Going Concern

CPA Exam

Are 19 Year-Old Girls Writing CPA Exam Questions?

Adrienne Gonzalez
February 25, 2011

Pardon the headline but that’s an actual (and not at all unreasonable) question posed to us from a Floridian CPA exam candidate who shall remain nameless, lest I be accused of trolling again.

While we love the idea of barely legal chicks holed up in an AICPA bunker sweating out CPA exam questions, unfortunately we’ve got to piss in this particular candidate’s Cheerios and point out that questions are created using a complicated process that relies on volunteer contributions from the industry:

The content of the Uniform CPA Examination is developed in an extensive and integrated process. At each step in the process expertise in various disciplines is applied to ensure that the test materials are accurate and appropriate for use on the CPA Exam.

The process incorporates expertise in a number of key areas.

The first key area of expertise is in accounting. Individuals who draft, review, and finalize test materials are experienced CPAs.

A second area of expertise is in the science of testing, called psychometrics. At each stage in the test development process, psychometricians are involved in the design, development, and implementation of test materials. These include test specifications, test questions, and data analysis.

A third area of expertise is in test development. Experts in the design and development of test questions are involved in the process.

Well, we’ve met some inexperienced 19-year-old CPA candidates but can’t say we know any that are experienced enough to draft complicated CPA exam questions per the AICPA’s outline above so, sorry, but this question is debunked.

We also feel compelled to point out, by way of the New York Times, that the word sketch actually appeared as an adjective in 1975, which would be right around the time most of the OG’s of the industry were passing the CPA exam, earning their PhDs in accounting and getting their second or third promotion.

A list of slang compiled from students at the University of Arkansas, Fayetteville, published in the journal American Speech in 1975, included sketch as an adjective meaning “dangerous, risky” (“I think we’re in a sketch situation”). By 1996, one of [Professor Connie] Eble’s U.N.C. students offered sketch as a noun meaning “someone who is hard to figure out.” The variations sketchball, sketcher and sketchmaster followed thereafter, all sharing an air of suspicion and possible danger or at least discomfort.

We’re dying to know the context of this CPA exam question. Obviously discussing it is not allowed but based on the word itself, we’re guessing this was in AUD, no? As in “The client is totally sketchy, how do you verify his equally sketchy bank recs?”

Accounting News Roundup: Ex-Duke Lacrosse Player’s ‘Very Weird’ Tax Lien; Coach Is Shopping for a CFO; Limbaugh’s Tax Resolution Endorsement | 02.25.11

Caleb Newquist
February 25, 2011

Everyone Comes to Work Sick But Wish Their Colleagues Wouldn’t [FINS]
What’s wrong with you people? “Pressure to work through sickness doesn’t seem to be coming from above. Only 11% of respondents said they felt their bosses discourage them from taking the day to rest. Half of respondents said their managers encourage them to stay home when they’re under the weather.”

Baruch College students compete for $10k from E&Y [The Ticker]
Ernst & Young […] sponsored a preliminary round of presentations for six groups of Baruch College students, in search of one to enter in the Your World, Your Vision national competition. E&Y’s competition picks student teams from across the country to compete against one another, each representing their school with a unique community program proposal. The prize for the top three teams in the country is a $10,000 award from E&Y to help implement or sustain their program. Through their investment, E&Y is responding to the community’s need of corporate responsibility.

Tax Court Denies Deduction for TV Anchor’s Clothing Expenses [TaxProf Blog]
For you future Ron Burgundys out there, “The Tax Court yesterday denied business expense deductions claimed by a TV new anchor for her wardrobe and other personal expenses and sustained accuracy-related penalties.”

Ex-Duke lacrosse star insists tax bill a ‘mistake’ [Tax Watchdog]
[F]our years after receiving an undisclosed settlement from Duke University, Reade Seligmann, one of three lacrosse players exonerated in a racially-charged rape case, owes the IRS almost $6.5 million in taxes, according to public records. The 24-year-old New Jersey native’s lawyer disputes the tax bill, however.

Coach CFO Devine to Retire; Search Commencing for Successor [Business Wire]
Submit your résumé now.

Rep. Paul Broun Asked At Town Hall: ‘Who Is Going To Shoot Obama?’ [HuffPo]
Glad to see the discourse has lightened up.

Rush Limbaugh Tells IRS-Burdened Consumers “You Need Tax Resolution Services, Co. on Your Side” [PRWeb]
Speaking of lunatics.

Wealthy accountant who gave autistic son cannabis to calm him gets 51-week sentence [Telegraph]
A wealthy accountant gave her autistic son cannabis in an effort to calm him after social services refused to help because she was middle class, a court heard.

Bill That Would Fire Federal Employees for Unpaid Taxes Wouldn’t Apply to Lots of Federal Employees That Have Unpaid Taxes

Caleb Newquist
February 25, 2011

Senators Tom Coburn (R-OK) and Claire McCaskill (D-MO) have introduced a bill that would take care of all the federal employees who have ‘seriously delinquent tax debts.’ Quite simply, they would be fired:

In 2009, the IRS found that nearly 100,000 civilian federal employees were delinquent on their federal income taxes, owing over $1 billion in unpaid taxes. When retirees and military are included in the total, more than 282,000 federal employees owed $3.3 billion in taxes.

The Senate bill would require all federal employees to be current on their federal income taxes or be fired from their jobs. According to Coburn’s office, “this is a commonsense bill that most Americans would believe is reasonable, necessary, and likely surprised that it is not already the standard throughout the federal government.”

So if the 182,000 people that owe approximately $2.3 billion aren’t eligible to be fired, how exactly is this bill ‘commonsense’? Oh, right! By threatening the 100,000 people who owe $1 billion with the loss of their jobs. Got it!

Senate Bill Would Fire Federal Employees with Unpaid Taxes [AT]

Tax Season Quiz: Which Item on This Receipt Is a Deductible Medical Expense?

Caleb Newquist
February 25, 2011

This comes from a tax professional in the throes of a hectic day. Personally, I’m stumped.

So we’ve got:

A) Feminine hygiene products
B) Starkist Tuna
C) Orbit gum

Arguments for any or all are now being heard.

IRS Eases Up on the Tax Liens for the Little People; Celebrities Not So Lucky

Caleb Newquist
February 24, 2011

Commissioner Doug Shulman said in a statement today that the agency would make it easier for taxpayers to seek withdrawal of liens when they pay a tax debt or make arrangements to pay in installments for debts of less than $25,000. The agency also raised the dollar thresholds before liens are typically filed. “We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” Shulman said in the statement. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.” [Bloomberg]

KPMG

How Did Citigroup’s Internal Controls Cut the Mustard with KPMG?

Caleb Newquist
February 24, 2011

Jonathan Weil writes in his column today about Citigroup and their “acceptable group of auditors,” (aka KPMG) and he’s having trouble connecting the dots on a few things. Specifically, how a love letter (it was sent on February 14, 2008, after all) sent by the Office of the Comptroller of the Currency to Citigroup CEO Vikram Pandit:

The gist of the regulator’s findings: Citigroup’s internal controls were a mess. So were its valuation methogage bonds, which had spawned record losses at the bank. Among other things, “weaknesses were noted with model documentation, validation and control group oversight,” the letter said. The main valuation model Citigroup was using “is not in a controlled environment.” In other words, the model wasn’t reliable.

Okay, so the bank’s internal controls weren’t worth the paper they were printed on. Ordinarily, one could reasonably expect management and perhaps their auditors to be aware of such a fact and that they were handling the situation accordingly. We said, “ordinarily”:

Eight days later, on Feb. 22, Citigroup filed its annual report to shareholders, in which it said “management believes that, as of Dec. 31, 2007, the company’s internal control over financial reporting is effective.” Pandit certified the report personally, including the part about Citigroup’s internal controls. So did Citigroup’s chief financial officer at the time, Gary Crittenden.

The annual report also included a Feb. 22 letter from KPMG LLP, Citigroup’s outside auditor, vouching for the effectiveness of the company’s financial-reporting controls. Nowhere did Citigroup or KPMG mention any of the problems cited by the OCC. KPMG, which earned $88.1 million in fees from Citigroup for 2007, should have been aware of them, too. The lead partner on KPMG’s Citigroup audit, William O’Mara, was listed on the “cc” line of the OCC’s Feb. 14 letter.

Huh. There has to be an explanation, right? It’s just one of the largest banks on Earth audited by one of the largest audit firm on Earth. You’d think these guys would be more than willing to stand by their work. Funny thing – no one felt compelled to return JW’s calls. So, he had no choice to piece it together himself:

[S]omehow KPMG and Citigroup’s management decided they didn’t need to mention any of those weaknesses or deficiencies. Maybe in their minds it was all just a difference of opinion. Whatever their rationale, nine months later Citigroup had taken a $45 billion taxpayer bailout, [Ed. note: OH, right. That.] still sporting a balance sheet that made it seem healthy.

Actually, just kidding, he ran it by an expert:

“As I look at the deficiencies cited in the letter, taken as a whole, it appears that Citigroup had a material weakness with respect to valuing these financial instruments,” said Ed Ketz, an accounting professor at Pennsylvania State University, who reviewed the OCC’s letter to Pandit at my request. “It just is overwhelming by the time you get to the end of it.”

What Vikram Pandit Knew, and When He Knew It [Jonathan Weil/Bloomberg]

Accounting News Roundup: Ernst & Young’s Maneuver in Lehman Suit; Most Execs Not Ready for Accounting Changes; Confirmed: Little People Pay Taxes| 02.24.11

Caleb Newquist
February 24, 2011

NY suit against Ernst over Lehman takes detour [Reuters]
The firm has moved the case to federal court from state court, saying it involves questions of federal auditing standards. But Cuomo’s successor, Eric Schneiderman, wants to move the case back. Some lawyers said Ernst’s move could be an attempt to streamline defenis already fighting a similar lawsuit in federal court.

Google Penalizes Overstock for Search Tactics [WSJ]
Google Inc. is penalizing Overstock.com Inc. in its search results after the retailer ran afoul of Google policies that prohibit companies from artificially boosting their ranking in the Internet giant’s search engine. Overstock’s pages had recently ranked near the top of results for dozens of common searches, including “vacuum cleaners” and “laptop computers.” But links to Overstock on Tuesday dropped to the fifth or sixth pages of Google results for many of those categories, greatly reducing the chances that a user would click on its links.

U.S. Indicts Four Ex-Credit Swiss Bankers in Tax-Evasion Conspiracy Probe [Bloomberg]
The bank’s managers in its cross-border business “knew and should have known that they were aiding and abetting U.S. customers in evading their U.S. income taxes,” according to the indictment. In the fall of 2008, the bank had “thousands” of accounts with $3 billion in assets not declared to the U.S. Internal Revenue Service, according to the indictment.

SEC Charges IndyMac Execs: No Sign Of Ernst & Young [Forbes]
Maybe the SEC has black and yellow fever?

State & Local Tax Burden: Highest in NJ & NY, Lowest in AK & NV [TaxProf Blog]
With Connecticut at #3, the Tri-state area has this on lockdown.

US executives unprepared for accounting changes [Accountancy Age]
Lots of sandbagging going on out there, “Deloitte found just 7% of respondents questioned believed their company was ‘extremely’ or ‘very’ prepared for the possible changes.”

The Little People Pay Taxes [Economix/NYT]
Somehow the janitors and security guards in the Helmsley building have a higher effective tax rate than the average employee in said building.

Beckstead and Watts Settles Inspection Case with PCAOB [AT]
Beckstead and Watts managing partner Brad Beckstead announced Wednesday that his firm has settled its lawsuit against the PCAOB. Under the terms of the settlement, the PCAOB has agreed to withdraw its formal inspection report dated Sept. 28, 2005, and release Beckstead and Watts from an accounting investigation it launched in September 2005 without any formal findings.

News
SEC

SEC Whistleblower Program Not Exactly Knocking Anyone’s Socks Off

Caleb Newquist
February 24, 2011

The corporate watchdog has received just 168 complaints alleging corporate fraud in the first 6½ months of the program’s existence, according to data the SEC provided to The Post through a Freedom of Information Act request. The tally is from July 22, 2010, when the program was launched, through Feb. 2, 2011. At that rate, the SEC is receiving less than one tip a day — hardly the flood that led the agency to delay staffing the program while it pleaded with lawmakers for more funding. [NYP]

Career Center

Another Future Big 4 Associate Wants Advice on How to Best Ruin Their Life Prior to Starting Work

Caleb Newquist
February 24, 2011

Welcome to the cancel-your-holiday-in-Libya edition of Accounting Career Emergencies. In today’s edition, another Fall 2011 Big 4 associate would like to nail down a certification in addition to the CPA before starting work. Can I keep my head from exploding long enough to formulate a coherent response?

Caught in a ethical jam at work? Need a shredding service-provider that also has a knack of taking care of “problems”? Want to challenge your firm’s dress code but need an objective opinion? Email us at advice@goingconcern.com and we’ll make like Anna Wintour.

Back to our overachiever du jour:

Caleb,

I am about to pass the CPA exam and have 8 months until I begin at one of the “Big Four” firms in Florida. I am excited to start at the firm as it was my first choice however, I am not certain I will be in public accounting for the long run (like most people). My question is, being uncertain about my career path, what other certification should I obtain before I start in 8 months?

I have considered the CISA, CFE, CMA, CFA, Six Sigma but, I am not sure as I am not certain of my long term path. I want something that will give me an edge if I leave the firm and/or switch careers.

What certification would you recommend?

Any suggestions are helpful.

Dear Overachiever Du Jour,

After murdering the remainder of Stranahan’s in the house, I’m better prepared to answer your query.

I appreciate your ambition and we definitely think that obtaining additional certifications is a good idea for those that move on from public accounting but I fail to see how this benefits you now before you have an inkling of what kind of career you want. HOWEVER, I’m here to help sort you out as best I can, so I’ve put aside my judgments for two.

Based on your “considerations” listed, you seem to have a case of accounting certification ADHD which is fine but there’s no clear pattern as to what your interests are. I’m not going to recommend you do something just because it may be a hot area (forensics) or in-demand (information systems) but I am going to recommend you rank these certifications based on your level interest. Want to eventually be a CFO? Then go for the CMA. Want to pile up the financial reporting bodies? Get the CFE. You get the point. The important thing is to pursue a certification you find interesting rather than one that will just puts a few letters behind your name that may (but probably not) impress someone.

But really, do you want to spend the summer prior to starting work studying for a test? Get the band back together, take a trip, something.

Questionable Tax Deduction of the Day: Engagement Cruise and Wedding Expenses

Caleb Newquist
February 24, 2011

Every tax professional has run across questionable expenses provided by their clients. Maybe you’ve got a used car-lot proprietor who insists that his hairpiece is crucial to his business appearance and, thus, his ability to put people behind the wheel of their dream ride. Perhaps you’ve got a sociologist that is conducting weekly research in the champagne room of a local gentleman’s club. Or maybe you’ve recently concluded that the process of, and expenses related to, tying the knot have been such a burden that it is completely acceptable to ram it onto your 1040:

Dear Caleb,

I have now figured out why the divorce rate is so high in America. Apparently, according to one of my taxpayers, wedding expenses and cruises for celebrating your engagement are now considered “write-offs.” Unfortunately, I cannot find this particular subject in THE CODE – but I think I’ll take my taxpayer’s word for it.

Maybe you should pass on this tidbit – I sure wish I had known about this obscure write off before I got married, but obviously, it’s time for me to start planning my next one. It’s going to be HUGE!!

– One of the many tax preparers currently wishing they remembered what their home looks like.

Our tipster insists that her client provided the receipts but didn’t want to forward them (something about client confidentiality). Of course, if you’ve got something that tops this, you’re invited to share it with us. In the meantime, any tax sages out there that wish to advise/debate the credibility of including the cost of sheet cakes from Costco, amateur photographers and invitations that may or may not kill you on a Schedule A (or wherever) are free to do so.

Ernst & Young Video Accurately Portrays First Year Associates in Their New Habitat

Caleb Newquist
February 23, 2011

This came by way of Jersey (this Jersey, you idiots) and the footage is incredible.

A few things that I observed and/or learned from watching this video:

1. “Duckling syndrome” is something I was familiar with but not that it had a name or was a syndrome.

2. All tax professionals seem to behave exactly the same, no matter where you encounter them.

3. Apparently this was filmed on a casual Friday based on the denim worn by the guy that appears at the 4:00 mark.

4. Timesheets are due at 5:30 on Fridays?

One thing that was less surprising:

1. “At some critical stage in their development, tax professionals generally fail to attain the basic skills necessary for social interaction.”

Leave your own observations below.

Being Twitter Savvy Does Not Keep Accountants Awake at Night

Adrienne Gonzalez
February 23, 2011

Because we can never get enough surveys, Sage came through with the skinny on what keeps accountants awake at night (no joke). We’re proud to say that alcoholism and Caleb’s typos did not make the list but there’s always next year. Way to go, profession!

Sage surveyed more than 500 of its Sage Accountants Network members across the U.S. in December 2010 to figure out what gets accountants’ knickers in a twist. Results as follows:

Among the 533 respondents, 34% stated that getting new clients tops their list of concerns. 28% cited tax law complexity and changes as an issue; followed by the effect of new regulations and standards on small firms, keeping up with technology, and time management concerns, all at 24%. Work/life balance was cited by 20% of respondents, and keeping up with professional standards was a key concern for 17% of those surveyed. 13% of respondents cited access to affordable healthcare for employees as a worry for their firms.

Perhaps in response to the search for new clients, 83% of firms currently specialize or are planning to specialize in specific vertical business segments. By far, services/consulting was the most popular category for specialization (63% of those surveyed), followed by construction at 43% and retail at 39%. Other popular areas of specialization include working with nonprofits (35%), restaurants (30%), and manufacturing/distribution (29%) clients.

The full survey may be found here.

We found it a bit odd that retaining clients, retaining staff and managing staff came in at 9%, 3% and 2%, respectively. Obviously there is a bit of a work/life balance overlap in there somewhere but because we here at Going Concern know no such thing, we could not bring ourselves to analyze these results further.

It’s the social media section of the survey that shocked us most. Not to say that the results themselves were shocking, exactly, as the shocking part lies in how some of these firms actually manage to make money. What do they use to attract new clients, carrier pigeons and sandwich boards? Thirty-seven percent of survey respondents use their own websites as “social media,” though in our humble opinion the “social” part means using a more conversational form of communication than some .com with your firm name in it. Twenty-eight percent use LinkedIn, 19% are on Facebook and – wait for it – 7% have gotten into Twitter. 7%! A frightening 43% of respondents don’t use social media at all, perhaps explaining why 34% are concerned about getting new clients. They must not be that concerned if they aren’t using social media to put themselves out there.

Know what this says to me if I’m a firm looking to make a killing through social media? Hit Twitter, it’s a no man’s land and you won’t have to elbow out the competition. Really, people? 7%?!

Know what else this also says to me? All my evangelizing about not acting like an ass on Twitter has been in vain; if firms aren’t using it, they probably don’t know how to search for your tweets about getting wasted and wanting to stab the senior for acting like a jackass. So have at it, it’s just you and the MLM bots tweeting out there until these guys get a clue and jump on board.

I think you kids know what to do from here.

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