Going Concern

Accounting News Roundup: Obama’s Plan Gets the Editorial Treatment; DC Shutdown 2.0?; Poker Players Get Prickly After Ponzi Accusations | 09.22.11

Caleb Newquist
September 22, 2011

Taxes, the Deficit and the Economy [NYT]
Republicans want to close the entire budget gap by slashing government spending. The president’s balanced approach protects vital services and growth. It includes $245 billion in payroll tax cuts next year for workers and businesses to encourage hiring, investment and spending. It also includes money to invest in infrastructure and to aid struggling states. It only starts reducing the budget deficit in 2013, when the economy should be stronger. As is his wont, the president is still leaving too many details for Congress to decide.

The Spend Now, Tax Later Jobs Bi=”http://online.wsj.com/article/SB10001424053111904194604576583151431651920.html?grcc=88888&mod=WSJ_hps_sections_opinion” target=”_blank”>WSJ]
According to the Sept. 19 White House fact sheet, “The President calls on [the super committee] to undertake comprehensive tax reform, and lays out five principles for it to follow: 1) lower tax rates; 2) cut wasteful loopholes and tax breaks; 3) reduce the deficit by $1.5 trillion; 4) boost job creation and growth; and 5) comport with the “Buffett Rule” that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.” But the administration’s tax plan violates these principles.

IRS Gives Employers a Break on Payrolls [WSJ]
Businesses that have been improperly labeling their employees as independent contractors got a surprise break Wednesday: A new Internal Revenue Service program will allow those businesses to reclassify workers and make only a small payment to cover past payroll taxes. The downside for such companies? Regulators say they are going to be more vigilant about misclassification of workers in the future.

US government shutdown looms again [FT]
The US government has been put at risk of a possible October 1 shutdown because of a partisan fight on Capitol Hill over disaster relief for victims of hurricane Irene and Democratic opposition to proposed cuts to subsidies for fuel-efficient cars. At the centre of the debacle lies the ongoing struggle between conservative Republicans and Democrats over how much the government ought to be spending and how programmes are paid for. In a move that shows the challenge facing Republican leaders in the House of Representatives, who are seeking to appear more conciliatory following this summer’s tough debate over an increase in the debt ceiling, lawmakers voted 230-195 against a bill to keep the US government funded temporarily.

Poker Site Fires Back at U.S. [WSJ]
The issues at Full Tilt should be likened to that of a problematic bank, rather than an illegal investment scheme, according to Jeff Ifrah, an attorney who represents the company in related litigation and is the personal attorney of Chief Executive Raymond Bitar. “A Ponzi scheme requires an investment vehicle in order to receive a certain rate of high return,” Mr. Ifrah said. “None of those things happened here.” Instead, he said, “maybe it was mismanaged.”

Colbert: The Buffett Rule [TaxProf]

The Colbert Report
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Deloitte

Some Are of the Opinion That Deloitte’s Services Aren’t Worth $90,000 a Day

Caleb Newquist

September 21, 2011

I don’t care how you try to explain it away, in this day and age of tight budgets and runaway deficits, $90,000 per day is way too much to pay an accounting firm for advice on how to cut $4 billion from Ottawa’s budget, particularly since the proposed cuts Deloitte comes up with are unlikely ever to be acted upon[.] [NP]

IRS

Tax

Is It Impossible for a Dancing With the Stars Champion to Get A Decent CPA?

Caleb Newquist

September 21, 2011

I only ask because Kelly Monaco could use one. Robert Snell reports that she owes about $68k to Feds which is odd considering she beat the likes of Evander Holyfield, J. Peterman, and Joey from New Kids on the Block. Can’t someone help the girl out? And not with the tango. [TW]

Big 4

Career Advice

Career Center

What Can a Big City Big 4 Auditor Expect at Small City, Second-tier Firm?

Caleb Newquist

September 21, 2011

Back with another edition of “Decide My Life for Me – Public Accounting Edition.” Today, an antsy Big 4 employee in a large city wants to know if moving to second-tier firm in small city will mean a demotion or cut in salary.

Do you have trouble matching your socks? Need help making sense of your cryptic performance review? Are you worried that someone with a bun in the oven is also capable of doing their job? Email us at advice@goingconcern.com and someone will try to straighten you out.

Back to our “Should I Stay or Should I Go” du jour:

Hi,

I was curious if you had any information on employees jumping from Big 4 firms (auditing) to upper-mid-tier (i.e. McGladrey). Do you find that they are often promoted? I am currently in a large city and am uninterested in staying in the city long-term. I was thinking of moving to a 300,000 person city with some firms like McGladrey, Grant Thornton, etc. If I am jumping ship as a senior or manager, where should I expect to come in at? Same level? Same salary?

Thanks
Jumper

Dear Jumper,

Had it with Big 4 life, eh? Let me guess, the groupies got to you, didn’t they? Every damn time.

As to your inquiry, here’s the deal – you won’t be promoted if you decide to accept a position with McGladrey or Grant Thornton. Why? There are a few reasons: 1) You don’t have the experience; 2) You don’t have the experience; 3) You don’t have the experience. We all know that Big 4 auditors think they’re pretty special and that anyone who doesn’t soil themselves after looking at their stellar résumés followed by an immediate job offer is simply stupid. So it comes as a shock to many when this scenario doesn’t play out. As far as second-tier firms go, they definitely want Big 4 talent when they can get it but they’re aren’t about to throw you a bone because you worked at E&Y Chicago or PwC New York.

What you can expect – if you’re senior associate or a manager at a Big 4 firm, you can reasonably expect to be offered (not a guarantee, obv) a similar position at GT or Mickey G’s that you currently have. If you’re moving to a smaller city, you could see a similar salary but you should not expect a raise. You’ll receive the market rate for your position in your new city. The firm may put you at the high range of pay for your group but be prepared to be reminded of that fact come merit increase time.

Anyone made a similar move with different results? Share below.

IFRS

Who Among Us Considers the IASB a “Success Story”?

Caleb Newquist

September 21, 2011

Count IASB Vice Chairman Ian Mackintosh as one.

Ian Mackintosh called the IASB a success story, saying global standards are now accepted in more than 120 countries and high-profile non-signer the US will make a decision later this year.

A high-profile non-signer who increasingly sounds pessimistic about the whole exercise. Oh! India and Japan aren’t sold either. Sounds like a winner, doesn’t it?

Investors: IFRS unfit for purpose [Accountancy Age]

KPMG

KPMG Is Going to Buy Itself Some Indentured Servants in the UK

Adrienne Gonzalez

September 21, 2011

There’s nothing like buying your loyalty. I’m not saying Big 87654 programs like this aren’t somewhat good for the morale and worth the firms’ dime(s) not just to buy loyal servants but also to help prepare future capital market servants in general but it’s sort of a scam. Sometimes, these education programs don’t work out and the slaves revolt, as happened with this young man in an undisclosed market somewhere in a state that ends in tts.

Anyway, KPMG wants to recruit a whole bunch of 18 year-olds into its work/school program (across the pond they call this a “scheme,” which makes it exponentially more funny) by next September. The House of Klynveld will pay these kids’ tuition fees and pay them a whopping starting salary of £20,000 ($31,460 in Fed Funny Money).

Here’s a brief and completely related link to an article on indentured servitude: “Servants typically worked four to seven years in exchange for passage, room, board, lodging and freedom dues. While the life of an indentured servant was harsh and restrictive, it wasn’t slavery. There were laws that protected some of their rights.”

Sound at all familiar?

According to The Telegraph, the course opens its doors to 90 students for the first time this month, with two-thirds of entrants coming from state schools or colleges, compared with around half from the traditional graduate entry route.

More than 1,000 would-be ex-KPMGers applied for the program, and that number is expected to rise year over year. They say that’s because tuition is up to £9000 a year (about $14,153 but there’s a Fed meeting fast approaching, that number is subject to change) but my guess is mediocre performers need jobs and accounting isn’t that bad of a gig for some of them. I’d also guess that a few of these program “graduates” actually go on to have successful careers.

If you remember, one former participant of a similar program once (allegedly but eloquently) wrote to his former colleagues “I’m pretty sure it would have been easier to escape from Auschwitz than a YMP contract. I knew from the second week I start here that this wasn’t going to work out.” Ernst & Young’s Your Master Plan nurtured one hell of a profanity-laced, poetic farewell email, a true testament to its power. One requirement for the program was advanced written and verbal communication skills… it’s a wonder Uncle Ernie didn’t call Craig immediately and ask him to come back with a fat raise.

Anyway, the head of audit at KPMG told the Telegraph “At a time when many young people, graduates included, are finding it difficult to gain employment, this programme represents a credible alternative to mainstream university education and provides an attractive route into employment for talented students.”

I highly – and I mean highly – recommended checking out the comments on the Telegraph article, as it finally identifies the link between public accounting and anal rape that we have been trying to pinpoint for years. It’s the one that starts off with “If you work at a large accounting firm, beware, it is perfectly acceptable for the large accounting firm to tell massive lies about you such that you will be butt raped repeatedly…” You can’t miss it.

ANR

Accounting News Roundup: Checking the Facts on The Buffett Rule; Pols Dodge Details on Tax Reform; Audit Discovers $16 Muffins for DOJ Event | 09.21.11

Caleb Newquist

September 21, 2011

Obama, taxes and the ‘Buffett Rule’ [Fact Checker/WaPo]
Still, there are so many numbers tossed around about taxes that it seems a good time to take a step back and look at the data. After all, Republicans frequently note that 50 percent of Americans pay no income taxes. So how is it that Democrats can complain that billionaires are paying a lower tax rate than their secretaries? And does the so-called “Buffett Rule” make sense as tax policy?

GOP Leaders Urge the Fed Not to Act [WSJ]
Top Republican congressional leaders, in a rare effort to directly influence Federal Reserve policy, expressed reservations about the central bank taking additional steps to spur the recovery, saying further action could harm the economy. House Speaker John Boehner (R., Ohio), Senate Minority Leader Mitch McConnell (R., Ky.), and two other GOP leaders, in a letter Monday to Fed Chairman Ben Bernanke, urged Fed officials to “resist further extraordinary intervention in the U.S. economy.” The four lawmakers wrote that it wasn’t clear the Fed’s earlier attempts to support the economy through large purchases of government bonds, called quantitative easing, had “facilitated economic growth or reduced the unemployment rate.” They said those efforts had likely increased economic uncertainty.

S.E.C. Hid Its Lawyer’s Madoff Ties [NYT]
After Bernard L. Madoff’s giant Ponzi scheme was revealed, the Securities and Exchange Commission went to great lengths to make sure that none of its employees working on the case posed a conflict of interest, barring anyone who had accepted gifts or attended a Madoff wedding. But as a new report made clear on Tuesday, one top official received a pass: David M. Becker, the S.E.C.’s general counsel, who went on to recommend how the scheme’s victims would be compensated, despite his family’s $2 million inheritance from a Madoff account.

Politicians dodge the details in US tax debate [FT]
Democrats and Republicans have claimed that reforming America’s outdated tax system is at the forefront of their respective agendas on Capitol Hill, but politicians on both side of the aisle are playing a subtle game of chicken that may undermine the chances for change.

HRBN: The Annals of Fraud [The Financial Investigator]
Roddy Boyd: “Harbin has made up tens of millions of dollars of annual revenue and receivables for several years running, according to assertions made in a pair of interviews with the senior management of Jiangsu Liyang, a company that Harbin has asserted in its 10-Ks is one of its best customers.”

Minimalist workspace [ABD]
Too much clutter?

U.S. Alleges Poker Site Stacked Deck [WSJ]
As professional poker players, Howard Lederer, Chris Ferguson and Rafael Furst got rich by bluffing players out of their money in televised tournaments. Now, the U.S. government alleges that they and their colleagues used this same approach in running one of the world’s largest online poker sites. On Tuesday, the U.S. Justice Department in a civil suit accused Messrs. Lederer, Ferguson and Furst, and another director of the company behind the Full Tilt Poker website, of defrauding thousands of online poker players out of more than $300 million that is still owed to them. The government said that, in total, the 23 owners of the site had taken out $444 million in distributions over the years.

A Tax Others Embrace, U.S. Opposes [NYT]
President Obama’s proposal for a new tax on millionaires echoes a call in many countries struggling with budget deficits and overwhelming debts to make the wealthy pay more. Britain and France have imposed new taxes on their highest earners — and Italy, Spain, Greece and Japan are considering similar moves, despite some protests. Whether the taxes on the rich in Europe raise enough money to close much of their budget shortfalls, they are being promoted as a step toward economic fairness at a time when governments are cutting spending on social programs like pensions, health care and education.

A $16 muffin? Justice Dept. audit finds ‘wasteful’ and extravagant spending [WaPo]
Justice Department auditors also criticized a $76-per-person lunch at a conference at a Hilton in San Francisco, featuring slow-cooked Berkshire pork carnitas, hearts-of-romaine salad — and coffee at $8.24 a cup.

News

Surprising Absolutely No One, FASB Pushing Back Their Convergence Timeline

Caleb Newquist

September 21, 2011

Floored. Just floored.

Financial Accounting Standards Board chair Leslie Seidman said that many of the priority projects slated for convergence with the International Accounting Standards Board probably will not be settled until next year at the earliest.

Les will have all you haters know that this adjusted timeline has been well received by those that are taking this shit seriously:

This is a real process with real outreach and real consideration of the issues that have been raised. And the fact of the matter is that it takes time to work through these issues. The changes which we have made to the timetable, which we have made jointly with the IASB, have been very well received among the constituents who take this process seriously. They are very supportive of our strong commitment to making sure that we end up with improved standards here that are going to stand the test of time.

So if you were expecting Fisher Price accounting rules, you can forget it. These beautiful babes will be used to line up the debits and credits when Spacely Sprockets finally breaks ground.

FASB’s Convergence Timeline Moves to Next Year [AT via Jim Peterson]

News

Plante Moran Drops Ampersand That No One Liked or Used Anyway

Caleb Newquist

September 21, 2011

The accounting firm formerly known as Plante & Moran will forever going forward be known as Plante & Moran, according to a firm press release. And from the sound of things, it’s good riddance:

The change is prompted by tradition, growth and technology, according to Chief Marketing Officer and firm partner, Jeff Antaya. “The ampersand isn’t compatible with current and emerging technologies and can’t be used in a web address, for example,” notes Antaya. “Plus, many of Plante Moran’s entities, such as Plante Moran Financial Advisors and Plante Moran Global Services, never used the ampersand; nor is it part of the firm logo or signage. This change helps make the strong Plante Moran brand even more consistent.”

Ah, the PwC reasoning: no one calls us Plante & Moran, so why would we continue to be known as Plante & Moran? This ampersand has been ignored; it’s not appreciated; so get this eyesore of a graphical symbol out of our sight! But since the firm doesn’t want to hurt its feelings, there’s a bit of a send-off of sorts for the ol’ logogram.

Because the ampersand has been such an integral part of the firm’s history, and in keeping with the Plante Moran tradition of offering the option of preparing a departure memo for departing staff (fondly referred to as a “green memo” from when the firm used bulletin board memos as a key form of communication), the firm is sponsoring a green memo contest for staff. Titled, “& Now What?” the ampersand-less contest runs through September 20th and requires interested staff to prepare a departure memo of up to 500 words for the ampersand. Based on a staff vote, prizes will be awarded for the best memos and the winning essay will become the ampersand’s official green memo.

Is there anyone out there sad to see it go? Leave your well wishes below. Oh, and an advanced copy of your essay would be nice too. Email it to us.

CPA Exam

Raise Your Hand If You’re Still Waiting for Your CPA Exam Score

Caleb Newquist

September 21, 2011

From what we hear, everyone in California should have their arms in the air.

Texas, however, has finally ended the suspense:

Everyone in North Carolina, on the other hand, is still waiting on the USPS (still in business!):

While you wait, we’ll knock the dust off an old video to cheer you up:

Audit

KPMG

Tax

Someone Is Curious About All Those KPMG Employees Working on General Electric’s Taxes

Caleb Newquist

September 20, 2011

You may remember earlier this year when The New York Times broke a little story about General Electric’s tax savvy ways and the best tax law firm the universe had ever seen (aka the GE tax department).

The report�� href=”http://www.goingconcern.com/2011/03/jon-stewart-reacts-to-ges-tax-savviness/”>a few people to get bent out of shape because the Times said GE was enjoying $14.2 billion in profit while “claim[ing] a tax benefit of $3.2 billion.” What that “benefit” really entailed was a mystery but many people jumped to the conclusion that it was a “refund” and ProPublica (possibly a little peeved that they got scooped) tried to set the record straight on the Times story.

Despite all the back and forth, everyone was pissed at GE. The company lost a Twitter joust with Henry Blodget and then a bogus press release went out claiming the company was returning the “refund” of $3.2 billion and the Associated Press ran it. Slightly awkward.

Francine McKenna also did a write-up on KPMG’s role in this little soap opera, as the firm has been the auditor for GE since Bill Taft was maxing out the White House bathtub.

The latest twist comes from a tip we received earlier about a “Preservation Notice” sent to all KPMG employees yesterday from the firm’s Office of General Counsel (“OGC”).

URGENT TARGETED PRESERVATION NOTICE: GENERAL ELECTRIC’S LOAN STAFF ARRANGEMENTS
Please be advised that until further notice from KPMG LLP’s (KPMG or firm) Office of General Counsel (OGC), you are hereby directed to take all steps necessary to preserve and protect any and all documents created or received from January 1, 2008 through the date of this Notice relating or referring to the loaning, assignment or secondment of tax or other professionals to General Electric Company and its direct and indirect subsidiaries, affiliates and divisions (collectively “General Electric’s Loan Staff Arrangements”).

As Klynvedlians know, these preservation notices come out so often that you barely even notice them. When you do notice them is when the partner in charge of your team informs you about it before it hits your inbox. What follows is basically the biggest CYA exercise you’ve ever seen. They roll in giant dumpsters and every last scrap of paper you’ve ever written on gets throw in and eventually it gets shipped off to OGC. Your life doesn’t really change all that much other than you’re not allowed to delete another email EVER. At least that’s how I remember it.

ANYWAY, this notice seems a little different. Why exactly? Here’s a excerpt from McKenna’s post:

In defiance of [Sarbanes-Oxley] provisions, KPMG – GE’s auditor – provides “loaned staff” or staff augmentation to GE’s tax department each year. These “temps” perform tasks that would be otherwise the responsibility of GE staff. Sources tell me KPMG employees working in GE tax have GE email addresses, are supervised by GE managers – there is no KPMG manager or partner on premises – and have access to GE employee facilities. They use GE computers because the software required for their tasks is GE proprietary software.

This type of “secondment” to an audit client is never allowed. KPMG should know better.

YEESH. So any documents going back to January of 2008 that relate or refer to someone being assigned under this allegedly dubious arrangement must be preserved. You don’t have to be John Veihmeyer to know that’s a METRIC ASSTON of documentation. It’s not that GE’s tax needs are seasonal; they’re more like “perpetual” or “infinity times infinity.” A company with the best tax law firm already in house that also has an arrangement with a their auditor to throw a few more people at the problem indicates that they are working on this shit 24/7. For KPMG, it amounts to a nice little revenue stream and it keeps lots tax staff busy throughout the year.

But what caused the notice? That’s the question. Our tipster speculated that the PCAOB and SEC might be up to something but per standard operating procedure, neither will confirm nor deny the existence of any investigation or inquiry. KPMG spokesman George Ledwith did not respond to an email seeking comment.

Like we stated previously, these preservation notices are a dime a dozen but because this one deals with General Electric and presumably their tax compliance it qualifies as outside the norm. If you’re in the know or know of someone in the know or have anything else to add, email us or comment below.

Deloitte

PwC

PwC, Deloitte Enjoying Their Booming Advisory Businesses, Thankyouverymuch

Caleb Newquist

September 20, 2011

This morning we linked to a Reuters report about the horse race between Deloitte and PwC for the biggest of the Big 4. It reports virtually nothing new that we haven’t discussed here already including Deloitte jumping P. Dubs last year by a whopping $9 million (thanks mostly to keeping their consulting business in house), the hiring sprees, the acquisitions, and oh! the audit business sucks:

With audit revenues leveling off in developed markets, the firms have been making a push in growing countries such as China and India and plowing ahead with investments in consulting, where business is growing after a recessionary slump.[…] The big four are expected to report their fiscal 2011 revenues in coming weeks and any significant growth will likely once again be in the consulting area, said Jonathan Hamilton, managing editor of Accounting News Report. “The audit business, while certainly the staple of all these firms, is a slow-growth business,” Hamilton added.

In other words, the ~~consulting~~ advisory business is hot and audit is not. And what causes some people to fly off the handle is how the firms have sold everyone on the idea that they can still miraculously be the bastion of good business principles ethics. Well, maybe not everyone:

More worries loom from stepped-up regulatory scrutiny. As consulting revenues grow, complaints are surfacing again that firms will be tempted to go easy on audit clients for the sake of winning or keeping a consulting job — a charge the audit firms deny.

Last week, European Union lawmakers approved a report that calls for barring auditors from providing audit and non-audit services to the same client. The report is nonbinding but could shape a draft law in the works.

PwC and Deloitte both said there was no conflict of interest in the consulting services they provide. Much of their consulting is done for companies they do not audit and they follow regulators’ standards and companies’ own restrictions on the kind of consulting they do for audit clients.

The report doesn’t mention many things that have cropped up (some recent, some not so much) including the nearly 500 reprimands Deloitte had in 2009, the rash of insider trading, or PwC’s incestuous Satyam scandal but talking points are also used to address those issues. These firms didn’t get to where they are without figuring out how to play the media game.

One thing is for sure – the firms are going to depend on their consulting/advisory businesses for growth until someone banishes audit firms from offering any other services at all. And God knows what that will take.

In close race for No 1, Deloitte, PwC grow apace [Reuters]