Going Concern

Doing It Right: Not Acting Like an Ass on the Internet

Adrienne Gonzalez
December 22, 2010

We’ve given you plenty of tips on how not to be an ass on the Internet (sometimes causing you to get pissy with the messenger for calling you out) and also plenty of examples of those who do it wrong (some really, really wrong). So it was thrilling to see the AICPA’s This Way to CPA site take on bad behavior for job-seekers with some of the same tips we’ve been throwing out there all along in Remember your dignity (please). We were especially into this one about acting like an unrefined dolt:

THE BIGGEST DON’T OF ALL

Blab stuff online you can’t take back. It happens. From the typical drunk pic on the Facebook page to the more serious crimes like tweeting the salary you just got offered (especially smooth when the people who already work there see it and instantly pity/hate you), social media blunders are as common as they are hilarious. You heard about the girl who slammed her boss in a status update, then was reminded – by him – that she’d friended him already, right?

Social Media Manager Angela Connor has a simple suggestion to protect yourself against this kind of public blunder. “I don’t care what your privacy settings say; don’t assume anything is private.” This is, of course, the Internet we’re talking about. It’s just too easy for incriminating pictures, swear-packed rants and outright whining about your current job to slip out and become public knowledge.

Surely they aren’t referring to the sort of swear-packed rants that are a mainstay over at Jr Deputy Accountant because, well, let’s face it, that potty mouth nailed me this sweet Going Concern gig.

But if I were to go job hunting tomorrow, my big fat angry mouth would be all over the place ripping on Federal Reserve presidents and verbally bitch-slapping ne’er-do-well Congressmen and most employers aren’t so into that sort of behavior. So let this be yet one more reminder that in this day and age everything you do on the Internet can come back to bite you.

Like that Russian skin flick Caleb made in the early 00s. Google it.

Oh, and can someone please clarify “typical drunken pic on Facebook” for me? I’ve seen plenty of said drunken Facebook pics in my day and am not quite clear on what would qualify as “typical”. Anyone?

Accounting News Roundup: Deutsche Bank Settles Over Tax Shelters; ‘The Accounting Profession Is a Sewer’; Auditing Al Qaeda | 12.22.10

Caleb Newquist
December 22, 2010

Deutsche Punished On Bogus Shelters [WSJ]
Deutsche Bank AG agreed Tuesday to pay $553.6 million and admitted criminal wrongdoing to settle a long-running probe over fraudulent tax shelters that allowed clients to avoid paying billions of dollars in U.S. taxes.

Under a nonprosecution agreement with the U.S. Attorney’s office in Manhattan and the Internal Revenue Service, the German bank won’t be prosecuted for its participation in about 15 tax shelters involving more than 2,100 customers between 1996 and 2002, including shelters marketed by accounting firm KPMG LLP and defunct law firm Jenkens & Gilchrist PC.

Have audit rules been subtly rewritten? Three questions for the Big 4 [AccMan]
More questions after the revelation of the ‘secret talks’ in the UK.

Grant Thornton LLP elects one new member to Partnership Board [GT]
At Grant Thornton LLP’s Annual Partners Meeting in November, the partners and principals elected San Jose-based Jacqueline Akerblom, Audit partner, national managing partner of Women’s Initiatives and West Region North International Business Center director, to the Partnership Board.

Smith & Wesson Names Jeffrey D. Buchanan Chief Financial Officer [PR Newswire]
Smith & Wesson “a leader in the business of safety, security, protection, and sport,” names Jeffrey D. Buchanan as EVP, CFO and Treasurer (all positions require you to be strapped at all times).

Accounting Is a Sewer [JDA]
Sayeth perpetual accountant critic, Charlie Munger.

Christmas Gifts for that Special Tax Person [TaxProf Blog]
Three shopping days left.

CPAs in 49 states might meet experience requirement by working in industry [AW]
Michigan became the 49th state to accept industry experience for original CPA certification, leaving New Hampshire, Wyoming, and the U.S. Virgin Islands as jurisdictions that still do not accept industry experience.

Most state boards now accept experience gained by working in industry, government, and academia, as well as public accounting – a development that has received little attention in comparison with the movement to CPA mobility or changes in education requirements.

Audits of Bell were ‘rubber-stamp,’ state controller says [Los Angeles Times]
Seems to be going around.

Forensic Accounting and Al Qaeda [Freakonomics/NYT]
Getting to the bottom of the terrorist business.

EY
Fraud

Fraud Experts: Calls for Criminal Charges Against Ernst & Young Are ‘Absurd’

Caleb Newquist
December 22, 2010

Since Andrew Cuomo decided to make our lives insanely busy this week, we’ve been talking to lots of different people about what will happen next in the Ernst & Young saga. We stumbled across a couple of experts, Dr. Mark Zimbelman an Accounting Professor who specializes in fraud, forensic accounting and auditors’ detection of fraud at BYU’s Marriott School of Business, along with his son, Aaron Zimbelman, a doctoral student at the University of Illinois at Urbana-Champaign whose research interests include auditing, financial statement fraud and corporate governance.

The father and son team have a blog, Fraudbytes, that discusses, well<arious forms including a post from yesterday about this week’s developments.

We corresponded with the Zimbelmans by email for this interview. They have combined their positions to provide us with the answers to our questions.

Going Concern: Does E&Y risk losing creditability with the market at large (á la Andersen) because of these civil fraud charges?

Zimbelmans: We don’t think this case will hurt E&Y’s credibility, based on what we know at this point. Lehman’s accounting for Repo 105 transactions was in accordance with GAAP and appears to have been a common practice for similar transactions in the industry. In other words, E&Y was probably following the letter of the law in signing the audit opinion. In Andersen’s case, the firm had shredded documents and faced criminal charges. Until we see a clearer act of wrongdoing (e.g. a clear departure from auditing standards), we don’t see E&Y individually facing a significant loss of credibility. More likely, the auditing and accounting profession as a whole will take a credibility hit as individuals question the standards and industry norms adhered to by E&Y in auditing Lehman.

GC: Reports say that E&Y is in talks to settle – how do you interpret their willingness to settle rather than litigate in this matter?

MZ/AZ: We think a willingness to settle speaks mostly to the great deal of uncertainty associated with the litigation process in auditing cases. Jury trials in cases like these can be very unpredictable and may not be strongly related to whether or not E&Y actually did anything wrong. Juries tend to have a poor understanding of auditing and accounting issues and also tend to side with victims and against deep pockets. In this case in particular, were the case to go to trial, E&Y has a good chance to become a scapegoat for the collapse of Lehman and perhaps even the economic crisis as a whole. Even if the probability of a verdict against E&Y were fairly low, the damages assigned by a runaway jury could be devastating. This gives E&Y a strong incentive to settle, regardless of whether or not they did anything wrong.

GC: Is there any advantage to litigating?

MZ/AZ: If the requested settlement amount would be devastating to E&Y, the firm is better off litigating. The firm may also be better off litigating if the requested settlement amount is high and E&Y feels they have a very solid case that has a good chance at overcoming the common jury biases we discussed in the previous question.

GC: How would you react to those who feel that are calling for criminal charges against the firm?

MZ/AZ: We don’t really see any criminal behavior here–E&Y allowed Lehman to account for Repo 105 in accordance with GAAP and in accordance with what was fairly standard in the industry. Until we see evidence of potentially criminal behavior, calls for criminal charges seem absurd.

GC: Prediction time: what happens next? Fine of $X and….?

MZ/AZ: We doubt there are any criminal issues here. E&Y will likely try to settle as quickly as possible to get this behind them. Cuomo is likely to want a huge settlement because of the magnitude of the bankruptcy and because of the potential for a runaway jury. Given that Lehman’s bankruptcy was $691 billion, this settlement could easily exceed E&Y’s Cendant settlements which were over $600 million.

EY

Is This a Picture From Last Night’s Ernst & Young Holiday Party?

Caleb Newquist

December 22, 2010

Supposedly the picture at right was from last night’s E&Y festivus/”suck it, Andy Cuomo” party and we thought we’d share it with you to see if you recognize the scene.

Our tipster simply confirmed “EY Christmas Party: awkward sexual advances,” the former being in question, the latter, well, obv We employed some detection skills to help us determine if the pic is, in fact, from last night’s festivities. Here are a few clues that lead us to believe that this is a legit picture:

1. The lady is still wearing her ID badge – Lots of Big 4 types are hardly fashion conscious, so this oversight was probably fairly common last night.

2. Three dudes, three whites shirts – No tie on twinkle toes and the guy in the background is wearing khakis. Obviously not front office.

3. Talk to the Hand – Or alternatively, “Do not take my picture with this accountant who, sure as hell, isn’t Patrick Swayze.”

If you’ve got additional evidence to prove this picture as an authentic E&Y holiday rager action shot, (e.g. post-dance photo-op with Jim Turley) we’d love to see more pics. Or if you can provide more details to give it more context: a) What song were they dancing to? b) Was this serious dancing or twisting at Jack Rabbit Slims? c) Did everyone circle around or did a conga line ensue?

Any or all of these details would be helpful.

IRS

Boston Scientific Corp. Will Gladly Spend ‘Several Years’ Taking Issue with the IRS’s Notion That They Owe $525 Million

Caleb Newquist

December 22, 2010

It’s not that they don’t have the money; it’s the principle of the matter:

The Natick, Mass., medical-device company, which purchased Guidant in 2006, said it received a “notice of deficiency” from the IRS on Dec. 17 relating to the 2001 through 2003 tax years for Guidant and subsidiary businesses. “The incremental tax liability asserted by the IRS with regard to the Guidant claim is $525.1 million plus interest,” Boston Scientific said in a filing with the Securities and Exchange Commission.

Besides, the issue is related to transfer pricing which isn’t exactly cut and dry, so the company figured they’ll explore the differences they have. Besides there’s no rush to pay up:

The company said the main issue under dispute is transfer pricing linked to technology license agreements between certain domestic and foreign Guidant subsidiaries.

“We do not agree with the transfer pricing methodologies applied by the IRS or its resulting assessment,” the company said.

It noted that no payments on this assessment are required until the dispute is definitively resolved, which could take “several years” based on experiences of other companies.

Boston Scientific Says IRS Seeks $525.1 Million in Taxes [WSJ]

EY

Ernst & Young Wasn’t About to Let Some Civil Fraud Charges Put a Damper on Their Holiday Season

Caleb Newquist

December 21, 2010

A trusted source emailed us that things were getting festive last night:

EY had their FSO party last night at Cipriani’s downtown. Used to be at Tavern on the Green.

This is good news. And not just because this is an upgrade from last year’s party. Despite all the bad press the firm is getting, the celebration will go on! It must go on! Now whether the Governor-elect was aware of this and purposefully decided to make a few people’s hangovers a little worse by filing the charges today, we can’t possibly know (but he does seem to have an innate sense of timing).

What we would like to find out is the mood at this fiesta. Were there a lot of long faces, grumbling about Hank Paulson, weeping in their single malts? OR did people manage to convince themselves that this whole thing is NBD and people had a good time – enjoying the open bar, power smoking Cohibas, making awkward sexual advances, partners dancing?

We need, and the people demand details, so if you were at the party email us the details.

EY

Lunchtime Reading: The Complaint Against Ernst & Young

Caleb Newquist

December 21, 2010

Get some coffee first.

We’re working through it and we’ll update with anything interesting. If you see anything worth mentioning, chime in below.

Ernst Young Complaint

EY

Cuomo Checks Ernst & Young Off the Hit List

Caleb Newquist

December 21, 2010

Or throws another scalp on the pile, whatever you prefer.

The Journal is obviously very cozy with the Governor-elect:

New York Attorney General Andrew Cuomo filed a lawsuit against Ernst & Young for civil fraud Tuesday, accusing one of the nation’s largest accounting firms of helping Lehman Brothers Holdings Inc. hide its financial weakness from investors for about seven years before the bank finally collapsed in September of 2008.

Ernst & Young knew about, supported and advised Lehman on its “Rs, a type of debt the bank took on, but labeled as sales, which made the firm appear to investors less risky than it really was, according to the complaint. The audit firm also stood by while Lehman misled analysts and investors on conference calls and in financial filings about its levels of risk, particularly after the firm’s stability began to crack after the credit crisis began in 2007, said the complaint.

“Ernst & Young substantially assisted Lehman Brothers Holdings Inc., now bankrupt, to engage in a massive accounting fraud,” Mr. Cuomo wrote in his complaint.

Now that the AG has pulled the trigger on this, we’re wondering what’s next. E&Y still isn’t talking, other than the statement they’ve been giving since the bankruptcy examiner’s report came out in March. One comment suggested a settlement in the nine figure range which would put them in proximity of the DOJ’s fine of KPMG back in 2005.

Colin Barr over a Fortune reports that Cuomo wants at least the audit fees back ($150 million, according to the complaint):

The complaint, filed in state Supreme Court, seeks the repayment of at least $150 million in fees the audit firm collected between 2001, when Lehman’s aggressive accounting began, and 2008, when the venerable bank collapsed, precipitating a global bank run.

“Our lawsuit seeks to recover the fees collected by Ernst & Young while it was supposed to be using accountable, honest measures to protect the public,” said Attorney General Andrew Cuomo.

Something tells us that Cuomo won’t be satisfied by simply the audit fees; we’re talking about the largest bankruptcy in history, after all. If you feel like ballparking the fine, we wouldn’t turn away any outlandish guesses.

UPDATE: Felix Salmon also points out E&Y’s lack of communicado:

E&Y knew this was coming—we all did—but despite that fact, its only public reaction so far has been to refuse to comment. That doesn’t look good, and it forces us back to what the company said in the wake of the Valukas report—that its work as Lehman auditor “met all applicable professional standards,” whatever that’s supposed to mean.

He also agrees with us that the fine will be greater than the $150 million and notes (not hiding his disappointment) that no partners were named, “E&Y will avoid admitting blame and also avoid criminal prosecution. […] [T]he only defendant is Ernst & Young LLP; there are no named individuals on the list. So E&Y’s partners are probably safe too. Sadly.”

Unless, of course, the SEC or PCAOB opt to take up that disciplinary slack. Don’t forget that some people think that Cuomo is making this move because he wants the “last scalp” before leaving the AG’s office for the Governor’s mansion. We realize pinning hopes on the SEC and PCAOB isn’t exactly comforting for those wishing to see more action but maybe Cuomo’s actions are the motivation they needed.

We’ll keep you updated throughout the day and if there’s any internal word from the hallowed walls of 5 Times Square, do email us the details.

CPA Exam

The JDA

Top Six Time Wasters When You’re Studying For the CPA Exam

Adrienne Gonzalez

December 21, 2010

Allow me to blast right by the fluff and get straight to the meat: you know who you are and you know exactly what you’re doing so put down the apps and get back to the books, this is the CPA exam you’re studying for!

I humbly present, in no particular order of distractionness, the six biggest time wasters for CPA exam candidates.

Twitter This one is huge and I was reminded of this yesterday when I got an email from someone I know exclusively through Twitter who has been studying (on and off, I presume) for the CPA exam for almost as long as I’ve known him. He made the decision to cut his account with a promise of “I’ll be back”, something you may want to consider if you’re blowing up Twitter with status updates when you shoulong>Facebook True story: I once got a call from a CPA exam student who gave me a huge sob story about not having enough time to study begging me to give him more time on his course as he promised up and down that he would not let unforeseen events (death in the family, car accident, job loss; you name the excuse) interfere in his studying going forward. That might have worked (oh, who are we kidding, it wouldn’t have worked on me) except for one small problem: he’d forgotten we were also Facebook friends. So while he was updating with pictures of his drunken nights out and “Which Serial Killer Are You?” quizzes, I was watching an entire year of studying (and a few thousand bucks) swirl down the drain. Stay away from Facebook and please, for the love of all that is sacred and holy, enough with the FarmVille when you should be studying.

Email Emails are great. They make us feel loved and needed and important and sometimes contain all kinds of useful information that we can even apply to studying (like a subscription to our newsletter *ahem*) but they can also be a massive time-waster. You aren’t that important and neither is your email, so shut down Outlook when you’re studying if you’re in front of your computer and even go so far as to set an out of office on weekends if you’re in the last couple weeks before exam day.

Instant messenger Oh IM, how we love thee. Gchat is great for catching up and sharing news but it can be a huge time suck if you get stuck chatting with a friend (especially when you’re dying for a distraction). Don’t cheat and change your status to “Studying for the CPA exam REALLY BUSY”, just log off and hide out for awhile. Trust me, you aren’t going to miss anything that you can’t catch up on next time you log in.

Your phone From texts to apps to mobile Twitter, your phone can be the biggest distraction in your house if you don’t count your TV on Sunday. With so many different ways to keep yourself from studying, sometimes it’s best to simply unplug or, rather, plug your device in to charge somewhere out of your reach while you are studying. Turn your phone to silent and hide it under your pillow if you have to. Checking your phone might only take a second but several checks add up to minutes and next thing you know, you’re pounding out an email response with your thumbs and totally off track.

Your girlfriend (or boyfriend) Seriously. You swear (s)he didn’t need this much attention when you first started dating but now you’re a year in and since you started studying for the exam it seems like you can’t shake her (him) off your nuts long enough to do two homework modules. If a nice talking to won’t work, why don’t you try explaining to your sweetheart that this is a professional exam and, if (s)he’ll get off your jock long enough for you to study and pass, you’ll make a whole metric shit ton more money as a result. That should work. If it doesn’t, dump her (him).

Lastly, remember that our site can be a distraction too. Shock and awe, I know! It’s one thing to swing by for CPA exam tips or to get my email address so you can ask me a question (seriously, I’m nice and sort of know what I’m talking about, wtf) but if you end up here trolling comments and whining about the bonus you didn’t get, you can easily waste plenty of good study time that could have been better applied to, oh, actually studying. Subscribe by RSS so you don’t miss your favorite articles when you have some free time and ignore us until you pass.

ANR

Accounting News Roundup: KPMG’s Hiring Spree; PCAOB Issues Audit Practice Alert No. 7; Groupon Names Amazon Exec as CFO| 12.21.10

Caleb Newquist

December 21, 2010

New York Leads in Pursuit of Lehman [WSJ]
In 2001, the regulator of the nation’s biggest banks told its examiners to be on the lookout for firms whose regulatory filings made them look healthier than they really were. That followed guidelines issued in 1990 that said banks could face disciplinary action if their filings “have significant inaccuracies or are ‘window dressed.’ “

But as early as this week, it is the New York attorney general—not the Office of the Comptroller of the Currency, the bank regulator—who is expected to file a lawsuit alleging accounting firm Ernst & Young LLP allowed Wall Street broker Lehman Brothers Holdings to fake itsppear financially healthier.

Staff Audit Practice Alert No. 7 [PCAOB]
Knowing the PCAOB like we do, we’re expecting a major dump of auditor inspections and disciplinary orders on Friday around 3 pm.

Globalization, Regulation and Offshoring Push KPMG to Hire 250,000 over Five Years [FINS]
Julie Steinberg at FINS gets the lowdown from KPMG’s Global Head of People, Rachel Campbell.

SEC Fines Audit Firm, Bars Partner Over China Energy Fraud [Bloomberg]
The U.S. Securities and Exchange Commission fined a California audit firm and one of its partners $129,500 for “improper professional conduct” in connection with a Chinese energy company accused of accounting fraud.

Moore Stephens Wurth Frazer & Torbet LLP of Orange County “did not exercise professional skepticism and due professional care” in audits of China Energy Savings Technology Inc., the agency said in a statement today. Kerry Dean Yamagata, 53, the partner at Moore Stephens responsible for the audits, was barred from practicing as an independent accountant for at least two years, the SEC said.

Accounting Majors Score Lowest in Verbal and Writing Among All Grad Students [TaxProf Blog]
Get better, people.

Details of secret bank talks revealed [FT]
It gets more awkward for auditors in the UK.

Deloitte CEO: Better Career Preparation Starts in High School [Hire Education/WSJ]
Barry Salzberg gets academic in a blog post for the Journal.

BAE to be handed Tanzania fine on Tuesday [Reuters]
BAE Systems will be fined by a London court on Tuesday after pleading guilty to making accounting errors in Tanzania, bringing a six-year investigation into the company’s activities to an end.

The fine is expected to sign off a settlement agreed between Britain’s Serious Fraud Office (SFO) and BAE in February when the British defence firm entered into a plea bargain deal with the UK fraud watchdog.

How to Make Auditors More Accountable [Room for Debate/NYT]
For those of you looking to get all pointy-headed about this E&Y/Lehman debacle.

Groupon Hires Amazon Finance Executive Child as CFO to Help Raise Funding [Bloomberg]
Groupon Inc., owner of a daily coupon website with 40 million subscribers, named Jason Child chief financial officer as it considers raising more money to fund growth.

Child, 42, previously served as Amazon.com Inc.’s vice president of finance, overseeing its $14 billion international business, Groupon said today in a statement. He will relocate to Chicago, where Groupon is based.

EY

Quote of the Day

But What if the Auditors Were Fools?

Caleb Newquist

December 21, 2010

“Could Ernst & Young have done a better job? Maybe, but claiming they could have done a better job doesn’t necessarily make them liable. Even the best of auditors can be fooled.”

~ Anthony Sabino, professor of law and business at St. John’s University

News

Here’s a Visual: A 64 Year-old Accountant in Bed, Naked, with a Madame, Surrounded by Cash

Caleb Newquist

December 21, 2010

In Britain, of course:

A respected accountant who turned his home into a brothel was caught in the act when police swooped and found him naked in bed with his Chinese mistress, surrounded by money.

“Respected accountant” Leslie Baleham received a year in prison after his house effectively became a brothel that managed to serve 400 men during a three-month stakeout, according to a report in the Daily Mail. How would an otherwise mild-mannered accountant get tangled up in such a mess? Love, of course!

The court was told that Baleham had been ‘smitten’ with his younger woman – who was a main figure in running the brothel.
Adrian Reynolds, prosecuting, said: ‘Never was the relationship between sex and money more clearly to be seen.’ [Ed. note: Oh, British wit.] The pair, who ran the brothel for two years, had a joint bank account and had paid in £57,000 – including £7,000 he had made in rent. Harry Bowyer, mitigating, told the court that Baleham was not involved in the day-to-day running of the brothel, and was effectively just a landlord. He said: ‘Baleham felt he was having a relationship with her. Now he feels he has been used by her. He is now divorced from his wife.’

Arrested in bed with a madame called Ping Ping, the ‘respected’ accountant who turned his home into a brothel [Daily Mail]

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