Going Concern

Overstock.com to Restate Financial Statements; Reassures Profitability for 2009

Caleb Newquist
February 5, 2010

Well, then. This all very awkward for Pat Byrne and Co.

In an 8-K filed late yesterday Overstock.com announced that it would be restating the consolidated financial statements contained in its 2008 annual report, and the those contained in the Company’s last three 10-Q’s: period ended March 31, 2009; June 30, 2009; and September 30, 2009 (unreviewed!).

It goes without saying that those financial statements can no longer be relied upon.

The restatement is a result of errors that Overstock fired Grant Thornton for last year that led to a bit of a cat fight between the firm — who is not mentioned in the filing — and humble servant Patrick Byrne.

The Big O also admitted that it “incorrectly amortized the expense related to restricted stock units based on the actual three year vesting schedule rather than a three year straight line amortization and applied an outdated forfeiture rate in calculating its expense under the plans.” While they were at it, they threw a bunch of other corrections that were “[not] material either individually or in the aggregate,” as the saying goes.

The Company is still mulling over the numbers with both PwC and KPMG so there’s a chance that they could change but as of now, $1.9 million of income is going back to 2008 from 2009 and an increase in expense of $350k in 2008 and $900k in 2009.

But wait! The filing reminds us that “Patrick Byrne, the Company’s Chief Executive Officer, had stated to The New York Observer, ‘that the company is about to report its first annual profit.’ The Company continues to believe that it will report positive net income for fiscal 2009.” Whew! See shareholders? More commitment from your servant.

Sam Antar has been following this story from the very beginning and he is not shy about being vindicated:

Today’s news is a complete vindication of my analysis of Overstock.com’s financial reports and shows that the company willfully engaged in a financial reporting manipulation scheme. The company is restating its financial reports to correct GAAP violations, exactly as I have recommended in this blog. To date, every single initial financial report issued by Overstock.com throughout the company’s entire existence has violated GAAP or some other SEC disclosure rule. The company now has the dubious distinction of having to restate its financial reports three times in the last three years to fix GAAP violations.

We shot Sam an email last night and he simply told us, “I am going out for a glass of fine wine.”

So while this appears to wrap up the SEC’s Division of Corporation Finance investigation, one little problem that still remains is that the SEC’s Enforcement Division has not wrapped up its probe of the company. Yeah; so there’s that. Considering the the track record of the SEC, we’d typically give a company a 50/50 shot of coming out of a probe by the Enforcement Division unscathed but in the case of Overstock, we’ll be going with Schape’s crew.

Accounting News Roundup: Satyam Auditor Gets Bail; SEC Drops Civil Charges Against Broadcom Execs; PCAOB Launches Redesigned Website | 02.05.10

Caleb Newquist
February 5, 2010

• PwC auditor Srinivas gets bail in Satyam case [The Economic Times]
According the Economic Times, the Supreme Court in India “said since the case was based on documents, all of which has already been seized by the Central Bureau of Investigation (CBI), it would be of no use to keep the accused in jail, where he had been lodged since his arrest in January 24 last year.” They also report that the “chargesheet [runs] over 55,000 pages” which seems like a good enough reason to just forget this whole thing.

Seriously, they were just able to come to the conclusion that he didn’t need to be in jail because the documents were TLDR? What army of accountants is on this thing? Will this never end?

• Ex-Broadcom Officials off SEC Hook [WSJ]
Despite all the horn tooting the SEC has been doing, they still manage to mess things up pretty regularly. After criminal charges were dropped against Broadcom executives due to “evidence in the criminal case showed prosecutors tried to influence the testimony of three key witnesses, improperly contacted witnesses’ attorneys and leaked information about grand jury proceedings to the media,” the civil charges have been subsequently dropped.

The Broadcom case if you recall, involved a back-dating scandal but far more interesting were the allegations that Broadcom co-founder William Nicolas III was “conspiring to distribute illegal drugs, including methamphetamine and cocaine,” and providing prosties to clients in underground quarters built specifically for said purposes.

But now Nicolas is sober and it’s all been thrown out and the SEC once again looks like idiots. Sobriety and an incompetent SEC makes for a feel good story.

• PCAOB Launches a Redesigned Web Site [PCAOB Press Release]
It was official yesterday although the new look seems to have been up all week. Acting Chair Dan Goelzer managed to wake from his nap to throw in his boilerplate statement, although by the looks of the guy, were not sure he knows how to use email let alone give an opinion on the website: “The redesigned Web site enhances the PCAOB’s transparency efforts by making registration, inspection, standard setting and enforcement information more accessible and user-friendly to the investors, auditors and other interested parties who use our site.”

In other news, it appears that despite the decent salary no one wants to be the non-acting Chairman. Not that it’s an important position or anything.

Quote of the Day

Quote of the Day: Does 1,800 Visits in 17 Days Constitute a Porn Addiction? | 02.04.10

Caleb Newquist
February 5, 2010

“If you go to HR and tell them you have a drinking problem, they’ll give you hotlines and help. If you say you have a porn problem, they’ll get security to throw you out.”

~ Michael Leahy, the author of “Porn @Work” and “Porn Nation” on porn addiction, which may be rampant at the SEC.

(UPDATE) Was Deloitte’s Warning to Merrill Lynch Lacking Urgency?

Caleb Newquist
February 5, 2010

– Updated to included statement from Deloitte

By now you’ve heard that Ken Lewis and former BofA CFO Joe Price are in a bit of pickle, thanks to NYAG Andy Cuomo.

Long/short is that Drew has filed civil charges claiming that these two ignored advice to disclose information about the losses at Merrill Lynch and went ahead with their plans that ended up screwing just about everyone in the entire world.

According to the complaint, Deloitte was right in the middle of the action back in December of ’08 as the auditor of ML and from the sounds of it, they kinda-sorta encouraged ML’s counsel to disclose the losses saying:

given the losses through what it looks like will be November when it closes, given the fact that you have another couple of billion of dollars coming down the road in goodwill impairment, we believe it’s prudent that you might want to consider filing an 8K to let the shareholders, who are voting on this transaction, know about the size of the losses to date

Okay, so “prudent that you might want to consider” sounds like a “you can disclose the losses if you want to but we’re not making a BFD out of this” but Andy’s complaint sure presents it as a legit warning. We’re not saying that Thomas Graham, the Deloitte partner on Merrill, needed to be hyperventilating while telling ML’s Chief Accounting Officer David Moser that they “might want to consider” the disclosure but Moser was worried enough to tell in-house counsel about it.

Maybe Moser didn’t bring it up because he knew that lawyers don’t take anything auditors say too seriously. If everyone who claims to be worried, was legitimately concerned, perhaps they should’ve considered some double exclamation point usage. Oh well; next time!

~~We haven’t seen a statement from Deloitte anywhere and they haven’t gotten back to us at this time.~~ Deloitte provided us with the following statement:

Deloitte personnel have testified as part of the New York attorney general’s investigation. Some of that testimony is cited publicly in the attorney general’s complaint. Deloitte is not a party to this proceeding, and due to professional standards, we cannot comment further on confidential client matters.

At the end of the day, BofA’s own general counsel tried to tell KL what’s what and he ultimately got fired so Deloitte ends up being a small fish in this whole situation (i.e. “not a party to proceeding”). Cuomo wants to be governor for crying out loud. Voters don’t give a shit if you file civil complaints against auditors.

NYAG_Complaint

CPAs Friending Potential Clients? Only Time Will Tell

Daniel Braddock
February 5, 2010

Earlier this week I caught a link from @CPA_Trendlines about the “next generation” accounting firm. The article spotlighted Blumer & Associates, a second-generation firm in South Carolina trying to find its niche in tomorrow’s market. With an eyebrow raised, I continued reading:

Blumer’s “new management” theories, for example, mean a ruthlessly honest kind of client focus, including three essential hallmarks:

• a sharply defined niche focus,
• a “clean” client list and
• innovation “to create new services as awareness of client needs grows.”

Sure, this theory is great if your firm consists of fewer people than most Big 4 engagement teams, but I nonetheless nod in recognition and approval to the idea of change. It would be hard, however, to apply these thought practices to today’s large firms.

Just for kicks:

Niche focus – You mean spreading thin across every crevice of market opportunity, right?

Clean client list – Oops. Oops again.

Innovation – Slow moving giants are just that. Slow.

Lost in the article’s comments was commentary from management consultant Rita Keller commending Blumer’s challenge to the “one size fits all” approach: “[T]he next generation of leaders will create organizations that are more nimble and open to continual change and new ideas. They will not get new clients at a Chamber networking event, they’ll get them from Facebook and from blogging. They will keep in touch with referral sources on-line, not at lunch.”

Don’t scoff; this might very well be true. The long-term advantages of networking sites like Facebook and LinkedIn are nothing more than “what-if” conversation bits better suited for the Twitterverse and blogs like this place. But think about it – Millennial’s are connected to hundreds if not thousands of people on Facebook.

These networks started in high school or college and will only grow organically as their careers expand and evolve. Friends and colleagues will move on from public accounting, and their new careers will be accessible via newsfeeds and status updates. Facebooking stalking will have a new (and potentially profitable) purpose.

Will shaking hands on the back nine be replaced by wall posts? Probably not, but the Rolodex is becoming irrelevant right in front of our eyes. Why pick up the phone when a brief Facebook message or direct message Tweet will suffice? Boomers can object all they want, but person-to-person interaction is well on its way out of fashion.

Just don’t go poking that potential client; at least not right away.

CFOs

Study: Founder CEOs Blame CFOs More Often for Accounting Irregularities

GoingConcern
February 5, 2010

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

Not that CFOs shouldn’t be blamed for irregularities but at least you’ll know what to expect.

Remember how

Big 4

Plaintiffs File Brief in Big 4 Overtime Lawsuit

Caleb Newquist
February 5, 2010

Last summer we initiated our coverage on the wage and hour lawsuits against the Big 4 and other firms that have been filed in California. As you may remember, the case that is currently before the 9th Circuit Court of Appeals, Campbell v. PricewaterhouseCoopers, is the key case as it may decide how the rest of the cases proceed.

Just a quick refresheramicus (i.e. friend of court) briefs following in early November.

The plaintiffs’ amicus briefs are scheduled to be filed tomorrow and while Mr. Kershaw would not share any names with us, he did inform us that there were some notable supporters that will be filing briefs. Parties claiming support via web (though it is not clear whether they are expected to file as amicus) include among others, labor union UNITE HERE.

The briefs are under seal at the request of the defendants who are claiming proprietary privilege.

In the past, the 9th Circuit has been accused of having a liberal bias which could be perceived as an advantage to the plaintiffs. While Mr. Kershaw agreed that the 9th Circuit was more “worker friendly” in the past, he told us, “After eight years under the Bush administration, the court has considerably more conservative justices.”

According to the 9th Circuit’s website, former President George W. Bush appointed seven justices while in office. Of the 47 justices currently serving, 21 were appointed by Republican Presidents and 26 by Democratic Presidents.

Despite the political makeup, Mr. Kershaw believes, as he did when we last spoke with him on the matter, that the evolution of the law of the exemptions (i.e. who, among other things, is and is not eligible for overtime) will demonstrate that the plaintiffs were not “learned professionals,” and will prevail in case.

Lead counsel for PricewaterhouseCoopers, Norman Hile of Orrick, Herrington & Sutcliffe LLP did not respond to our request for an interview.

We reached out to all the firms; receiving responses from only BDO, who provide the following statement: “We believe that the employee in this case was properly classified as exempt. This case has been stayed pending resolution of the PwC appeal. As is our policy on matters of litigation, BDO does not intend to comment further until this case is resolved.” We were also informed that in the BDO case that the class certification was denied by the trial court and the appeal was also denied.

In the case of Hood & Strong, LLP, we were referred to their attorney, Jonathan R. Bass of Coblentz, Patch, Duffy & Bass, who we spoke with briefly about his case, Kathleen McFarland v. Hood & Strong LLP.

Mr. Bass indicated to us that the lawsuit against his client is only one of four that is being tried in state court and would not necessarily be affected by the ruling in Campbell. He further indicated that these lawsuits are something that his client, and most likely all the defendants, did not anticipate, “it is not likely that any of these firms considered the possibility of their employees being treated as anything other than exempt.”

No other firms listed as defendants responded to our request to comment.

Ultimately a decision in Campbell may not be known until 2011 at which point the litigation could actually proceed or be settled. We’ll continue to follow these cases as they progress.

Firm Watch

Video

Grant Thornton Gets Emotional in Its Ad Campaign

GoingConcern

February 4, 2010

This morning we took a look the deadly advertising at BDO and while they came up with a good tagline, they were unable to capitalize on the opportunity to personalize their service with actual clients.

In contrast to the utilitarian feeling of the BDO advertising, Grant Thornton is all about emotions. The most important statement that a professional service agency can make is that it is passionate for the client’s business, and Grant Thornton’s attitude is authentic. The firm is well defined by the tag line, “People who love what they do” and by the whimsical rose mnemonic.

The three spots in the campaign are not balanced. This one about customer service misses the mark. It is long and tedious and continues to run needlessly after the point is made.

This commercial extolling the global capabilities of Grant Thornton is better. It is well written and although it is not particularly visually arresting, it makes the point about the firm capabilities crisply.

The commercial about responsiveness is the best. It stands out because it uses humor and the analogy of the unreliable, hapless goalie is relevant and easily understood. All in all, Grant Thornton tackled the challenge of advertising a professional service firm well.

With Valentine’s Day around the corner will GT take the next logical step and extend their passion campaign in to special topical ad?

Avi Dan is President & CEO of Avidan Strategies, a New York based consultancy specialized in advising professional service companies on marketing and business development. Mr. Dan was previously a board member with two leading advertising agencies and managed another.

Career Center

Job of the Day: Investment Management Firm Needs a Senior Financial Reporting Accountant

GoingConcern

February 4, 2010

A SEC registered investment management firm that manages approximately $9.6 billion in total assets with a staff of 65 employees needs a Senior Financial Reporting Accountant with SEC and internal reporting experience in Rosemont, IL.

Qualified candidates include a CPA or CPA candidates with three years experience, preferably in public accounting.

Get more details for this position after the jump.

Title: Senior Financial Reporting Accountant (SEC & Internal Reporting)

Location: Rosemont, IL

Minimum Experience: 3 years

Responsibilities: Coordination of quarterly SEC financial report preparation (10-K, 10-Q), including the drafting of initial updates to financial statements, footnotes and management discussion and analysis; Processing management, legal and auditors changes and maintaining blackline versions and distributions to reviewers as well as the coordination of the EDGARization process with outside vendor; Assisting with preparation of monthly internal financial reporting package, including the preparation of comparative analysis as well as the preparation and tie-out of information used to prepare supporting schedules.

Qualifications: CPA or CPA Candidate with at least 3 years of experience with SEC reporting; Public accounting experience preferred; Knowledge of financial statements and generally accepted accounting principles to prepare, reconcile, and analyze financial statements (e.g., earnings statements, balance sheets, statements of cash flows, supporting footnotes, etc.); Knowledge of applicable regulatory rules (e.g., Security and Exchange Commission, Financial Accounting Standards Board, etc.) for external reporting.

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

Firm Watch

Video

BDO’s Big Ad Campaign: It’s Deadly

GoingConcern

February 4, 2010

Advertising a professional service company is a challenge for ad agencies. First, the subject is not all that interesting, except maybe to the people who work there, their families, and their clients. And second, the differences from one company to another are minute. What you can say about one CPA or law firm is pretty much the same as another. You can’t advertise a firm as doing something better, the way Tide claims to clean better or Crest to whiten teeth better.

What can marketers do when they can’t make a claim that they are better? Why, write a jingle, like Coke or Pepsi of course. However, professional service companies have to maintain some gravitas. Schmaltz and accountants would be like wearing shorts and flip-flops to a client meeting.

We’re presenting some analysis of two current accounting firm ad campaigns, starting with BDO and tackling Grant Thornton this afternoon.

Analysis and videos, after the jump

The solution is to differentiate yourself not by what you say but through the tone of your advertising. And the tone of the BDO’s advertising is deadly, almost literally. It is dark, and cold, and depressing. And it doesn’t work because it takes itself too seriously. The conversations are artificial, and the situations forced.

In the following commercial, as two executives exit an unidentified intuitional-looking edifice, one person says to the other “Reilly hit the roof” about the need to restate. We never find out who “Reilly” is, but are reassured that “the partners are on it”, suggesting that BDO will not send in the juniors to fix the problem.

This second commercial deals with the switch from GAAP to IFRS. Why is BDO best suited to handling it? According to the commercial because of its global resources and because “it’s complicated.” Oh? Weak, pretty generic, arguments.

The best asset BDO has is it tagline, “People who know, know BDO”. That could have been the idea for a very nice commercial, maybe using real customers, but BDO did not capitalize on it.

Avi Dan is President & CEO of Avidan Strategies, a New York based consultancy specialized in advising professional service companies on marketing and business development. Mr. Dan was previously a board member with two leading advertising agencies and managed another.

IRS

The IRS Goes Gun Shopping

Caleb Newquist

February 4, 2010

‘Cause they’re in the market. For those of you that still doubt how serious of a force the Internal Revenue Service is, you’d better start paying attention because the the Service is in the market for guns. You would think, that with a certain hawkish administration recently in charge, every government agency would have ~~arms dealers~~ Smith & Wesson on speed dial but maybe change really did occur in DC.

Never mind that for now. The IRS is taking bids right now and they know what they want:

The Internal Revenue Service (IRS) intends to purchase sixty Remington Model 870 Police RAMAC #24587 12 gauge pump-action shotguns for the Criminal Investigation Division. The Remington parkerized shotguns, with fourteen inch barrel, modified choke, Wilson Combat Ghost Ring rear sight and XS4 Contour Bead front sight, Knoxx Reduced Recoil Adjustable Stock, and Speedfeed ribbed black forend, are designated as the only shotguns authorized for IRS duty based on compatibility with IRS existing shotgun inventory, certified armorer and combat training and protocol, maintenance, and parts.

The only conclusion we can come to is that somebody (Joe Francis?, Nic Cage?) is about to get their doors kicked down with extreme fucking prejudice. OR the initial visits of the thousands the IRS is making haven’t gone so well and arming their agents to the teeth should help them get their point across. OR maybe Doug Shulman just loves the cold steel of a 12 gauge against his naked skin. Whatever is going on, it’s no joke.

ANR

Accounting News Roundup: Surprise! Global Accounting Standards Face Delays; Don’t Die in These States This Year; Canada Has a National Accounting Competition? | 02.04.10

Caleb Newquist

February 4, 2010

• Global accounting rules may face big delays [Reuters]
Here’s a shocker: the convergence of accounting rules may not get done in a timely fashion. Considering that the SEC seems to be avoiding the issue and everyone seems to be waiting on them:

“The next six months are going to be defining,” said Deloitte Touche Tohmatsu CEO James Quigley, who describes his position as more hopeful than confident that a single set of standards will be agreed soon. “The key is what the SEC’s position is going to be,” he said.

Great to know. Plus, the timeline keeps getting longer. Forget 2011; Bob Moritz says we’ll be lucky if we get this wrapped up by the end of the decade, “[Moritz] said that the original date of 2014 for one set of rules could easily extend to 2020.” A show of hands for just throwing this on the scrap heap along with tax reform?

• Where Not To Die In 2010 [Forbes via TaxProf Blog]
So if you’ve been enjoying the impotence of Congress with regards to the federal estate tax, thinking that it won’t be long before that rich uncle of yours will kick the bucket and you’ll dodge the estate tax. Sure they could retroactively reinstate the tax but it’s worth the gamble isn’t it? Plus, we’re still talking about the likes of Charlie Rangel. It’s possible that he could have forgotten that there’s problem. If a Rangel can forget about his financial situation he can surely do the same for the good of his country, can’t he?

Despite Rangs and Co., there are nineteen states out there that can still get a little piece of your rich relative’s action, whether it’s an inheritance tax or an estate tax:

Maybe this isn’t reason enough to the pull up the stakes but now you can’t say you weren’t warned.

• National accounting competition begins in Winnipeg [Winnipeg Free Press]
We weren’t aware such a thing existed in the world, let alone our own continent. Plus, what does “an accounting-focused case competition” consist of? We’ve obviously not been paying attention because this is the 9th go-round for the Gathering of Accounting Associates Professionals and Students Conference (GAAPS).

Since Winnipeg doesn’t have a hockey team anymore, it’s understandable that they would like to attract people to their city for something; but this?