September 24, 2022

Friday Footnotes: Screw the Office; Auditor Sues EY For Doing Her Job; IRS Levels Up | 9.16.22

an orange cat with a leaf on its nose

Big 4

Deloitte plays both sides of the field in Mercedes-Benz case [Australian Financial Review] Mercedes-Benz dealers have discovered long-time auditor Deloitte was banking huge fees from them while secretly working with the German parent company to write reports that would “disguise” the damage a switch in the business model would do to dealers’ profit margins, a court has heard.

EY fired auditor for not approving illegal transactions, says a new lawsuit [Reuters] Ernst & Young LLP has been sued by a former partner who says she was forced out of her job for refusing to sign off on client transactions that violated tax and securities laws. Sayantani Ghose filed a complaint in Manhattan federal court on Wednesday claiming EY punished her for exhibiting “professional skepticism,” even after the accounting firm had paid tens of millions of dollars in fines and settlements over its auditors’ alleged misconduct in recent years.

KPMG partners in Dubai seek suspension of local leadership [Financial Times] A group of senior partners at KPMG has urged the firm’s global bosses to suspend the leadership at its United Arab Emirates business, citing nepotism, cronyism and a culture of fear allegedly stoked by the chief executive. The demands, which include a call for KPMG International to parachute in a temporary chief executive from the firm’s global operations, were set out in an email to some of KPMG International’s top executives.

PwC HK, KPMG to host U.S. regulator for China inspections -SCMP [Reuters] PwC Hong Kong and KPMG China are the first accounting firms that will help the PCAOB inspect auditing work for United States-listed mainland companies, the South China Morning Post said on Wednesday.

Accounting Firm M&A

State’s second largest accounting firm has merged with Meridian group [Clarion Ledger] Watkins, Ward and Stafford of West Point and Kemp, Williams, Steverson and Bernard of Meridian have combined. Watkins Ward and Stafford, founded in West Point in 1949 by John T. Watkins, is the second largest accounting firm in Mississippi. It has offices in Amory, Calhoun City, Columbus, Eupora, Houston, Kosciusko, Louisville, Macon, Okolona, Oxford, Philadelphia, Pontotoc, Ridgeland, Tupelo and West Point.

Marvin & Co. merges with Rochester accounting firm [Albany Business Review] It’s behind a paywall so *shrug*

Hiring and Talent

Valley accounting organization hosting student event to help build employment pipeline [WHSV] In hopes to boost numbers, the Shenandoah Valley Chapter of the Virginia Society of CPA’s will be hosting ‘Student Accounting Night’ at Laurel Ridge Community College. Juniors and seniors in high school and college students will be able to hear from current professionals, as well as potential employers in government, industry, the financial services industry, and public accounting.

Deloitte to create 1,000 jobs outside London as City firms look to cut costs [Proactive Investors] Deloitte will create at least 1,000 new jobs outside of London in an effort to join the rush of City firms expanding beyond the capital. By 2027, Deloitte expects to create approximately 3,500 new jobs in its consulting division as part of a larger £220mln investment, the Telegraph reports. Anne-Marie Malley, head of consulting at Deloitte UK, told the Telegraph, “We are responding to client demand by growing our headcount rapidly over the next few years, starting with a record graduate and apprentice intake this year. “We are committed to creating thousands of new jobs in the UK to support our clients across a raft of industries and subsectors, with at least a third of new hires coming from outside of London,” added Malley.

Audit

ESG demand will force structure shift among audit firms, experts say [AccountancyAge] As pressure mounts from consumers, stakeholders and regulators to disclose sustainability information, so too does the demand for ESG assurance services. PwC has predicted that ESG assets will account for more than 50% of mutual fund assets by 2025 – representing compound annual growth of 28.8% from 2019 onwards. But questions remain as to how this will affect the formation of professional services firms, with some industry participants arguing that silos and structures may begin to change shape.

US to Start Review of Chinese Audit Documents Next Week, Gensler Says [Bloomberg] US watchdogs will review the audit documents of Chinese businesses that trade in New York starting next week, according to Securities and Exchange Commission Chair Gary Gensler.

Slow clap…

Crypto

Binance Bungles Accounting for Helium Tokens, Overpays Clients Millions [CoinDesk] An accounting bug at Binance has led to a windfall in Helium Network’s native HNT token for some users and shouldered the world’s largest crypto exchange with a multimillion-dollar shortfall, according to people familiar with the matter.
Binance is down some 4.8 million HNT tokens that were erroneously disbursed to users, many of whom quickly sold the tokens for profit, the people said. At Friday’s prices those assets were worth about $19 million.

Report: SEC Accounting Guidance Creates Hurdle for Banks’ Crypto Plans [PYMNTS] Despite demand from an increasing number of their clients for cryptocurrency products and services, many banks are reportedly holding back on offering them because accounting guidance from the U.S. Securities and Exchange Commission (SEC) makes it unprofitable to do so.

Bank Agencies Weigh Crypto Accounting Impact on Capital Rules [Bloomberg Tax] The top accountant at the Federal Reserve urged banks and financial institutions to take questions about how to report their cryptocurrency holdings and related arrangements directly to another Washington regulator: the Securities and Exchange Commission.

SEC

SEC Charges Gol Intelligent Airlines, Brazil’s Second Largest Airline, with FCPA Violations [SEC] The Securities and Exchange Commission today charged Brazil’s second largest domestic airline, GOL Linhas Aéreas Inteligentes, for violating the Foreign Corrupt Practices Act (FCPA). The São Paulo-based company, also known as Gol Intelligent Airlines, agreed to pay $70 million to settle the SEC charges. According to the SEC’s order, Gol bribed prominent Brazilian government officials in exchange for certain favorable payroll tax and aviation fuel tax reductions. The scheme took place against a backdrop of insufficient internal accounting controls, and the bribes were characterized as legitimate business expenses in Gol’s recordkeeping.

SEC Acting Chief Accountant Highlights Financial Reporting Areas to Keep in Mind During Uncertain Economic Times [Thomson Reuters] In the current economic environment, it may be especially challenging for financial institutions to apply the FASB’s current expected credit losses (CECL) accounting model. Currently, only larger banks are applying CECL, but about 4,000 smaller banks, including community banks, will have to start applying the expected loss model in 2023.

IRS

BREAKING: Ernst Announces Audit of IRS [Senator Joni Ernst] No, not that Ernst. In a speech on the Senate floor this afternoon, U.S. Senator Joni Ernst (R-Iowa) informed her colleagues and taxpayers in Iowa and across the country that the U.S. Treasury Inspector General for Tax Administration (TIGTA) has agreed to audit the IRS at her request to determine if the employees of the tax collecting agency have paid their own taxes.

IRS Has the Funding to Hire Tens of Thousands. Can It Actually Do So? [Government Executive] Finally, we aren’t the only ones wondering how it’s even possible for the IRS to hire tens of thousands of new employees. GovExec: The political headwinds IRS now face are just one of the many challenges the agency will face to bring on the new staff. First, it must deal with attrition. The agency has said as many as 50,000 employees could leave in the next few years, meaning it will not come close to netting 87,000 new workers or doubling its workforce, as some have claimed. IRS has 25,000 fewer employees than it did two decades ago, leading the Biden administration to assert it desperately needs the new staff to backfill longstanding vacancies. The work IRS must accomplish has only grown, and it has fewer people to accomplish it. As a result, the uncollected taxes—the tax gap—have grown.

IRS hiring, IT upgrades set high bar for taxpayer assistance next filing season [Federal News Network] The IRS is setting goals to provide a much higher level of service to taxpayers during next year’s filing season, now that the agency has the resources it needs to build out its workforce and upgrade legacy IT systems. Treasury Secretary Janet Yellen on Thursday outlined “bold commitments” the IRS will make over the next six months to build out its workforce and upgrade its IT capabilities, adding that the agency will have additional opportunities to grow in the coming months and years.

The IRS is refunding a staggering $1.2 billion in late filing fees [Washington Post] This unprecedented relief is an acknowledgment of the difficulties taxpayers have faced during the pandemic. While in ordinary filing seasons the IRS penalizes taxpayers for procrastination, the agency is signaling that it realizes that’s too harsh for many people who may have struggled to file their returns because of the pandemic.

 

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