Friday Footnotes: Client Hid ‘Damning’ Audit; Predictions for the Profession; Accounting Firm Gets Compromised | 4.15.22

a kitten hiding

Ed. note: Happy almost Easter to those who celebrate, happy 11th birthday today to my cat Cash Money (no, I did not purposely track down a cat born on tax day when I adopted him from Humane Rescue Alliance in DC 11 years ago), and a very happy April 18th to those of you who have been working yourselves ragged leading up to this day. So much to celebrate this weekend!

Return to the Office Bribes Won’t Work Forever [On The Margins newsletter from Gusto] It’s been a good run, and now things seem to be thawing out for real this time, so WFH is giving way to… RTO, aka return to office. For some folks, though, there is no RTO; they’re WFH FOEVAH. And it’s understandable. Working from home has provided badly needed flexibility and autonomy to many workers, and many employers are willing to oblige them. If their current employer pushes RTO too hard, workers are finding new employers that won’t.

More Predictions about the Profession’s Future [The CPA Journal] Writes Yigal Rechtman, CPA, CFE, CITP, CISM: The current impediments to growth are mostly driven by the perception of prospective entrants to the CPA profession. These are: Lack of mission or purpose. To counter this perception, the accounting profession could be rebranded as a foundational force of social stability and progress, and not just as “a job” with long hours and low return on investment (ROI) on education. A narrow focus on numbers. Accounting provides a golden toolkit of critical thinking and information brokering that can work in both traditional and innovative ways. For example, every startup would benefit immensely from having a CPA among its founders. An exclusive brand. There is another way of putting this: Accounting is a profession whose brand has not been diluted. For example, the AICPA’s idea of expanding its membership by opening the certified in financial forensics (CFF) certification to non-CPAs runs counter to the exclusivity of the CPA brand. The pay isn’t worth the educational investment. Here we need to make changes to the ROI calculus of education costs. The “fifth-year” experiment has had the unintended consequence of costing prospective entrants a 20% premium just for the chance of passing the CPA exam. With a 40% pass rate, this is a tough sell. It’s time to drop the fifth-year requirement.

Fake CPA who bought a new home using money he got through federal Covid-19 relief funding sentenced to four years [CNN] Prior to charges being filed against Polzin, CNN reported that he had obtained at least six PPP loans worth roughly $1.2 million which were intended to help companies stay afloat during the pandemic. CNN found that he received this money for businesses he classified as tax firms and related entities even though he wasn’t a certified public accountant and a court injunction had barred him from masquerading as one. A string of disgruntled clients also told CNN that he had taken their money and never submitted their taxes or that he filed them incorrectly.

Accounting watchdog investigates Deloitte over Go-Ahead audits [The Guardian] One of the UK’s biggest accounting firms, Deloitte, is under investigation by regulators for its audits of Go-Ahead, after the bus and rail operator was embroiled in a scandal for wrongly withholding £50m of taxpayers’ money. The Financial Reporting Council (FRC) said it had opened an investigation in relation to Deloitte’s audit of Go-Ahead’s annual financial accounts between 2016 and 2021.

There was no notable EY news this week in Google News other than press releases and other such boring horn-tooting, meaning EY’s latest social media snafu has gone unnoticed to the mainstream and financial media (other than us, natch, but we don’t count).So here’s Reddit discussing how EY responded to criticism of their recent tone-deaf post about empathetic leadership:

KPMG ‘conflict’ shows agency’s lack of skill in hiring advisers [Australian Financial Review] The parliamentary inquiry report criticised KPMG’s decision to accept work relating to TAHE from both NSW Treasury and Transport for NSW, saying it was “rife with conflict both internally in KPMG and externally”. It called for an overhaul in the way consultants are used by government. Ms Crawford separately concluded that NSW Treasury had displayed an “undue reliance on consultants” and this raised the risk that agencies would “shop” around for advice that supports their desired outcome.

The Star lawyer grilled over whether damning KPMG audit was hidden from regulator [The Sydney Morning Herald] A top lawyer at The Star Entertainment group has been grilled about why a damning audit report identifying money laundering risks at its casinos was described as legally privileged, in a move that shielded it from being handed over to a regulator.

Top Audit Firms in Crosshairs as U.K. Watchdog Beefs Up Powers [Bloomberg Tax] The U.K.’s accounting watchdog is toughening up the regulation of Britain’s biggest audit firms, as the sector faces heavy criticism over a string of high-profile finance scandals. The Financial Reporting Council said Thursday it’s seeking feedback on beefed-up powers to take over the registration of the auditors of so-called public interest entities. The consultation runs until May 26.

Lack of Access Could Hinder Audits of Companies With Ties to Russia [Wall Street Journal] Auditors that assess the financial statements of U.S.-listed companies operating in Russia and Ukraine face a complicated web of difficulties—including possible lack of access to key documents or people. Western accounting firms, among them Big Four Ernst & Young, KPMG, PricewaterhouseCoopers and Deloitte, last month said they would be cutting ties with their local network firms in Russia after its onslaught on Ukraine. As a result, U.S.-based or international auditors could be unable to access companies’ books and records from either of those countries, said Sara Lord, chief auditor at RSM US LLP, a professional-services firm. Records might have been destroyed, or unavailable for other reasons, she said.

Tax season is getting wild y’all

U.S. Audit Board to Wrap up Supervision Rule by Year End [Bloomberg Tax] The U.S. audit regulator aims to finalize this year rule changes that would require more intensive supervision of third-party accounting firms, potentially wrapping up a major project that has been years in the making. The Public Company Accounting Oversight Board provided an update on the project’s timing in its annual report released Thursday. Firms panned the board’s latest proposal—issued last fall—for putting too much responsibility on the shoulders of U.S. auditors and for not aligning closely enough with recently-issued international rules.

Accounting-related class actions plunge [CFO Dive] Securities class action claims and settlements involving accounting problems are down, a Cornerstone Research analysis shows. Plaintiffs filed 46 class actions claims against companies last year for accounting problems – improper revenue recognition, for example. That’s the lowest in 10 years and a drop from 70 filings the previous year. Separately, 33 accounting-related cases were settled, down from 38 the previous year. Settlement amounts were also down, to $755 million from $3.7 billion. “The decline in accounting case settlement amounts was part of a broader decline for all types of securities class actions settled in 2021,” says Laura Simmons, a senior advisor at the research company.

Accounting Firm Says Clients May Be Victims of Tax Scam [The Business Journal] Reed & Dailey, an accounting and income tax firm based here, says it’s hasn’t identified any “bad guys,” but it is “actively investigating” if and how its systems were compromised and confidential client information stolen. Red flags were raised when the firm noticed that certain tax returns it filed were rejected by the Internal Revenue Service as duplicate filings. Some of these clients subsequently “reported attempts of unauthorized access to their bank account,” Reed & Dailey said. “We are not aware of any clients suffering an actual financial loss at this time,” the firm said, adding it has no reason to believe any of its employees were involved in the potential breach.

‘Serious’ concerns raised against some B.C. accounting firms [BIV] The Canadian Public Accountability Board (CPAB) annually inspects what’s called Canada’s “Big Four” accounting firms (Deloitte, Ernst and Young, KPMG and PwC) as well as seven smaller ones, five of which are headquartered or have offices in B.C. Combined, these 11 firms audit about 97% of all Canadian public companies. It is the latter seven firms where more significant problems have been found: just seven of 75 “Big Four” board inspections had significant findings whereas 22 out of 41 files from the other seven were problematic, according to the board’s annual report from March.

Soccer-Juventus among those acquitted in Italian accounting investigation [Reuters] All 11 soccer clubs, including Juventus and Napoli, and 59 individuals have been cleared by Italy’s Federal Court following an accounting investigation involving capital gains, the Italian Football Federation (FIGC) said on Friday.

“Aging workforce”: IRS struggles to answer calls as it deals with backlog of unprocessed tax returns, staffing shortages [CBS News] While roughly 10% of taxpayers still file on paper, which the national taxpayer advocate calls the agency’s “kryptonite,” often the people processing the paper are the same ones who answer the phones. “On average our hold times can range anywhere between 30 and 40 minutes,” IRS Chief Taxpayer Experience Officer Corbin McFarlane told CBS News’ Scott MacFarlane.

Acute IRS challenges had chronic origins, GAO reports [Journal of Accountancy] The correspondence inventory nearly tripled during the 2021 season, compared with that of 2019, and “telephone demand skyrocketed” from 39 million calls in the 2019 season to 195 million in 2021, five times higher, the GAO said. The majority of the calls in 2021, 53%, did not get through, however. Reasons for the much higher number of calls included taxpayer questions about delayed refunds and the new law provisions, including a retroactive change in taxability of unemployment compensation benefits. “Taxpayers experienced a maelstrom of confusion when seeking assistance on their delayed refunds,” the GAO concluded.

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