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Monday Morning Accounting News Brief: Semper Fi-nancial; EY Gets a D in Auditing; Deepfake CFOs Are a Thing | 2.26.24

little dog wrapped in a fuzzy red blanket

Hi, welcome to another Monday. *insert sassy observation here*

As you ready yourself for the week ahead, take some time to contemplate the fact that there’s better shit to do with your life than work it away.

The Marines have achieved the seemingly impossible:

The U.S. Marine Corps passed a full financial audit for the first time, with the service announcing Friday its fiscal 2023 financial audit received an “unmodified audit opinion” after a rigorous two-year review.

The milestone — something the Defense Department and the other armed services still have not achieved — comes after almost two decades of trying to prepare the Corps’ records and several failed audits along the way.

During this two-year audit, the Marine Corps had independent third-party auditors from Ernst and Young vet the value of all its assets listed on financial statements. The Corps also had to prove that every single item existed and was where the service said it was.

🫡

National Review wins for best headline:

The PCAOB has released EY Canada’s latest inspection report, they got a D:

Big Four accounting firm Ernst and Young had multiple deficiencies in half the audits inspected by the Public Company Accounting Oversight Board in the United States in 2022. The PCAOB inspected four EY Canada audits — three in which the firm was the principal auditor — and found deficiencies in two (50% with Part I.A deficiencies). The US audit watchdog also inspected four EY Canada audits in 2020 and found deficiencies in half the engagements.

These new independence disclosures in inspection reports are kinda cool. Check out the last one LOL:

During its inspection, EY Canada disclosed to the PCAOB a number of potential areas of non-compliance related to independence, particularly related to financial relationships. For example, the firm reported 13 instances of potential non-compliance with a rule regarding financial relationships, “all but two of which occurred at the firm or involved its personnel.”

Some of these related to related to investments in broad-based funds in which the company was included. Some related to non-audit services (such as legal services) to the audit client. One involved a member of an engagement team “engaging in substantive employment discussions with, and accepting an offer of employment from, the audit client for an accounting role.”

A new report has found that audit fees in the UK — where Big 4 audit 98 percent of companies in the FTSE 100 and 84 percent of the FTSE 250 — are up by a lot:

A lack of competition in Britain’s audit market and a regulatory drive for better quality have pushed up fees for London-listed companies by 75 per cent over the past five years, according to a new report.

The average cost of an audit for a public company in the UK jumped from £397,000 in 2017-18 to £694,000 in 2022-23, according to research by the Quoted Companies Alliance, which represents small and medium-sized businesses.

The QCA said in its report that the 75 per cent rise was driven by a dearth of competition in the UK audit market, extra financial reporting requirements and auditing standards, and accounting firms seeking to boost the profitability of their audit arms.

The Quoted Companies Alliance is a non-profit membership organization that “champions the interests of small and mid-size quoted companies in the United Kingdom.”

Pennsylvania Auditor General Timothy L. DeFoor, a community college graduate himself, announced his office will now hire people with associates degrees in accounting, business, data analytics, finance, economics, math, or another closely related field:

“Our goal is to create pathways to careers and expand opportunities to good jobs to more Pennsylvanians than ever before,” Auditor General DeFoor said. “As a community college graduate, I can tell you firsthand that associate degree programs offer practical, hands-on training that prepares students for high-demand industries like auditing. That’s why I am so excited to announce the Department of the Auditor General will be hiring individuals with associate degrees.”

Previously, to be considered for a position at the Department of the Auditor General, candidates needed to hold a bachelor’s degree in accounting or finance and complete 12 credits of accounting as part of their coursework.

PwC Australia emergency CEO Kevin Burrowes will stay on to 2026:

Kevin Burrowes, the senior partner brought in by PwC global to take control of the scandal-hit Australian firm, has had his leadership term extended until 2026.

The move indicates that Mr Burrowes and PwC global believe the wide-scale reform happening at the local branch of the firm will take at least another two years to carry out.

PwC Australia indicated that Mr Burrowes chose to remain as CEO, meaning the move has once again been imposed upon the local partnership. The firm’s Australian partners usually vote in their chief executive for a four-year term.

Aaaaand now there’s one less tax preparer in Florida to handle the load. Sometimes these Department of Justice releases contain egregious arrogance and Looney Tunes-level criminality, this one is just dumb.

The Justice Department filed a civil injunction suit to permanently bar Julius T. Price and his tax return preparation business, Price’s Accounting Firm Inc., from preparing federal income tax returns for others.

The complaint, filed in the U.S. District Court for the Middle District of Florida, alleges that Price prepared thousands of federal income tax returns from 2018 through 2023 that understate his customers’ tax liabilities and overstate the refunds to which they were entitled through a variety of schemes. The complaint describes how Price knowingly made up businesses on returns he prepared to generate bogus losses, included fraudulent claims for the Earned Income Tax Credit (EITC), claimed fictitious deductions and credits for tuition and fees and fabricated itemized deductions for medical expenses, mortgage interest and gifts to charity. According to the complaint, Price’s pattern of fraudulently understating his customers’ tax liabilities and overstating their refunds has resulted in the loss of significant federal tax revenue, estimated to exceed $1.5 million.

And another one in Mississippi:

A group of Mississippi tax return preparers were sentenced to prison yesterday for charges related to a conspiracy to prepare and file false tax returns for clients in Jackson, Mississippi.

According to court documents and evidence presented in court, Earnest, Randell, Klish, Barefoot and Wells worked at Sunbelt and conspired together to claim inflated tax refunds for clients by reporting false education credits, itemized deductions and business profits or losses on their clients’ tax returns. Over the years, they prepared thousands of fraudulent returns, causing over $3.5 million in tax loss to the IRS.

Apparently ‘PwC Jersey Young Musician of the Year‘ is a thing. That’s Jersey as in the Channel Islands, not as in New.

Deep fake CFOs are a thing now:

Recently, the risk [of cyber executive fraud scams] grew far greater as it was reported a deep fake videocall showing an AI-generated multi-national company’s CFO and other co-workers were used to convince a HK branch employee to make 15 transfers totaling HK$200M (approximately US$25M) into 5 local HK bank accounts. Reports indicate that the initial email request seemed suspicious to the employee, but then she was invited to a videochat, purportedly over a common personal communications app, where the deep fake of the CFO, and apparently or other employees, were used to instruct her to make the transfers. The deep fakes were apparently AI-generated videos created from past videochat recordings obtained from the individuals. From the reports, the deepfakes were more like a recording and would not be able to interact and respond to questions and may have had somewhat limited head movement. It would appear that at least one of the hackers was a live participant orchestrating things so, after allowing the HK employee to introduce herself, the deepfake images informed her to make the transfers. It was only after the 15 transfers were made that the employee contacted their UK headquarters, only to be informed there was no such instruction.

And Grant Thornton has a new managing partner with an INSTINCT FOR GROWTH:

Grant Thornton LLP, one of America’s largest providers of audit and assurance, tax and advisory services, today announced that Alasdair Trotter has joined the firm as national managing principal of Growth Advisory within the Advisory Services practice. Trotter assumes the role from interim leader Scott McGurl, a longstanding principal who will continue to provide transaction advisory services to clients.

Trotter, a veteran in strategy and innovation with more than 20 years of experience, has advised senior leaders on all aspects of navigating their organizations through transformational change. As the firm’s national managing principal of Growth Advisory, Trotter will help clients foster new business models and identify high-potential, long-term growth opportunities.

Alright, that’s it. It’s really dead out there, hopefully some CFO somewhere will do something stupid this week (a real one). Questions, comments, complaints, and compliments can be directed to [email protected].