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Friday Footnotes: Yo Dawg I Heard You Like Fraud; PwC’s ‘Hipsturbia’; Busy Season Redux | 10.11.19

Posted on by Going Concern News Desk

Warning Signs about the Future Supply of Accounting Graduates [The CPA Journal] At the ground level, something has gone wrong with student perceptions about the value of an accounting education. It may take a few years for this changed dynamic to show up in economy-wide reports, but that a new dynamic is underway is obvious at the institution-specific level. Enrollment in James Madison University’s (JMU) School of Accounting over the past four years, for example, has dropped 34% in the intermediate accounting courses. This is a stunning decrease for JMU’s accounting program.

IRS: Sorry, but It’s Just Easier and Cheaper to Audit the Poor [ProPublica] The IRS audits the working poor at about the same rate as the wealthiest 1%. Now, in response to questions from a U.S. senator, the IRS has acknowledged that’s true but professes it can’t change anything unless it is given more money.

Illinois CPA Society Seeks College Student Applicants for Diversity Program [CPA Practice Advisor] The award-winning Mary T. Washington Wylie Internship Preparation Program is a golden opportunity for racial and ethnic minority college students who want to make their way into the accounting and finance profession. The Illinois CPA Society is seeking qualified applicants for its next program, being held January 6-8, 2020 in Chicago. The application is available at www.icpas.org/mtww and the deadline is November 11, 2019.

October is the new April for accountants after tax law confusion [Accounting Today] For Americans who couldn’t figure out how to pay their taxes in April after Republicans overhauled the tax code, there is a new day of dread for accountants: Oct. 15. That’s the filing deadline for individuals and corporations that asked the Internal Revenue Service for a six-month extension to submit their tax documents. Accountants say they’ve seen a surge in clients needing extra time to finish filings for their 2018 income, the first year subject to new rates and regulations following the 2017 tax law.

Facebook under fire over ‘outrageous’ UK tax bill [BBC] The social media firms’s latest UK accounts show that profits last year jumped by 54% to £96.6m. Facebook’s total tax charge on those profits almost doubled to £30.4m, but was reduced due to adjustments. Tax campaigner and MP Margaret Hodge said such a low bill was “outrageous”, but Facebook said it pays what it owes.

Guiliani Associate Indicted for Money Laundering Ran Company That Claimed to Combat Fraud [Rolling Stone] Lev Parnas — one of the Rudy Giuliani associates indicted on conspiracy charges relating to fraudulent campaign donations, including allegedly steering Russian money into the U.S. political system — has listed two businesses dedicated to rooting out financial misfeasance on his political donation records. Parnas listed “Fraud Guarantee” and “Loan Crime Investigation Group” as his employers on federal political contribution forms, along with a firm called Global Energy Producers. That third business — ostensibly dedicated to Liquefied Natural Gas deals — was used by Parnas as a corporate conduit or “straw donor” to obscure the true source of campaign donations, in violation of federal election law, a federal indictment alleges.

New PricewaterhouseCoopers report dubs Evanston as a ‘hipsturbia’ [The Daily Northwestern] According to the report, “hipsturbia” — a combination of “hipster” and “suburbia,” — links Evanston to other vibrant communities like Santa Clara, California, and Yonkers, New York, which are known for their vibrant arts scene and balanced retail spaces. However, some say Evanston is too generic and expensive to be hipsturbia.

Deloitte’s work for Autonomy ‘showed lack of scepticism’ [The Times] Auditors at Deloitte failed to challenge bosses at Autonomy before its sale to Hewlett-Packard, a disciplinary tribunal has heard.

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Demand Media Uses Fancy Math to Support Aggressive Accounting

Henry Blodget crucifies Demand Media today for their accounting treatment for the cost of their “army of freelance writers” as the company attempts to go public.

But before we get to that, first a little quick and dirty for those of you that don’t surf the web all day (like some people we know). Demand Media runs “content farms” like eHow, Livestrong.com and Cracked. To put it simply, the idea is that aggregating freelancers in this fashion is much more efficient “sly, lots of people take exception with this model.

As we said, Demand is trying to go public and Kara Swisher at All Things Digital writes that the latest draft of the S-1 attempts to explain some questions the SEC had on its “capitalized media content.”

Currently, using a concept of “long-lived” content, Demand has been amortizing those expenses over five years, since it says it continues to generate revenue on that material over that much time.

As the company noted in its S-1 filing:

“Capitalized media content is amortized on a straight-line basis over five years, representing the Company’s estimate of the pattern that the underlying economic benefits are expected to be realized and based on its estimates of the projected cash flows from advertising revenues expected to be generated by the deployment of its content. These estimates are based on the Company’s plans and projections, comparison of the economic returns generated by its content of comparable quality and an analysis of historical cash flows generated by that content to date.”

If you find that last paragraph hard to read, it’s because it is hard to read. Demand is essentially saying that their content is extra-special and will be making them money down the road, unlike the drivel you read elsewhere. Accordingly, this situation calls a useful life of five years and for the amortization expense to recognized over that life. That’s where Henry loses it (at least that’s the vision we have), writing that despite it being a “theoretically reasonable judgment” this whole notion of not recognizing content/editorial expenses (aka: bloggers) immediately is “bogus”:

• It’s unusual and aggressive. Other publishers don’t account for editorial costs this way

• It makes the company “profitable” when it’s actually hemorraging cash, so it is obviously a gimmick used to spruce up the financial statements

• It leads to an instant argument/interrogation about how long a writer’s content will ACTUALLY be valuable (and Demand Media hasn’t even been around for five years, so confidently saying “five years” begs more questions)

• It is an EASY knock against a company that is controversial anyway

For these reasons, Demand Media should just drop this accounting immediately.

But going back to Swisher, the company has an explanation – it’s mathematical! So, it just works, mmmkay?

To be allowed to expense over five years, Demand said, the company has to use a sophisticated algorithmic platform–which other content creators do not have–to provide proof of “probable economic benefits” from that content over that time.

Since Demand has long claimed that it has a new and innovative approach to content creation, it is making the case to investors that it needs to have the correct accounting for that approach.

OH! Since you have rocket scientists on the job, it’s totally legit. NOW WE GET IT. But despite having someone John Nash-esque on staff, the company admits that there is a big catch:

Changes from the five year useful life we currently use to amortize our capitalized content would have a significant impact on our financial statements. For example, if underlying assumptions were to change such that our estimate of the weighted average useful life of our media content was higher by one year from January 1, 2010, our net loss would decrease by approximately $1.6 million for the nine months ended September 30, 2010, and would increase by approximately $2.4 million should the weighted average useful life be reduced by one year.

In other words, if the company can’t use five year amortization for its content, things will get ugly fast (Blodget illustrates with an example). The whole thing has caused enough of a ruckus that the IPO is being put off until next year which, considering there’s probably lots of tricky stuff involved (x’s and y’s and whatnot), seems like a good idea.

Wisconsin Accountant Charged with Reckless Homicide in the Death of Illinois State Trooper

If you live in the Chicago area like I do, you’ve by now heard or […]

BKD Partner Found Dead at His Office

[caption id="attachment_12673" align="alignright" width="120" caption="Source: Springfield Business Journal"][/caption]

Fifty-one year old Daniel Hayworth was found dead at the BKD offices in Joplin, Missouri on Sunday afternoon.

The Springfield Journal Reports that Mr Hayworth had several leadership positions with the firm including the firm’s national construction and real estate group, national manufacturing and distribution group and chair of the manufacturing and distribution committee.


According to Newton County Coroner Mark Bridges told us that Mr Hayworth had a history of hypertension and high blood pressure, accordingly his office ruled that the cause of death was a massive heart attack.

Our email to a BKD spokesperson was not immediately returned.

John Wanamaker, the managing partner of BKD’s Souther Missouri unit was quoted by the SBJ, saying, “Dan was such a great guy, and this is such an unexpected and untimely event. He was clearly a great man, a great husband to his wife, Lynn, a great BKD partner, and a great friend, and he will be unbelievably missed.”