Going Concern

News

Valukas Testimony: Public Has the Right to Conclude That Auditors Will Stand Up to Management

Caleb Newquist
April 6, 2011

“The public has every right to conclude that auditors who hold themselves out as independent will stand up to management and notsuccumb to pressure to avoid rocking the boat.”

Valukas Testimony 4-6-11 Am

News

Lynn Turner Doesn’t Let Accountants, SEC, FASB Off the Hook for Their Part in Financial Crisis

Caleb Newquist
April 6, 2011

Today’s testimony before the subcommittee of Securities, Insurance and Investment will be focused on the how the accounting industry can help prevent the next financial crisis and will feature many prominent figures. The first panel will feature James Doty, Chairman of the PCAOB, Leslie Seidman, Chairwoman of the FASB and James Kroeker the Chief Accountant of the SEC.

The second panel will include Anton Valukas of Jenner & Block and the bankruptcy examiner of Lehman Brothers, Cynthia Fornelli of the Center for Audit Quality, Thomas Quaadman of the U.S. Chamber of Commerce and Lynn Turner, the former Chief Accountant of the SEC. Throughout the statement Mr Turner points to various defects within the accounting profession infrastructure. This includes the profession itself, “auditors helped contribute to a crisis in confidence” the efforts of the accounting rule-making body, “Clearly the FASB has failed to develop quality and timely standards,” and the hapless SEC, who “[lacks] the tools for the job.”

Mr. Turner’s written statement appears in full after the jump.

SenateBankingSecuritiessubcommittee04062011

Accounting News Roundup: Satyam Hustles to Get Back on U.S. Exchanges; Honesty Motivates People to Pay Taxes; Grant Thornton Names New Head of Wisconsin Practice | 04.06.11

Caleb Newquist
April 6, 2011

Satyam Expedites Legal Settlements [WSJ]
The new management at India’s Satyam Computer Services Ltd. wants to overcome all of the legal hurdles facing the fraud-hit company as fast as possible – even if it means shelling out a few bucks – so it can get back on the U.S. exchanges. Late Tuesday, the U.S. Securities and Exchange Commission said Satyam has agreed to pay $10 million to the regulator to settle charges that the software exporter engaged “in a massive accounting fraud.”

Two guilty pleas in NJ in $880 mln Ponzi scheme [Reuters]
Roberto Torres, 76, and his son Alejandro, 39, a former Capitol accountant, each admitted to one count of securities fraud on Monday before U.S. District Judge Susan Wigenton in Newark, New Jersey, U.S. Attorney Paul Fishman said. The pleas follow the guilty plea last Sept. 15 by Nevin Shapiro, Capitol’s chief executive and a Miami Beach, Florida resident, to securities fraud and money laundering counts. Prosecutors said each defendant admitted that more than 50 investors lost between $50 million and $100 million in the scheme, which ran from January 2005 to November 2009 and helped Shapiro repay earlier investors and fund a lavish lifestyle.

Dish Network Wins Auction for Blockbuster [DealBook]
After a bankruptcy auction that extended into the early hours on Wednesday, Dish Network announced that it had emerged as the winner of Blockbuster’s assets, with a bid valued at $320 million. Dish, the satellite television company, is set to pay roughly $228 million in cash, after accounting for certain adjustments. And the deal is expected to be completed in the second quarter.

Would You Let Your Employer Track You? [FINS]
When asked if they would accept a “dream job” if it required GPS tracking via Blackberry, 52% of 545 respondents said “yes” in the FINS.com online question forum Sign or Decline. But when asked if they would accept the job if the tracking was done via a microchip implant, only one in five respondents said yes.

Why People Pay Income Taxes [Economix/NYT]
Mostly because people are honest…yes.

White House Releases New Tax Calculator [Tax Foundation]
Don’t worry, it doesn’t appear Joe Biden had anything to do with it.

IRS: Japan Earthquake-Tsunami Constitute ‘Qualified Disaster’ for Tax Purposes [TaxProf Blog]
If it was anyone other than the IRS, we’d think that this determination took a little longer than necessary.

Grant Thornton names new managing partner for Wisconsin [MJS]
Grant Thornton LLP said Tuesday that Jeff Robinson has been appointed office managing partner for the firm’s Wisconsin practice. Robinson replaces Melissa Koeppel, who will move into a national role, working directly with Grant Thornton’s chief operations officer on strategic projects.

News

Senate Manages to Stay Out of Its Own Way, Passes 1099 Repeal

Caleb Newquist
April 6, 2011

Now that the repeal has passed, where will all the energy spent on pandering to small businesses go?

Bowing to pressure from business groups worried about an avalanche of paperwork, the U.S. Senate voted on Tuesday to rescind a tax-reporting requirement included in last year’s healthcare overhaul law.

With bipartisan support, the Senate voted 87-12 to pass legislation sponsored by Republican Senator Mike Johanns that repeals a requirement for businesses and landlords to file a Form 1099 document with the Internal Revenue Service for purchases of goods and services exceeding $600 a year.

President Obama is expected to sign the bill at which point GOP leaders are expected to criticize him for something.

US Senate votes to repeal healthcare tax measure [Reuters]
Just a reminder: Oh, By the Way, There’s Still a New 1099 Reporting Requirement for 2012 in the Proposed Budget

Audit
PCAOB

PCAOB Chairman Doty Shares Some Confusing Statements Made by Auditors

Caleb Newquist
April 6, 2011

Yesterday, prior to today’s excitement regarding Satyam and PwC, PCAOB Chairman James Doty spoke at the The Council of Institutional Investors 2011 Spring Meeting and he had some interesting things to say about the audit profession, specifically that auditors don’t always remember that “protecting investors” ≠ “client service”:

Time and time again, we’ve seen services that might be valuable to management reduce the auditor’s objectivity, and thus reduce the value of the audit to investors. While management may need the services, they just don’t have to get them from the auditor.

Audit firms call this “client service,” and it makes things terribly confusing. When the hard questions of supporting management’s financial presentation arise, the engagement partner is often enlisted as an advocate to argue management’s case to the technical experts in the national office of the audit firm. The mortgaging of audit objectivity can even begin at the outset of the relationship, with the pitch to get the client.

Consider the way these formulations of the audit engagement that we’ve uncovered through our inspections process might prejudice quality:

• “Simply stated we want management to view us as a trusted partner that can assist with the resolution of issues and structuring of transactions.”

• We will “support the desired outcome where the audit team may be confronted with an issue that merits consultation with our National Office.”

• Our audit decisions are “made by the global engagement partner with no second guessing or National Office reversals.”

Huh. Doty doesn’t name names but you could easily interpret those statements as one made by a client advocate, not a white knight for investors. He continues:

Or, to demonstrate how confusing the value proposition could be even to those auditors who try to articulate it:

• We will provide you “with the best, value-added audit service in the most cost effective and least disruptive manner by eliminating non-value added procedures.”

(What is a “non-value added procedure”? Whose value do you think the claim refers to? If a procedure is valuable to investors but doesn’t add value to management, will it be scrapped?)

In other words, “we promise that we won’t be pests” and “value” will be a game-time decision. And finally:

Or, consider this as a possible audit engagement formula for misunderstanding down the road:

• We will deliver a “reduced footprint in the organization, lessening audit fatigue.”

(What is “audit fatigue”? Does accommodating it add value to investors? How should investors feel about a “reduced footprint”?)

Yes, what is “audit fatigue”? Is that what happens to second and third-year senior associates every February/March? Or is this better articulated by “we know audits are annoying and our hope is that we won’t annoy you too much.”?

Taking this (the whole speech is worth a read) and everything else that happened today into account, it will be interesting to hear what Mr Doty has to say at tomorrow’s hearing.

Looking Ahead: Auditor Oversight [PCAOB]
Also see: Watchdogs caught nuzzling and wagging tails; auditor sales pitches exposed [WaPo]

Paul Ryan: Tax Reform Hero?

Caleb Newquist
April 5, 2011

It is fine for Republicans to refuse to raise taxes as long as they admit we must have significant cuts in entitlements. Ryan is leading the way for the Republicans. For this he deserves kudos. It is fine for Democrats to refuse cutting entitlements as long as they admit we must have significant tax increases. Nobody is leading the Democrats. And politics requires that the President stall because he cannot even hint at a tax increase before the 2012 election. [Martin Sullivan]

Career Center

Can a Small Firm Accountant Make It in the Big Leagues?

Caleb Newquist
April 5, 2011

Welcome to the sometimes-we-blow-off-Monday’s-column edition of Accounting Career Emergencies. In today’s edition, a small firm accountant is cutting his teeth and is curious about prospects for the future. What’s in store for a young 10-key jockey? I guess we’ll try to find out.

Caught in a career conundrum? Think you’re about to lose it on one of your co-workers and need an outlet? Curious as to where lamé falls on the dress code? Email us at advice@goingconcern.com and we’ll tell you what not to wear.

Meanwhile back at the Mom & Pop shop:

Howdy!

I just started as a staff accountant and I’m gradually getting the hang of what I’m doing. I work for a small firm and I am pretty much doing the audits start to finish from preparing the financial statements to sending letters to management as well as going through all the programs. So far it’s been 2.5 months and I’m going to take the classes needed to sit for the CPA. I’m definitely thankful to be here but knowing future options are nice as well. Here are my questions:

What is an estimated learning curve?

What are my possibilities as far as moving to a larger firms or going to the private sector?

Should I stay until I am qualified to sit for the CPA or does one or two years of experience hold any weight with the private sector or other firms?

I have gained a general idea from your other articles but wanted some specific feed back for me.

Thanks!

Newbie

Dear Newbie,

As is typical of the emails we receive, you’re thinking about the future. That’s all fine and dandy but at 2.5 months of work you can barely open a three-ring binder without injuring yourself or endangering those around you. That said, I’ll answer your questions because I’m solid like that.

First the learning curve. – This varies as some new accountants are genuine whiz kids while others have trouble turning on their laptops. In general, you should have a pretty good idea of what you’re doing after 12 months or so. Your second year as an associate will be a breeze compared to your first and if you work at a firm where three years are required for promotion, you’ll really become a junior spreadsheet rockstar. When you reach senior associate level, your life will change significantly and you’ll starting learning all over again. It will occur again as you ascend to manager and partner. That’s your life in public accounting in a beanshell.

Secondly, your prospects for moving to a larger firm or to an in-house position are good, as long as you’ve demonstrated that you’re a performer and a team player. At 2.5 months on the job you haven’t really had the chance to put your abilities on display so you have to be patient. Get a year or two of experience under your belt and take a look back on your accomplishments so you can best explain to prospective employers why you’ll be a worthy addition to their team.

Thirdly, it’s my personal opinion that you should finish your CPA before moving to another firm or company. Having a CPA will demonstrate your commitment to finishing something valuable for your career and will do wonders for your salary prospects when you’re ready to make a move. The choice between a CPA and a non-CPA is an easy one for HR managers.

Fraud
PwC

PwC India Affiliates Settle with SEC, PCAOB Over Satyam Audit Failures

Caleb Newquist
April 5, 2011

The affiliates – Lovelock & Lewes, Price Waterhouse Bangalore, Price Waterhouse & Co. Bangalore, Price Waterhouse Calcutta, and Price Waterhouse & Co. Calcutta – must pay $6 million to the SEC, $1.5 million to the PCAOB and are barred from accepting U.S.-based clients for six months. The SEC fine is the largest ever levied against a foreign-based accounting firm in an SEC Enforcement Action and the PCAOB fine is the largest in the regulator’s history. PW India must also “establish training programs for its officers and employees on securities laws and accounting principles; institute new pre-opinion review controls; revise its audit policies and procedures; and appoint an independent monitor to ensure these measures are implemented.” The SEC’s press releasilures “were not limited to Satyam, but rather indicative of a much larger quality control failure throughout PW India.”

BREAKING: Tax Season Leads to Poor Work/Life Balance for Accountants

Caleb Newquist
April 5, 2011

This newsflash is brought to you by OfficeMax’s National “Tax it To Me” survey:

For busy accountants responsible for filing taxes on behalf of the approximately 82 million out of 228 million American adults who opt to use professional services, tax season is perhaps even more emotionally wrought. A busy plate often leads to a poor work/life balance, botched sleep schedules, poor eating habits, and problems in personal relationships.

And if you can believe that, the survey also found that taxpayers blame procrastination of filing their returns on nervousness, confusion and laziness (among other things). Now remove your hand from your forehead and get back to work.

[via The Hill]

Did PwC Help the Fed Cook Its Books?

Adrienne Gonzalez
April 5, 2011

After every Federal Open Market Committee meeting, you can peek into the Fed’s brain in a highly succinct fashion when the statement and minutes are released shortly after it ends but five years must pass before the full transcript of the meetings is released to the public. If you’re playing along at home, that means the FOMC transcripts should be full of all sorts of intriguing info specifically pertaining to the market collapse of 2008 on or around 2013.

But we’re talking about the 1999 minutes today and that’s where Adrian Douglas at Market Force Analysis comes in. He decided to read through some of the now-available minutes (hey, we all need hobbies) and look at what we have here. Did PwC help the Fed brush out a material accounting boo-boo?

Maybe when you actually create the money and the financial accounting handbook to go with your audits you can get away with sort of thing but something about this just doesn’t sit right.

This is System Open Market Account Manager Peter Fisher speaking to the committee:

Last spring, as members of the Committee will recall, we entered into a series of transactions with the ESF to re-balance our euro and yen holdings so we could come to a better split both in terms of total holdings and the currency mix. This involved a number of transfers of ownership of a series of investments and resulted in quite a significant amount of accounting activity. In the course of reviewing that, our own accounting staff identified an error that had been introduced in the prior year in our treatment of the premium on bonds held in the accrual account, overstating the accrual account by about $5 million. In the course of confirming that, they identified an additional $26.6 million overstatement in the accrual account for interest on foreign currency investments. We have had a number of staff members working full time trying to trace the source of that $26.6 million overstatement. They have worked back through the records to December 1994, before which detailed records at the transaction level just no longer exist due to the routine and appropriate destruction of documents.

The Board examiners were at our Bank to conduct an examination of the System Open Market Account in September and PricewaterhouseCoopers also has looked over our methodology to try to trace this overstatement back through time and find its source. PricewaterhouseCoopers is confident that we have traced it back as far as we can. They have tested our work papers and agree with our conclusion that we simply can’t go back any further.

After a quick back and forth over whether or not this could be a diversion involving a few folks within the Fed working together to funnel out the money and shooting that theory down, they present the solution:

The Board’s staff and our accounting function at the New York Fed have worked out an accounting treatment to correct for both the $5 million and the $26.6 million errors. That involves reducing the accrued interest asset account by the entire $31.6 million, with an offsetting reduction in interest income on foreign currency investments. We will make that adjustment before the end of the year and spread it among all the Reserve Banks. Of course, for all of us with responsibilities for SOMA this is an embarrassing, indeed humbling, event. As a technical matter, though, I understand that PricewaterhouseCoopers is comfortable with the conclusion of both our accounting and audit function and the Board staff that this is not a material event for purposes of disclosure for any Reserve Bank.

That’s right, the Fed fudged the numbers to make things add up right and PwC gave it the all clear. Perhaps I’m a bit ignorant on how things work but “working out an accounting treatment” to scrub out over $30 million in errors is no easy feat, maybe friend of GC and former criminal Sam Antar can give us some hints on how to accomplish such a task?

Notice also that no one else gets the privilege of “the routine and appropriate destruction of documents,” leading us to ask the obvious question: how is it they get away with it?

Accounting News Roundup: Swiss Firms to Get PCAOB Oversight; Some Married Gay Couples Refuse to Lie on Tax Returns; ADP Founder Dies | 04.05.11

Caleb Newquist
April 5, 2011

Swiss Accounting Firms to Get U.S. Oversight [WSJ]
The agreement between the U.S. Public Company Accounting Oversight Board and Swiss authorities, announced Monday, allows the PCAOB to review Swiss audit firms whose clients trade in the U.S., including multinational companies with operations in Switzerland. The PCAOB conducts regular inspections of the audit firms under its purview to assess their performance and their compliance with accounting rules and professional standards.

Discover names Graf as new CFO, replacing Guthrie [BBW]
Discover Financial Services on Monday named R. Mark Graf its new chief financial officer, replacing Roy A. Guthrie, who is retiring from the position after six years. Graf, 46, will also hold the titles of executive vice president and chief accounting officer for the Riverwoods, Ill.-based credit card company beginning April 11. He most recently worked as an investment advisor with private equity firm Aquiline Capital Partners in New York.

Married Gay Couples ‘Refuse to Lie’ on Tax Forms [Bucks/NYT]
Some same-sex married couples are refusing to file their federal tax returns separately this tax season, as part of a movement demonstrating that they’re no longer content to quietly comply with the federal law that does not recognize same-sex marriage. And in some cases, these taxpayers will pay Uncle Sam more when they do so.

The Curious Case of the Fed Analyst Fired After Asking Too Many Questions [JDA]
A very interesting and thought-provoking post from AG (sans f-bombs).

Ventry Presents Americans Hate Paying Taxes Today at Seattle [TaxProf Blog]
From the abstract: DUH.

The Gnome of Nebraska: Warren Buffett, Berkshire Hathaway, and Self-Dealing [Forbes]
Francince is not impressed with the whimsical, folksy investing advice from O-squared (or cubed, if you prefer).

“Bloomberg Thinks He’s Stopping People from Smoking” [ATR]
Loosies are the new black market gold mine in Manhattan.

Henry Taub, a Founder of a Payroll Firm That Became a Global Giant, Dies at 83 [NYT]
Henry Taub, a founder of the payroll company that grew into the global giant Automatic Data Processing, died on Thursday in Manhattan. He was 83 and lived in Tenafly, N.J.

AICPA: Financial Instruments Compromise Potentially Flawed [JofA]
Although we recognize the need for convergence, the current proposal does not address many issues and may not be conceptually sound,” FinREC said in a letter to FASB. “Due to the short comment deadline, we do not have sufficient data to provide adequate input, which makes it difficult to determine whether this proposed Standard would work in practice.”

CFOs

Your Chinese Company CFO Resignation Du Jour: Duoyuan Global Water Inc.

Caleb Newquist
April 5, 2011

It could be that Stephen Park really is pursuing another professional opportunity but most people (and by that I mean investors) don’t believe that story.

Duoyuan Global Water Inc. (DGW) said Chief Financial Officer Stephen C. Park would resign from the China-based water treatment equipment supplier to pursue another professional opportunity. Park will remain with the company until the completion of a third party review or until June 30, whichever is earlier. Duoyuan said it is in the process of selecting an international search firm to assist in appointing a successor. The company’s American depositary shares slid 7.3% to $3.70 in after-hours trading.

Duoyuan Global Water CFO To Resign [Dow Jones]

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