Going Concern

Preliminary Analytics

Preliminary Analytics | 11.03.09

Caleb Newquist
November 3, 2009

• Berkshire Buys Burlington in Buffett’s Biggest Deal – WB likes BNSF for $100 a share and he’ll thrown in some free DQ just because he can. [Bloomberg]
• Business Bankruptcy Filings Increased 7% in October – Over 130k total personal and commercial bankruptcies, up 20% from last year. [WSJ]
• What To Watch For On Tuesday – It’s election day. [NPR]
• Stanley, Black & Decker in Deal – “The transaction, which had been discussed three times before, according to the companies, represents a view that the housing market will bounce back from current lows, but also an acknowledgement that the do-it-yourself market and construction will not soon approach sky-high levels of a few years ago.” [WSJ]
• RBS, Lloyds Diverge on U.K. Aid as They Unveil Plans – “The U.K. government said Tuesday it will put £31.2 billion ($51.2 billion) in new taxpayer money into the two banks as part of a revamp of the banking system and the long-awaited asset-protection program.” [WSJ]

Review Comments

Review Comments | 11.02.09

Caleb Newquist
November 3, 2009

• Ernst & Young acquires tech-consulting firm – “Capital City Technologies will become part of the government and public-sector group of Ernst & Young’s Advisory Practice.” [Washington Technology]
• Kroeker: Keep Converging With or Without Roadmap – Basically what the Chief Accountant is saying is, “Don’t wait up for us. Whatever you decide is fine, unless we don’t like it and then we reserve the right to torpedo it back to the Stone Age.” [Web CPA]
• What Are We – Laborers, Factories, or Spare Parts? The Tax Treatment of Transfers of Human Body Materials – “Of particular significance in this debate is whether human bodies can only provide services, or if their materials can constitute property of the person from whose body they come: whether the human body is exclusively a laborer, or if it can also be a factory or a collection of spare parts.” [Lisa Milot, University of Georgia Law via TaxProf Blog]
• A Growing Divide – Regarding personal debt per person to GDP per person: “[S]imple graphs that tell a powerful story.” [Financial Armageddon]
• Allen Stanford Is A ‘Sir’ No More – And you think life is unfair? [DB]
• IRS Claims 2 Out of 3 Taxpayers Now E-File – But as, TG points out, less returns. Nice try, IRS. [Tax Girl]

L.A. Times: ‘Think of it as a forced, interest-free loan’

Caleb Newquist
November 3, 2009

Starting Sunday, [November 1,] cash-strapped California will dig deeper into the pocketbooks of wage earners — holding back 10% more than it already does in state income taxes just as the biggest shopping season of the year kicks into gear.
Technically, it’s not a tax increase, even though it may feel like one when your next paycheck arrives. As part of a bundle of budget patches adopted in the summer, the state is taking more money now in withholding, even though workers’ annual tax bills won’t change.
Think of it as a forced, interest-free loan: You’ll be repaid any extra withholding in April. Those who would receive a refund anyway will receive a larger one, and those who owe taxes will owe less.

Californians, take it from here.
California to withhold a bigger chunk of paychecks [LAT]
See also: California Borrows from Peter to Pay Peter Then Robs Paul at Gunpoint [JDA]

The Department of Justice Is Not Impressed by Your Knowledge of the Internal Revenue Code

Caleb Newquist
November 3, 2009

Or your perceived knowledge. One would assume that if you wrote a book titled Cracking the Code: The Fascinating Truth About Taxation In America, that you would be very familiar with this:

That’s the code. Four thousand some-odd pages of pure ecstasy.
Tax Update Blog tells us about Peter Hendrickson who is the author of Cracking the Code and his problems doing just that:
DOJ press release via TUB:

The 10-count indictment charged that for the calendar years 2000, 2002,2003, 2004, 2005 and 2006 Hendrickson filed IRS Form 1040 (income tax returns) and/or IRS Form 4852 (Substitute for Form W-2) stating under penalties of perjury that he had received no wages in those years. The indictment indicated that he had in fact received wages in those years in varying amounts. The evidence produced at trial established that Hendrickson had in fact received taxable wages and that his claims to the contrary were knowingly false. In reaching the verdicts, the jury rejected Hendrickson’s defense that he had a good faith belief that his statements regarding his lack of wages were true.

Followed by Joe Kristan’s thoughts:

The tax code is an awful mess, and Congress never passes up a chance to make it worse. That doesn’t mean there is a secret formula from the Illuminati that you can invoke to make it part for you like the Red Sea did for Moses.

Or that you can’t publish a book that probably cites said formula.
Time to Get a New Code-Cracker [Tax Update Blog]

Uncategorized

‘Your Generosity Is Appreciated’: Open Thread

Caleb Newquist
November 3, 2009

We got a suggestion from a reader to solicit some discussion regarding your firms’ encouragement to donate to their preferred non-profit organization this holiday season.
This happens every year and the “browbeating” (as our reader put it) usually starts early and you are kindly reminded of your opportunity “to make a difference” quite often via emails, voicemails, face-to-face ~~intimidation~~ meetings and more emails.
Since the celebration of Christmaskah, Festivus, and general merriment has already gotten the kibosh in favor of the firms’ commitments to charity, one would think that TPTB at your firm would be less insistent about your personal donation to a specific charity but…we don’t know.
So kindly discuss your firm’s plans to encourage your participation this holiday season and if you plan to participate or if the freezing is contagious.

Maybe Everyone’s Expectations of the IRS Are Too High

Caleb Newquist
November 3, 2009

The mother of all auditors, the Government Accountability Office, had heard some complaints that maybe the IRS wasn’t doing such a bang-up job on the whole Phase two.
After snooping around, the GAO issued a new report that explained that the IRS needs to work on explaining just what it is they do an why they do it.

Web CPA:

The IRS has no documented objectives for the notice phase and no performance measures to indicate how well the phase is performing in resolving debt cases or achieving other desired results…
…However, in almost all cases, for the five business rules the IRS identified as affecting the most taxpayers, the IRS did not have information on the date the rules were established, the rationale for the rule, or data supporting the rationale…
…IRS collection officials also lacked documentation describing the business rules and how they operate. Further, even though IRS officials estimated that the business rules had been established for years, IRS had documentation for an evaluation of only one of the five business rules.

Let’s recap:
• “…no documented objectives…”
• “…did not have information on the date the rules were established, the rationale for the rule, or data supporting the rationale…”
• “…lacked documentation describing the business rules and how they operate.”
• “…documentation for an evaluation of only one of the five business rules.”
Apparently this is one of those cases where the Service says, “Trust us, we have a plan. But don’t ask us to explain it, we wouldn’t want to bore you. Oh, and don’t ask us how well it’s working. We don’t get too hung up on statistics or success rate.”
We’re just talking about tax dollars after all.
IRS Has Trouble Tracking Debt Collection Notices [Web CPA]

Deloitte

Another Lawsuit Against Deloitte Is Back from the Dead

Caleb Newquist
November 2, 2009

Deloitte has another lawsuit on its hands that is seemingly back from the dead. After last week’s revival of the Washington Mutual shareholders’ lawsuit, a suit in New York has gained new life after Deloitte initially won a dismissal.
The plaintiff in the case, Symbol Technologies, is proving tenacious:

…the panel found that Symbol Technologies had sufficiently alleged that the “continuous representation” exception to the statute of limitations and the company’s amended complaint “trigger[ed]” the “adverse interest” exception to the in pari delicto doctrine.
“Symbol’s pleading is sufficient to establish that the parties mutually contemplated that Deloitte’s work and representation for each audit year would continue after the issuance of the audit opinion/report and, therefore, the continuous representation doctrine applies,” Justice Leonard B. Austin wrote for the 4-0 panel in Symbol Technologies v. Deloitte & Touche, 2008-06642.
He later added, “In its amended complaint, Symbol set forth sufficient allegations that members of its senior management committed accounting fraud for their own benefit and totally abandoned its interest, thereby triggering the adverse interest exception.”

Nothing too fancy. Just a good, old-fashioned case of senior management fraud not being detected by the auditors:

Symbol’s lawsuit against its former auditing firm stems from an accounting-fraud scandal at Symbol that culminated with the technology giant agreeing to pay the Securities and Exchange Commission $37 million and shareholders an additional $100 million.
The SEC had charged Symbol, a Long Island, N.Y.,-based supplier of mobile information systems, and 11 of its former executives with numerous fraudulent accounting practices that together overstated the company’s reported revenue for the fiscal years of 1998 through 2001 by more than $230 million and its pre-tax earnings by more than $530 million.
The fraud resulted in overpayments to Symbol’s senior management of more than $100 million.
At least eight former Symbol executives have pleaded guilty to various charges stemming from the fraud. The company’s former chief executive, Tomo Razmilovic, remains a fugitive, living in Bussevik, Sweden.
Symbol sued Deloitte & Touche, now known as Deloitte, in November 2005, alleging the “Big Four” auditor had failed to detect the fraud. The company’s complaint does not specify the amount of damages sought.

The amount of damages being sought by Symbol hasn’t been disclosed but you’d figure Deloitte could cough up $137 mil just to put the company back to square one. But no, Deloitte is as equally determined, saying ‘the action is without merit and intends vigorously to defend this matter’.
Sorry. With a sub-par year in revenues and breaking ground on the new Animal House, Big D can’t spare the change. We’ll see you in another ten years when this thing is finally settled.
Symbol Technologies’ Massive Malpractice Action Against Deloitte Is Reinstated [New York Law Journal vi Law.com]

KPMG

Caption Contest Reminder

Caleb Newquist
November 2, 2009

Don’t forget to submit your captions for last Friday’s contest. We’ll take submissions through midnight tonight and run the poll tomorrow morning.

The JDA

Accounting ‘Irregularities’ or Total Fraud?

Adrienne Gonzalez
November 2, 2009

On Friday I did a post for Jr Deputy Accountant on Accounting “Irregularities” on the Rise in the Recession after I saw a piece in Reuters about battered financial statements:

Corporate balance sheets may be showing signs of the wear and tear from the prolonged U.S. recession as accounting irregularities are starting to surface at growing numbers of U.S. companies.

Going Concern also covered this so it’s been decided by the blogosphere that this one deserves your attention.

Friend of both yours truly and Going Concern, Financial Armageddon’s Michael Panzner caught this tale and tied it in to one he’d done the day before on banking shenanigans.

In yesterday’s post, “Bad C’s,” I highlighted a few reports that lent further weight to the notion that the financial sector has not been a paragon of virtue, to put it mildly. Yet while many banks and brokers have engaged in some pretty bad behavior — which, among other things, helped bring about the worst financial crisis this century –they are apparently not the exceptions to the rule, as jr deputy accountant reveals in “Accounting ‘Irregularities’ on the Rise in the Recession”:
Reuters is reporting accounting fudging and fraud are on the rise in the US as a result of “pressures” for companies to perform despite the hostile economic environment.

The previous post he refers to sums it up nicely:

In an interesting twist of fate, the firms that have traditionally decided who should get credit have been put in the position of needing extraordinary amounts of other people’s money just to stay alive. Unfortunately, based on what we’ve seen so far, including reports like those that follow, it’s doubtful whether most, if not all, of today’s troubled financial institutions would even qualify for a loan based on traditional measures of suitability — like “character,” for example — if their friends in high places weren’t so intimately involved in the process.

Going Concern agrees in “Homebuyer Credit to Continue Helping People Get into Crazy Debt?“
Worse, large banks (or rather Regions Financial) are willing to lend to bankrupt municipalities and bank regulators will not step in and say “Hey, WTF are you doing?” (yes, I’m talking to you, Atlanta Fed). This is your bank and it’s quite obvious even to the common man what they are doing – you don’t loan money to someone who has no money and has not paid their sewer bill in 16 months. Red flag!
It’s ugly out there and it doesn’t appear to be getting any prettier any time soon.
Oh and Economic Populist has some additional ideas on the subject. You’re welcome.

Audit

Deadline Watch: 3rd Quarter 10-Qs

Caleb Newquist
November 2, 2009

Now that you’ve enjoyed the extra hour of tomfoolery thanks to the time machine known as daylight savings time, it’s back to reality.
For auditors working on SEC filers, this means seeing less daylight from now until…well, yeah. The good news is that there’s only one week until the filing deadline for accelerated filers’ 3rd Quarter 10-Qs. For those of you on the non-accelerated types, you’ve got an extra week which could be a lifesaver or just a way to prolong…the…agony.
The bitch of the thing is that for those of you that are/will be going down to the wire, the deadlines fall on Mondays which means your weekend will likely consist of a slumber party at the client’s digs.
So for those of you that live and die by the calendar year SEC deadlines, discuss your Q3 and if it’s business as usual or if your engaging in the standard quarterly rhetoric about how you’re finding a new job right after the Q is filed.

Preliminary Analytics

Preliminary Analytics | 11.02.09

Caleb Newquist
November 2, 2009

• Pandit ‘Near Death’ Cash Hoard Signals Lower U.S. Bank Profits – “The four largest U.S. banks by assets — Bank of America Corp., JPMorgan, Citigroup and Wells Fargo & Co. — have increased their combined liquidity by 67 percent to $1.53 trillion as of Sept. 30 from $914.2 billion in June 2008, before Lehman’s collapse, according to the companies’ third-quarter reports.” [Bloomberg]
• Sarbanes-Oxley 404(b): Auditors’ Reports on Internal Controls — A Shot in the Arm, or a Poke in the Behind? – “Veteran readers here know my deeply skeptical view that Sarbox was never more than a knee-jerk political feel-good exercise – going back to my July 20, 2002 column in the International Herald Tribune: ‘any legislation receiving the bipartisan margin of 97-0 is bound to be fundamentally defective.'” [Re: Balance]
• Zombies Among Us: The Mainstream Media and Financial Journalism – Are the MSM gobbling the Big 4 PR? [Re: The Auditors]
• CIT: A Different Kind of Bankruptcy? – If by different, you mean, “taxpayer money flushed down the toliet” then, no. [JDA]
• Delaware Beats Switzerland as Most Secretive Financial Center – The IRS’ busting up the whole secret Swiss bank thing probably didn’t hurt the First State’s run at double-secret probation banking Mecca. [Reuters via NYT]

Announcements

GC Weekend: Don’t Get Spooked by Crackdowns on Leaks

Caleb Newquist
October 31, 2009

Happy Halloween spreadsheet zombies! The scariest (not to mention tragic) thing we’ve heard today is that there plenty of you working today. Hopefully you’re in costume at least.
Tricks and treats aside, on this final day of October we thought we would impend some legal wisdom upon you from our sister site, Above the Law.
We realize that some of you may be hesitant to send us tips for fear of retributThat’s a legitimate worry but luckily, this issue was addressed specifically, just yesterday, by a post on ATL.

The post relates to a law firm, Wilmer Hale, that was warning its associates about leaking information about the firm:

Meanwhile, in other firm news, we got our hands on the WilmerHale warning memo that we mentioned earlier this month. Truth be told, it’s a little disappointing — not nearly as scary as we were led to believe…
…If you’re at a law firm thinking about swearing your employees to secrecy regarding their workplace conditions, proceed with caution. A reader advises us:
[I]t might be useful to note that, if the firm has put a blanket prohibition on associates discussing their working conditions, they’ve clearly violated federal law — namely, Section 8(a)(1) of the National Labor Relations Act, 29 USC 158(a)(1). See Cintas Corp. v. NLRB, 482 F.3d 463 (D.C. Cir. 2007) (“confidentiality” rule that could be viewed as banning discussion of working conditions violates §8(a)(1)); Stanford Hosp. & Clinics v. NLRB, 325 F.3d 334 (D.C. Cir. 2003) (same w/r/t rule that banned discussion of working conditions with non-employees); Brockton Hosp. v. NLRB, 294 F.3d 100 (D.C. Cir. 2002) (same w/r/t rule that banned discussions of working conditions with other employees).

If you go to the original post that is linked in the blockquote, you will see many comments from Wilmer Hale associates that are similar to some of the comments we see here:

Ifyou [sic] don’t know already, KPMG leadership has assigned an employee to monitor this website, so you might reconsider where you’re posting from.
I heard it from someone who heard it from someone that KPMG has people trolling this site to try to determine where the layoff leaks are coming from so they can can their asses too. OK so it’s double hearsay but I believe it, after all would we expect any less?

We’re positive that this Orwellian environment isn’t a concern just at KPMG. Right now people are simply scared of losing their jobs by sneezing in the wrong direction. But let’s not forget that it’s virtually impossible for your firm to monitor every communication that you send. As Lat and Elie attest:

If you think your firm even has the ability to monitor every communication that you send — including calls, texts and emails sent from your personal cellphone — then you’ve been reading too many John Grisham novels. As for your work computer, if your firm monitors everything you do on it — using a key capture program to every keystroke you type, then reviewing said keystrokes — your firm probably isn’t a very nice place to work (and needs more real work for its IT people, so they don’t have time for cyber-witch hunts).

What about compensation matters? Funny you should ask:

This is also true with respect to compensation matters — a subject of keen interest to ATL readers, especially around bonus time. From a second reader, a labor and employment lawyer (not at WilmerHale):
FYI: to the extent WilmerHale precludes the ability of associates to discuss compensation information, it may be a violation of Title VII and/or the Equal Pay Act (and possible state and local equivalents). The ability of an employee to discuss and learn about compensation issues, which allows a potential claimant to discover what others are earning and if their jobs and compensation are essentially similar so as to qualify for “equal pay” under the statute (or if illegal discrimination occurred), is an essential need…. It can also be viewed as illegal retaliation if a policy was implemented after the fact, e.g., after someone cooperated with an investigation.

So as you can see, the law is on your side. You have every right to discuss your professional lives and your employment without fear of retribution.
Thanks to everyone that has provided us with tips since we’ve gone live. We want to hear from more of you so don’t hesitate to send us any information that you think will be great to share with the rest of our readers.
We’ll run down all the ways that you can send us tips so you can contact us however you prefer:
• Our tips email: tips@goingconcern.com
• Direct message on Twitter: @going_concern
• You can direct message my personal account on Twitter here.
• Send me a message on Facebook here.
• Join the GC group on Facebook and drop a line there.
If you still have doubts, check out the posts — in their entirety — at ATL.
Have a Happy (and safe) Halloween!
Congratulations to WilmerHale on a Major Pro Bono Win
(Plus the WilmerHale warning, and thoughts on law firms trying to crack down on leaks.) [ATL]
WilmerHale Warns Associates Against Talking to ATL — But Has It Worked? [ATL]

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