Going Concern

Fraud

It Turns Out Olympus Could Have (Allegedly) Hidden One of the Largest Accounting Frauds EVER

Adrienne Gonzalez
November 8, 2011

Just a few days ago, Caleb asked why anyone would care if Olympus fired KPMG after a dispute over an accounting matter, but early this morning we learned the answer to that seemingly obvious question.

The question now is, why did KPMG wait around to get fired and not run the hell out of there? Well, because the issue at hand at that point was “goodwill impairment,” which ended up being a series of $1 billion transactions that added up to possible fraud. We won’t say Japanese regulators haven’t had the chance to dissect the evidence yet. We can only assume KPMG did not notice that glaring $1 billion error or surely they would have alerted the financial authorities. No, dismissed “quietly,” swapped out for Ernst & Young. Like Uncle Ernie needs this heat right now.

Fine. Now we’re at tonight (here, at least) and WSJ is live-blogging the press conference at which Olympus’s new president suffered a media grilling over revelations that the company used phony mergers to hide investment losses from shareholders.

“I was absolutely unaware of the facts I am now explaining to you,” new CEO Shuichi Takayama told the press conference. “The previous presentations were mistaken.” Right. First thing you do in this situation is CY-MFing-A, bro.

The Japanese medical equipment and digital camera maker admitted to using acquisitions to cover its securities losses going back to the 1990s. Think about that for a moment. Many of you weren’t even aware of the world around you in the 90s, that was a long fucking time ago. So much for confidence in fragile financial markets.

It wasn’t that long ago that Olympus fired its British CEO Michael Woodford. Takayama had to answer more than a few questions about Woodford at his press conference:

There is a question about Mr. Woodford. “There are no plans for him to return,” Mr. Takayama said.

A reporter asking why the company is not thinking about revoking Mr. Woodford’s dismissal.

Mr. Takayama said Mr. Woodford was dismissed for his management style and therefore, there is no thought of revoking that dismissal.

A reporter asks Mr. Takayama if his impression of Mr. Woodford has changed in light of the revelations, his response: “No, it has not.”

It’s very interesting how they are holding the line against Mr. Woodford. It almost seems personal.

It couldn’t possibly stem from a feeling of betrayal and anger! A 20-year-old (alleged) fraud is suddenly trotted out into the 24-hour Internet news cycle (they didn’t have that in the 90s when they started this scam) and these guys have to apologize to shareholders because this asshole went sniffing around their completely obviously fake M&As.

“It is truly extraordinary and frankly unbelievable that Olympus, a major Nikkei listed public company, made a series of payments approaching USD 700 million in fees to a company in the Cayman Islands whose ultimate ownership is still unknown to us, preventing the auditors from verifying that no related parties were involved,” Woodford wrote in an Oct. 11 letter. “In putting the company first, the honorable way forward would be for you and Mori-san to face the consequences of what has taken place, which is a shameful saga by any stretch of the imagination.”

Woodford hired PwC, who wrote a damning report exposing Olympus’s shady M&A activities. PwC spokesman Derek Nash said he “could neither confirm or deny” that the firm had done any work for Olympus.

Fuck! When will these whistleblowers stop?

The good news: plenty of work coming up for you, GC faithful.

Ex-Marine Who Missed Internship Deployment Looking For His Next Assignment

Adrienne Gonzalez
November 8, 2011

Do you guys ever get an insidious sense of deja vu when reading some of these advice posts? I know I do. Anyway, here’s another lost little sheep looking for a sense of direction in this big scary world. If you’re feeling lost, hopeless, confused or otherwise unsure, hit us up with your issue and we’ll do our best not to make fun of you in front of everyone.

Dear GC,

I have a situation that may be just a little bit different than most college undergraduates but can’t be the only one in this situation. I attend a small private business sch I am a Marine Corps veteran of 4 years and currently using the G.I. Bill as an undergraduate accounting student with a 3.62 GPA. I am in my second year; however, this is my 4th semester and because I do summer semesters as well and I got 21 credits from military experience, I am right along with the Juniors in terms of graduation date. In fact I will have more credits than them when they graduate needing only 15 more to get the 150. The problem arises in me being ahead, yet behind. I am far ahead of the the sophomores, yet a little behind the juniors in regards to accounting courses completed. I am taking Intermediate I and AIS this semester and Intermediate II and Tax in the Spring. I thought because I didn’t have that many accounting courses completed going into this semester that I should wait to apply for internships, especially Big 4. Then I found out that the most accounting firms around here do all of their recruiting in September. Even though Deloitte and PwC are the only big 4 firms recruiting at my school. So I started applying for internships in October to smaller firms and filling out talent profiles on the Big 4 websites. I do plan on attending University of Pittsburgh’s MAcc 1 year program after graduation so I would in a sense have another summer opportunity to get an internship. My question is, should I in the meantime try and get an internship doing individual tax returns or private accounting at a chain retail company? (I have offers for both) Ideally I want something in Public, and eventually that is what I want to; however, would either of those internships help me at all in the long run towards getting an internship with the Big 4 next year? Also like I said only those 2 seem to recruit at my school. Is there anyway to really have a chance at E&Y or KPMG? Thank you in advance.

First off, thank you for your service to this country. My grandfather was a Marine (enlisted just before the end of WW II and missed the action), so out of respect to you for your service, I’m not going to make an excessive number of comments about how much editing I had to do to make your letter readable. But I will make a humble suggestion (in case you weren’t just being sloppy given who you were emailing), please tighten up your writing a bit before you go out there sniffing for Big 4 gigs. Granted, most recruiters can’t spell recruiter but that doesn’t mean you shouldn’t be putting your best foot forward here.

Now that we got that out of the way, can I ask you something? Why are you so dead set on the Big 4? You’re not actually planning on spending your entire career there, are you? It is unclear from your email why you want to be in the Big 4 so bad, so we’re going to assume here that either you drank the Kool-aid or don’t realize that there are a myriad of other opportunities for someone with your background.

Coming from a small school with low recruitment and boasting a 3.62 GPA probably won’t make you stand out on any HR desks anytime soon but the tide could definitely turn when you get in to the University of Pittsburgh MAcc program, assuming you do well and are able to attend recruiting events that are likely more active than the ones at your current school. As you noted, this is good. Also good: your military service (they eat that stuff up, it shows an ability to take orders and not revolt) and the fact that you will definitely be CPA eligible from the moment they bring you on.

What’s the rush in the meantime? Are you looking for the experience? Trying to get your foot in the door in public? Have bills to pay? Just want to get out of the house? You have plenty on your plate (not to mention the CPA exam ahead of you), if I were you I’d just focus on school for now instead of considering doing tax returns in your spare time. Unless that’s what you want to do with the rest of your career.

Since many accounting students participate in VITA anyway, telling recruiters you interned on tax returns probably isn’t going to earn you many points. And unless the “private accounting” gig involves work under a licensed CPA that you can use toward your experience requirement for CPA licensure, I wouldn’t bother.

Comment section is open for the Peanut Gallery’s (much appreciated) two cents.

PwC India Consultant Did Not Technically Die From Work-Related Hazards

Adrienne Gonzalez
November 8, 2011

Over the weekend, we got news that a 34-year-old PwC India senior consultant was found dead at his Calcutta home. A maid noticed smoke and alerted the man’s parents, who lived downstairs. When the parents rushed into the room, they found their son’s bed partially in flames. Police and fire department officials initially suspected Sayan Chowdhury died of electrocution after discovering his charred body lying close to his charging laptop and iPod, headphones still in his ears. Police believe the man fell asleep with the laptop on.

“The preliminary post-mortem suggests he died of carbon monoxide inhalation, apparently while asleep,” joint commissioner of police Damayanti Sen said.

A friend told The Telegraph (India) that Chowdhury was “a very bright professional and had been rising fast in the organisation since switching from Cognizant Technology Solutions.” He leaves behind a six month old daughter and a wife, who also happens to work for PwC.

It is suspected at this time that Chowdhury died of carbon monoxide poisoning after the laptop charger short circuited in his tightly closed bedroom. The victim’s wife and newborn daughter were not in the home at the time, as they have been staying with his wife’s parents, who have been helping to care for the baby.

Experts suggest that it is possible the adapter attached to the power supply cord may have failed, leading to a 230-volt alternating current surge into the laptop, turning it into a death trap. Or, the battery may have got overcharged and exploded, spilling lethal chemicals on Chowdhury. Aside from the short circuit scenario, investigators have not ruled out the possibility that the fire and subsequent fatal CO inhalation was caused by a burning cigarette. “To identify the source of the CO, we have to wait for the forensic reports. The state forensic science laboratory officials collected samples of charred wire, the sample of half-burnt cigerettes,” an officer said.

What is the lesson here, kids? Well for one, don’t work too hard. Two, don’t leave your laptop on the charger. Three, don’t pass out with your laptop on the charger. Safety first!

Sponsored Content

Let’s Cut Through the “Noise” About Forensic Accounting and Fraud Investigation Programs

GoingConcern
November 7, 2011

West Virginia University’s Forensic Accounting & Fraud Investigation (FAFI) program, in the College of Business and Economics, is one of the most recognized and respected programs in the world. Period.

At WVU, our program is:

• based upon knowledge gained from leaders in forensic accounting-public accounting, industry, education and government, including U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)
• geared toward exposing students to best practices in an expanding field of opportunities
• created by our faculty, who facilitated guidelines for the National Institute of Justice
• leading research in forensic accounting and fraud examination through the Institute for Fraud Prevention (IFP)

And we’re tailoring our graduate certificate program to fit your life — by giving you the option of enrolling in a traditional classroom program or an online program (the on-program includes two, two-day residencies on WVU’s main campus). Either way, your residencies include moot court, pitching cases to prosecutors and CSI-F (Crime Scene Investigation – Financial) experiences exclusive to WVU.

There’s a lot of white noise out there about forensic accounting and fraud investigation programs, and most of it is just that.

When the Internal Revenue Service needed to train its people in best practices for detecting fraud, identifying the real thing and collecting evidence to use in court, the agency came to WVU. The WVU Forensic Accounting & Fraud Investigation program offers:

• hands-on case investigations
• experiential learning
• extensive exposure to outside professionals
• moot court experience
• CSIF event
• your choice: traditional classroom or online program with on-campus residencies

And if you’re a non-West Virginia resident, you are eligible for a $4,000 scholarship.

West Virginia University’s College of Business and Economics even has the nation’s first-ever Ph.D. program in accounting that offers a specialization in forensic accounting and fraud investigation. Credibility, curriculum, commitment. That’s WVU.

The bottom line is that you want a program that is going to dramatically increase your skill set, make you a more valuable asset to your company and help move your career upward. Done.

KPMG

A Few KPMGers Give Their Unqualified Opinion on Baby Poop

Adrienne Gonzalez
November 7, 2011

Yes, baby poop.

Apparently a few Kylnveldians recently got together to celebrate the upcoming birth of capital market servant spawn. Instead of the usual “pin-the-tail-on-the-obstetrician” and “figure out what kind of candy bar this is melted in the diaper” games most baby shower goers might be familiar with, the crew decided to get creative and make some onesies.

“I thought the KPMG outfit has so many underlying messages,” says the tipster, “For example: how creative we are when are spirits are not smashed, how many times our audits are as bad a verifying that poop is poop, etc. At least its cute!”

We call child abuse.

CPA Exam

The Most Horrifying Prometric Story I Have Ever Heard

Adrienne Gonzalez
November 7, 2011

Remember last week when I asked you guys for your horror stories tales from the CPA exam frontlines? So far a few have trickled in (come on, people, you guys complain about this ALL THE TIME, I know there are more) but I just had to share this one. Keep in mind I’ve heard it all over the years, so this has to be pretty awful to stand out to me. As you’re about to see, it is.

Now please, I know you guys favor juvenile humor and bathroom jokes (and by you guys I mean me) but let’s be adults for the three minutes it takes to read this story and feel a little sympathy for this candidate.

Adrienne,
I wanted to share a story with you about my most recent exam. I, unfortunately, have to wear an ostomy bag due to health issues. When I took my exam, they did their pat down, and didn’t say a word. I don’t think they noticed that I wear a bag, as most people do not. During the exam, they came in and asked me to leave my terminal because they believe that I was carrying notes underneath my shirt.

I was questioned and searched in the room (in a professional way, I guess), but lost 10 minutes off of my test time as well as losing major concentration so they could “search” me for these mysterious notes of mine. Come to find out, it was just my beige ostomy bag that was showing. Shocker!

The embarrassment of wearing the bag is enough in itself, but being pulled away from a professional exam, losing both time and concentration, was a terrible experience. The people working at the location should have handled this in a more discreet manner. I still passed the exam, but it was a frustrating experience that could have waited until the end of the exam or when I took a break.

Didn’t something similar happen at a TSA checkpoint? As if we didn’t already think of Prometric lackeys as glorified airport security agents.

Now, nowhere in the candidate bulletin does it say candidates must loudly disclaim their medical devices to Prometric staff and declare them upon entry into the building. I imagine if someone had a broken wrist and was wearing a cast, the staff would be able to inspect said cast without issue before the candidate begins their exam but for this candidate, would it have gone any better if he or she had announced their special medical issue? Let’s be honest, this is awkward.

But for future reference… maybe candidates are expected to declare all medical devices? What next? Do you have to inform the Prometric staff if you’re packing a used tampon?!

Sorry. This post was already gross, might as well go all the way. I’m disgusted. In more ways than one.

It isn’t too late to get me your Prometric horror stories, though the bar has officially been set.

Accounting News Roundup: MF Global’s MFing Accounting; Tax Credits For Prisoners and the Deceased; the Groupon Blow-Off | 11.07.11

Adrienne Gonzalez
November 7, 2011

MF Global Brokerage Can Probe, Not Share Results [Bloomberg]
U.S. Bankruptcy court judge Martin Glenn said at a hearing today that the brokerage trustee, James W. Giddens, can share documents and depositions with the Securities and Exchange Commission and the Commodity Futures Trading Commission. The trustee must probe management’s possible involvement without interference from the parent company, Glenn said. “There have already been serious allegations of misconduct,” Glenn said, citing company lawyers who told the SEC on Oct. 31 that there was a significant shortfall in its collateral for segregated accounts.

Was MF Global brought down by an accounting play? [Reuters]
Felix Salmon isn’t convinced that MF Global’s accounting methods brought it down a la Lehman.

Finding more flaws in HUD’s accounting of HOME program [Washington Post]
“The data that HUD has provided to this committee is completely unreliable,” said Rep. Randy Neugebauer (R-Tex.), chairman of the House Financial Services subcommittee on oversight and investigations, which has been probing the HOME program. “HUD has almost no way of knowing whether taxpayer dollars have been wasted or used for their intended purpose.”

Old Debts Dog Europe’s Banks [WSJ]
European banks are sitting on heaps of exotic mortgage products and other risky assets that predate the financial crisis, adding to pressure on lenders that also are holding large quantities of euro-zone government debt.

More problems are found with home buyer tax credits [LA Times]
Would you be shocked to hear that TIGTA found a few of these credits went to folks such as dead people, prison inmates and 3-year-olds?

Watch Groupon CEO Andrew Mason Blow Off A Bloomberg Reporter [Business Insider]
Maybe it started when she called him “baby-faced.”

Here’s a Bunch of Cute Kids Explaining Why They Want to Be Tax Accountants

Caleb Newquist
November 5, 2011

PROGRAMMING NOTE: I’ll be on vacation next week in an undisclosed location but you’ll be in the very capable hands and permanently ink-stained arms of Adrienne. I don’t think I have to explain to you what will happen if you don’t behave.

Because I know you’ll miss me with every fiber of your being (and it’s Friday), I’ve presented the following video for your enjoyment.

[via TaxProf]

News

Memo to CPAs: Those Needy Clients Are Sick of You Not Giving Them Enough Attention

Caleb Newquist
November 5, 2011

Do you have needy clients? You know the type – they want to talk to you when every little thing goes wrong. They call to chit-chat for no reason in particular. They need your opinion on EV-ER-Y-THING. How are you responding to these people? Are you not returning their calls? Are you showing up late to your meetings with them? Do you just listen passively on the phone while repeating, “Uh, huh. Yes. I understand,” as you struggle with level 6-13 on Angry Birds? THOUGHT SO.

Well, they’re on to you. They sense your lack of interest. Your lack of giving a rat’s ass. And you know what? They are FED UP. There are plenty of CPAs out there that would love a client like them and MAYBE they’ll just go out and find one:

“Business is out there, but you have to market yourself differently,” [Allan Koltin, chief executive of Koltin Consulting Group] said, noting that one out of seven accounting firm clients are not happy with their accounting firm and are open to switching firms.

He urged attendees to spend time learning the personal goals of their clients. Among the factors affecting a client’s decision to leave an accounting firm, fees were ninth on the list, he indicated. “The number one factor was that the firm didn’t spend enough time with the client.”

“They don’t care how much you know until they know how much you care,” he said.

Got the message? They aren’t going to put up with your shit forever.

Business Resurging for Accounting Firms [AT]

PwC Didn’t Do CME Group Any Favors

Caleb Newquist
November 4, 2011

The CFTC’s action against PwC probably came as a result of a shocking CME Group announcement late Wednesday: “It now appears that the firm [MF Global] made … transfers of customer segregated funds in a manner that may have been designed to avoid detection.” These transfers, CME Group said, appeared to have taken place after its audit team showed up last week at MF Global to take a look and found everything to be in order. CME Group couldn’t have been hoodwinked like that if PwC had been doing its job all along. You can’t circumvent controls unless there are none or there are holes. It was PwC’s job to review controls and the adequacy of policies and procedures to support them. [Francine McKenna/AB, Earlier]

KPMG

So Olympus Didn’t Tell Investors That They Fired KPMG After a Dispute Over an Accounting Matter, So What?

Caleb Newquist
November 4, 2011

Once in awhile, management and their auditors don’t see eye to eye on things. If semi-well adjusted adults are involved, usually cooler heads prevail and differences are sorted out. On the other hand, if there are egomaniacs or individuals of Irish descent involved, then things can sometimes go badly. Not badly in the physical sense, mind you. Badly in the sense that auditors usually get fired. When that happens it usually raises eyebrows of investors and people start asking all sorts of questions. Luckily, footnote disclosures usually detail the dispute and everyone moves on. That’s precisely what didn’t happen at Olympus:

In May 2009, Tsuyoshi Kikukawa, the then president of the camera-maker and medical equipment firm, announced that the contract for its then auditor, KPMG, had ended and that another global accounting firm, Ernst & Young, would take over. Kikukawa made no mention of any row with KPMG, although Japanese disclosure rules require companies to notify investors of “any matters concerning the opinions” of an outgoing auditor. In a confidential internal document, Kikukawa wrote to executives in the United States and Europe, revealing that there had been a disagreement with KPMG which he did not plan to disclose to the stock market. “The release to be published today says that the reason of this termination is due simply to expiry of accounting auditors’ terms of office,” Kikukawa said in the letter dated May 25, 2009, which was written in English.

You may have recently heard that Olympus is in a bit of situation. They up and fired their new CEO after he was on the job for two weeks because he was asking a few too many questions. You see, Michael Woodford was of the opinion that the $687 million advisory fee the company was paying for to a firm assisting them with a purchase the company in the UK was a tad steep and wouldn’t keep [yapping motion with hands]. Mr. Kikukawa – who has a reputation as an ‘emperor‘ – didn’t care for that, so he and the Board of Directors told Woodford that his services were no longer needed, chalking it up to Woodford being a little too British.

Fast-forward to today’s news – The accounting issue in question – goodwill impairment – was related to the company, Gyrus Group Plc., Olympus purchased back in 2009. And who do you suppose gave Reuters the memo outlining the whole we’re-firing-KPMG-because-they-disagree-with-us-and-we’re-not-telling-anyone-about-it thing?

The confidential letter was given to Reuters by former Olympus CEO Michael Woodford who was ousted after just two weeks in the job on October 14 for what he says was his persistent questioning over the Gyrus advisory fee and other odd-looking acquisitions. Woodford says the letter was addressed to him in his role as head of Olympus Europe at the time and to Mark Gumz, then head of Olympus Corp America.

Apparently this is no big whoop as long as it’s not material and “the numbers add up” says an accounting professor who has ties to Olympus. Oh! In that case, I guess everyone should just move along.

Exclusive: Olympus removed auditor after accounting [Reuters]

CPA Exam

Have You Had Prometric Issues? Tell Us!

Adrienne Gonzalez
November 4, 2011

Instead of giving the same piece of advice I’ve given a hundred times over, today’s post is a plea for information. I know MANY of you (too many, if you ask me) have had Prometric issues over the years, and by issues I mean:

• Prometric Gestapo harassing or hassling you over items not specifically listed in the CPA exam candidate bulletin
• Prometric equipment failures, blank screens, entire exams disappearing, etc
• Generally distressing exam environment issues including excessive noise, uncomfortable temperatures, etc

If you have experienced any kind of issue at Prometric (even the little ones), please leave a comment below or email me with your story. You will remain anonymous unless you tell me otherwise.

I’m hoarding your answers for a follow-up post I will put up later and submit to The Powers That Be (as in the AICPA) so please be as elaborate as you need to be. General dates help (like if you took the exam in 2006, please say that, it’s possible that Prometric has had a chance to address your issue by now). Feel free to include feelings, I won’t hate if Prometric made you cry like a baby on the way home from the exam.

Thanks in advance, guys!

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