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Auditors, The PCAOB Still Doesn’t Think Too Highly of the Job You’re Doing

Caleb Newquist
October 8, 2009

The PCAOB is considering ~~telling auditors how to do their jobs~~ issuing guidance on communication with audit committees and a new auditing standard on related parties, according to Compliance Week. Not to worry though, they’re going to ask the bigwigs on the Standing Advisory Group for their $0.02:

The PCAOB also plans to bounce some ideas off the advisory group for a new standard to govern how auditor should communicate with audit committees, in part to establish some new guidance regarding communication about management judgments and estimates. According to a briefing paper provided to SAG members, PCAOB is looking for ideas on how to get past boilerplate dialogue to achieve more effective, robust communications between auditors and audit committees.

Auditors? Boilerplate dialogue? Is the PCAOB questioning your ability to ask substantive questions? For shame. Obviously Peekatboobs will be able to develop much better, non-boilerplate questions than you and then you’ll be required to ask those questions of the audit committee. That’ll get the job done.
Likewise, auditors, you’ve simply dropped the ball on related parties since, “financial relationships with related parties have proved important in recent corporate scandals, and the board’s inspection and enforcement actions suggest some auditors aren’t skeptical enough when evaluating such relationships and transactions.”
The infinite wisdom of the PCAOB is clearly on display here. Auditors, it’s going to become necessary that your skepticism is going to reach a physical level or at least the threat of such. Your skepticism in words and on paper is simply not getting the job done.
You’ll have to get Chuck Liddell to beat some people down or simply laying heat out on the conference table during discussions to get your point across, otherwise, clients are going to just keep taking advantage of you.
This will be the plan until the next financial crisis of course when the PCAOB will assess that the questions and methods developed now turn out to be boilerplate and ineffective and it’ll be back to the drawing board again. Don’t get too comfortable.
PCAOB Considers Rules on Communication, Related Parties [Compliance Week]

Big 4

Ernst & Young Performance Ratings Are Super Top Secret…Most of the Time

Caleb Newquist
October 8, 2009

One of the most diabolical of human traits is wanting to know everybody else’s biz-nass. Shoe size, your number, how much money you make, etc.
Trusted friends and colleagues usually will share some of their professional details with you but several people remain prudish with their ratings, merit increases, salaries, etc.
Continued, after the jump

Then there’s your sworn enemies. These people wouldn’t tell you their date of birth if their high-flying, glamorous number crunching lives depended on it. Smug bastards think they’re so special, when YOU KNOW they suck it big time. Wouldn’t you LOVE to know how officially shitty they are at their jobs? We thought so. But dammit, being nosy is really hard work and that information is tough to get.
Well, according to one of our sources, some at E&Y didn’t have to try hard at all:

So about a month ago after the ratings for everyone’s annual review were finalized, someone in HR screwed [up] big time and sent an e-mail out to the entire Banking Capital Market mass e-mail and attached a spread sheet with EVERYONE’S rating. When I mean EVERYONE I mean from Staff 1 through Senior Manager.

We’ll go on record here to say that this was probably an honest mistake but the fallout from this had to be all sorts of awesome. Knowing how that stupid ass first year manager that totally screwed the pooch on your engagement was rated could either end up being the sweet vindication you’ve been waiting for or it could open up a basket of rage not seen since the Old Testament.
Hey, maybe we’ve misunderstood the whole thing. Maybe E&Y is considering some bizarre open door policy when it comes to ratings and this was merely a test. We’d love to see the list, btw, so if you’ve still got it, send it our way.
Feel free to discuss any additional details or your thoughts on your Firm’s ability to KEEP SECRETS in the comments.

Preliminary Analytics

Preliminary Analytics | 10.08.09

Caleb Newquist
October 8, 2009

• British Regulator Objects to Ticketmaster Merger – “Ticketmaster and Live Nation said that they would cooperate with the commission and that they remained committed to the merger. They argued that the deal would be in the public interest.” [NYT]
• IBM Faces Justice Antitrust Inquiry – “The Armonk, N.Y., giant has long held a near-monopoly position in mainframes, which are large computers that can cost $1 million or more and are designed to run accounting software and databases. For decades, the company operated under terms of a 1956 consent decree with the government that required it to license mainframe technology to competitors.” [WSJ]
• US deficit ‘hits record $1.4tn’ – Records are meant to broken. [BBC]
• Promise of free money leads to scuffle between thousands in Detroit – “Several people reportedly passed out from exhaustion and had to be treated by emergency medical personnel.” [NYDN]
• Accounting’s Patron Saint – Not Arthur Andersen. [Energized Accounting]
• A Windows to Help You Forget – Review of Windows Siete. Some of you can go geek out over this. [WSJ]

Review Comments

Review Comments | 10.07.09

Caleb Newquist
October 8, 2009

• Democrats Block G.O.P. Move on Rangel – Rangs is still in charge of Ways & Means, thanks to him and his a couple hundred of his friends telling the Republicans to suck it. [The Caucus/NYT]
• Wells Fargo Will Raise Credit-Card Rates Ahead of Law – ” Wells Fargo & Co. plans to raise interest rates on a majority of credit-card customers by 3 percentage points before new rules limiting such increases take effect, according to a company executive.” Get pissed people. [Bloomberg]
• Feds sue Colorado tax preparer, alleging $55M in bogus refund claims – No criminal charges yet but Curtis Morris and his company, Numbers and Beyond, are looking at an injunction getting slapped on their asses. [Denver Business Journal]
• Dell to Build Android Phone for AT&T – Because Ma Bell has done so well handling the iPhone bandwidth sucking problem. [WSJ]

Big 4

Jim Turley Traded F-Bombs with Rahm Emanuel Over Chicken Last Night

Caleb Newquist
October 8, 2009

We’d like to think so anyway. Maybe JT isn’t a potty-mouth but Rahmbo has been known to drop a curse here and there.
JT was in DC last night with several other big wigs, at the Williard Intercontinental solving all our problems: “The participants provided updates on their businesses, discussed when the economy may rebound and offered advice on how to spur job growth.”
Right, because, in case some of you haven’t heard, we’re on a collision course with double-dig unemployment. Thank the Maker they’ve been thinking about hiring people again, “Over salad, chicken and a fruit desert, some of the business leaders said they would start hiring immediately once the economy began rebounding while others said they would wait for revenue growth in their own companies, according to one of the participants.”
This was a two hour date so it couldn’t have been all business. We’re guessing Jimbo tried to loosen everyone up with some inappropriate jokes (feel free to guess what kind) while gnawing on a drumstick like Fred Flintstone but that’s just our vision.
Give us your best ideas on what JT and Rahm talked about privately, just between buds, in the comments.
Emanuel, Jarrett Meet With CEOs From Intel, Time Warner, Dow [Bloomberg]

The JDA

Apple’s Carbon Accounting Trick

Adrienne Gonzalez
October 8, 2009

What’s next, a FASB for carbon accounting? Should companies be required to report carbon emissions and if so, who is going to audit these statements? After all, data is only as good as the substantive tests that prove its accuracy.
Apple has never been at the top of environmentalists’ list as a green company but for the first time it is now publishing corporate carbon data on its website for all to see.
Continued, after the jump

Business Week:

Apple’s real goal is to change the terms of the debate. Company executives say that most existing green rankings are flawed in several respects. They count the promises companies make about green plans rather than actual achievements. And most focus on the environmental impact of a company’s operations, but exclude that of its products.
Apple argues that broader, more comprehensive figures for carbon emissions should be used–for everything from materials mined for its products to the electricity used to power them–and it’s offering up its own data to make the case. Executives say that consumers’ use of Apple products accounts for 53% of the company’s total 10.2 million tons of carbon emissions annually. That’s more than the 38% that occurs as the products are manufactured in Asia or the 3% that comes from Apple’s own operations. “A lot of companies publish how green their building is, but it doesn’t matter if you’re shipping millions of power-hungry products with toxic chemicals in them,” says CEO Steve Jobs in an interview. “It’s like asking a cigarette company how green their office is.”

Again, I’m skeptical of any self-reported data that doesn’t go through the usual channels like financial statements would. Imagine if a company like Apple was also allowed to slap together some cash flows without the little auditors crawling all over the numbers, “Hey investors! Check us out, we made $52 bazillion this quarter in iPhone sales alone!” Yeah, ok.
I’m not even sure what this carbon argument is all about so I’ll just let this one go. Good job, Apple. I think.

The SEC Still Wants a Piece of Mark Cuban

Caleb Newquist
October 8, 2009

That’s right! Schape and Co. are coming heavy this time bitch. They don’t know who you think you are, Mark Cuban, but you think you can just walk away from avoiding negligible losses to your net worth and get away with it? OH HELL NO.
The Commission is going to continue pursuing your alleged insider trading ass even though they haven’t been able to present a shred of evidence that you promised to sell those shares. No matter, they’ll pull something together.
Oh, and another thing Mr. Man-Child, the Commission won’t be paying your attorney fees. They realize you’re suing out of spite and regardless their hard-on for billionaires in their 50s that wear basketball jerseys, they won’t stand for it.
S.E.C. to Appeal Court Ruling on Mark Cuban [DealBook]

22.4 Million Unanswered Calls Isn’t Really That Many

Caleb Newquist
October 7, 2009

Customer satisfaction is a tough business. Especially when you’re dealing with impatient masses that need that tax refund NOW, so that they don’t miss an installment on a home equity line of credit.
Unfortunately, the IRS wasn’t able to answer 22.4 million calls for this past filing season. This was during normal business hours and were for various reasons including, “the taxpayers hung up, were courtesy disconnected by the IRS, or received a busy signal.” We’d be interested in the ‘courtesy disconnected’ calls as we’re guessing that it some of the calls may have included:

“Sir, I don’t know what the President will do regarding raising your taxes…No sir, I don’t know for an absolute fact that the President isn’t a socialist…No sir, that does not make me a socialist…Hello?”
To the Service’s credit, they did answer 35.8 million calls during normal business hours (still less than half, slackers) according to the report put out by the Treasury Inspector General for Tax Administration.
But the higher than expected number of calls obviously caught the Service off guard, since they must have made the terrible assumption that taxpayers would try reading the instructions prior to calling for help on the Presidential campaign contribution.
IRS Didn’t Answer 22.4 Million Taxpayer Phone Calls [TaxProf Blog]
Higher Than Planned Call Demand Reduced Toll-Free Telephone Access for the 2009 Filing Season [TIGTA Report]

Bean Counter Art: The Staff Inquiry

Caleb Newquist
October 7, 2009

Editor’s Note: The following cartoon was drawn by Jack Britton, a former Big 4 auditor. You can visit his blog, colorcartoon.blogspot.com for more of his work. You can also follow him on Twitter @rumblebozzle.

Occasionally, being a staff auditor involves having awkward conversations with controller/CFO types. You have to ask them about fraud, legal matters, SEC inquiries, etc. etc. Regardless of the tomfoolery going on at the client, these people will not be telling you about it.
If this empty interrogation goes on long enough, the interviewee’s boredom (and possible physical reaction from lying so much) may cause uncontrollable fidgeting, as illustrated above. Discuss your awkward inquiry experiences with your clients in the comments. Especially the ones where you jumped on the conference room table and screamed ‘LIAR!’

Big 4

Ernst & Young Paid $400 Million to Settle Akai

Caleb Newquist
October 7, 2009

That’s according to reports from Asia Sentinel. The liquidator of the now bankrupt Akai also, “extracted US$100 million from a local tycoon, Ho Wing-0n, who had allegedly conspired with the then chairman of Akai, James Ting, to strip the company of its assets. Ho himself was a former partner at Ernst & Young until 1990 and has been responsible for the Akai audit.”

Sounds like a nice little back-slapping/glad-handing/ass-grabbing arrangement and depending on how things progress, sounds like another one may be in place:

The size of the settlement against Ernst & Young reflects not only the size of losses sustained by Akai creditors but the years of organised sleaze attributable to Ernst and Young’s Hong Kong operation. If the civil settlements are not followed up by vigorous criminal prosecutions by the Hong Kong authorities, one can conclude that mutual back-scratching and old-boy principles override issues of corporate governance and the responsibilities of auditors.

As you may have noticed, we’re big fans of speculation so, for now, we’ll go along with whole HK Fuzz and auditors back-scratching scenario presented here if no criminal charges arise. E&Y has continually reiterated their willingness to cooperate in the investigation so you can make up your minds on what that all really means.

The liquidator, Borelli Walsh seems to be the catalyst of this case as the Sentinel speculates that if, “it been one of the other of the Big Four auditing firms it is likely that some clubby backroom deal would have been done which would have kept criminal activities well hidden and involved a settlement a fraction of that obtained by Borrelli Walsh.”

‘Clubby backroom deal’? You mean those are real? We’d be curious to know if E&Y in the States has even brought this up internally to address the press coverage. If those of you in the Ernstiverse are getting love letters from JT on this, kindly pass them along or discuss in the comments.

No Accounting for Accountants [Asia Sentinel]

Earlier: Raid at E&Y Hong Kong Was Probably Really Boring
Earlier: EY Doesn’t Want to Be Outdone By Anyone So They Went to Hong Kong for a Scandal

Career Center

Your Next Career: Ultimate Fighting Champion

Caleb Newquist
October 7, 2009

Yesterday we suggested some of you might be interested in slumming it for the McDonald’s of the tax prep world. We understand that some of you are way too special to even consider that, so we’ll suggest something completely different.

With all the rage in some of you out there, you’d think that some of you would wake up and get yourselves into psychoanalysis. If you’re Irish, obviously this won’t work, and some of you are interested in getting in touch with your feelings. Fine. Get your rage worked out in the Octagon rather than your gray cubicle. Chuck Liddell will gladly bash your face in while reciting the basic accounting equation to you. Perhaps he even has an opinion on global accounting convergence.

Turns out that Liddell, prior to deciding that knocking people out, appearing on Entourage and dating Playboy playmates was only slightly more fun, got an accounting degree from California Polytech. Look at this guy. If this guy was your audit manager, don’t you think the client would quit f*cking with you? It’s too bad Chuck, you could have been one of the great ones.
As for the rest of you, we realize that this might be a stretch since giving up soda and adhering to any sort of exercise regimen aren’t really realistic but we’re trying to present options people. This seems like a decent one.

Preliminary Analytics

Preliminary Analytics | 10.07.09

Caleb Newquist
October 7, 2009

• AT&T makes iPhone U-turn – “Bowing to pressure from regulators and consumers, AT&T on Tuesday said that it would allow inexpensive internet phone calls to be placed through its networks from Apple’s iPhones.” New Deloitte associates rejoice. [FT]
• Support Builds for Tax Credit to Help Hiring – Seems like a good idea. [NYT]
• Jr Deputy Accountant Needs Your Help. Srsly. – Kidney…Not really. [JDA]
• SEC Says Frank’s Derivatives Plan May Leave ‘Regulatory Gaps’ – “Business reaction to Frank’s proposal suggests it lacks restrictions sought by critics who blame derivatives for speeding the downfall of American International Group Inc. and for exacerbating the credit crisis over the last 18 months.” [Bloomberg]

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