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January 27, 2023

Friday Footnotes: Why People Leave Public Accounting; Audit Workloads Up; Terrorist Clients (Literally) | 12.2.22

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Slow news week this week. We managed to find some things worth mentioning anyway as we are experts in slow news weeks (698 weeks and counting!), enjoy.

Talent

Why People Leave Public Accounting [CPA Journal]
Writes Edward Mendlowitz, CPA/PFS, ABV: There are many reasons why CPAs decide to leave public accounting firms. Based on my experience, I believe some of these reasons are personal and individual, but far too many of these reasons are caused by CPA firms’ leadership and can be avoided or mitigated. The following is a discussion of what I have found to be the most common reasons why people leave public accounting.

Audit

Audit committee disclosures increase, right along with workload [Journal of Accountancy]
The role played by public company audit committees in cybersecurity risk oversight continues to increase, while some audit committees are beginning to take on ESG oversight, according to the 2022 Audit Committee Transparency Barometer report issued Wednesday by the Center for Audit Quality (CAQ). For the first time in the history of the annual report, more than half (54%) of S&P 500 companies disclosed that their audit committees are responsible for cybersecurity risk oversight. When the datapoint was first added in 2016, just 11% of the S&P 500 disclosed the same.

The Pentagon Can’t Count: It’s Time to Reinvent the Audit [War on the Rocks]
The same thing year after year, you say? With defense spending on auditing approaching a billion dollars a year, it was clear it would take a decade or more to catch up to the audit standards of private companies. But no single company or even entire industry was spending this much money on auditing. And remarkably, the Defense Department seemed intent on doing the same thing year after year, spending more resources to get incrementally better. It dawned on me that if we tried to look over the horizon, the department could audit faster, cheaper, and more effectively by inventing future tools and techniques rather than repeating the past.

Crypto

Crypto Exchange Binance Appoints Accounting Firm Mazars to Verify Reserves [Wall Street Journal]
Binance, the world’s biggest cryptocurrency exchange, said it has appointed the accounting firm that worked for former President Donald Trump’s company to help assure investors its tokens are covered by reserves. Binance is using Mazars to independently verify its reserves, a spokesman for the exchange said.

Crypto Exchanges’ A La Carte Approach To Audits A Recipe For Disaster [Forbes]
Forbes identified the world’s 50 largest exchanges late in August, only weeks before the FTX crisis unfolded, and half of them agreed to share data about their audit practices. Of the participants, 16 revealed their books were audited, and of those, half went with the Big Four accounting firms–Deloitte, PwC, Ernst & Young and KPMG–and one firm, Binance, has since reportedly disclosed to the Wall Street Journal that Paris-based Mazars is auditing its reserves. Along with being the biggest, the Big Four are arguably the best, at least according to Accounting Today’s 2021 rankings of U.S. audit and accounting firms, which measure the firms’ revenue to determine the standings. Depending on where they are based, cryptocurrency exchanges do not have to submit to audits. If they do, their financial statements can remain private or be shared only with regulators. This is in stark contrast to issuers of publicly traded securities in major developed markets whose accounts must be regularly audited and made public.

Probably the Only Time K-Drama Will Be Mentioned on This Website

Kim Myung Soo And Choi Jin Hyuk In Talks For Upcoming Drama About Accountants [Soompi]
And in Korean drama news: As the title suggests, “Accounting Firm” tells the various stories that unfold within an accounting firm. Kim Myung Soo has reportedly been offered the role of Jang Ho Woo, the first and only high school graduate accountant to join Tail Accounting Firm, with the drama highlighting Jang Ho Woo’s growth as an accountant. Choi Jin Hyuk has reportedly been offered the role of a senior manager at the firm who has been working as an accountant for 12 years.

Rules

FASB takes step toward clarifying lease accounting [CFO Dive]
The Financial Accounting Standards Board (FASB) is moving to take another crack at a relatively narrow piece of its existing lease accounting guidance — issuing a proposed update to standards this week and seeking comments from stakeholders by Jan. 16.

Tax

Florida state tax website bug exposed filers’ data [TechCrunch]
A security flaw on the Florida Department of Revenue website exposed at least hundreds of taxpayers’ Social Security numbers and bank account numbers, a security researcher found. Kamran Mohsin said the security flaw — now fixed — allowed him, or anyone else who was logged in to the state’s business tax registration website, to access, modify and delete the personal data of business owners whose information is on file with the state’s tax authority by modifying the part of the web address that contains the taxpayers’ application number.

Report Suggests Tax Audits of Trump Foes Were Random, but Leaves Questions [New York Times]
The Internal Revenue Service’s inspector general said in a report on Thursday that highly invasive audits of two of former President Donald J. Trump’s chief enemies — the former F.B.I. director James B. Comey and his deputy, Andrew G. McCabe — happened after their tax returns were randomly selected for inclusion in the initial pools from which the agency drew to carry out the examinations.

Law, Order, and Something Else

Former CEO Of Iconix Brand Group Convicted At Trial Of Accounting Fraud [Department of Justice]
Damian Williams, the United States Attorney for the Southern District of New York, announced earlier today that a federal jury found NEIL COLE, the former Chief Executive Officer of Iconix Brand Group, Inc. (“Iconix”), guilty of participating in a scheme to fraudulently inflate Iconix’s revenue and earnings per share, making false filings with the U.S. Securities and Exchange Commission (“SEC”), and misleading the conduct of audits. The defendant was found guilty following a four-week retrial before U.S. District Judge Edgardo Ramos. Sentencing has not yet been scheduled.

U.S. hits Hezbollah accountants in Lebanon with terrorism sanctions [PBS NewsHour]
The Biden administration on Thursday slapped terrorism sanctions on two accountants and two companies in Lebanon for providing the militant group Hezbollah with financial services. The penalties target Adel Mohamad Mansour, executive director of Hezbollah’s al-Qard Al-Hassan group, which has been previously sanctioned by the U.S., as well as another company he is involved with, al-Khobara for Accounting, Auditing, and Studies.

Las Vegas Tax Preparer Sentenced to Prison for Multiple Fraud Schemes [Department of Justice]
This one is a doozy:

A Nevada man was sentenced Nov. 30 to 13 years and three months in prison for filing false tax returns, aggravated identity theft, wire fraud, money laundering and impersonating an FBI agent.

According to court documents and statements made in court, King Isaac Umoren, 41, owned and operated Universal Tax Services (UTS), a tax preparation business based in Las Vegas. Umoren used that business to engage in two separate fraud schemes.

First, from 2012 through 2016, Umoren prepared and filed with the IRS tax returns for clients that included false deductions and fictitious businesses in an effort to generate larger refunds than the clients were entitled to receive. At times, Umoren used the names and the IRS Preparer Tax Identification Numbers (PTINs) of other UTS employees without their knowledge or consent, making it seem as if they, not he, had prepared the false returns. Umoren also required his clients to use a refund anticipation check program, which he then utilized to secretly take fees out of the clients’ tax refunds without their knowledge. On Feb. 7, 2016, Umoren posed as an FBI agent, wearing a fake badge and tactical gear, and drove to a client’s house with police lights attached to his vehicle to demand payment of a tax preparation fee.

Second, in May 2016, Umoren attempted to sell UTS. To induce potential buyers to purchase the company at an inflated price, he provided fraudulent documents – including forged bank statements, fabricated return preparation fee reports, false personal tax returns and other tax forms that had never actually been filed with the IRS – as well as the stolen tax and personal identifying information of approximately 12,000 taxpayers who were not UTS clients. Eventually, Umoren succeeded in inducing a victim to purchase UTS for approximately $3.8 million. He used the sale proceeds to purchase land in Henderson and an automobile.

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