Going Concern

EY
KPMG

The Day After: KPMG and E&Y Holiday Party Report

Caleb Newquist
December 19, 2009

We were reminded that not only was E&Y FSO raging at a tourist trap last night, KPMG’s Financial Services practice was also tying one on at Jim Brady’s in the FiDi. This particular fiesta is the first major get-down we’ve heard of KPMG hosting so it’s good to know that there’s a little bit holiday cheer at every firm.
The Jim Brady’s party has been a popular event in the past and it’s a partner-free party so it’s a perfect opportunity for Klynveldians to blow off some steam, pants optional.
One source told us that it was well attended again this year despite being beer and wine only. We’re confident that was supplemented by flasks and other treats as another told us that the party was a “blast”. Safe to say that there was plenty of ass-grabbing as well as being an all-around bitch-about-KPMG fest.
Considering we haven’t heard a peep about E&Y’s get-down at TOTG, we can only assume that it was also epic.
Hopefully your cocktail flues have subsided to the point that you can tell us about the great night. If you remember anything, share the highlights or get in touch.

>75: I’ve Passed, So What About CPE Requirements?

Adrienne Gonzalez
December 19, 2009

Editor’s note: This is the latest edition of >75, our weekly post on questions that you have related to the CPA Exam. Send your questions to tips@goingconcern.com and we’ll do our best to answer as many of them as possible. You can see all of the JDA’s posts for GC here and all our posts related to the CPA Exam here.
Reader Kyle (Louisiana CPA applicant) asks:

Passed the exam in October, start working part-time (finishing useless grad school till August) in January. Do I have to start doing CPE stuff even though I won’t be a “CPA” for at least a year? Can I start doing CPE stuff now and have it count? Does taking the CFA count as CPE stuff?

As a general rule (since each state/territory makes its own CPA exam rules), CFA, CA, MBA, STFU, whatever letters you have after your name before tackling the CPA mean shit to most state boards of accountancy. However, maybe your CFA required classes that will also meet your state’s CPA exam requirements, figure it out independently of whatever other certification you have and give up the idea that you get credit for any of that.
You can see more about the Louisiana requirements here (or find your state here). I hate the word “expert” and I don’t like having to claim that I am one just because I work with this every day in CPA Review. So when in doubt, check directly with your state board or NASBA. Be patient and make a list of questions you have for them – I don’t feel sorry for you if you go into this blind and then cry to me that you had no idea you shouldn’t pay for all four parts on your NTS. All you had to do was ask and someone who knows would have told you. /endrant, I’m just suggesting to also contact the Board or NASBA.
That being said, Louisiana doesn’t specifically define “CPE” but they don’t really have to. Generally you can speak with your state’s society of CPAs to get information on accepted CPE programs in your state. Again, there are resources available to you as a CPA candidate, it’s up to you to utilize them.
Our candidate also asked about experience requirements, which Louisiana defines as the following:

At least one year of experience must be confirmed that was within the four years preceding the date of this application; involved the use of accounting, attest, management advisory, financial advisory, tax, or consulting skills; and, was supervised and verified by a licensee.

It only takes 18 months (or less) to get through the exam, you can do the math, little future CPA.
Like I said, you are encouraged to send your CPA exam questions to us but do your own homework, I’m probably hungover while writing this.

Deloitte

An Opportunity Lost

Caleb Newquist
December 18, 2009

Gang, we’re a little upset about something today. Last week we told you about something that had the potential to turn awards for accountants on its green eyeshade wearing head.
Yes, we’re talking about the doomed Deloitte ballot sent out by Holly Leam-Taylor. Today would have been the day that she had sent out the results of her sluttiest future partner, hottest old man, et al. awards, if it had not been for her inexperience with sending out superficial emails about her colleagues.
If Holly had only consulted with someone, anyone with experience on such matters, they could have explained that Deloitte is not a place for such “fun” things and that using her work email was not the best way to solicit nominations.
Alas, our request for someone to pick up where Holly left off has been roundly ignored and here we are on a Friday with nothing to share about Deloitte’s hottest men in London.
So far we’ve been unable to track down Holly since her Deloitte email has been obliterated. Holly, if you’re out there, get in touch. We’ll get your side of the story out there. We know you’re fed up but this will be fun. We promise. Anyone else that can put us in touch with Holly, please help. We’re still getting over our disappointment.

KPMG

KPMG Global Revenue Drops 11.4%

Caleb Newquist
December 18, 2009

The wait is over Klynveldians. Your firm’s revenue results are out and — not to put fine a point on it — they’re disappointing.

The press release has the typical spin that we’ve come to expect from the Big 4 bigiwigs as Tim Flynn focuses on the, ‘high growth markets’ and the opportunities that arise out of ‘a markedly changed regulatory environment’ (code for: “Democrats are in power”).

These “opportunities” are noted but the numbers speak for themselves. As Big Four Blog notes, “A drop in revenue was expected, the surprise was the magnitude of the drop, which was higher than other Big4 firms.”

From the press release:

KPMG, the global network of professional service firms providing Audit, Tax and Advisory services, today announced member firm combined revenues totaling US$20.11 billion for the fiscal year ending September 30, 2009, versus US$22.69 billion for the prior fiscal year, representing an 11.4 percent decline in U.S. dollars.

“While overall revenue results for the 2009 fiscal year reflected the global economic downturn, we were pleased that our continued investments in high growth markets resulted in continued growth in those country member firms,” said Timothy P. Flynn, Chairman of KPMG International.

The drop in revenues breaks down like this:

• Audit – $9.95 billion in FY09 versus $10.69 billion in FY08, a 6.9% decline in U.S. dollars.

• Advisory – Revenues of $6.07 billion in FY09, versus $7.27 billion in FY08, a 16.6% decline in U.S. dollars.

• Tax – $4.09 billion in FY09 compared with $4.73 billion in FY08, a 13.4% decline in U.S. dollars.

The numbers certainly speak to the tough year that KPMG professionals have witnessed through many rounds of layoffs and several shake-ups that appear to be part of major restructuring in the U.S.
So now that the 2009 earnings season has come to a close, all the firms can focus on making 2010 less crappy. That should be breeze. We shall see. If you’ve got thoughts on the Radio Station’s year, or want to talk about how psyched you are for 2010, discuss in the comments.

KPMG reports 2009 revenues of US$20.1 billion [Press Release]

See also: KPMG 2009 Revenues of $20 B Drop 11%, Most Among Big Four Firms [The Big Four Blog]

Section 409A: Worst Tax Enactment of the Decade

Joe Kristan
December 18, 2009

Editor’s note: Welcome to GC’s first edition of “Taxes: Because We’re the Little People” by Joe Kristan. Joe Kristan is a tax shareholder for Roth & Company, a Des Moines, Iowa CPA firm, where he works with closely-held businesses and their owners. Prior to helping start Roth & Company, he worked for two of what are now the Final Four CPA firms. He writes the Tax Update Blog and is available for seminars, first communions, Bar Mitzvahs, etc.
Sure, those Northwest pilots who missed Minnesota were off the mark. So was Arthur when he signed off on the Enron audit. But as badly as they missed the target, they look like Annie Oakley compared to Congress in its response to Enron.
Congress takes aim at the national firms whose audits failed to spot the looting at places like Enron. The result? SarBox, the greatest gravy train for the Final Four firms since the invention of the senior accountant.

The Congressional response on the tax side took a different approach. Rather than reward the guilty, they chose to beat the innocent. Hence Section 409A.
The Enron scandal featured elaborate deferred compensation plans to provide executives a gilded liferaft when the ship sinks. Congress responds with a code section affecting schoolteachers. They showed Ken Lay what for by designing a tax on folks on money they may never see because of somebody else’s foot fault.
Sec. 409A clobbers its victims two ways:
• It taxes employees on their deferred comp balances when the plan is out of compliance, even if the employee doesn’t get the money, ever.
• It hits them again with a 20% excise tax.
Worse, the code section imposing these penalties is so complicated that it took 3 years to complete the regulations that run to 200 pages, and are so complicated and intrusive that accidental noncompliance must be rampant.
This all makes Sec. 409A my choice as the worst tax enactment of the decade. But tastes differ. Let us know your nominee for the worst tax provision enacted from 2000 through 2009 in the comments and if we get some good submissions, we’ll put it to a vote.

Ernst & Young Pays $8.5 Million to Settle Charges with SEC Over Bally Fraud

Caleb Newquist
December 18, 2009

Six current and former partners at Ernst & Young were charged, along with the firm, by the SEC late yesterday in relation to the audits the firm performed of Bally Total Fitness’ financial statements from 2001 to 2003.
Bally settled accounting fraud charges with the SEC in 2008 that were related to its financial statements from 1997 to 2003.
Because everyone and their dog was freaking out over Enron in screws to their clients to follow GAAP, E&Y had identified Bally as “one of E&Y’s riskiest 18 accounts and as the riskiest account in the Lake Michigan Area.”

Floyd Norris:

The firm forced Bally to stop recording revenue in an improper manner that allowed it to claim earnings earlier than was allowed by accounting rules.
But in doing that, the firm allowed Bally to not admit to having violated the rules in the past, an action that would have forced it to restate its accounts and admit that losses in previous years had been much larger.

Mr. Norris also reported that a source of his at the SEC has stated that “he knew of no previous enforcement cases in which a partner of a major firm was cited for his actions as head of a national office.”
The partner in this case is Randy G. Fletchall, the partner in charge of E&Y’s National Office. He along with Mark V. Sever, E&Y’s National Director of Area Professional Practice, and Kenneth W. Peterson, the Professional Practice Director for the Lake Michigan Area office are the current E&Y partners who settled the charges with the SEC.
The former partners include: Thomas D. Vogelsinger, the Area Managing Partner for E&Y’s Lake Michigan Area through October 2003, William J. Carpenter, the E&Y engagement partner for the 2003 audit, and John M. Kiss, the E&Y engagement partner for the 2001 and 2002 audits.
While the news of a current partner of such lofty heights is notable, an extra twist that isn’t being reported in the MSM comes from GC contributor, Francine McKenna, who tells us that Mr. Fletchall served as the former AICPA Chairman from 2007-2008 and Mr. Sever, a former chairman of the Accounting Standards Executive Committee:

What none of the stories that just hit tell you, though, is that at least two of the EY partners charged, Fletchall and Sever, held leadership positions with the AICPA in the past.
…
Did Mr. Fletchall get off with a slap on the wrist given his AICPA leadership position, AICPA PAC contributions and significant campaign contributions to Senator Christopher Dodd? Mr. Fletchall is used to telling the SEC what it should do. Quite used to it.

These are interesting questions that the SEC probably doesn’t want to address. The connection, in appearance, is shady and we can only speculate as to what happened during the negotiations of the settlement.
The Commission, remaining stoic, gave a standard issue boilerplate statement, saying:

“It is deeply disconcerting that partners, even at the highest levels of E&Y, failed to fulfill their basic obligations to the investing public by not conducting proper audits. This case is a sharp reminder to outside auditors that they must carry out their duties with due diligence. The $8.5 million settlement, one of the highest ever paid by an accounting firm, reflects the seriousness of their misconduct,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

So it appears E&Y is getting sent to their room here, despite the $8.5 million fine being “one of the highest ever paid by an accounting firm.”
The firm also agreed “to undertake measures to correct policies and practices relating to its violations, and agreed to cease and desist from violations of the securities laws.”
Were the AICPA connections enough to keep them out of really hot water? At the very least, it didn’t hurt anything. If you have any information regarding this story, get in touch with us, and we will update you with any developments.
SEC Charges Ernst & Young and Six Partners for Roles in Accounting Violations at Bally Total Fitness [SEC Press Release]
EY Settles SEC Charges Re: Bally’s Fraud-Lives To Audit Another Day [Re: The Auditors]
Ernst to Pay the S.E.C. $8.5 Million [Floyd Norris/NYT]

Preliminary Analytics

Preliminary Analytics | 12.18.09

Caleb Newquist
December 18, 2009

• Stalling on Sarbox – “The regulatory-reform bill passed by the House last week suggests that lawmakers will either exempt smaller companies from getting internal-controls audits or put off the decision for yet another year.” Hell, it’s only been seven years. What’s one more? [CFO]
• Agencies in a Brawl for Control Over Banks – “Connecticut Democrat Christopher Dodd, the Senate Banking Committee chairman, has proposed revoking almost all of [FDIC Chair Sheila] Bair’s powers to supervise banks, as part of a sweeping financial-regulation bill now under consideration in the Senate.” [WSJ]
• Blue Ribbon Panel On Private Company Accounting Standards Formed – Blue Ribbon Panels always mean that something is about to get serious. Right? [FEI Financial Reporting Blog]
• Should Gay Couples Pay the Same Taxes as Straights? – Even if a state allows gay couples to marry, they aren’t recognized on the federal level and that causes problems, “[M]any businesses now provide spousal benefits to gay couples, the value of the non-employee’s benefits is taxable for unmarried couples, but tax free for those who are married.” [Tax Vox]

Review Comments

Review Comments | 12.17.09

Caleb Newquist
December 18, 2009

• Rangel Introduces Mutual Fund Tax and Regulation Bill – Charlie Rangel. Working for you. [TaxProf Blog]
• SEC: Negative Equity Doesn’t Mean No Impairment – This implies that this rationale worked on someone at some point. [Compliance Week]
• Is Your NFP in Danger of Losing Tax-Exempt Status? – “The IRS requires that if an organization has not filed any version of the Form 990 for three consecutive years, it will automatically lose its tax-exempt status on the due date of the third year.” [CB&H Not-for-Profit Blog]
• Senate Panel Backs 2nd Bernanke Term – Much to the dismay of some. [WSJ]

Luckily for Nicolas Cage, Ghost Rider 2 Is In Development

Caleb Newquist
December 18, 2009

Today in getting-sued-by-your-ex-but-my-name-isn’t-Steven Cohen news, Nicolas Cage is now being sued by his ex-girlfriend, Christina Fulton for $13 mil.
She’s claiming that Ghost Rider and his accountant, Samuel Levin (no relation), were really not very fucking good with the money and now she owes $1 million to the IRS annnnnd she has $250,000 in credit card debt annnnnd she lost her house.
If that’s not enough, Cage and Levin already don’t think too much of each other as they’ve been suing/countersuing each other over whether Cage sucks more at spending money ($1.6 million comic book collection) or Levin at managing it (risky real estate investments).
Good luck lady. The ex-Mrs. C’s chances seem better.
Nicolas Cage’s Ex Sues Him and His Former Accountant [Web CPA]

Uncategorized

Accenture Is Giving Tiger the Arthur Andersen Treatment

Caleb Newquist
December 18, 2009

You’ve got to hand it to Accenture, if you’re not the ‘metaphor of high performance’ any more (i.e. a married man with two kids screwing everything that moves), they will make Enron audit workpapers out of you.
After the hammer came down on Sunday, the marketing crew — who spent the last six years making T. Dubs’ mug the mug of Accenture — has some work to do:

By Monday afternoon, Accenture staffers had swept through the company’s New York office and removed any visible Tiger posters. The next day, marketing and communications employees around the world were asked to turn in any remaining Tiger-emblazoned posters and other materials.

Considering the fact that Accenture is one of the remaining derivatives of Arthur Andersen, destroying all this stuff should be a piece of cake (shredder sure but we’re guessing they’ve got an incinerator chute). The best part for them is, they aren’t obstructing justice, they’re maintaining their sterling (?) reputation.
Maybe easier said than done since they spent “$50 million on advertising in the United States last year, and Mr. Woods appeared in 83 percent of the company’s ads.”
They really just need to get someone (anyone!) else in there ASAP to make us sorta forget (but not really) that T Dubs was shilling for them for six years.
Accenture, as if Tiger Woods Were Never There [NYT]

Deloitte

Deloitte Survey: The Next Generation of Employees Will Not Stand for the Inability to Update Their Status

Caleb Newquist
December 18, 2009

In Deloitte’s Survey Du Jour we learn that your future underlings are going to want — nay — DEMAND the ability to move up in Farmville while they’re at work (at least one person understands your obsession).
Okay, demand is a stretch but dammit the kids these days are an ethically conscious bunch so you can trust them to get their work done while checking all their hot friend of friends.

Nearly nine-in-10 (88 percent) teens surveyed use social networks every day, with 70 percent saying they participate in social networking an hour or more daily. More than half (58 percent) said they would consider their ability to access social networks at work when considering a job offer from a potential employer. This comes as many organizations have begun implementing policies that limit access to social networks during the workday due to concerns about unethical usages, such as time theft, spreading rumors about co-workers or managers and leaking proprietary information, among other reasons.
Most of the teens surveyed feel prepared to make ethical decisions at work (82 percent) and a significant majority of teens say they do not behave unethically while using social networks (83 percent).

There’s really no cause for concern when you’ve got newbies out there asking their friends to vote for their sluttiest co-worker using a work email address. We do realize that some people make better decisions than others.
Overall, we don’t see what the BFD is. Commercials on the tube portray “responsible” adults on Facebook so to allude that the next wave of corporate soldiers would be the only ones that wouldn’t take a job with limited access to social networks seems weak. There’s plenty of people working already that have that point of view. Plus, pretty soon everyone on FB, Twitter, et al. will have phones that can run those apps. Just let people do what they want and they’ll be much happier.
Now excuse us, we’ve got strawberries to harvest.
No Facebook at Work? No Thank You! Teens Expect Access to Social Networks On-The-Job [Junior Achievement/Deloitte Poll]

CPA Exam

More CPA Exam Scores Are Released for the October/November Window

Caleb Newquist
December 18, 2009

NASBA has announced via Twitter that more scores have been released for the final window of the year. Bad news is that it takes 24 – 48 hours for them to post. Our recommendation would be to jump over to NASBA and spend the next 24 hours refreshing the page until it posts. Or chew your fingernails until they bleed, whatever works for you.
If you end up with an early Christmaskuh gift, please share. If you got coal, also share before you go into the corner sobbing.

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