Going Concern

News

PwC Forensic Director: Relax, You’ve Probably Been Hacked Already

Caleb Newquist
July 28, 2011

“There are probably some corporations and credit cards that haven’t been hacked,” said Kim Peretti, director in PricewaterhouseCoopers’ forensic services practice. “But you have to assume you’ve been compromised.” [CNN]

Ernst & Young Is Really Wishing They Hadn’t Blown Off That Lehman Brothers Whistleblower

Caleb Newquist
July 27, 2011

FT Alphaville found this notable quote from District Judge Lewis Kaplan’s opinion (whole thing after the jump):

The TAC alleges that Lee told E&Y in June 2008 “that Lehman moved $50 billion of inventory off its balance sheet at quarter-end through Repo 105 transactions and that these assets returned to the balance sheet about a week later.” Assuming that is so, E&Y arguably was on 308 notice by June 2008 that Lehman had used Repo 105s to portray its net leverage more favorably than its financial position warranted, a circumstance that could well have resulted in the published balance sheet for that quarter being inconsistent with GAAP’s overall requirement of fair presentation. Accordingly, the TAC adequately alleges that E&Y misrepresented in the 2Q08 that it was “not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles” notwithstanding Lee’s disclosure to it.

“Lee” you may remember is Matthew Lee Lee, the Senior VP for Global Balance Sheet and Legal Entity Accounting who also said this about E&Y’s reaction to his warning on Repo 105:

They certainly didn’t support it. On the Repo 105 issue, they knew about it; they did not appear to know that the number was so large.

Ouch.

lehmanruling

CPA Exam

Review Wiley’s New FAR Test Bank App for Free

Adrienne Gonzalez
July 27, 2011

Wiley CPA Review has been cranking out mobile-friendly versions of its print titles, priced pretty close to their tree-killing counterparts.

Like these AUD Focus Notes On-the-Go for Android, which run $34.99. The actual bound version of the new AUD Focus Notes (not due out until December of 2011 according to Wiley’s website) is $40.

Wiley has an entire series of “candidate-friendly” (read: SFW) options for CPA review, including the online test bank and above mentioned Android (and iPhone) apps of their Focus Notes but making the Test Bank (some of you know this as the CD-ROM or software) available to Androids and iPhones opens up all new possibilities. Studying on the train or with a privacy screen in your own cube or in the bathroom (if they ask why you are in the bathroom so much, tell them sorry, must have been those hours I ate).

Per FCC regulations (I think), we have to say if we have been compensated to write a blog post about a product, service or company. We haven’t been paid to write about Wiley’s new offering but we were asked if we’d like to test one of their CPA review apps for free to write this post. I own a BlackBerry so that’s useless to me, plus I’m not (now nor ever) studying for the CPA exam. Therefore, Wiley has entrusted me to figure out which one of you gets a new FAR Test Bank app (presumably you need to have an iPhone or Android device to qualify).

We could have run some lame ass caption contest but instead, tell us in the comments how you best utilize the extra 30 – 120 minutes a day of review you can gain by studying from your mobile device. Creativity counts.

The answer with the most likes wins (unless Caleb and I reserve executive authority and declare it rigged and/or not funny, so don’t cheat by clicking 100 times from the client’s IP). Contest ends… uh… Friday 7/29/11 at 12:00 AM Eastern.

Be sure to use a real email address so we can contact you to let you know you’ve won, so trolls are disqualified.

All we ask is that you check in at some point and let us know what did and didn’t work (if applicable) for you. Get crackin’

There Appears to Be Some Fuss About PwC Tapping $2 million in Subsidies Once They Spend $78 million and Hire 200 People

Caleb Newquist
July 27, 2011

Remember when PwC laid off ~~500-ish~~ 470 people in the Tampa area last year? The townies weren’t impressed and the local press, including the St. Petersburg Times, was all over the firm about it. At the time, PwC insisted that they would create more jobs in the area to make up for things. Frankly, no one took them seriously and probably chalked it up to “something PR has to say.” So it was a nice surprise to learn that the firm is not only hiring 200 new people but they’re spending $78 million on a “build-to-suit building.”

Typically when these kinds of things happen, the local and state governments like to subsidize a bit of the project and this situation is no different. The firm is reportedly receiving $2 million but a source at PwC, who wants to keep their identity secret because DUH, told me that it’s actually closer to $1.2 million. It consists of approximately $800k and some change from the state of Florida and $1.1 million (yes, I know the math doesn’t work you twerps, so save it, they didn’t have exact numbers) from the city and county, the latter being part of the Premier Business Bonus Program.

Rather than simply say “Thank you, PwC for bestowing your autumnal hues on our otherwise hot, sticky, green and tan town…oh, and the jobs are okay too,” the Tampa Bay Businees Journal is poking around the “$2 million” in subsidies. The focus of the story caused our source to be a little perplexed since, you know, the firm is spending nearly $80 million and hiring 200 people. Not to mention the people that will build the $78 million whathaveyou. Did they think the current PwC employees were going to bring their tool belts and slap together some framing and drywall? Plus, the firm doesn’t get the ~~$2 million~~ $1.2 million unless they spend the $78 million and they hire the 200 people. 197 simply won’t do (I asked).

Does it make up for the 500 layoffs? Maybe not. But a story about subsidies that probably wouldn’t pay for Dennis Nally’s annual travel? There’s far more interesting things going on in Florida. I assure you.

CPA Exam

Three Tips to Help Make Studying for the CPA Exam While Working Less Awful

GoingConcern
July 27, 2011

Ed. note: This post is by Jeff Jardine, CMA®, CPA, PMP, Senior Consultant, Deloitte & Touche LLP and is republished from AccountingWEB.

During my summer internship at an accounting firm I noticed each night as I was heading out the door with my managers that two of our team members stayed behind and continued working.

I admired but internally questioned their dedication. After the pattern ensued for several days, I asked one of the individuals why she felt the need to stay behind every day when we had already reached our daily milestones. She explained that she was preparing to take portions of the CPA exam, and that there was no other available time besides weekends to study. I wished her well (she did eventually pass).

Her actions/dedication left an indelible impression on me, and as I entered my senior year in college I rearranged my class and personal schedules to allow myself time to study for the CPA exam so that I could take the test prior to beginning full-time employment.

Pursuing this and other certifications has made a positive impact on my career. I thus offer three tips for how to effectively study for professional accounting certifications while working:

Tip 1: Get Certified Prior to Starting Your Job
If I could pass along one piece of advice to young professionals considering an employer-required certification it would be this: If you have time between graduating college and beginning work, put 100 percent of your efforts into completing that certification prior to starting your job. Yes, it makes for a miserable summer wherein your best friends are exam prep instructors (Peter Olinto, anyone?), but in the end this method is the much preferred alternative to studying after a long day of work for months on end.

What should you do, however, if you have no such break between college and full-time work, or you are studying for an additional certification later in your career while working full-time? I fell into this latter category while working toward the CMA, which I had known since college that I wanted to take as soon as things settled down after beginning work at an accounting firm.

Tip 2: Gain Buy-in from Your Employer
After examining my schedule, I determined the most favorable times to study for and schedule the various sections of the CMA exam. Then, I spoke with my teams at work to gain their buy-in (my managers were fully supportive), and I scheduled my exams well in advance while keeping in mind client demands and team requirements. Saturdays always fill up first at testing centers, so schedule as far in advance as you can.

Tip 3: Build Studying Time Into Your Daily Schedule
Additionally, I took a day off from work prior to each exam date to have adequate time to study – though I didn’t plan on studying everything on that one day or just on Saturdays. I knew that I needed to study – at least a little bit – every day to most thoroughly prepare for the exam.

After considering my daily schedule, it was clear that the time I had the most control over was early in the morning. I decided to wake up an hour earlier each day for the three to four weeks prior to the exam to review material and churn through practice questions (which I believe is one of the most effective methods to prepare for these exams). Then on Saturdays I studied longer and more in-depth.

I took Sundays off from studying to allow things to settle in my mind while spending a day with my family. In the end, my efforts paid off. I passed each section and after finishing the experience requirement, I was a CMA.

For Reasons Unknown, Some People Are Listening to Mike Huckabee Talk About Taxes

Caleb Newquist
July 27, 2011

The House of Representatives’ Ways and Means Committee held a hearing yesterday to discuss how to best reform the Internal Revenue Code.

Oddly, former Republican Presidential Candidate and conservative stud of the Fox News stable, Mike Huckabee, was invited to give his thoughts on the matter which include eliminating the IRS and replacing it with the dead in the water FairTax:

[Huckabee] is urging Congress to eliminate the Internal Revenue Service, along with taxes on income, payrolls and estates, and replace them all with a single retail sales tax. Huckabee told the House Ways and Means Committee today that Congress should pass legislation to achieve those goals, dubbed the FairTax, which is popular with many Republican voters even as it makes little legislative progress.

Now maybe Huckabee secretly crammed in rigorous tax study during his one year at seminary but this is a guy who was convinced Donald Trump was going to run for President.

Huckabee Tells Congress to Scrap IRS for Single Retail Sales Tax [Bloomberg]

Big 4

What If 20 Percent of Audit Work Was Performed Offshore?

Caleb Newquist
July 27, 2011

You may have heard that accounting firms – primarily Big 4 firms – have been slowly transitioning work to countries like India and Sri Lanka. This particular topic of discussion typically results in a heated/subtly racist conversations about “foreigners taking American jobs” which eventually evolves into a more overtly racist conversation, not unlike what happens on some Deloitte forums.

ANYWAY, just how much work is being sent offshore? The FT reported some recent projections that the UK’s Financial Reporting Council (“FRC”) found for PwC in the UK:

In an annual inspection report, the FRC said the UK arm of PwC might move as much as 20 per cent of its core audit work to Calcutta by 2014. Less than 2 per cent of its work was offshored in its last financial year.

“On the face of it, 20 per cent of an audit being done without any face-to-face contact with the client seems high,” [FRC Director of Audit Paul] George said. He added that all the large UK audit firms were considering offshoring to cut costs but had so far only shifted a tiny fraction of work overseas.

That “20 percent” has a few people concerned and the FRC is looking into it. Granted, this is just an isolated example to audits at PwC, so obviously your offwhoring experience would vary from audit to audit and also for tax and advisory services. And lest you think this is all about money, the article quotes a flak from P. Dubs as saying, “The driver for us was not a reduction in costs. It is an improvement in quality.” O RLY?

Since many of you have worked directly with this process, you may have a difference opinion with this statement and one tipster – who is interested in hearing other people’s offshoring tales – details his:

My experience with this process has been horrendous. Don’t let comments in the article fool you, we are required to send a set amount of hours overseas to be performed by our shared service center. A process that would originally take 1 hour to start and complete (think bank reconciliations) now takes 6 hours. Nothing like writing instructions on how to perform a simple process and receiving a phone call from someone who barely speaks English to ask you how to perform the test. Or receiving a bunch of garbage and re-doing the work yourself.

Teaching someone how to do something, who has presumably never done it before, is difficult. Teaching someone how to do something, who has presumably never done it before, over the phone is worse. Teaching someone how to do something, who has presumably never done it before, over the phone, whose first language is something other than English is maddening.

Arguably, offshoring has benefits but if this trading 1 hour for 6 hours is fairly standard, then quality certainly isn’t one of them. Of course for a firm flak to say otherwise is grounds for a severe beating from his/her superior. The mere idea of trading 1 hour of work for 6 hours is enough to make a manager lose their shit unless the 6 hours are significantly cheaper. Then there’s the whole “client service” thing which is tricky from the get-go. How do you best explain the increased hours and/or the fact that you’re waiting on something from “the offshore team” that’s ordinarily slapped together in a few minutes?

Clearly, this “20 percent” is a shot in the dark but it’s definitely enough to make someone say, “OH HELL NO. NOT ON MY ENGAGEMENT.” But it’s not impossible that some of you have a grand time with the offshoring, so either way, you should let us know.

Watchdogs probe ‘offshoring’ of audit work [FT]

Accounting News Roundup: Debt Ceiling Deal Delay; IRS Rings Up Bell; IASB Mooving on to Post-Convergence Projects | 07.27.11

Caleb Newquist
July 27, 2011

Vote on Boehner Plan Delayed Amid Opposition [NYT]
House Republican leaders were forced on Tuesday night to delay a vote scheduled on their plan to raise the nation’s debt ceiling, as conservative lawmakers expressed skepticism and Congressional budget officials said the plan did not deliver the promised savings.

What’s Wrong With America’s Job Engine? [WSJ]
Between the end of 2007 (when American employment peaked) and the end of 2009 (when it touched bottom), the U.S. economy’s output of goods and services fenumber of workers fell by a much sharper 8.3%. Today’s puzzle: How and why employers managed to boost productivity, or output per hour of work, like never before during the worst recession in decades?

Americans ‘Disgusted’ as Politicians Fail to Compromise on Debt [Bloomberg]
“They’re not in touch with reality,” said Cheryl Carroll, 51, who lives in Tinton Falls, New Jersey, with her two daughters. She has been applying for jobs in retail and subsisting off her family’s investments since her husband died last year. “They should really get an average American in Congress who knows how to balance their checkbook,” Carroll said. “It would be fixed in a week.”

Obama’s ‘70 million checks’ per month: Actually, it’s even more than that. [WaPo]
The mind-boggling number challenges a common critique of the federal government as a creaky apparatus where tax dollars are lost in the bureaucratic cracks. From the vantage point of the 70 million or 80 million checks, the government is a finely tuned machine that brings in revenue and disperses it back out across the country.

IRS is investigating Bell finances [LAT]
The Internal Revenue Service has opened an investigation into the handling of bonds and employee compensation packages in the financially struggling city of Bell, according to sources familiar with the ongoing probe. At least two IRS agents have been assigned to the investigation and have been in and out of Bell’s red-brick city hall since February, one source said. “They’re sifting and combing through everything,” the source said. The sources requested anonymity because they were not authorized to talk about the investigation.

CPA: Can’t Prepare Anymore [Tax Update]
Definitely not “Current Power of Attorney.”

Employees Can’t Use IRS Computers for Craigslist, eHarmony, Facebook, Foursquare, Gmail, TaxProf, Twitter, Yelp [TaxProf]
Or simply, “Any use that reduces productivity or interferes with the performance of official duties.”

Next Accounting Standard Project: Dairy Cows? [CFOJ]
Bovines at fair value?

ICAEW helps US focus on global standards [Accountancy Age]
International financial reporting standards are in focus at the ICAEW, which is to chair an American Accounting Association debate on the future of the global standards in the US. The panel will include former chairman of US regulator the FASB, Robert Herz, and forms part of the AAA’s annual conference from 6 – 10 August.

Cops: Calif. man tries to fix hernia with butter knife [MSNBC]
The man’s wife called police to say her husband was sick and tired of waiting to get surgery for his rupture and decided to take matters into his own hands on Sunday evening, Glendale Police Sgt. Tom Lorenz told msnbc.com. When officers arrived at the couple’s apartment, they discovered the man, naked and sprawled out on a lawnchair, with a butter knife protruding from his abdomen, Lorenz said. The man was cooperative and even pulled out the knife when asked, he said.

News

The TaxMasters Guy Has Some Sage Advice on IRS Correspondence Audits

Adrienne Gonzalez
July 27, 2011

The advice was so good he had to send out a press release:

On the heels of a record reporting year for taxes, taxpayers should be wary – or at a minimum more informed – about audits from the IRS, according to Patrick Cox, CEO of TaxMasters (TAXS), the leading tax compliance and repayment services provider in the nation. According to Cox, the IRS will send out a record number of audits which can be misleading and even wrong.

“Over the past few years the IRS has been shifting gears to use correspondence audits – notices mailed to taxpayers usually showing an alleged discrepancy in a tax filing and asking for a manageable amount of extra money that is owed,” Cox said. “From my experience, most taxpayers – who did their taxes online or had an accountant or friend do them – are scared of the IRS and don’t know enough about their tax filings to argue the audit. Instead of making sure the IRS assessment is accurate, I think most taxpayers just cut a check.”

The latest Taxpayer Advocate Report showed that of the more than 1.6 million Americans who were audited last year, 78 percent received a correspondence audit, while only 22 percent were selected for an in-person examination. A large majority of the correspondence audits are sent due to unqualified or overstated tax deductions.

“Returns claiming tax deductions are the lowest hanging fruit for the IRS in a correspondence audit,” says Cox. “Unfortunately, there are an alarming number of taxpayers that make simple mistakes on the amount of deductions and types of deductions they make and wind up being easy targets for the IRS. A few examples of typically-encountered discrepancies include unreported pension income, home mortgage interest, and cash charitable contributions.”

Conveniently, the Journal of Accountancy also covered the increase in IRS correspondence audits in its August 2011 issue and offers tips on how to manage them for CPA tax practioners.

According to a 2006 report by the Treasury Inspector General for Tax Administration (TIGTA), there has been a 170% increase in correspondence examinations for individual taxpayers with gross incomes or business receipts of at least $100,000 in fiscal years 2002 through 2005, while face-to-face examinations increased by 25%. Since that report, TIGTA has claimed improvements in this area but identifies work yet to be done.

EY
Salaries

Comp Watch ’11: Rumors of Imminent Exodus at Ernst & Young Has Some Perplexed

Caleb Newquist
July 27, 2011

This just in:

I have been talking to a variety of people at E&Y from several offices in Ohio and Michigan. The word from them is that there is going to be a significant movement of people once compensation info is passed out. It’s kinda conflicting since the rumor is that raises should be around what they were last year. Not sure what to make about it.

As you recall, last year’s raises and bonuses at Ernst & Young were competitive with PwC, which came as a pleasant surprise to everyone at Black and Yellow but understandably this rumor has our tipster in a flummox. Of course, this could be limited to the Ohio/Michigan area but it’s worth seeing what the Turley’s Troops in other areas are hearing. Share below.

First World Problem: When Does a Big 4 Tax Accountant Jump Ship for a Job at a Hedge Fund?

Daniel Braddock
July 26, 2011

Ed. note: Do you have a question for the career advice brain trust? Email us at advice@goingconcern.com.

Dear Going Concern,

I have been in Big 4 FS Tax for the past two years and recently was promoted to Senior. Headhunters have been calling me with great opportunities in the tax departments of Hedge Fund/PE firms. The pay increase is significant and the hours will undoubtedly be better. However, I’m worried about leaving Public Accounting too early in my career. My eventual career goal is to become a Controller or CFO at a Hedge Fund. The headhunters I’ve spoken with insist that HF/PE firms prefer candidates with a mix of Public and Private experience for those positions. I’m wondering if I should stick around until making manager at Big 4 or if, as the headhunters recommend, leaving now as a Senior is the right move for me.

Thanks,
First world problem

Dear First World Problem,

Alright, listen up. The most important thing to do when you want to start looking for a role is to find a headhunter or two that you trust (and hopefully can trust you to not tattle on them for $5 worth of Starbucks). Yes, we all loathe headhunters. They call, they email; some pester more than others. Sure, most are in the same pool with real estate brokers (an evil means to an end), but there are some that see you as more than a pay-day and will serve as excellent resources throughout your career. A good recruiter will send you a select handful of opportunities that fit exactly what you’re looking for, not a blast email with 17 write-ups all containing the same five bullet points.

That said, with two years into your career you’re just starting to see the wave of job opportunities. Two to four years is the window that many most staff roles fall into at hedge/PE firms, both on the fund accounting and tax side. This is because most asset management firms consider the Big 4 (and regional firms that have an alternatives focus) to be training grounds for their back office hires. Why hire an accountant off of a college campus to do fund accounting work when you can have the Big 4 train ‘em up and toughen ‘em, up for you?

However, the difference is that the number of tax staff positions in-house at a hedge/PE firm are limited. Example: a hedge fund running $5bil in assets under management through six separate funds needs a tax director (typically 7+ years of public/private) and a staff member to assist with work. The same firm would have Sr. Controller/CFO, 1-3 fund controllers and a small staff of accountants running the day-to-day. Because of this prime example in supply and demand, I’d encourage you to interview for any and all roles that interest you, but more important than when you leave is what you leave for. In your case, being a CFO is your ultimate goal – you should be looking at opportunities that are a blend of tax and fund accounting. These roles typically exist at less institutionalized funds, so do your due diligence on opportunities at the likes of Och-Ziff, Blackstone, Fortress, etc. Talk to your recruiter about your long term goals and the need to better position yourself by diversifying your professional experiences. Right now you know K1’s, wash sales and partner allocations; a good recruiter knows what it takes to get you on the Controller/CFO track. It might be the first firm you interview with, or the tenth. When you find it, you’ll know.

News

Court Tosses Lawsuit Filed by Fired Tyco Accountant Who Wasn’t Interested in Being Responsible for Signing Off on a Party Featuring Mermaid Greeters, Wenches

Caleb Newquist
July 26, 2011

Last summer we told you about a lawsuit that was filed by a fired Tyco accounting manager who claimed that he was let go after he refused to sign off on expenses related to an epic party in the Bahamas that had “Mermaid Greeters,” “Costumed Pirates/Wenches” a tatth “Limbo” and “fire” dancers and other, what some might call, “fun” or “awesome” things. The whole bash was going to run around $350,000 but Jeffrey Wiest wasn’t interested in being connected to another lavish party thrown by Tyco.

This is understandable because, as you well know, the AWESOME party in Tyco’s past was taped and it eventually wound up as evidence in a trial against Tyco Execs Dennis Kozlowski and Mark Swartz. Those two men are currently wards of the state and Tyco is, for AWESOME or worse, simply known as the company that threw the Roman Orgy Party:

Investors footed about half the bill for that affair, which was disguised as a shareholder meeting and is now widely known as the Tyco Roman Orgy.

The party featured such indulgences as an ice sculpture modeled after Michelangelo’s David urinating top-shelf vodka. Against this backdrop in 2008, Jeffrey Wiest said he “refused to process a payment [for] and sent a note to his management questioning the legitimacy of a $350,000 event being held at the Atlantis Resort in the Bahamas.”

“Wiest, as was virtually everyone else at Tyco and in the world, was cognizant of a similar party under Dennis Kozlowski’s management,” according to the manager’s July 2010 suit, first reported by Courthouse News. “He did not want to be any part of a repeat occurrence.”

As we mentioned, Wiest obviously had the foresight to conclude that news of a “Mermaid/Pirate/Wench Rape and Pillage Party” would not go over so well with anyone not in attendance and accordingly, refused to sign off on the expenses. Considering that there was “only one 1.5-hour business meeting during the entire five-day event,” it appears that Wiest made the right choice. However, Wiest claimed that the company started “investigating” him and shortly thereafter was told that his services were no longer needed.

Wiest took his story to the masses with an appearance on Fox Business where he showed how accountant-y (and unconvincing) he could be. The court that was hearing his lawsuit agreed:

“Mr. Wiest’s communications simply provided information and suggestions to ensure proper tax and accounting treatment of the Atlantis event expenses. As such, then, they did not rise to the level of ‘definitively and specifically’ conveying a reasonable belief that [a Sarbanes-Oxley crime] was taking place, notwithstanding Mr. Wiest’s conclusory assertion in the complaint that he had made ‘protected disclosures relating to fraudulent accounting practice, attempted shareholder fraud, and lack of compliance with United States Generally Accepted Accounting Principles.'”

Definitely a setback for Wiest who, it appears, won’t be recouping any lost income here and will forever have the reputation as a party pooper. And the latter could be a far worse fate.

Tyco Accountant Loses Retaliation Suit [CNS]

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