When accounting goes unaccounted for
On a day like today, words alone will simply not suffice. Things like “Thank God it’s over,” “I am getting cop-slugging drunk,” or “If I get asked to prepare one more extension I’m going to have a panic attack” are expected. Instead we’ll present you with the following clip of a certain taxpayer’s haul in 2009:
[Source]
This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.
I’m far from the only person having a hard time understanding the significance of the deals arranged by a company that this page one New York Times story referred to as Lehman Brothers’ “alter ego.”
From the looks of it, the company in quest astle, was set up simply to serve in the traditional role of outside investor in another company’s off-balance-sheet financing vehicle, which is known as a special purpose or variable interest entity to accountants and a conduit or structured investment vehicle in the world of banks.
The arrangement is common enough and there’s nothing wrong with it, strictly speaking, so long as the outside investor is independent of the sponsor of the entity and the arrangements are properly disclosed.
Remember Citigroup’s SIVs? They spawned the first ill-fated bank bailout effort, by former Treasury Secretary Henry Paulson. And they were similar to the entity that Hudson created for Lehman, called Fenway.
The problem with these gizmos, of course, is that sponsors often claim not to be responsible for the assets and yet end up on the hook for them anyway, which is what happened to Citi. But that in itself doesn’t make them fraudulent, at least not according to GAAP.
In Lehman’s case, the problem seems to be that Hudson was controlled by Lehman, if not at the time it was created, then certainly under later rules, according to Charles Mulford, an accounting professor at the Georgia Institute of Technology and an advisor to CFOZone.
At first glance, it seems like the opposite might be the case, since Lehman reportedly dominated Hudson’s board when it was created in 2001. And Lehman’s influence over Hudson diminished significantly in 2004, when its board seats were reduced from five to one, presumably along with Lehman’s equity in the firm.
Just conceivably, that might have been done to conform with the changes in the accounting rules. But Mulford says that might not have been enough to comply, because the new rules require the so-called primary beneficiary of the vehicle to consolidate its assets regardless of how much equity the outside investor has in it. Even after 2004, Lehman remained the single largest investor in Hudson, according to the Times.
“Given changes to accounting for SPEs, one could argue that Lehman had effective control of the Hudson Castle SPEs, even if it didn’t have voting control, necessitating consolidation,” Mulford said in an email to CFOZone.
Of course, the significance of the arrangement remains unclear, as the Times article failed to explain how much of Lehman’s debt was shifted into the Fenway SPE. It looks as if at least $3 billion was shifted into Fenway in this fashion, but that’s a lot less than the $50 billion Lehman shifted off of its balance sheet through so-called Repo 105 transactions in 2008.
Incidentally, while Lehman’s auditor Ernst & Young recently claimed that amounts Lehman shifted in this fashion weren’t sufficient to cause the firm’s failure, since its total assets exceeded $600 billion, I just saw in the bankruptcy examiner’s report that the firm refused to say the amounts weren’t immaterial when it signed off on Lehman’s financial statements. And the examiner’s report insisted that they were indeed material.
Last week Weiser announced that it was joining Mazars Worldwide as a member firm, a move that would alleviate their relationship to one of a joint venture to that of a full combination. Accordi ess release the combined firm will employ 12,500 people worldwide after adding the 650 Weiser professionals to its international network.
Earlier in the week, we were fortunate enough to arrange a chat with Doug Phillips, Managing Partner of Weiser, LLP to discuss the new firm, the challenges of a cross-Atlantic combination, personnel and client reaction to the combination and the plans for future.
A Solid Business Case Made for a Global Strategy
Doug told us the that joint venture between Weiser and Mazars that begun in February 2000 has been great success for both firms, particularly in the last two years. “The business case for us here at Weiser and for Mazars came to a point where it was quite logical to elevate the joint venture to the next logical step of growth and maturity,” he told us. Doug insisted that this was not a “Resistance is Futile” situation for Weiser, because the firms were in fact combining as opposed to a takeover by Mazars.
According to Doug, the business case for the combination was one of primarily of global strategy. Both firms had experienced significant growth in the last 10 years; their clients’ needs became increasingly global in focus. Doug said, “It gives us a distinct competitive advantage in the marketplace. Existing clients will receive a higher quality of service and we will enjoy the advantage of proposing to new clients.”
Combining Transatlantic Cultures
With regards to the meshing of the firms’ two cultures, Doug said that navigating the tricky waters of an international combination wasn’t as challenging as you might expect, ” We’ve ‘dated’ for 10 years. We know each other’s strengths. We know each other’s weaknesses. The overarching cultural issue is the quality of service. The firms are identical in that regard.”
And to ensure that the Weiser is well represented at the global level, Doug was elected to the group executive board of the firm. This is committee of five that is responsible for running the global organization. “The importance of the combination is recognized by the fact that I took a seat on that board to ensure the effective integration of the cultures of the cross-atlantic combination,” Doug said.
Communication with Employees, Clients was Ongoing
Communication about the combination was ongoing at Weiser. “Things were business as usual and the only real change is that firm’s brand will change to WeiserMazars,” Doug told us. The same approach was taken with Weiser’s clients, “the communication process was ongoing. It’s been universally well received and applauded as a business step without concerns about what will be impacted because [clients] have the assurance that our people remain in place and our dedication to the quality of service remains unchanged.”
Future Plans
With regards to the future, there are no immediate plans for new offices or mergers with other firms but Doug does expect some new non-attest service opportunities for the firm that could result in the hiring of some new experienced professionals not already in-house, “We look forward to increasing the talent pool to provide higher quality sophisticated services to both our current clients and prospective clients.”
Along with improved personal hygiene, the end of busy/tax season brings the end of sleep deprivation.
Yes, we realize that some of you dolts out there that like to boast that you still dominate your workload on as little as 3 or 4 hours of sleep are either A) lunatics or B) so delirious that you don’t realize that you’re on the brink of lunacy.
FINS surveyed some tax pros about their sleeping habits and found that on average, those surveyed only got 6.8 hours of sleep and that 30% of them felt fully rested while at work.
For the rest of you, getting the 7 to 9 recommended hours of sack time will not only benefit your health (sleep deprivation is also related to weight gain) but it also could result in a safer work environment.
Not to mention that your significant other will appreciate the additional attention which might, if you’re lucky, result in other nocturnal activities as opposed to just sexting. Unless of course you happened to fall bassackwards into a work relationship then you can keep up the cubicle sex as you see fit.
This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.
A blue ribbon panel on private company accounting is holding its inaugural meeting Monday, to assess how financial reporting standards can best meet the needs of users of US private company financial statements, which are mostly for bankers and other types of lenders.
The panel, formed by the Financial Accounting Foundation, the American Institute of Certified Public Accountants and the National Association of State Boards of Accountancy, will meet five times throughout the year and will issue a report with recommendations on the future of standard setting for private companies by the end of the year.
The debate has resurfaced after the International Accounting Standard Board issued international standards for private companies last July (called IFRS for SMEs). Financial experts have been discussing this topic for decades. For instance, in 1996, the Financial Executive Research Foundation issued a paper titled “What do users of private company financial statements want?”
Some of the old and new questions the panel will address:
• What is the key, decision-useful information that the various users need from GAAP financial statements?
• Are current GAAP financial statements meeting those needs?
• How does standard setting for private companies in the US compare to standard setting in other countries, both those that have adopted IFRS for small and medium-size entities and those that have not?
To the extent that current GAAP is not meeting user needs in a cost-beneficial manner, what are some possible alternatives or private company standards?
Even if GAAP is found wanting, however, the panel might not be all that keen on IFRS as an alternative, given the limited experience of US companies with the international regime and rising skepticism on the part of the Securities and Exchange Commission about the independence of the body setting international standards.
Not that public or private US companies are eager to switch to IFRS, which will be costly and cumbersome. At this point, it seems as if private ones would rather have the accounting devil they know, except they no doubt wish it were a bit less hellacious on their results. And that’s been pretty much a forlorn hope for years.
We’re dispensing with words today in favor of the following deterrent.
It’s our understanding that if you breach this guard before granted permission to leave, then something like this could happen:
• Should the IRS Fill Out Our Tax Returns? [TaxVox]
Some say, YES! At the very least the Service could get the ball rolling, “by filling in your wage income, exemptions, and standard deduction and perhaps even figuring some other deductions and credits. This…could be a huge benefit for those who file Forms 1040A and 1040EZ.” Naturally, the taxpayer has to approve the return prior the actual “filing” of it but this would potentially assist millions of Americans who are otherwise stumped by 1040s of any stripe.
The other side of this argument is that it will delay refunds:
Bob Weinberger, a senior fellow at the Aspen Institute Initiative on Financial Security and a former top executive at the tax prep firm H&R Block. Bob counters that the “fatal flaw” of such a system is that it could delay refunds for months. For many taxpayers, Bob argues, getting a check from IRS in April is a key to their annual financial planning, and postponing that refund would generate a huge backlash. Bob also said such a system would be a huge drain on IRS resources.
While this likely true, the root of the problem is the “check from the IRS is key to financial planning” part. If these people need the money so bad, they should adjust their withholding so they don’t pay in so much during the year. Perhaps that’s not an easy concept to grasp, so if we say “You’re giving the government an interest-free loan for 12 months,” that will help.
• HK charges KPMG man with bribery [FT]
Leung Sze-chit, a senior manager in the Hong Kong office, has been arrested on corruption charges after offering a co-worker a $12,280 bribe related to a client’s IPO. The FT reports that the firm learned of the situation via its internal hotline, “After investigation, the member of staff in question was suspended by KPMG and a report was then made . . . to the relevant authorities.” So yes, to answer some of you, people do call those internal hotlines.
• CFO Job Options Opening Up [FINS]
After hunkering down for the last couple of years or so, CFOs are starting to see some new job options. FINS reports that “Some felt loyalty to organizations in financial straits, while others hesitated to jump given uncertainty about potential landmines at other companies.” Now that growth is slowly creeping back, “some companies are likely to find they need a different type of executive in the role. And some CFOs may even find themselves in line for positions higher up the corporate ladder.”
After Grant Thornton sprung into layoffs ahead of everyone else (based on what we’ve heard anyway) on Tuesday, the Cleveland audit practice leader apparently arranged an impromptu sit-down to discuss some things, among them, the headcount.
From an accountant close to the situation:
They let go of an A2 on Tuesday also. The audit practice leader then called an emergency audit dept meeting referring to us as “inventory” and that they were “managing the pipeline.”
We left another message with GT Cleveland to see if we could get a copy of the minutes or something but no one is calling us back.
Regardless, we get the “inventory” analogy but in this case, the inventory happens to have rent/mortgage and possibly a cocker spaniel or other human beings to feed. But seriously, we still get the analogy.
Taking it a step forward, was the “inventory” all that was discussed? Something else could have come up, say Stephen Chipman’s blog? Speculating about the whereabouts of Gabriel Azedo? Arguing over Indians tickets for Monday? Any other ideas? Discuss or let us know.
I’m not an accountant, but I play one in social media.
My brother, who is an accountant, is mad for old accounting and economics textbooks. He’s of the opinion that these classics provide a less adulterated view of the subject than a lot of the current stuff. In fact, anything published after the creation of FASB in 1973 is considered suspect. Call it an aversion to “rules inflation.” And while I make fun of him A LOT about it, I have to wonder who is the greater fool. If the last few years have taught us anything, it’s that newer and more doesn’t always equal better. But I digress.
When I’m on vacation in cottage country, a trip to the lo is tradition and this past holiday weekend was no different. This beauty had my brother’s name written all over it!
This book, “An Accounting Primer: The ABC’s of Accounting for the Non-accountant,” was originally published in 1968. Based on my reading of it, I think it’s safe to say Elwin W. Midgett did NOT spend The Summer of Love dropping acid in Golden Gate Park listening to The Dead jam out with an extended version of Born Cross-Eyed; although, and not to disparage Middle Tennessee State University, he was probably relatively well acquainted with the affliction.
For $4 bucks, I had to pick it up.
So, what did accounting look like back in the late 60’s?
Here’s my greatest hits courtesy of my brother, Mr. Elwin W. Midgett, and Middle Tennessee State University. Go Blue Raiders!
Preface
“… the author is always amazed at the total lack of understanding of a balance sheet or a profit and loss statement. Although the author does not believe that this situation is one that calls for immediate action…”
Hear that? I think Fra Luca Pacioli just rolled over in his grave.
Midgett does reference the Italian monk credited (no pun intended) with inventing the double entry system way back in 1494, and rightly focuses on the Accounting Equation as being the foundation of the whole business. That said, you can’t help but laugh when Cash Flow Statements are referred to with terms like, “Where Got and Where Gone”.
There’s more than a few laughs, but there’s also quite a few truths in that ‘News From 1930’ kind of way.
The topic of borrowing comes up a lot. On the second page of Chapter 1, Midgett cautions that a business should not “buy on credit indiscriminately, because many assets decrease in value rapidly.” Now Henry Lehman is rolling in his grave. “Business runs on credit and if all credit were suddenly cut off, the economy of the country would all but grind to a screeching halt.” Okay, now he’s SPINNING in his grave.
It’s either laugh or cry, right? Or in Gonzalez’s case, bust out a string of expletives that’ll take the paint off the walls! Lovely girl.
Of course, even back then Midgett can’t help but betray accounting’s doom with his unfortunate choice of sample company:
Or it’s dork label,
Chapter IV: Debitus And Creditus
In Brief
The Owner, or the Owning thing,
or whatsoever come to thee:
upon the Left hand see thou bring
for there the same must placed be.But –
they unto whom thou doest owe
upon the Right let them be set;
or whatsoe’er doth from thee go
the place them there do not forget.
Whaaaaaa?
“One should never attempt to memorize the theory of debit and credit…. Memory is too fickle.”
“Fortunately, an account has only two sides.”
I think I could harvest enough out-of-context quotes to write an entire book of my own!
Around p.27 it kind of strikes me that the roots of accounting aren’t about decision making, strategy, or business insight – All the stuff we are being encouraged to consider today. The roots are about one thing and one thing only, tracing transactions.
That’s not all bad, is it? Could it even be…. precious?
Chapter VI: The Worksheet – It’s Wonderful
“It truly is a marvelous device…. The accountant does not necessarily show it to anyone, but he knows its value…”
However,
The worksheet, marvelous as it is, is not magic…. When two columns of accounts are in balance and they are separated into four columns of accounts, keeping debits debits and credits credits, the difference between the new columns will be the same and on opposite sides.
Simple.
This was the paragraph that really made me think we need a “Best Before” date on these types of books. I can deal with the quaintness of referencing handwritten journals, carbon copies, printing calculators and the like, but I draw the line at the old-timey word maze.
Midgett goes on to actually do a pretty decent job of covering off the various sub-ledgers, adjusting entries, payroll, and accruals. Being buried deep within the technology industry for Accounting and Business Intelligence (B.I.), I haven’t actively thought about these Journals for a while. It was okay. Grounding.
You know that feeling, like… coming home?
Anecdote:
‘I’ve been recording them this way for ten months,’ she replies, and adds a little sarcastically, ‘If I have been doing it wrong, why haven’t you told me before now?’
Yes, it was a simpler time. A time when you could fit about everything you need to account for business in 165 pages. A time when the tax code was comprehensible and “The prospective auditor learns that he must be liberal in his thinking and tolerant of the techniques of others”.
Thank you Elwin W. Midgett. And Fare Thee Well.
Elwin W. Midgett {December 31, 1911 – November 22, 1993}
Geoff Devereux as been active in Vancouver’s technology start-up community for the past 5 years. He regularly attends and contributes to the growing entrepreneurial ecosystem in the city through the Vancouver Enterprise Forum, guest blogging on Techvibes.com, and as a mentor with ISSofBC. Prior to getting lured into tech start-ups, Geoff worked in various fields including a 5 year stint in a tax accounting firm. He is currently working in a marketing/social media role with Indicee, a Saas Business Intelligence company, bringing B.I. to mere mortals.
Seems like a long time ago when we’re speculating about Mazars merger with Weiser. Oh wait. It was. Busy season had just started.
At the time, it sounded like the deal was all but guaranteed, just a small matter of the partners voting on the merger and shazam! Global 6 Contender!
Accountancy Age reports that “vast majority of partners on both sides agreed to the officially resides in the good old US of A as “WeiserMazars.” The article states that no layoffs will occur as a result of the merger. AA also reports that the new executive board will be meeting next month to discuss “driving growth from the newly combined business.” Whether this includes more mergers in the Western Hemisphere, we can only speculate.
The combined firm has 12,500 employees including 680 partners. According to Mazars’ most recent annual report, the firm had over €773 mil in revenues (just over a $1 bil) while Weiser had just over $135 million in revenues.
WeiserMazars spokeswoman Laura Kucera provided us with the firm’s press release:
Weiser LLP Joins Mazars Group Worldwide to Offer Clients International Services Opportunities
Mazars, an international group specialising in audit and advisory services and Weiser, an audit and advisory firm with a strong presence in the north east region of the U.S., have announced today that their businesses are to combine.
Partners from both entities have voted to incorporate 74 Weiser partners into Mazars’ international integrated partnership. Reflecting this new arrangement, Weiser will become a Mazars member firm and be renamed WeiserMazars LLP.
The deal marks a new stage in the Mazars’ international development, and means that it will have member firm offices in 56 countries, served by 12,500 professionals, including over 680 partners.
Mazars and Weiser, which employs more than 650 professionals and has annual revenues of $ 135m, have maintained a close and fruitful relationship for the last ten years via a joint venture agreement.
Patrick de Cambourg, Chairman and CEO of Mazars says: “We have worked with Weiser for ten years via a joint venture agreement. This combination is the result of our excellent relationship, our shared values and commitment to offering high quality services to our clients. This enhanced relationship is a natural development based on our mutual trust. We are delighted to welcome Weiser into our partnership. They are a first-rate firm with an excellent reputation in the New York area market. It is an important step in Mazars’ development and our clients will benefit from the formal combining of our services in the U.S. market.”
Douglas A. Phillips, Chairman of Weiser, added: “Serving our clients means helping them on a global level, beyond borders. This is why we made the choice to develop an international joint venture with Mazars in 2000. Today, we are happy to develop our relationship with Mazars by fully joining the Mazars international integrated partnership as we know that when like-minded professionals work together, they obtain excellent results.”
A video interview with Patrick de Cambourg and Douglas Phillips, is available. Please contact us if you wish to receive a copy.
Since it’s inception, Weiser has provided quality accounting, audit, tax and consulting services to clients in industries spanning, manufacturing and distribution, real estate, financial services, healthcare, nonprofit, media/entertainment and automotive, as well as to high net worth individuals and their families. The firm is headquartered in New York City.
Are you dreading April 15th North Jersey? Thought so. With just over a week to go until deadline, it may have crossed your minds that you should start tearing your house apart for that W-2.
Well, you can postpone the treasure hunt for now because the IRS is showing mercy on you for the Biblical rainfall that poured on the Garden State last month.
The IRS announced on Monday that they are delaying the filing deadline “for taxpayers who reside or have a business in the disaster area. This includes the April 15 deadline for filing 2009 individual income tax returns, making income tax payments and making 2009 contributions to an individual retirement account (IRA).”
The counties declared a disaster area by the POTUS include Atlantic, Bergen, Cape May, Essex, Gloucester, Mercer, Middlesex, Monmouth, Morris, Passaic, Somerset, and Union and thus qualify for the extended deadline, which is now May 11th.
New Jersey makes the third state allowed a prolonged procrastination period, joining counties in Massachusetts and all of Rhode Island.
Don’t try to get cute though, Garden Staters, if you’re thinking you can falsely claim residency in one of the affected counties, the IRS will be all over your shit, “IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief.” So appreciate the compassion if you can get it but don’t get any ideas; the IRS is still watching.
New Jersey Severe Storm and Flooding Victims Have Until May 11 to File Their Tax Returns [IRS.gov]
• SEC faces setbacks, skepticism in trying to reform its enforcement image [WaPo]
Whether you believe it or not, the SEC is trying like hell to turn it’s image around. As you know, this is not a small challenge when you check down the list of ball drops and/or embarrassing moments. Plus, when Real American Hero Harry Markopolos repeatedly refers to the SECstaff as idiots, who’s not going to believe him?
Tasked with this turn around, Mary Schapiro and Rob Khuzhami are on the offensive, doubling the number of investigations from ’08 to ’09, as well as doubling fines. Emergency stop actions have also increased over 80%, according to the Commission’s data.
Yet, some remain unconvinced, like Commissioner Luis Aguilar who was quoted in the WaPo, “I’m looking to see whether or not all of the new initiatives are actually resulting in improved sanctions. I don’t yet see the empirical evidence.” Patience, Luis. We hear there’s a couple of things possibly in the pipeline.
• Beer Today, Taxed Tomorrow [Tax Girl]
Everyone in Washington State that isn’t a recovering alcoholic (or a teetotaler) should probably start freaking out. WA is considering a “temporary” sales tax increase to 50 cents per gallon, or 43 cents per sixer, sayeth La Tax Chica. The current tax is 15 cents per six pack.
What’s worse (for most anyway) is that only “big-brand” beer is subject to the tax, leaving the micro-breweries alone and TG thinks this will be challenged as unconstitutional for protectionism. In our opinion, punishing people that drink bad beer is a completely acceptable sin tax, since they choose to drink the bad beer, unconstitutional or not. It definitely doesn’t help the college kids though; that’s an $8 extra on a keg.
• Ex-Maxim CFO Blames Dead Boss at SEC Backdating Trial [Law.com]
Carl Jasper is the former CFO of Maxim Integrated Products and is currently on trial for backdating stock options. This is the first case of this kind since the SEC started cracking down on the practice a few years ago. Mr Jasper is relying on the defense that his dead boss, Maxim founder Jack Gifford, is to blame.
The SEC finds this all too convenient:
Mark Fickes delivered a crisp, scripted opening statement for the SEC, beginning simply: “This case is about cheating and then lying about it.” Fickes hammered on the hard-to-ignore fact that Jasper is an accountant who presumably knows accounting rules about granting stock options.”When it came to accounting, no one knew more at Maxim than the defendant,” he told the jury.
Yeah, so that could be a bit of a problem for Jasper which is probably why he invoked his 5th Amendment privilege.