbid my words come back to haunt me later, it’s so much easier to be as vague as possible.
Turbo Tim Geithner obviously subscribes to this method as well. Skirting around the issue of a tax increase? Our Treasury Secretary has that little song and dance down.
More after the jump


Politico:

Treasury Secretary Timothy Geithner said in an interview aired Sunday that the administration will do “what’s necessary” to revive the economy, and didn’t rule out new taxes as a means to do so.
“We’re going to have to look at – we’re going to have to do what’s necessary,” Geithner told ABC’s George Stephanopoulos, host of “This Week.”
“Remember the critical thing is people understand that when we have recovery established, led by the private sector, then we have to bring these deficits down very dramatically. We have to bring them down to a level where the amount we’re borrowing from the world is stable at a reasonable level. And that’s going to require some very hard choices. And we’re going to have to do that in a way that does not add unfairly to the burdens that the average American already faces.”

Well what the hell is that supposed to mean? Sounds like a tax increase to me. With our Chinese credit card already cut and record-blowing amounts of Treasury auctions flopping week after week, one can only wonder where we’re going to be forced to make those “hard choices” Geithner is talking about.
Well instead of an across the board tax increase, we have some other ideas for raising the United States’ revenue. Hope you’re listening, Timmy!
Obama Cabinet bikini car wash on Pennsylvania Ave. – Listen, no one wants to see Larry Summers in a bikini, so maybe the fundraising will come from paying him to keep his clothes on.
White House yard sale -Taking a cue from California, the White House could put up all those black Secret Service helicopters up for a deep, deep discount. I’m sure they could pull at least $20 a pop for cardboard cutouts of Bill Clinton that have been gathering dust in the basement
Rent out Ben Bernanke’s industrial strength money printing machine by the hour – Listen, we already know the thing works, why not rent it out to other nations engaged in quantitative easing? I’d say rent it out to Zimbabwe but they might not be able to cover the bill
FOMC cage match fights at Fedquarters – We’ve all heard about dissent at FOMC meetings but what if we kill two birds with one stone – bring new transparency to the monetary policy-setting process AND pull in $75 a ticket to see “El Jefe” Jeff Lacker take on “Helicopter Ben” Bernanke in spandex and Luchador masks? I know I would pay to see that.
If you’ve got other ideas, we’re all ears. And if none of these work, I guess there’s always legalized prostitution. Though I’m not quite sure how well Tim “Eraserhead” Geithner would do as a man whore… Oh well. Tax increase here we come!

The CPA Exam for Commitmentphobes

Editor’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.
The first time I addressed the CPA exam here on Going Concern, I may have given the firms a little too much credit. Keep in mind that I write from the perspective of a CPA Review Project Coordinator; in other words, I’ve heard every excuse in the book.
I need more time on my course. Work got really busy and…
Continued, after the jump


Listen, I understand that the CPA exam is a serious commitment. I also understand that first and second year new hires get worked like slave labor. What I do not understand is why this should be my problem 2 years after the student’s course expired with not a peep in between. Can you use this excuse in college? “Yeah, sorry I didn’t make it to my Final… um, I know it was 3 years ago but can I just take it again? I got really busy.” I dare you to try.
What I’ve learned from my time in the CPA Review trenches – something that I will take with me for the rest of my life – is quite simple. In the time it takes to come up with reasons why you don’t have the energy, time, knowledge, or ability to pass the CPA exam, you could have already passed it.
Yes, you. You could have passed this thing years ago. All of a sudden you’re staring down a promotion and realize that there’s no way you’ll be able to make the leap with that obnoxious colleague who passed the exam in 4 months. How can you possibly compare?
Well you can’t, first of all. Second of all, I’m willing to bet my entire inventory of Wiley CPA Review books that he’s full of shit. So is the guy who said he had an hour and a half left when he walked out of FAR, as is the chick who says she got a 95 on BEC (she’s our student, you know, and she got three 60s before that, not to mention cussed out by me for an hour before she finally passed). They are not you. And you, little CPA exam candidate, are the only person who matters in all of this.
Not your parents, not your boss, not your firm and not even your significant other. You. Is this what you want to do with your life or not?
If it was, you’d be at the Prometric center in full war paint ready for battle 45 minutes before they open, not calling me trying to explain how complicated your life got in the two years since I’ve heard from you. Apparently you forgot that you friended me on Facebook and I can see you filling out 79 quizzes in just three short hours.
What exactly are you waiting for? Time? Trust me, you’ll never have it.

The Art of Bank Failures

alan_greenspan_pancake.jpgDeutsche Bank wins the prize for the most well-capitalized art collection, racking up 53,000 works in one of the largest corporate art collections in the world – as of 2004, worth an estimated $124 million (USD). Does that fall under PP&E? How does one depreciate a Cezanne hanging in a corporate office anyway? Oh wait, you don’t.
In honor of the year anniversary of Lehman’s fall, we find it worth noting here that Lehman’s Dick Fuld and his wife found that when you’re in desperate need of a capital infusion and facing epic failure, pawning off your precious fine art pieces works in a pinch.
More, after the jump


Guardian UK:

The bankrupt investment bank Lehman Brothers wants to sell at least $8m (£5.2m) worth of the art collection that once decorated its offices. The news comes as $20m of postwar art, put up for sale by the former Lehman boss Richard Fuld and his wife Kathy, goes on the block tonight at Christie’s in New York.

That’s got to hurt.
But Dick isn’t alone. If only banks would have considered these precious assets while spiraling down the toilet.
Portfolio has a do-not-miss on the art collections left behind by bank failures:

From coast to coast, millions of dollars of corporate art that once hung in the offices of well-known banks has itself become entangled in the fallout from the financial crisis. The fate of that artwork is still being sorted out, along with the assets involved in many of the unprecedented bank failures and resulting mergers that took place last year. Some of the surviving financial institutions appear to be holding onto the valuable artwork for their own collections, despite the chance to cushion their coffers with its sale. Others are selling the art or donating it to local museums and nonprofits.

Well, wait a minute, will this art have the same fate as the $4 billion in WaMu deposits the failed thrift is fighting to get back from JP Morgan? Just sayin.
This is nothing new. In 1991, the FDIC netted a cool $250,000 for the art collection of failed Boston Trade Bank. Though that was a pathetic catch in comparison to the $800,000 the collection of 219 pieces was estimated to be worth but hey, every little bit helps.
Wonder why no one’s thought to tap AIG for some precious paintings? Surely General Motors has a few pricey pieces lying around corporate offices, let’s use that to recoup that $23 billion American taxpayers may never see again!