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German Government Was Under the Impression That a ‘Certified Audit’ Would Find a 55 Billion Euro Accounting Error

Most people are of the opinion that government can’t do anything right. Education? Bah. Economies? Duh. Wars? YEESH. Oddly, politicians are quite fond of mocking the inefficiencies and mistakes of government to better relate to the common folk who don’t put much stock in the government’s operations. This means that politicians must find other people to hold responsible for the mistakes that are happening all around them. This also means that the art of blamestorming is the most coveted skill in all of politics (well, maybe after being able to lie through your teeth). Do things right and you live to fight another day. Do things wrong and you just look like an ass and then have to weather repeated calls for your resignation.

The German government is taking a fair amount of shit for missing a 55 billion euro accounting mistake. This size of a boo-boo can’t really be swept under the rug so, right on cue, the finance minister has turned on the blamethrower full blast:

Finance Minister Wolfgang Schaeuble has summoned executives from the nationalized mortgage bank Hypo Real Estate (HRE) to explain how they made a simple accounting error that ended up raising Germany’s total debt load by 55 billion euros.Schaeuble, in the awkward situation of being humiliated by the windfall that will cut Germany’s debt levels, will also demand answers at a Wednesday meeting from the PwC accountancy firm that signed off on the report.

Schaeuble’s spokesman Martin Kotthaus tried to deflect any blame, saying the ministry received a certified statement from auditors that the balance sheets had been checked and approved. He said it was too early to tell exactly who messed up.

“It’s annoying, to put it diplomatically, when corrections of this dimension are necessary,” said Kotthaus, who was grilled at a news conference. “We had a certified audit of the annual accounts for 2010 and it said everything was in order.”

Right! A certified audit! If there’s anything we’ve all learned, it’s that audits are the one infallible stamp of approval that we can always turn to for confidence. Just ask Lehman Brothers. Or Satyam. Or Li & Fung. Or MF Global. Or Taylor, Bean & Whitaker. Or Koss. Or Countrywide. [breathe, breathe] Or World Capital Group. Or Sino-Forest. Or Colonial Bank. But aside from those, yeah, audits. Those things are solid.

Germany mocked for 55-billion euro bank accounts error [Reuters]

Things You Definitely Need to Take the CPA Exam

Rose from Sleep on CPA is still plugging away at the exam, but when I read her recent REG wrap-up, I noticed a funny bit she included about a fellow tester she encountered at Prometric:

I was so surprised to find a girl at Prometric who doesn’t even know what NTS is!!! She brought a print out of Prometric appointment confirmation. When a staff member was asking her for NTS, she was clueless. A staff member explained her what NTS is and told her to get a printout from her NASBA emails from a nearby Kinkos. I showed her my NTS and she came back with a print out of NTS and wrote her exam.

Can that possibly be true?! Given some of the very obvious questions I’ve gotten over the years, I guess anything is possible.

I’m sure none of you guys will ever have this issue but just in case, let’s go back over what you definitely need to sit for the exam.


1) A map to Prometric or a good GPS – Plug the address in the night before so you have one less thing to worry about on testing day.

2) GAS IN YOUR TANK – I hate to even have to say this but it’s come up (like I said, anything is possible). I’m the kind of person who plays chicken with my gas light, and it’s caused me to be late to work more than once. Fill up the night before.

3) Bring your unexpired, original NTS and AT LEAST two forms of acceptable identification – The number on your NTS will be used as your launch code to begin testing, so you definitely do NOT want to leave it at home. If you are unable to produce your NTS and two forms of identification that match it, you will not be allowed to test and will forfeit your exam fees for that day.

4) Bring extra ID just in case – In most cases, you’ll need an unexpired driver’s license and a credit card, but just in case Prometric staff have issues with your ID and want to hassle you, bring an extra bank card or credit card if you have one. Social Security cards are not accepted as identification for Prometric purposes.

5) Do NOT bring big items into the testing center with you – While you can stash your jacket or purse in Prometric lockers, they cannot accommodate golf bags, large suitcases, garbage bags full of recyclables, etc. So leave your crap at home.

Sorry for the remedial reminder, don’t want to leave anyone behind.

Accounting News Roundup: Treasure Hunt at MF Global; IRS Employees Going Rogue; Soda Tax By State| 11.01.11

MF Global Collapses as Books Questioned [WSJ]
MF Global Holdings Ltd. collapsed into bankruptcy Monday when a potential buyer bolted over a discrepancy of hundreds of millions of dollars in the beleaguered securities firm’s books, people familiar with the matter said. U.S. regulators are investigating the discrepancy, which relates to money from customers that couldn’t be accounted for as MF Global raced to sell itself, according to people with knowledge of the probe. The probe is at an early stage, and it isn’t clear if the money is missing or if the inconsistencies relate to sloppy bookkeeping. The last-minute dealbreaker came just hours after negotiations led by MF Global Chief Executive Jon S. Corzine had concluded with a tentative agreement on a rescue.

Overstock.com (O.co): Insolvency Looming? [WCF]
This isn’t looking good: “At the end of its third quarter, the Overstock.com had $18.4 million of net working capital (current assets minus current liabilities). However, the company would have reported a mere $1.4 million of net working capital had it not played a shell game and window dressed its balance sheet during the third quarter. Apparently, the company wanted to avoid reporting dangerously low net working capital going into the fourth quarter, while at the same time it is trying to renegotiate terms of its Master Lease Agreement (sale leaseback) with U.S. Bank.”

Tax Breaks for Students [WSJ]
News you can use.

Perry Flat Tax Is Fool’s Gold for Conservatives [Bloomberg]
Perry’s plan is, in short, a flat tax in name only. And notwithstanding his campaign’s absurdly optimistic projections, it seems likely that it would result in much lower revenues than the current system.

A Close Look at the Perry Tax Plan [Economix/NYT]
And for another perspective: “Mr. Perry’s plan cannot be taken seriously. I don’t think it’s meant to be, at least by those of us who don’t plan on voting in Republican primaries. It’s just a signaling device, telling the Republican faithful that they can trust Mr. Perry on the tax issue. Whether the plan makes any sense as a matter of policy is irrelevant to its purpose, which is to win him the Republican nomination.”

IRS Roguery is Not a New Development [Tax Lawyer’s Blog]
You. Tax preparer. Enemy.

Monday Map: Soda Taxes by State [Tax Foundation]
Places where buying the world a Coke™ will cost you a little extra.

PwC Names Dietmar Ostermann as Global Automotive Advisory Leader [PwC]
Dietmar comes by way of…A.T. Kearney.

This Tax Reform Stuff Can Wait

[I]f we are going to make real progress, we can’t fixate on every overhyped, half-baked tax slogan that comes along. Sooner or later we must get back to basics. Here’s the main question: Should taxes be cut, raised, or reformed without changing overall revenue? The answer is that taxes should be cut in the short term, raised after we are clearly out of our cyclical downturn, and then reformed only after we have settled on the magnitude of tax increases needed for deficit reduction. [Martin Sullivan]

MF Global Owes CNBC More Money Than PwC

As you may have heard, MF Global Holdings filed for Chapter 11 bankruptcy protection this morning. You may have also heard that for some strange reason, MF owes CNBC about $845k and change. Turns out, that is more money than it owes to PwC ($312,598), Alvarez & Marsal Tax Advisory Services ($65,000), The Siegfried Group ($30,000) and KPMG ($10,000) combined.


The bright side for P. Dubs is that they got most of the $12 million that they charged the company with last year. Of course if the shareholders take this bankruptcy as well as Lehman’s have (not to mention the NYAG and the State of New Jersey), then that really doesn’t serve as much consolation.

MF Global Bankruptcy Filing [via DB]

PwC Wasn’t About to Let October Pass Without Announcing Their Latest Talent Acquisition From KPMG

If you’ve been paying attention, you know that PwC has made KPMG it’s own personal farm system for partners and directors. It seems that P. Dubs follows all the talent out there and then simply calls the men and women up when they’re ready for the big leagues. We’ve noted four press releases put out by PwC announcing appointments of partner/directors that were brought over from the House of Klynveld. And who knows how many other, non-PR worthy partners, have also joined Team Autumn. Trust us, it’s happening; we hear things.

ANYWAY, in today’s Daily Grind newsletter, I wondered if PwC would take the opportunity of All Hallow’s Eve to pull a trick on KPMG, announcing that yet another partner or director had recently joined up with P. Dubs. My wonderment was largely in jest but I guess I’ve misunderestimated the scamps in PwC’s communications department:

Eric Israel, who joins PwC as a managing director, is a former KPMG managing director and that firm’s US advisory practice leader on climate change and sustainability. He has more than 25 years of experience with KPMG where he began his career in the Netherlands as a Chartered Accountant. Later, Israel moved into sustainability consulting where he has focused his work for nearly 14 years. Israel has global experience in sustainable development concepts and application, finance and sustainability assurance, climate change and carbon consulting & verification, business research and development, as well as knowledge management and corporate governance. He also has participated in the work of organizations such as the Global Reporting Initiative (GRI), the Sustainability Consortium and the AICPA’s and CICA’s joint Sustainability Task Force.

Israel co-founded KPMG’s Global Sustainability Services practice and wrote KPMG’s first Sustainability Audit Manual. He received his BA in Accounting and Business Administration from the University of Amsterdam, Netherlands. He will be based in PwC’s New York office.

In other words, Izzy is was KPMG’s Global Sustainability practice. He wrote the audit manual for crissakes! Of course since he’s just a co-founder, that hopefully means that his fellow co-founder is still around. At least until he/she gets their own press release.

Layoffs Watch ’11: Deloitte

Sounds like the aforementioned rumored layoffs have begun.

Yes they are occurring and I know as I am one of the individual’s impacted. There was no advance warning. I know one other individual in Philly that was also laid off. We are both in the tax practice. My understanding is that it is nationwide and mostly impacts senior managers.

Keep us updated if cuts are going down at your office.

President’s Council on Jobs Report Suggests We Should Try Sarbanes-Oxley Light for IPOs

Barbara Roper wrote a commentary piece in WaPo Capital Business over the weekend that suggests the unthinkable: softening hard ass SOX rules for IPOs could actually kill jobs. How is that possible? Aren’t IPOs great for the economy?

Well, not always. Case in point: Groupon. Healthy, financially strong businesses are good for the economy. Scams, frauds or even overambitious accounting tricks might temporarily get the economy’s spirits up like a few rails of coke but eventually reality sets in and the economy is left broken and penniless in the alley looking for its next hit.


The report is an effort on the part of the Obama crew, who surveyed 27 business executives (including AOL’s Steve Case… and we know how his business turned out) for ideas on how to get the economy moving again. Among the suggestions, the report recommends Congress make compliance with all or part of Sarbanes-Oxley voluntary for public companies with market valuations up to $1 billion or, alternatively, exempt all companies from SOX compliance for five years after they go public.

The report blames burdensome SOX rules for the sharp drop in small IPOs in recent years, writing:

In the aftermath of the dot-com bubble and unintended consequences stemming from the Spitzer Decree and Sarbanes-Oxley regulations, the number of IPOs in the United States has fallen significantly. This is especially true for smaller companies aspiring to go public. As noted earlier, the share of IPOs that were smaller than $50 million fell from 80% in the 1990s to 20% in the 2000s. Well-intentioned regulations aimed at protecting the public from the misrepresentations of a small number of large companies have unintentionally placed significant burdens on the large number of smaller companies.

That would totally work as a justification except the SEC already debunked this silly idea. In a report earlier this year recommending no new 404(b) exemptions, SEC analysis showed that the United States has not lost U.S.-based companies filing IPOs to foreign markets for the range of issuers that would likely be in the $75-$250 million public float range after the IPO. “While U.S. markets’ share of world-wide IPOs raising $75-$250 million has declined over the past five years, there is no conclusive evidence from the study linking the requirements of Section 404(b) to IPO activity,” the report stated.

And as we all know, companies under $75 million haven’t had to worry about the SOX burden at all thanks to Congressional intervention. So how could it be that the burden they haven’t had has somehow prevented them from going public?

New boogeyman, please. I’m no huge fan of SOX but you’re going to have to come up with something better than this to convince me it’s a good idea to can it.

Accounting News Roundup: PwC and MF Global; Republicans for the Millionaire Tax; Hands Off SOx | 10.31.11

Corzine Races to Save Firm [WSJ]
Jon S. Corzine, the former New Jersey governor, raced over the weekend to find a buyer for MF Global Holdings Ltd. in an attempt to rescue the securities firm he now runs from a crisis partially of his own making. MF Global was nearing a deal late Sunday night to file for Chapter 11 bankruptcy protection as soon as Monday and sell assets to Interactive Brokers Group, said a person familiar with the matter. The tentative agreement, reached after a marathon weekend of negotiations, could end the short tenure for Mr. Corzine at MF Global.

MF Global: 99 Problems And Auut None [Forbes]
FM: “According to the latest proxy, MF Global spent almost $12 million on total fees to PwC last year. That’s pretty paltry for a firm with the issues and complexity MF Global has.”

U.S. Economy Revives as Consumers Still Spend [Bloomberg]
While household-sentiment measures are at levels typically observed during a recession, an increase in spending during the third quarter boosted growth to the highest level of the year, Commerce Department figures showed Oct. 27. The schism partly reflects consumer ire with the government’s failure to reduce 9.1 percent unemployment or stem rising deficits, said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management. “Emotionally based indicators are suspect,” Paulsen said. “There is a lot of anger out there. In a calmer time, these indicators might provide a better guide. Consumers are scared to death, but they are still spending.”

PWC Saw No Sign of FMS Accounting Errors, Reports Now Adjusted [Bloomberg]
The auditor said it had “no indication” of any mistakes in FMS’s 2010 financial statement, based on its examinations and the documents it received. “Significant” parts of FMS’s accounting have been outsourced, PWC said in the statement.

A Tax Bracket Divided Over a Plan to Pay More [NYT]
At a wine-and-cheese reception in his office here, Terry M. Barr, president of Samson Oil and Gas, made a pitch to industry executives to donate to the Republican Party of Colorado so that they could defeat President Obama and elect more Republicans at the federal, state and local levels. After his guests left, Mr. Barr offered a surprising postscript: He agrees with a proposal by Congressional Democrats to impose a surtax on income over $1 million a year. Republicans in Congress deride the proposal for a so-called millionaires’ tax as class warfare. But in an interview, Mr. Barr said, “Wealthy people in the U.S. should be paying more tax, and I’m one of them.”

More SEC Reports on IFRS Coming: Will they be Genuine Analysis or Just More Dithering? [AO]
Tom Selling: “The public interest and investors would be better served if the Staff were to finally acknowledge that IFRS is not clearly superior to U.S. GAAP; and, eight years after its report to Congress, the necessary conditions for principles-based standard setting to occur (especially at the IASB) are still not in place.”


For PricewaterhouseCoopers, China Accounting Scandals Not A Game Changer [Forbes]
PricewaterhouseCoopers, or PwC, won’t be leaving China anytime soon following a rash of accounting scandals on small and mid-cap mainland companies listed on the New York Stock Exchange. The company told Shanghai Daily on Monday that it intends to stick around and open up five new offices despite auditors like PwC getting caught up in the middle of ugly international class action lawsuits against Chinese firms for accounting fraud allegations.

Rolling back accounting fraud protections will kill, not create, jobs [WaPo]
The recently released interim report from the President’s Council on Jobs and Competitiveness is brimming with suggestions for ways to get Americans back to work. But it also contains provisions aimed at rolling back protections against accounting fraud, which actually could result in killing jobs. One proposal calls for weakening, at all but the nation’s very largest public companies, nearly 10-year-old rules targeting accounting fraud. That would be bad news for employees and investors in Washington area companies, since it is employees and investors who suffer most when executives cook the books.

Hans Hoogervorst Would Like You to Look at the Example Brazil Is Setting

If anyone over the SEC needs a little help getting their heads around how to best get on board with IFRS, H-squared has found a prize pupil for you to emulate:

Addressing a conference in Sao Paolo, the former Dutch finance minister used Brazil as a “textbook example” of how best to implement global accounting standards. Hoogervorst […] praised the country’s full adoption and decision not to “tweak” the standards, saying this means global investors are “entirely comfortable” Brazilian companies’ financial statements.

Hoogervorst: Brazil embodies ideal IFRS adoption [Accountancy Age, Earlier]

PwC Gives KPMG a Break, Appoints Insider as New Head of U.S. Tax

I guess it was funny the first four times (and that doesn’t count the chumps that don’t get press releases) but for the extra special positions, P. Dubs must prefer to keep things in house.

Mark J. Mendola has been named as PwC’s U.S. Tax leader and a vice chairman of the firm. He will also serve as a member of the firm’s U.S. leadership team and the global Tax leadership team. Additionally, he will be responsible for the network of Tax practices across the Americas, including Canada, Mexico and South America.

For those keeping close tabs on this sort of thing, MJM joined PwC in ’86, no doubt inspired to join the tax practice thanks to the efforts of the Gipper & Co. He joined the partnership in ’98 with no indication that he strayed to the HoK. Word on the street is that KPMG is pretty bent out of shape over the competitive poaching, so PwC must be backing off. For now, anyway.

[via PwC]