Please ensure Javascript is enabled for purposes of website accessibility

Friday Footnotes: They Really Screwed Up That PCAOB Cheating Thing; Better Not Get Burned Out; Uber of Audits | 3.8.24

a serious looking cat, white and tabby
Footnotes is a collection of stories from around the accounting profession curated by actual humans and published every Friday at 5pm Eastern. While you’re here, subscribe to our newsletter to get the week’s top stories in your inbox every Tuesday and Friday.

Comments are closed on Friday Footnotes and the Monday Morning Accounting News Brief by default. If you have something to say about any stories linked here you are welcome to contact the editor or hit us up on Twitter @going_concern. See ya.

Big News

Scroll down for regular-sized news.

One-time PCAOB, KPMG Exec Gets Her Fraud Convictions Thrown Out [Bloomberg Law]
Another former KPMG LLP executive’s convictions have been vacated in the wake of a 2022 Second Circuit decision limiting the scope of the federal wire fraud statute. Because Cynthia Holder’s convictions relied on “the misuse of intangible regulatory information to satisfy the wire fraud statute’s property element,” they can’t stand, U.S. District Court for the Southern District of New York said. The accounting firm’s former executive director has already served her eight month prison sentence and supervised release term. Even so, the writ of coram nobis vacating her guilty plea and criminal judgment helps to limit the collateral consequences of the conviction, including difficulty getting a job, securing a loan, obtaining insurance coverage, and the loss of civil liberties, according to the court.


Big 4

KPMG managers will schedule ‘energy check-ins’ with employees to measure their burnout. Those who don’t take enough PTO could be at risk [Fortune Well.]
Oh just what burned out people need, an unexpected calendar invite.
This year, KPMG is announcing an “energy check-in” initiative to target at-risk employees. After piloting the program last year in a smaller division, KPMG—a Fortune 100 Best Companies to Work For in 2023—plans to have a company-wide rollout to their 36,000 employees and partners by the end of 2024. Using primarily self-reported data and KPMG’s internal system, managers can sense which employees may be running out of steam based on how many hours they work compared to their chargeable hours, PTO hours, and hours spent in meetings. If an employee receives three flags across these buckets, their manager gets a prompt to conduct a check-in. Flags are given to those in the 75th percentile for hours worked or hours on audio calls, and in the 25th percentile for used PTO compared to their peers. “We’re looking for people that are working more hours than we would expect them to,” Sandy Torchia, KPMG’s vice chair of talent and culture, tells Fortune. “We’re looking for people that aren’t taking PTO as much as we would expect them to, and then we’re also looking for people that are spending more hours than expected on audio calls.”

Deloitte Legal Chief Sees Opportunity in GCs’ Need to Modernize [Bloomberg Law]
GC = general counsel
The new global head of Deloitte’s legal services arm said he’s focused on delivering more integrated consulting to general counsel while acknowledging the Big Four’s entry into legal services has gone slower than many anticipated. Richard Punt took leadership of Deloitte Legal in June, a division comprised of nearly 3,000 legal professionals in 75 countries. He previously was chief strategy officer at Thomson Reuters and CEO of Allen & Overy’s flexible resources arm Peerpoint. In an interview with Bloomberg Law, Punt said he is optimistic about growing the accounting giant’s market share for the proactive services Deloitte calls “business transformation,” arguing general counsel need to deliver more value to their businesses through streamlined processes.


SEC Settlement Against Auditing Firm Serves as Reminder of Important Independence Rules [JD Supra]
On February 29, the Securities and Exchange Commission (the SEC) announced that it settled an administrative proceeding against Lordstown Motors Corps’ former auditor, Clark Schaefer Hackett and Co. (CSH)—the same day that the SEC also announced charges against Lordstown for misleading investors about the sales prospects of its flagship electric pickup truck, the Endurance. Among other findings, the SEC found that CSH violated Rule 2-01 of Regulation S-X (the Rule) by providing prohibited non-audit services to Lordstown while also engaged in auditing Lordstown’s financial statements (which were then used in connection with Lordstown’s registration statements and periodic reports filed with the SEC).

PCAOB Sanctions Gries & Associates for Deficient Audit Work That Preceded Multiple Financial Restatements [PCAOB]
The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning Gries & Associates, LLC and Blaze Gries, CPA for violations of PCAOB rules and standards. When conducting the fiscal year 2021 audit of Tingo, Inc., the firm and Gries failed to respond appropriately to warning signs that Tingo’s financial statements materially misstated billions of dollars of goodwill and tens of millions of dollars of stock-based compensation expense. In the wake of the deficient audit work by the firm and Gries, Tingo underwent multiple restatements of its 2021 financial statements. “Auditors must respond appropriately when they encounter warning signs,” said PCAOB Chair Erica Y. Williams, “The PCAOB will not hesitate to take action when investors are put at risk.”

KPMG faces fresh questions over audits after New York Community turmoil [American Banker]
The recent turmoil at New York Community Bancorp is raising more questions about its auditor KPMG, which last year faced scrutiny over its audits of three now-defunct regional banks. KPMG has built up a large business auditing U.S. banks and had long audited Long Island-based New York Community. The bank’s stock is down nearly 70% this year after a series of disclosures that have troubled investors. Last week, it replaced its CEO, filled leadership vacancies in its internal risk and audit departments and disclosed weaknesses in internal controls over its financial reports. The latter disclosure seemingly conflicts with an audit KPMG performed in 2022, when KPMG said the bank’s internal controls were effective.


Just reminding you that Accountingfly has tons of fantastic audit, tax, and CAS professionals available to hire to fulfill all your talent needs. Well, maybe not all. Can’t expect someone with 15 years of high level experience to make coffee. Check ’em out!


The specter of ‘Uberification’ looms over audit [Accounting Today Voices]
Blake Oliver writes for AT’s opinion column:
As technologies reshape industries, we wonder if disruptive startups could come between CPAs and our clients one day. Might these outsiders undercut fees in financial statement auditing much like ride-sharing enterprises revolutionized transportation? To delve into this emerging threat of audit “Uberfication,” I invited Rob Valdez, an experienced auditor turned tech specialist, to speculate how artificial intelligence will transform and disrupt the audit profession. Rob told me how certain software companies already insert themselves in niche assurance services such as SOC 2 audits. As Rob explained, these platforms aim to systematize and automate big chunks of the process, minimizing the CPA’s role. And he warned that this business model may expand into other practice areas if firms lag on innovation.

PwC stays in spotlight through its stubbornness – and a new scandal [Financial Review]
A new scandal in the US won’t have much impact on the work of the parliamentary committee considering reforms for the local professional services sector after the PwC tax leaks furor, although we imagine it will leave the firm’s chief interrogators, Labor’s Deborah O’Neill, Liberal Richard Colbeck and the Green’s Barbara Pocock, shaking their heads at the news. The trio remains resolutely focused on trying to force PwC to hand over a report into the Australian tax leaks scandal that was commissioned by PwC’s London-based international arm. So far, just a short summary of the report has been published on PwC International’s website. But the senators are increasingly suspicious of the role PwC International has played in trying to cauterise the scandal, and the potential links from rogue, Australian PWC tax partners to personnel in other global offices.

Private equity is not the only threat to accounting’s partnership ethos [Financial Times Opinion]
The prevalence of partnerships in the professions is not down to chance. The structure is suited to occupations that rely on reputation, mentoring and long-term relationships. But that is changing. More firms are experimenting with alternative structures and ownership models. Private equity deals are the most visible sign. In February, US accounting firm Baker Tilly agreed to sell a majority stake to Hellman & Friedman and Valea. There are European examples too. Waterland, a Dutch private equity firm, invested in London-based Moore Kingston Smith last year. London-based HG has used advisory group Azets to roll up more than 90 firms since 2016.


FTX Digital Markets Ltd. (In Official Liquidation) [PwC]
FTX liquidators PwC announced the last day for customers and non-customer creditors to submit a claim in the FTX Digital liquidation is May 15, 2024.

SEC adopts climate disclosure rules, giving carbon accounting startups firm footing [TechCrunch]
The SEC voted on Wednesday to require public companies to report a portion of their greenhouse gas emissions and their exposure to risks from climate change. The rules will require certain companies to report their Scope 1 and 2 emissions, those that result from direct operations and energy use, but omits Scope 3 emissions, or pollution that they generate indirectly, including throughout their supply chains or when customers use their products or services. While the new rules do not apply to privately held companies like startups, they do create opportunities for those focused on the carbon tracking, accounting and management space.

FASB advances gross-up fix for CECL [CFO Dive]
The Financial Accounting Standards Board has tentatively agreed to advance a proposal to streamline existing rules related to the current expected credit losses standard issued in 2016 under which the FASB sought to foster timelier reporting of financial losses after concerns about delays in recognizing deteriorated asset values rose out of the financial crisis in 2008. The new proposal would require companies to use a single so-called “gross-up” accounting model when reporting purchased financial assets such as equities, loans and debt securities, whether they are acquired through business combinations or outright asset acquisitions, according to a release on the Feb. 28 meeting decision.

Women Reflect

It’s Time to Talk about Diversity in a Divided World [Deloitte]
A diversity conversation between Beth McGrath, Deloitte US and Haruko Nagayama, Deloitte Japan. They talked about the many barriers they have crossed, the mentors who have pushed them, and the significance of DEI (Diversity, Equity, Inclusion). Here is the essence of the dialogue.

Blackstone’s Kate Hogan on the joys of moving outside her comfort zone [Deloitte podcast]
Kate Hogan comes from generations of CPAs, but an inspirational encounter early in her career prompted her to apply for a job at Blackstone. Her passion to make a mark convinced the company to hire her after what might be considered an interview misstep: “I remember the hedge fund CEO said to me, ‘Do you know what we do?’ I looked at her and I said, ‘I really don’t, but I’m going to work so hard for you.’” That was more than 24 years ago, and she’s been at Blackstone ever since.


Generative AI through the lens of accountants and tax practitioners [Wolters Kluwer]
Rapidly evolving technology is taking the world by storm, and businesses in all industries are looking for use cases to take advantage of the new technologies. Accountants are no different, and the use of AI-driven data analytic tools is common in our industry. In 2023 Generative AI has become known worldwide, especially with the release of tools on the cloud generally available for free. To begin, this paper looks at generative AI through the lens of accountants and tax practitioners. Next, the paper looks at the industry code of ethics and legislative codes of professional conduct that govern accountants and tax practitioners.

7 questions for actuaries in an AI-enhanced world [EY]
The integration of AI in insurance companies will lead to a shift in the profiles and skills sought after in new recruits. There will be growing demand for candidates with a blend of traditional actuarial skills and expertise in data analytics/AI. Soft skills will also becoming increasingly important as companies may look for individuals who are adaptable, continuous learners and capable of working effectively at the intersection of technology and business. This evolution will likely lead to more interdisciplinary teams combining actuarial science with data science and computer programming roles.