Going Concern

Accounting News Roundup: Treasurer Is Not a Disclosure-Worthy Position at Overstock.com; SEC Investigating Repurchase Accounting; Deloitte Considers Camping at World Financial Center | 03.30.10

Caleb Newquist
March 30, 2010

• Another Key Departure at Overstock.com: It Went Unreported, Too [White Collar Fraud]
Criminal-turned-forensic sleuth Sam Antar is reporting on his blog that SEC problem child Overstock.com had another key employee depart the company but this time, the Company failed to report it publicly. Gary Weiss was tipped off about the departure of Richard Paongo, the former Treasurer at OSTK, in an anonymous post that was confirmed on Mr Paongo’s LinkedIn profile.

It appears that Mr Paongo’s departure occurred around the same time as ex-CFO David Chidester’s which was reported to the SEC.

Sam notes the requirements of an 8-K disclosure:

If the registrant’s principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or any person performing similar functions, or any named executive officer, retires, resigns or is terminated from that position, or if a director retires, resigns, is removed, or refuses to stand for re-election (except in circumstances described in paragraph (a) of this Item 5.02), disclose the fact that the event has occurred and the date of the event.

So maybe OSTK figured that Paongo’s was worth sharing with investors? Sam says, “Apparently, it’s Overstock.com’s position that none of the above applies to Rich Paongo. However, Paongo’s departure from Overstock.con [sic or maybe not?] can be viewed as a material event requiring disclosure amid an expanding SEC investigation and given Paongo’s role at the company.”

Whether or not Paongo’s departure qualifies as a disclosable event might be arguable but the timing of his departure is certainly noted. In semi-related news, Overstock still has a couple of days before the 10-K extension runs out, so we’re likely to hear more out of SLC.

• S.E.C. Looks at Wall St. Accounting [NYT]
With Repo 105 on everyone’s brain, the SEC figured it should snoop around and see who else is using the repurchase agreements. Bank of America and JP Morgan have already admitted that they use repurchase agreements but Mary Schapiro remains coy about what companies are getting the crook-eye.

• Deloitte eyes sticking with World Financial Center [Crain’s New York]
Deloitte is in the market for about 600,000 square feet to house some its New York employees and one possibility is that the firm will set up camp at World Financial Center where it is currently the largest tenant. The firm is also reportedly considering 825 Eighth Ave.

Crain’s reports that Casa de Salzberg was looking for 1 million square feet last year, considering possible locales at 11 Times Square and 277 Park Ave. Deloitte insists that it was never looking for 1 million square feet and will be perfectly happy to cram the employees from the current two non-WFC locations into one place.

Quote of the Day: A Banker’s Feelings Are Nothing to Me | 03.29.10

Caleb Newquist
March 30, 2010

“The ability to not worry about whether bankers’ feelings are hurt.”

~ Vanessa Wittman, CFO of Marsh & McLennan Cos., on what skills got her through a tight credit market.

Audit
PCAOB

The PCAOB Proposes Ideas on How Auditors Can Better Communicate with Other Human Beings

Caleb Newquist
March 30, 2010

Last week the PCAOB announced that it was getting serious about audit committee communication after it was revealed that Ernst & Young kinda sorta didn’t think the Repo 105 sitch was worth brining up to the Lehman Brothers audit committee. Granted, Dick Fuld is pretty scary dude and has probably eaten plenty of Big 4 partners for breakfast in his day but avoiding the awkward convo this time around almost resulted in everyone fighting over stale hot dog buns in the street.

Oh sure, the PCAOB has been kicking this around for awhile but something needed to happen to get their motors going and it appears that the LEH/E&Y fallout has done the trick. We might be completely wrong on this but it’s becoming increasingly obvious that the PCAOB has lost faith in auditors to do their jobs and will continue to inundate them with rules until they get an “Uncle.”

How about that statement? It’s the typical press release whathaveyou including quotes from the bigshots:

“The proposed standard on audit committee communications is intended to enhance the relevance and effectiveness of the communications between an auditor and audit committee throughout the course of an engagement,” said PCAOB Acting Chairman Daniel L. Goelzer.

“The proposed standard contains appropriate requirements to achieve effective, two-way communication between the auditor and the audit committee, which we believe would improve audit quality,” said Chief Auditor, Martin F. Baumann.

So if we take Goelzer and Baumann at their word, audit committee communication has been pretty ineffective up to this point? That’s good to know.

And here’s the gist of the required communication:

• Communication of an overview of the audit strategy, including a discussion of significant risks, the use of the internal audit function; and the roles, responsibilities, and location of firms participating in the audit;

• Communication regarding critical accounting polices, practices, and estimates;

• Communication regarding the auditor’s evaluation of a company’s ability to continue as a going concern; and,

• Evaluation by the auditor of the adequacy of the two-way communications.

So there’s your checklist people. Sorry to ask but were these items not being discussed previously? One could assume that since these items are on the list, they weren’t always being discussed in practice. Does standard audit committee communication revolve around Gossip Girl? Tiger Woods’ mistresses?

This really appears to be an example of the PCAOB taking away auditors’ “professional judgment” and making them “professional inquisitors.” Further, as Jim Peterson has pointed out, checking off required communication will do nothing to protect auditors from liability in the future, “there is no legal defense or ‘safe harbor’ in American law based on proof of compliance with professional standards – box ticked or otherwise.”

In other words, make all the professional requirements you want, auditors are still going to get sued and claiming “But we checked the box!” will not work as a defense. So the rationale must have been checklists are fun and easy to follow? Sigh. You’ve got until May 27th to get your thoughts in on this thing before it gets rubber stamped. Get on it.

Press Release [PCAOB]

Video

A Salute to Charlie Rangel

Caleb Newquist
March 30, 2010

Apparently it’s Chuck Rangel day here at GC. Since we know there is a contingent of you that love Rangs and his exploits (and bow ties!) we feel compelled to follow up the ironic tax advice report with this.

We don’t know who’s running against Rangel (anyone?) this fall but we don’t see how this spot would be excluded from the arsenal.

[h/t TaxProf]

Here’s Why Most Sin Taxes Aren’t Stupid (Hint: It Makes More Things Legal)

Caleb Newquist
March 29, 2010

Elie Mystal, the Editor of our sister site Above the Law, did a fair amount of kvetching over the Texas “pole tax” on Friday. He focuses primarily on his distaste for sin taxes, “I can’t avoid sin taxes — and thus I can’t stand them. First of all, they are regressive. Secondly, they’re anti-business. So we literally have a tax regime that freedom-loving progressi conservatives should hate, and yet sin taxes continue to be an acceptable way for the government to shove its morality down our throats.”

We’ll address that statement in a minute but first, we’ll examine the pole tax which supporters have stated, “is an appropriate exercise in state power — promoting public safety by discouraging the ‘combustible combination’ of drinking and live nudity.”

Elie’s thoughts:

Nude women + alcohol = rape? What kind of sex crazed sociologist came up with that equation? Just because boobs and beer make your sick ass go out and terrorize females doesn’t mean that other males are incapable of telling the difference between fantasy and cold, lonely reality.

And if this is a serious problem — what the f*** is $5 going to do about it? Texas legislators want us to believe that there is an epidemic of sexual assaults occurring because of the “combustible combination” of alcohol and live nude girls, but they also want us to believe that a $5 surcharge is going to make a difference.

We agree with Elie that Texas has come up with a bad — nay — horrendous idea. An extra $5 at the door isn’t going to accomplish a damn thing. Strip clubs are highly “combustible” environments regardless; taxing patrons to get them to think twice before entering doesn’t make a lot of sense.

Where Elie is dead wrong is his notion that “Either [the behavior subject to tax] is a serious societal problem that the government needs to step up and make [it] illegal — or it isn’t. If it’s not that big a deal, then what is a sin tax other than the government trying to get a taste of a lucrative American business?“

We have a problem with the “step up and make it illegal” part. The decriminalization and taxation of certain “sins” is a perfectly good way for states to raise money since taxes on income and property are far more political and thus, not effective.

Alcohol and tobacco both cause a myriad of health problems in humans that can result in high medical treatment costs. Taxes on these items are appropriate in order to supplement the burden that they place on society as a whole. Drugs and prostitution are, for the most part, criminalized. Thousands of people are arrested and jailed yearly for engaging in these behaviors, imposing millions of dollars in costs to taxpayers. Here’s a newsflash: human beings are not — ARE NOT — going to stop engaging in these behaviors. So why not take the “criminal” element out of the equation?

If they were to be made legal, highly regulated and taxed, states could enjoy new revenue streams and citizens can engage in behavior that they choose. That’s something many “freedom loving progressives” can certainly get behind. Plus, if drugs and prostitution are legal, won’t this encourage entrepreneurship and a more competitive marketplace? That sounds like something “money-loving conservatives” would approve of.

So while we’re with Elie railing against Texas’ impotent legislation, sin taxes are useful when implemented intelligently. California is putting legalized marijuana to a vote and DC may not be far behind so maybe we’re beginning to see some common sense for a change.

No Sin Taxes in the Champagne Room [ATL]
Earlier:
Texas Stripper Tax Will Survive One More Valentine’s Day

What’s the Best Course of Action When Your Client Starts Sobbing Over Their Tax Bill?

Caleb Newquist
March 29, 2010

Tax professionals require many traits: good with numbers; explaining complex issues; the ability to forego adequate sleep regularly; borderline insanity, among others. One talent that some tax gurus, certainly not all, possess is that of makeshift therapist. When you think about it, this makes perfect sense, since Americans hate taxes and the IRS.

This passionate resentment obviously leads to strong emotions and sometimes actions; emotions that have to be addressed by tax professionals. Many situations that CPA, EA, or tax attorney encounter necessitate the phrase “calm your ass down.”

From the San Francisco Chronicle, a few examples include, marital relations “My actual designation is enrolled agent, but it should be marriage and family counselor…Sometimes I know about a divorce before the spouse. Or I’ll get a call after a couple has just had a hellacious fight, and she or he wants to have the tax refund put in another account.”

Then of course, the overall warped fear of the IRS that no amount of Xanax will help subside:

“People have had it drilled into their heads that the IRS is as close as we can get to the secret police,” says Stephen Graves, a CPA in downtown San Francisco who has been preparing tax returns for more than 40 years.

“The IRS (audit) is the adult equivalent of being called into the office — it’s a very interesting, basic emotion,” he adds. “Twenty to 30 percent of my job is kind of like being a shrink, and guiding them through that fear.”

However, the biggest common denominator that tax pros report is the weeping. All clients have personal problems of some sort but when you break the news to them that they owe the Feds a grip of cash, that can be too much to bear.

Your inclination may be to roll your eyes and drum your fingers on your desk until they get it out or to point at them accusingly and shout, “Jesus! Pull yourself together man!” but this would not be the advised course of action. The most effective? Nod, listen and don’t get all judge-y:

[T]heir techniques are decidedly un-quantitative. “I listen…I try not to patronize them and say, ‘Everything will be OK.’ I try and be a good listener. A lot of times people just need to get it off their chest and get on with it.”

“I try to be empathetic…Nobody leaves my office without a hug.”

There’s the answer friends. Hugs. More hugs.

Tears and taxes: Meet my therapist, the accountant [SF Chronicle]

Career Center

Job of the Day: BNP Paribas Needs an Experienced Accountant

GoingConcern
March 29, 2010

BNP Paribas is looking for someone to join their accounting team that will be responsible for the day to day maintenance and control of the assigned sections of the general ledger.

The position requires a of two to four years experience and is located in Jersey City, NJ. Get more details after the jump.

Company: BNP Paribas

Title: Accountant, Financial Institutions

Location: Jersey City, NJ

Description: The accountant is responsible for the day to day maintenance and control of the sections of the general ledgers under his responsibility. When applicable he coordinates review and potential adjustments with operation groups He provides all required reporting to management. This person is also responsible for the process of reporting the monthly management revenues for the entities under his/her responsibility.

Responsibilities: Observance of Banks Policies and Procedures; Review of Daily Ledgers for posting errors and/or back value transactions; Justify or reconcile all accounts under her/his responsibility; Prepare and book daily/monthly entries as necessary; Prepare required reconciliation reporting for branch or entity; Assist on special projects at the request of management; Assist on user acceptance testing at the request of management
Perform specific duties and report as assigned; Assist in the distribution of financial reports and ledgers
Support Management Accounting for financial data; Produce, review, reconcile and submit monthly revenue profitability information to Head Office; Respond to questions and special requests from account officers; Investigate and resolve issues and questions concerning Customer Profitability.

Qualifications: Minimum 2-4 years experience in financial and/or management accounting; Must have Prime Brokerage product knowledge.

See the entire description over at the GC Career Center and visit the main page for all your job search needs.

Audit
PwC

PwC Had Enough with Old Republic’s Sketchy Accounting

Caleb Newquist
March 29, 2010

Accounting firms take a lot of grief for bending over backwards for their clients. They’re in the client service business after all and keeping them as happy as possible is priority numero uno (despite what you might hear). Considering this factoid, when an accounting firm decides to cut a client loose for a “disagreement” over an accounting practice, we feel that’s a pretty good reason for any future accounting firm to think long and hard before taking on said client (case in point: KPMG taking the Overstock.com audit).

PricewaterhouseCoopers notified Old Republic International Corp. on March 19th that they would be “declining to stand for re-election as Old Republic’s independent registered public accounting firm for 2010.” That’s nice SEC filing language for “We’re so grossed out by you that we refuse to audit you any more.”

The two firms disagreed about the accounting treatment of “certain mortgage guaranty reinsurance commutation transactions with captive reinsurers owned by lending institutions.” That description alone makes us nauseous. The gist from Old Republic’s 8-K filing:

Old Republic had concluded that, in accordance with traditional reinsurance accounting practices, funds received ($82.5 million) in excess of amounts owed to it by the captive reinsurers should be deferred and recognized in the income statements of the future periods during which the related claim costs were expected to occur. PwC believed that generally accepted accounting principles (“GAAP”) required that the $82.5 million be recognized immediately as income from a contract termination.

So you have “traditional accounting practices” versus almighty GAAP. The tradish accounting wasn’t good enough for PwC, so they brought the probelme to the attention of the audit committee. The AC ultimately decided…wait…that management was correct. Shocked? Us too. The disagreement was brought to light back in November and in a press release when the company said that the transactions in question “which resulted in little consequential effect on the pretax loss.”

Apparently PwC wouldn’t let it go and the Company called in the SEC to get their $0.02 on the matter. Lo and behold, the Commission sided with PwC. After a lot profanity-laced belly aching (that’s what we imagine, anyway) and sleepless nights for both OR’s accounting department and the PwC audit team (that’s not debatable), Old Republic filed the delayed 10-Q last month with restated financial statements.

After what was surely 5 or so months of pure hell, PwC figured that this was an awkward enough situation that a break up was warranted. This was probably the perfect opportunity for PwC to get out of this engagement. They figured Old Republic wasn’t going to change their less-than GAAP-y ways, the audit committee is obviously no help, and God knows you don’t want to get the SEC involved every single time there’s a disagreement. If you were to ask us, its seems like a pretty logical reaction.

Now the only question is, which audit firm picks up Old Republic? PwC will certainly have some interesting things to share with the firm that decides they’re up for this particular headache.

PricewaterhouseCoopers drops Old Republic [Chicago Breaking News/CT]
8-K [SEC.gov]

The Irony of Charlie Rangel Giving Tax Advice Is Not Lost on His Constituents

Caleb Newquist
March 29, 2010

Charlie Rangel may have lost (temporarily!) his Chairmanship of the House Ways & Means committee because of a few tax issues but that doesn’t mean he isn’t willing to shell out a bit of tax advice during tax season.

Rangs sent a flier in the mail to his 15th District constituents so they could “put money back into your pockets.”

This particular bit of irony was not lost on the voters in the 15th District; the Daily News shared some of their thoughts including the obvious, “It’s probably not the best time to put something like that out,” to the practical, “I’d never take tax advice from that guy,” and those pointing out the chutzpah, “That is amazing. He certainly has gall.”

A spokesman is quoted that this SOP for Charlie during this time of year, “[He] has sent his tax newsletter to constituents for many years in order to assist them in filing their tax returns and ensuring that those who are eligible take advantage of important benefits, including the Earned Income Tax Credit.”

So maybe this is one of those time-honored Congressman Rangel traditions in the 15th District that operates like clockwork. Every tax season, voters can expect to get Chuck’s smiling face in their mailbox sharing tax advice on laws that he has helped write for decades. A little tax-related scandal isn’t going to put a stop to that. Unfortunately, we’re guessing the pamphlet doesn’t discuss how to exclude $75,000 in income from a rental property in the Dominican Republic. That would be taking things a bit too far.

Rep. Charlie Rangel’s constituents tell congressman to keep tax advice to himself [NYDN]

News
The JDA

Let’s Take a Closer Look at This Shia LaBeouf and InterOil Situation

Adrienne Gonzalez
March 29, 2010

There’s some funny business going on in InterOil and a lot of it is pure juvenile humor. First of all, you have Louis from Even Stevens pumping their crap stock. Then you have him in Playboy saying he’s less than well-endowed.

It’s as if the jokes write themselves but then you realize that investors are actually counting on the soundness of markets and suddenly it’s not so funny. Never mind, it’s funny.

The first problem with InterOil isn’t really that the guy from Transformers is clumsily pushing it now that he’s worked beside the real Gordon Gekko – sure Wall Street is cool again but not cool enough to rub off on Shia LaBeouf who has apparently taken to pumping stocks lately.

Yeah, we know, we’re confused too.

Getting ready to play next to Michael Douglas for Oliver Stone’s “Wall Street” sequel “Money Never Sleeps”, LaBeouf studied under the financial ninjas at John Thomas Financial (yes, JDA already made that joke. A bunch of times) and apparently turned $20,000 into $489,000 says Business Insider.

And yes, he really did tell GQ readers to grow some balls and short gold at 120 (whatever that means). 120 what? Euros?

“He’s So Money” says GQ in the April 2010 issue. Give me a break. From the mouths of garbage-stock-pumping babes:

“I thought my life was pretty wild. I’m Richie Rich. I land in New York, secretly thinking I’m like the coolest guy in the world. I’ve been on the cover of GQ! But then I met these guys, and it’s humbling. It’s the most sex-drugs-and-rock-‘n’-roll atmosphere that exists on the planet. I was hanging out with some wild human beings.”

So we’ve established Shia is a douche but what about InterOil’s “fundamentals”? I’m so glad you asked!

How about this “bad faith” bankruptcy filing by InterOil’s esteemed CEO Phil Mulacek?

InterOil also recently announced a that part of the Antelope-2 well will need to be re-drilled, greasing it up further for 14-year-old humor for months to come. For 7 years InterOil has promised awesome discoveries and for 7 years it has failed to deliver. Since we no longer have logical fundamentals (InterOil outperformed well through 2009), the best we can do is juvenile humor, I guess.

Grow some balls and short InterOil or just sit there and wait for it to implode, up to you.* Shia needs to hurry up and jump on the tax problems bandwagon like many of his fellow “stars” so we don’t have to listen to this anymore. Wonder how much his toilet seat collection would snag at IRS auction?

Earlier: QOTD: Sam Antar is Ready to Rumble

*Disclaimer: nothing here should be taken as investment advice and I don’t take back what I said about Shia’s John Thomas nor his Financials.

Accounting News Roundup: Accounting for Healthcare Reform Begins; Should Small CPA Firms Partner with Large Firms on Projects?; Lawsuits Against Accounting Firms Rising Fast in UK | 03.28.10

Caleb Newquist
March 29, 2010

• The healthcare party is over – now comes the (accounting) hangover [FT Alphaville]
Now that healthcare reform is behind us, the matter of sorting out the impact on corporations now falls to the accounting professionals in those companies as the first quarter winds down this week.

FT Alphaville notes that AT&T, for one, has already filed an 8-K that states that it will “take a non-cash charge of approximately $1 billion in the first quarter of 2010 to reflect the impact of this change.” The change that the company is referring to is the “Medicare Part D subsidy” which, under the new law, is no longer eligible for a write-off against a company’s taxes. The subsidy is given to companies to help to pay prescription drug benefits to its employees.

FTA cites a report by Credit Suisse that shows many companies’ (including Goodyear Tire, International Paper and The New York Times) first quarter earnings will be impacted significantly by new healthcare legislation. And it also appears that it will cause companies to take a second look at the benefits they currently provide to employees, as Ma Bell stated in its filing that it “will be evaluating prospective changes to the active and retiree health care benefits offered by the company,” as a result of the legislation.

• Why solos and small firms shouldn’t “partner” with larger CPA firms on projects [Fraud Files Blog]
Tracy Coenen recently had a large firm approach her to see if she’d be interested in helping them out with some “Fraud Risk Assessment services.”

The larger firm asked her if she would be interested in “a partner/subconsultant” arrangement. Tracy explains why this isn’t a good situation for solo practitioners like herself, “[T]he consulting firm doesn’t have the know-how necessary to provide their client with the services they need. But they’re not about to let something silly like competence stand in the way of collecting fees! They will find a way to do it.”

Tracy says that the larger firm will ask you to discount your billing rate, train their staff, and ultimately, give them the secrets to your practice, “Don’t lose money by discounting rates, training someone else’s staff for those discounted rates, and creating a competitor for yourself who uses your proprietary methodology.”

• U.K. Accounting Suits Reached 5-Year High Last Year, Study Says [Bloomberg BusinessWeek]
The number of lawsuits filed in the UK against accounting firms in the past year is greater than the last five years combined according to Bloomberg. The thirteen suits filed in 2009 is more triple than the four suits filed in the previous five years. Although the number of suits is considerably smaller than the 61 suits filed after the collapse of Enron, et al. in the 2002-2003 time period, Jane Howard, a partner at Reynolds Porter Chamberlain LLP, is quoted that it’s not clear whether things are just getting started, “What is still hard to tell is whether this sudden rise in claims will subside quickly or whether accountants will face a higher number of claims over the coming years.”

Quote of the Day

Quote of the Day: Sam Antar Is Ready to Rumble | 03.26.10

Caleb Newquist
March 27, 2010

I challenge John Thomas Financial CEO Thomas Belesis to a match on the Jerry Springer show. To even the odds, he can bring Overstock.com CEO Patrick Byrne. Two crooks versus a convicted felon born in Brooklyn. They can bring actor turned stock pumper Shia LaBeouf for added muscle, too.

~ Sam Antar, reacting to Thomas Belesis calling him an idiot after Antar suggested that Shia might be able to shed some light on the goings-on at John Thomas Financial involving InterOil. And if you forgot, Sam and Patrick have a bit of a history.

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