Category: News

Let’s Dig into the NFL League Office’s Audited Financial Statements, Shall We?

Once again, Deadspin has scooped up some audited financial statements of a sports organization and this time it’s a big fish – the National Football League League Office. Audited by Deloitte, these financial statements (in full on page 2) present the Statement of Financial Condition (I’ll call this the balance sheet to keep things easy), Statement of Activities and Changes in Net Liabilities (going with income statement here), and Statement of Cash Flows with the accompanying notes for the years ended March 31, 2010 and 2009. All right, let’s do this.


The presentation for the balance tement is broken out between the NFL League Office, the League’s G-3 Stadium Program with the total of the two making up the third column. Tommy Craggs focuses primarily on the G-3 Stadium Program which he points out is “a matter that lies at the heart of lockout.”

The G-3 Program is interesting because this is how the league has financed the boom of new stadiums in the last year or so. Currently 13 teams are involved in the program for twelve new stadiums (the Jets and the Giants get to share). Here’s the table from Note 5:

It’s pretty amusing to see some of the disparity in this table, most notably the Detroit LionsGreen Bay Packers owing the League a measly $6.9 million while the Jets and Giants owe over $150 million each. The total owed by the two New York teams accounts for over 40% of the total for FYE ’10 (and the principal balance managed to go up for both, the Chiefs being the only other franchise to have this happen). These funds owed to the League compromise for over 80% of their total assets, financed by notes payable that compromise more than three-quarters of the total liabilities. Essentially, the crux of the organization’s balance is in play here. Obviously, the culture of cheap cash in the Aughts was not lost on the ownership and if banks were handing out money left and right, why not take advantage?

Here are the details on the notes payable:

As you can see, the fun ended in 2008, just as things were getting interesting. The League has entered into a half dozen of interest rate swaps to protect themselves with notional amounts of $249 million.

Some other notable items:

• The Game Officials’ Pension Plan (under Note 7) is underfunded by approximately $20 million, although the majority of the benefit payments come between 2016 and 2020.

• Related Parties (Note 8) has plenty to dig through, however one thing that sticks out is under “Other Related Party Transactions” is the $2 million loan made to “a senior executive” in May 2007. As of March 31, 2010 not a cent of this had been paid back and the note states that “In accordance with the terms of an employment agreement” an amendment was made in March 2010.

• The following paragraph under “Other Related Party Transactions” discusses “amended certain terms of an employment agreement with an executive, including certain termination rights.” This executive can request renegotiation “following ratification of a new CBA agreement [repetitive?].” If a new employment deal cannot be reached, the executive can execute termination rights for approximately $19 million which is equivalent to two years compensation. Just spitballin’ here but it wouldn’t be a stretch to conclude that this part of Roger Goodell’s deal.

• Hilariously, under “Litigation” the matter of Richardson et al. v. NFL et al. we find that Drug Program Agents (i.e. guys who collect cups of piss) sued the NFL and several of its affiliates for treating them as independent contractors as opposed to employees. This was filed in 2007 but in 2008, the plaintiffs filed an amended complaint for “typographical errors” but the complaint didn’t change. In other words, the plaintiffs’ lawyers didn’t use spellcheck. Ultimately the claims were dismissed in 2009 against the NFL but a settlement was reached between the NFL Management Council and the piss collectors.

WHEW! Lots of good stuff in there, so enjoy over the weekend. Deadspin is promising more “documents from a different arm of the NFL,” so hopefully we’ll see more pieces of this. Stay tuned!

NFL League Office

Analysis: The Business-Social Pitfalls of The Summer Pool Party

Now that we’re officially in the dead of summer, there is ample opportunity for your team or firm to have barbecues, happy hours on the patio and if you’re really lucky, a pool party. Barbecues and happy hours are fairly simple events to master. Don’t eat too much; don’t drink too much. Overindulging in either will no doubt lead to some sort of embarrassing scenario that brands you a pig or a souse. particularly flattering.

The pool party on the other hand, presents a different dilemma entirely. Of course that will still be refreshments served and you should do your best to not wolf down hot dogs like Joey Chestnut or shotgunning beers. This will only lead to cramps in the deep end of the pool and perhaps an accidental drowning. Again, these are mortifying situations that should be avoided.

One problem that you may run into is that your gracious host may have children that are of an age where clothes are considered optional. A recent investigation has found this is acceptable depending on the child’s age, so try not to pull a Larry David later back at the office after you get an eyeful.

The second issue of importance is that of the swimming suit. On the one hand, it’s silly to pass up an opportunity to enjoy a swimming pool on a hot summer afternoon, so you best bring it if the opportunity presents itself. For those of you tempted to pull the “I can’t swim” card, I have a suggestion: LEARN. FAST. Nobody likes a party pooper and your story of nearly drowning in four inches of water in the backyard pool as a child isn’t fooling anyone.

As for the suit itself, herein lies the biggest challenge. For gents, it’s simple – stick with board shorts. You may have legs like a god but if you strut around this fiesta by a pool in Speedo you will be mocked (most likely behind your back) and rightfully so. Similarly, if you’ve reached the age where you’re comfortable with your body despite how the rest of the universe feels, this is downright offensive. People are eating for crying out loud.

The situation for the ladies, as is typical, it’s more complicated. On the one hand, bikinis haven’t considered been risqué since that crusty old partner was in short pants. However there still is contingent of society that frowns on the two-piece. From The Careerist:

One woman partner at an Am Law 100 firm in New York thinks it’s a no-win situation for most women: “I don’t think anything good comes from parading in a bathing suit in front of one’s colleagues, and certainly would question the wisdom of wearing a bikini in a business social context–no matter how young or fit one may be.” But if you must wear a swimsuit, she says, she’d opt for “a modest racing suit and a cover-up right to the water’s edge.”

Lawyers, like accountants, are a conservative lot so you could easily replace “Am Law 100” with “Big 4” and you’d have the perspective of a stuffy New York CPA. Thankfully, our friends in the west are not so prudish:

An entertainment lawyer in L.A. thinks it’s silly to be so self-conscious: “If I was 29 and had a rocking bod, I wouldn’t hesitate [about wearing a revealing suit]!” She doubts that looking “too good” is ever a career killer. “I think it depends on how you look in a bathing suit,” she says. “If you look good, go for it; if not, cover up.”

So how’s that for some honesty? It’s already been established that men in the accounting profession are pigs so there’s very little to lose if ladies decide to rock the bikini. The guys are judging you regardless. Why? Because they’re assholes. Accordingly, I stand firmly with our entertainment lawyer. Know your body and suit up accordingly.

You may have differing opinions on the matter which you’re invited to discuss them below and do share any pool party anecdotes that strike you as appropriate.

Confession: We Have a Mad Crush on Susan S. Coffey, CPA

Consider this our official admission that we’ve got the hots for Susan Coffey of the AICPA (not to be confused with this Susan Coffey, who also happens to be a hottie).

Suddenly we’re really into anything she has to say, made even more addic��������������������point on international standards and affinity for acronyms that no one can keep up with. We like that in a woman. “Please note that the AICPA supports international standards and believes in adoption as an ultimate goal, but requiring adoption at this time is unrealistic.” Talk about a siren’s call.

Suz isn’t really in the news too much (most of the face time goes to Barry Melancon) but we managed to find a recent comment letter to the Senior Technical Manager of the Compliance Program at the International Federation of Accountants that she wrote:

May 31, 2011
Senior Technical Manager
Compliance Program
International Federation of Accountants
545 Fifth Avenue, 14th Floor
New York, New York 10017

Dear Senior Technical Manager,

The American Institute of CPAs (AICPA) is pleased to comment on the IFAC exposure, Proposed IFAC Member Body Compliance Program Strategy 2011-2014.

We applaud the Compliance Advisory Panel’s (CAP) effort to provide a work plan and timeline to the Terms of Reference (TOR) approved by the IFAC Board in September 2008 for future CAP activities. These activities continue to enhance the Member Body Compliance Program and meet the expectations of the Public Interest Oversight Board (PIOB) in its oversight of CAP, as an important public interest activity committee (PIAC) within IFAC.

[Six sentences filled with so many acronyms that it reads like 1st Grader’s handwriting class.]

The new concept of “adoption” suggests that member bodies and/or their country’s governments should turn over their role in standard-setting for the profession to international groups without question. We submit that this approach is not acceptable in current international and national political environments. Therefore, CAP should not require IFAC member bodies to achieve a level that is not practical nor realistic, setting up the Member Body Compliance Program for failure. [Do we have a dominatrix on our hands?]

We feel strongly that the current Best Endeavors goal with its convergence objective is currently working and should continue without any further consideration of elevating this benchmark to total adoption. Please note that the AICPA supports international standards and believes in adoption as an ultimate goal, but requiring adoption at this time is unrealistic [Adrienne is fanning herself]. This would create a situation where most member bodies would be in violation of the IFAC Compliance Program and would continue in violation for the foreseeable future.

Thank you for the opportunity to comment on this important exposure, and we appreciate your consideration of our concern.

Sincerely,
Susan S. Coffey, CPA
Senior Vice President
Member Quality and International Affairs

So not exactly Hafiz but we’re still smitten. How did this CPA-soaked Cupid’s arrow strike us, you ask? Adrienne saw her speak at AICPA Spring Council and was completely in awe from even before she said, “Good afternoon, I’m Susan Coffey.” As she was debriefing me about Tom Hood’s boyish charms and whatnot, I happened to ask if there were any females that had any qualities prized by the superficial man. Of course that’s when she launched into Ms. Coffey’s speech at the Council. She couldn’t really remember what was being said but then she pointed me to her picture and then our conversation turned to a possible future hottie contest on GC (Susan would be a #1 seed, natch) that has yet to develop.

ANYWAY, we’ve discussed this crush at length and we decided it was time that we jointly confess our affections to the GC faithful. What do we exactly do we want to accomplish with this admission? Drinks and appetizers would probably be a good start. Getting in touch, Susan, is easy. Email us here.

Now that we’ve sufficiently put ourselves out there, dear readers, feel free to send us any nominations you have for accountants that you’d like to see in a future hottie contest. We’ll do the appropriate due diligence once we feel that enough worthy candidates have been submitted but just know that Ms. Coffey will be in field.

Area Man Finally Aware That a Meal Tax in 2011 Would Almost Cost Him a Hershey Bar in His Childhood

Easton, Massachusetts resident Michael Freese recently discovered that the town’s meal tax cost him an extra 4¢ on his $5.75 hamburger, reports the Enterprise News. Freese was under the impression that only “New York and Seattle and California had that.”

While Freese is probably aware that this extra 4¢ would get him 80% closer to a Hershey Bar when he was growing up, he can also take comfort that in this day and age it will get IRS Agents off your back. [Enterprise News]

McGladrey Employee Not Happy with Firm’s Attempt to Give Everyone a Three-and-a-Quarter Day Weekend

Good morning capital market servants. I know the first day back from an epic holiday weekend is a tough pill to swallow, as many of you couldn’t bear the thought of returning to work today. And because some people like to prolong the agony by taking today off, I’ll do my best to take you back to last Friday. A McGladrey reader dropped this note after I checked out for the day.

The company leaders have recently rolled out this lean working platform [GC coverage here]. They are trying to say work smarter not harder. What most people think lean means though is “do more with less” which is trademark of this company. CE [Andrews] and Joe [Adams] talked on a webcast the other day and they were trying to rile us up. What for? So in the end, they can tell us “despite our great efforts there isn’t money for salary increases”.

CE and Joe and other leaders are all excited about letting the entire firm off at 3 p.m. Friday., July 1 for the weekend holiday WOW! Don’t get too crazy CE and Joe, not 3 p.m. on a Friday? Holy cow!

When Steve Tait was President [of RSM McGladrey] we would get two days off during the Fourth, but under new leadership we get to get off at 3 p.m. on Friday? What a deal. What work-life balance. No wonder we make Working Mothers top 100 each year. Oh and you know what, the firm took away summer hours too…all because they want us to focus on ongoing flexibility…and working lean, which means no one can take time off because departments are too lean.

It’s 3 p.m. now on Friday, and boy I am lucky to be off. Nevermind most employees checked out – officially or unofficially – a few days ago already. I am sure major accounting and tax deals are going down right now on this holiday weekend, but we were fortunate enough to get off at 3 p.m. What a joke!

I think I might get a small putting green cake to celebrate!

Many firms – we’ve confirmed PwC and KPMG – gave their employees last Friday off, which does make for a nice four day weekend. And our tipster is correct, early July is a pret-tay, pret-tay, pret-tay slow time of year for accounting firms so a 3 pm let-out for a Friday before the grandest, pyrotechnic digit-losing holiday of the year might feel like a slap in the face.

That said, if you’re so bent out of shape about it, why not use some PTO (God forbid!)? You’re completely in control of this situation, friend. You want an extra-long weekend? Make it happen. Expecting accounting firms to just hand you a four-day weekend is a little bitchy and you have no excuse if you have a grip of PTO banked. Don’t make the same mistake come Labor Day.

Should/Can Big 4 Employees Unionize?

Though the following inquiry from what we assume to be a Going Concern reader was addressed to my dearest, most lovely editor, I’m hijacking it because I’ve been wanting to write about this for a long time. While the idea of CPAs unionizing seems ridiculous to some, I’m sure more than a few of you have dreamily drooled at the prospect of collective bargaining power while two months in to the most horrendous busy season ever. Is it that silly of an idea?

Hi Caleb,

I am a Big4 Tax Senior and had a question regarding the possibility/benefit of having a union. To my knowledge, one currently does not exist, but why? Entertain me for a second.

If every staff through manager (there ing managers in, so maybe just staff and seniors) were to band together and create a union across all service lines and all of the four firms, what would stop us from getting fair compensation and slightly better hours? If the threat of a strike of 70% of each of the firm’s workforce (who probably actually do 90% of the work on any given engagement) could happen at any time, would the partners really treat their subordinates the way they currently do? Maybe there’s something written somewhere that CPAs can’t join a union?

Imagine if this raise/bonus season were to go poorly, and the union decided that on March 1, 2012…every staff, senior and manager FROM ALL FIRMS would stage a walk out and go on strike until our compensation demands were met. What could the partners do? Could they realistically try to do all the work themselves? Could they really try and replace 60,000 employees (I am guessing on that figure)? Could they try and get all the work done out of India? I HIGHLY DOUBT ANY OF THESE WOULD BE REALISTIC OPTIONS. I can’t imagine the possibility of replacing a dozen auditors overnight with Accountemps personnel in the middle of an audit for a fortune 100 client.

I understand that the possibility of being able to coordinate such a union across all the firms would be next to impossible, but can someone tell me why/how it wouldn’t work assuming it was legal for us to do? Could you post up a poll of those who would be interested?

Wait a second, are you trying to tell us that you don’t feel you are fairly compensated? Are you prepared for the burden of union fees and the inconvenience of having to picket your downtown Big 4 office chanting “Hell no we won’t go!” in business casual should it come down to that?

Why stop at the Big 4? Second-tier capital market servants are just as mistreated as you are (or at least feel that way, and who are we to tell them they don’t get enough engagements to feel burned out?). Think of the collective bargaining power then.

I think part of the reason why anyone you suggest this to might think you’re one tax season away from the funny farm is that CPAs already have a large, powerful trade association which allegedly exists to serve its interests. Granted, the AICPA does more lobbying in Washington than it does to accounting firm partners about easing up on you poor shlubs who have to do all the work, but it’s still a trade association.

In an article about the recent showdown in Wisconsin between teacher unions and Governor Scott Walker, Ann Coulter wrote “the need for a union comes down to this question: Do you have a boss who wants you to work harder for less money? In the private sector, the answer is yes. In the public sector, the answer is a big, fat NO.” Well shit, there’s your answer. We already know how most of you in public accounting feel, no need to elaborate.

Former Congressional candidate and CPA Krystal Ball is all for unions, especially when it comes to balancing the gender inequality that still exists in this country. If criminals in Canada can unionize, why not CPAs? Well for starters, though it may not feel like it, most of you are paid pretty fairly compared to, say, McDonald’s cashiers, Starbucks baristas and Walmart greeters. It may not feel fair based on the service you provide (understandably) but in the big picture, making $50,000 a year fresh out of school in middle America ain’t too bad of a gig. You get vacations, safe work conditions, bonuses, insurance and even free CPA review materials if you’re lucky. I bet OSHA has never seen the inside of a Big 4 office to investigate a fatal Excel accident or random intern decapitation at the coffee machine.

Let’s keep in mind that, if necessary, the Big 4 probably could scrape up a motley crew of Indian and Sri Lankan accountants and reluctant partners to do the work while you’re out front calling Raj a scab. Is what you do all that difficult? Look at the moronic intern in your office… a little training and that guy is going to be doing your job in a few years.

Lastly, there’s the legal issue. With all the money the Big 4 throw at lobbying and keeping some of the country’s best lawyers on payroll, do you really think you stand a chance? Someone has to give you the OK to unionize and I just don’t see the Big 4 lawyer machine slipping up and letting that one through. You really are one busy season away from the funny farm if you believe otherwise.

But I’m 100% behind you guys if you try to go for it anyway. Si se puede!

The Company That Brought You Farmville Is Going Public

In addition to the Nets’ financials, you’ve got plenty of reading to do over this long weekend.

Some highlights from Zynga’s S-1 courtesy of Zero Hedge:

• Q1 2011 revenue: $235.4MM, up from $100.9MM YoY, LTM revenue $731.9 MM
• Q1 Net Income: $11.8MM up from $6.4MM YoY, LTM Net Income: $96.2MM
• Q1 Adjusted EBITDA: $112.2MM, up from $93.5MM, LTM EBITDA: $411.4MM
• Adjusted EBITDA definition also excludes stock based comp and change in deferred revenue
• Cash: $995.6MM, almost the same size as the entire proposed IPO
• Working Capital: $603.4MM

Some other fun things of note:

&bull Jeffrey Katzenberg, CEO of DreamWorks is on the Board of Directors and serves on the compensation committee.

• CFO David Wehner is formerly of Allen & Company, an investment bank that specializes in media and technology. He has an M.S. in Applied Physics from Stanford and a B.S. in Chemistry from Georgetown. His total compensation for 2010 was $17,996,057, $16,087,500 of which was stock awards.

• The audit committee consists of Brad Feld, Reid Hoffman and Stanley Meresman. Feld is a MD at the VC firm Foundry Group, Hoffman is the former CEO of LinkedIn and Meresman, the chair of the committee, selected for “his background as chair of the audit committee of other public companies and his financial and accounting expertise from his prior extensive experience as chief financial officer of two publicly traded corporations.”

• Mark Vranesh is the Chief Accounting Officer and had total compensation for 2010 of $1,544,940, $1,287,000 was stock awards.

There’s plenty more to pour through, so have it. And yes, Ernst & Young says everything is kosher, so who wants a piece of this?

Zynga S-1 [SEC]

PwC Report Finds That Wildly Optimistic Projections for Visitors to the NASCAR Hall of Fame Basically Came Out of Thin Air

For some people, NASCAR is a big deal. So big that it, like other “sports,” deserves a hall of fame. The location of which is carefully chosen after a competition amongst cities who feel they are best suited to give the legends of the sport an appropriate and worthy grounds which to immortalize their seemingly noteworthy accomplishments. For NASCAR, this city was Charlotte, North Carolina. The Charlotte Regional Visitors Authority, who operates the Hall of Fame, predicted that the facility would be a monstrous success with 800,00 visitors coming to this shrine of southern boys behind steering wheels in its first year.

Things didn’t really turn out as planned with disappointing attendance and operating losses. Of course this ruffled a few feathers and they invited PwC to perform an “80-hour, monthlong audit” to see what’s what.

Among its findings: Projections for 800,000 visitors in the $200 million NASCAR museum’s first year of operation were based on bluster as much as anything. “Our limited analyses have not identified due diligence or studies supporting these projections,” the PwC report states. “Rather, we understand from our discussions with CRVA representatives that earlier, more modest attendance projections were revised as the competition between Charlotte, Atlanta, and Daytona intensified for the Hall of Fame. It is not clear what, if any, due diligence was conducted in support of these upward revisions.”

PwC report questions NASCAR Hall of Fame numbers [CBJ]

(UPDATE) Who Wants to Comb Over the New Jersey Nets’ Financial Statements?

Deadspin has gotten its hands on more sports team financial statements, this time those of the NBA’s New Jersey Nets for fiscal years 2004-2006. The NBA owners are set to officially lock out the players tonight at midnight and the strangest piece of information – and some say the cause of the owner/player beef – is highlighted in Tommy Craggs’ post which is known as “roster depreciation allowance.”

UPDATE: Deadspin has updated their post to state that the initial analysis of the RDA was incorrect. That is, the $25.1 million was not RDA but rather the loss the team took on a player contract in that fiscal year (Craggs speculates that it was Dikembe Mutombo). Craggs then writes:

The example is bad, and I apologize for that. I’m leaving the text here for a couple reasons: 1.) The roster depreciation allowance is real, even if we’ve misidentified it here, and it provides owners with a significant tax shelter based on a baroque logic. 2.) The Nets, like all franchises, do use large paper losses to pad their expenses.

I’ve updated the blockquote after the jump to show Deadspin’s note of the correction. They’ve also included some analysis from ESPN and a statement from the NBA’s CFO.

In 2004, the Nets had a $25 million “Loss on players’ contracts” which you can see here on the team’s income statement:

Craggs explains:

The first thing to do is toss out that $25 million loss, says Rodney Fort, a sports economist at the University of Michigan [See correction above.]. That’s not a real loss. That’s house money. The Nets didn’t have to write any checks for $25 million. What that $25 million represents is the amount by which Nets owners reduced their tax obligation under something called a roster depreciation allowance, or RDA.

Bear with me now. The RDA dates back to 1959, and was maybe [sports franchise owner] Bill Veeck’s biggest hustle in a long lifetime of hustles. Veeck argued to the IRS that professional athletes, once they’ve been paid for, “waste away” like livestock. Therefore a sports team’s roster, like a farmer’s cattle or an office copy machine or a new Volvo, is a depreciable asset.

The underlying logic is specious at best. As Fort points out, a team’s roster at any given moment isn’t actually depreciating. While some players are fading with age, others are developing and improving. But the Nets don’t have to pay more taxes when a player becomes more valuable. And in any case, the cost of depreciation is borne by the athletes themselves, when they pass their primes and lose their personal earning power.

As Craggs notes, if that loss, which also saved the team about $9 million in taxes, doesn’t exist, you’ve got a $7 million profit (see update above). But since we’re talking about rich owners with the hands in honeypots all over the place, a profit really doesn’t do them any good on an investment like a sports franchise. Particularly one in New Jersey that was in the process of being sold back in 2004.

Craggs’ whole post is excellent, so check it out. In the meantime, I’ll note some other interesting things from 2004 (financials, in full on page 2) include:

• An enormous working capital deficit of $124 million. This was mostly due to a $95 million term loan the team was guaranteed by a partnership called “YankeeNets” which was created when the then-owners, Lewis Katz and Ray Chambers, bought 37.5% of the New York Yankees Partnership. YankeeNets was 99% owned by Katz and Chambers. It’s all pretty convoluted but I don’t know of any business that wants a huge working capital deficit like that. Even if the term loan was omitted, the negative working capital would be over $29 million, with accrued salaries being nearly double of current assets.

• The enormous members deficit of $81 million, again exacerbated by the phony loss of $27 million.

• Negative net cash flow from operations of $20 million.

• Under Note 5, “Intangible Assets” you can see that players’ contracts were completely amortized for a net value of $0.

Of course when you look at the 2005 and 2006 financial statements (page 3), things look very different.

• For starters the term loan has jumped into long-term liabilities but the team still has a pathetic working capital of negative $16.8 million in ’06 and negative $25.3 million in ’05.

• Note that depreciation and amortization is now itemized on the income statement for $41 million and $42 million in ’06 and ’05 respectively. These make a huge portion of their losses from operations. D&A did not have its own line item in the ’04 financials.

• In the two years presented there were member distributions of over $15 million and large negative balances for cash flows used in operating activities.

As we’ve seen with the New Orleans Hornets, you can own a NBA franchise but that doesn’t mean you have to run it like anything that closely resembles successful business (at least i the traditional sense). For starters, you don’t have to answer to anyone except your co-owners with whom you worked out this strategy. I guess you could consider loyal fans to be stakeholders in your organization but my guess is most owners don’t.

I gave these a real quick and dirty look, so if you’ve got the time (and need to distract yourself until the holiday weekend starts) pour over these and call anything else weird you see. Enjoy.

Nets 04

Nets 0506

Fund Manager Blames Just-in-Time Inventory and the Accountants Who Push It For High Food Prices

Yes, you read that headline correctly. Not inflation, not emerging nations, not more people on this planet than we have food to feed them and not Ben Bernanke’s penchant for leaning on the PRINT MORE button but inventory. Well, a specific inventory method and the accountants who encourage companies to use that particular method.

The Guardian has the story:

Speculators, the weather, biofuels and the growing appetite for meat in developing countries have all been blamed for the high food prices that have hit countries such as Kenya, Somalia and Ethiopia particularly hard.

But what about the accountant accountants. Greg Smith, managing director of Global Commodities, an Australian investment fund, said fund managers were being unfairly scapegoated. He argued that measures to curb speculative activity, such as limits on contracts and higher margins (less reliance on borrowed funds when making trades), would not deal with the fundamental problems, such as the weather and, more pertinent from Smith’s viewpoint, just-in-time inventory.

“We have volatility in food prices because of inventory shortages,” said Smith, who was attending the fourth annual world agriculture investment summit in London, bringing together investment managers, policymakers and NGOs. “What we need is more inventory instead of this just-in-time approach. We need to look at how we increase buffer stocks of grain. After the second world war, governments would have three to six months of supply of grain. Now it’s two or three weeks.”

Smith feels the accountants bear the brunt of the blame for this just-in-time issue as they are the ones who try to convince companies to adopt this particular inventory method in the interest of cost cutting.

While they don’t specifically come out and blame the accountants like Smith, Oxfam recently published a paper called Preparing for Thin Cows in which they question the current view on food reserves. “International institutions have warned G20 leaders that renewed food price volatility is now a high risk. However, the same institutions have summarily dismissed food reserves as one of the ways to stabilise prices,” said the report’s co-author Thierry Kesteloot. “Food reserves were largely dismantled in the 1990s and have been ignored ever since as too expensive and ineffective.”

Check out this 2008 piece from The Hightower Report which foretells the problem with the just-in-time idea. “The combination of oversupply, ultra high interest rates and new business practices quickly turned the idea of owning extra inventory into financial heresy of the highest order. Accountants, bankers and MBAs descended on America’s businesses to preach the gospel of wringing every last ounce of unnecessary corn, wheat, cotton, copper or wing nuts out of every conceivable supply ‘pipeline.’ To a large degree, the gospel of just-in-time inventory control has prevailed right up to the present – or at least into 2007.” The article blames a global attitude that inventory can easily be had should it be needed – thereby eliminating the need to keep excess reserves – for just-in-time’s popularity.

Problem being this attitude assumes an unrealistic scenario in an inflationary environment in which 40% of the U.S. corn supply is used as “fuel” (ask Joe Kristan about ethanol if you’re not hip) and completely ignores unforeseen issues like, oh, I don’t know, drought and higher demand in emerging nations for corn-fed meat.

There’s a problem alright, just not sure if it’s with the accountants.

Chinese Official: Some Companies Listed in U.S. Have ‘Flaws,’ May Not Know What the Hell They’re Doing

We understand that complying with financial reporting in the U.S. can be difficult, so don’t get too worried about it. But we do ask that you keep the workpaper hostage taking to a minimum.

China is looking into accounting issues involving Chinese companies listed in North America, an official at the country’s securities regulator said in the watchdog’s first public remarks since a series of accounting scandals. Corporate misbehaviour, unfamiliarity with the U.S. market and some practices involved in overseas listings had all contributed to recent investor distrust of Chinese companies, said Wang Ou, vice head of research at the China Securities Regulatory Commission (CSRC). “First, we have to admit that some of our companies may have flaws. Second, our (companies’) understanding of the U.S. market and the measures to tackle risk there may be inadequate,” Wang said at a conference in Beijing this weekend. “We have contacts with the U.S. and its relevant regulatory bodies and we’re studying the issue together.”

Oh, and it isn’t necessary to issue a press release when your auditor ties out your cash balances.

[via Reuters]