Going Concern

Trying to Care About the UBS and IRS Debacle is Getting Difficult

Caleb Newquist
July 30, 2009

The whole IRS/UBS tango has gotten to the point where we’ll take any kind of resolution.
Like if the IRS decided that it was too much trouble and said, “We don’t need no stinking names”, we’d be thrilled. Or if UBS decided to hand over a truckload of Toblerones in order to bury the hatchet we’d think, “that was our idea” .
But no, the standoff continues, as the parties confirmed Friday’s meeting today to discuss the progress they’ve made in reaching a settlement. Regardless if a settlement is announced on Friday or the stalemate continues and the case starts on Monday the sooner this thing is over, the better.
UBS, IRS to Meet on Friday [WSJ]

Big 4

Does The Times (UK Edition) Have a Hot Crush on PwC?

Caleb Newquist
July 29, 2009

The Times Online put out its “Top 100 Graduate Employers” list today and P. Dubya tops this list for the fifth year in a row. We congratulate P. Dubs on this momentous achievement but can’t help but wonder about such a dominating performance by a Big 4 firm.
More details, after the jump

The first thing we notice on the list is that the TOP THREE (PwC, Deloitte, KPMG) are Big 4 firms. These four came in the exact same order on last year’s list. The red-headed step child of the Big 4 is apparently E&Y who comes in at #11.
Accenture came in at #4 and Goldman Sachs sneaks in at #10 but JP Morgan, Morgan Stanley, IBM, and Google all fall outside the top 20. Other notables include McKinsey & Company at #48 and Grant Thornton at #97 (that’s eight spots behind the Transport of London, btw).
So what we’re wondering is how the Big 4 can dominate this list while in States they seem to be all over the map (highest on Fortune’s list was E&Y at #51) . Are the firms in the UK allowing employees to crush three or four pints at lunch and thus making work infinitely more tolerable?
UK readers, let us know why you’ve seemingly got it so good across the pond. As for my fellow Americans, what do you think is going on over there that we’re all missing out on? We’ve never seen The Queen in her damned undies, so maybe that’s it? Anyone done any rotations and have first hand knowledge of the awesomeness that is the Big 4 life in the UK? We’re thinking there’s got to be some reasons…
The Times Top 100 Graduate Employers [List]
Top 100 graduate employers: No 1 – PricewaterhouseCoopers [Times Online]

Big 4

UAL Dumps Deloitte for Ernst & Young

Caleb Newquist
July 29, 2009

Deloitte has gotten dumped by UAL, the parent company of United Airlines, for E&Y. The change will be effective after D-Period finishes the 2009 fiscal year-end audit engagement. This continues the trend of heartbreak for Deloitte, who was kicked to the curb by Heelys over fees.
UAL claims that it doesn’t have any disagreements with Deloitte which we don’t really believe. They have to disagree on something. White Sox vs. Cubs fans at the very least.
More after the jump

Also, changing your auditor isn’t like changing your underwear (well, it might be hard for some). We’ve got the feeling some top brass at UAL were sick of shacking up with Deloitte. However, the article also states that UAL cited the mandatory rotation of the lead partner, “firms often choose to seek bids for audit work in anticipation of that rotation.” Okay, going out to bid to tease the other firms is one thing but actually opting for a change is quite another.
We’re guessing there’s more to this story, so if you’ve got some inside dirt on this latest break up, let us know at tips@goingconcern.com.
UAL hires E&Y to replace Deloitte as accountant [Reuters]

Brazilian Soccer Star Romario Proves that Hating Taxes is a World-Wide Institution

Caleb Newquist
July 29, 2009

In another demonstration that the rich and famous either hate taxes or simply play dumb to their existence, Brazilian soccer star Romario has been convicted of tax evasion and faces three and a half years in prison. He’s appealing the conviction so it’s likely that he will end up coaching soccer to troubled youth for five years.
The allegations were that he skipped on paying $500,000 in taxes in 1996 and 1997. Romario’s attorney claims he is innocent because “it’s not his fault” which is a similar excuse that might be used by a third grader who tripped someone at recess.
According to USA Today, Romario also has trouble paying child support having been arrested for it twice, once in 2004 and just a few weeks ago. He was released in both instances after paying what he owed or proving that he had already paid.
Can somebody get this guy an accountant? He’s having a hell of a time with non-soccer responsibilities.

Scoping

Scoping | 07.29.09

Caleb Newquist
July 29, 2009

• Bernie Madoff gloats from prison: I can’t believe I got away with Ponzi scheme for so long – That explains the smirking. [NYDN]
• Microsoft and Yahoo Reach Deal on Search Partnership – Thank God. We thought we’d never see the end of this awkward flirting [New York Times]
• EU examines Latvia bank bail-out – They’re likely to discover some questionable collateral at the very least. [BBC]
• Bank of America May Trim Branches as Customers Use Web, Phones – Personal banking on the web. What a concept. Real reactionary, Charlotte. [Bloomberg]
• KKR Plans a Dollar General IPO – Cheap stuff + Bad Economy = Big Money [WSJ]

Review Comments

Review Comments | 07.28.09

Caleb Newquist
July 29, 2009

• Phibro mum after White House slams reported $100 million payday – “Phibro LLC, the energy trading arm of beleaguered bank Citigroup, was mum Tuesday after the White House criticized a reported $100 million pay plan for its top trader Andrew Hall as ‘out of whack.'” [Reuters]
• Sprint-Nextel to acquire Virgin Mobile USA – “Sprint Nextel, the third-largest US mobile network operator, unveiled a $420m deal on Tuesday to acquire Virgin Mobile USA, the wireless phone company in which Sir Richard Branson’s Virgin Group is the largest shareholder.” [FT.com]
• House Panel Approves New Rules on Executive Pay – “Marking an important victory for the White House, a congressional committee approved on Tuesday legislation closely resembling the Obama administration’s proposal that attempts to impose new restraints on executive pay.” [New York Times]
• Baldness Not a Requirement for Working at Goldman Sachs [Daily Intel]
• Backdating Returns to the Spotlight – “The IRS released new tax guidance this month related to so-called backdated stock options. But discounted options are still not considered ‘qualified performance based compensation.'” [CFO.com]

SEC Doesn’t Care Who it Has to Hurt to Get Respect Again

Caleb Newquist
July 29, 2009

After everything the SEC has been through, you might expect some government bureaucracies to wither and die at the hands of some irate congressional committee (ahem, Financial Services).
Not the Commission. No, the SEC has HAD IT with everybody’s Monday morning quarterbacking and is going to start kicking ass and taking names.
And they’re going to start by aggressively interpreting the clawback provisions in Sarbanes Oxley. Sounds incredibly snoozerific, we realize, but in the past the Commission has only gone after the bonuses of the actual scofflaws.
The new SEC has decided that it’s going to try and clawback the bonuses and performance-based pay back from those who knew squat about the fraud and just cashed checks.

Last week, the regulator asked a court to order the return of $4m (€2.82m, £2.43m) paid to Maynard Jenkins, former chief executive of CSK Auto, whose profits were allegedly inflated by accounting fraud committed by others: Mr Jenkins was not involved.

We especially feel bad for the guy being made to be an example at the hands of the SEC. The House of Schape/Cox has been the joke of the establishment for months so the Commission figures that if it has to make a few people miserable while they crawl their way back to semi-respectability, it’s a small price to pay.
‘Clawback’ marks tougher SEC stance [FT.com]

Uncategorized

Mark-to-Market Gets Vindicated, For Now

Caleb Newquist
July 29, 2009

TOLD YOU.jpg Sweet justice has finally arrived for supporters of mark-to-market accounting. According to the Financial Crisis Advisory Group, MTM may have actually understated some of the losses suffered by banks and “did not contribute to the pro-cyclical nature of the economic system.”
The Group also stated that public flogging of accounting rule wonks for the purposes of shameless political grandstanding doesn’t really help matters, “We have become increasingly concerned about the excessive pressure placed on the two boards to make rapid, piecemeal, uncoordinated and prescribed changes to standards, outside of their normal due process procedures”.
Our money is on the pols BTFO for as long as banks want them to and as inconvenient changes are proposed, which will likely be soon, the public beatings will continue.
Politicians Accused of Meddling in Bank Rules [Floyd Norris]
Accounting is semi-officially exonerated from causing crisis [FT Alphaville]

Audit

Add Another Hoop to the Audit Process

Caleb Newquist
July 28, 2009

In a move that probably just adds one more annoying hoop to jump through for auditors, audit engagements will now go through quality review with adoption of AS No. 7, Engagement Quality Review (EQR).
According to the press release, “The EQR standard provides a framework for the engagement quality reviewer to objectively evaluate the significant judgments made and related conclusions reached by the engagement team in forming an overall conclusion about the engagement.”
We’re hoping the engagement quality reviewers will be given free range to document their “overall conclusions” as they wish. Some that we would suggest: “You call yourselves auditors?“, “I’m recommending that the PCAOB inspect this engagement” or “What in God’s holy name are you blathering about?“. It would be a shame for the firms to institute a check-the-box method that would compromise artistic integrity.
In other PCAOB news, the Board is asking for comments on its Concept Release “to consider the effects of a potential requirement for the engagement partner to sign the audit report.” We speculated last week that signatures in blood or dog excrement might be appropriate in many cases but if you’ve got other ideas, you’ve got 45 days to give them better suggestions.
Press Release [PCAOBUS.org]

Fraud
SEC

The SEC Knew Who Allen Stanford was Before 2009, Thankyouverymuch

Caleb Newquist
July 28, 2009

The SEC would like everyone to know that it was “actively investigating” Stan the Man “well before the multibillion-dollar fraud by Bernard Madoff was revealed” but was “hampered by a lack of cooperation” from the Gun Show.
The investigation started back in 2005 but the SEC decided it wasn’t really time to get serious with Stan until after the whole Madoff SNAFU broke. So it sounds like from 2005 to late 2008, the “actively investigating” consisted of the following:
SEC: Hi. Are you running a Ponzi scheme?
Stan: I’ll die and go to hell if it’s a Ponzi Scheme
SEC: Good enough for us. Thanks for your help.
Give the SEC a break people. They were really trying on this one.
Stanford Hampered SEC Probe [WSJ]

Henry Louis Gates Can’t Catch a Break

Caleb Newquist
July 28, 2009

This is probably not how Henry Louis Gates wants to move on from his arrest that occurred last week.
A foundation created and run by Gates is amending its 2007 tax return after an investigation showed that some funds that were initially characterized as “research grants” were, in fact, compensation. This little whoopsie increased the administrative costs of the foundation to 40% of the spending, up from 1%, which some might say, is a lot.
All it probably adds up to is another headache for a man who is probably most annoyed that his last name is one letter away from being exactly the same as the suffix applied to every scandal that has ever occurred in this country since the early 1970s.
Foundation Run by Harvard’s Gates Is Revising Tax Return After Questions Raised [ProPublica via Inside Higher Ed and TaxProf Blog]

Congress Sketched Out by Ticketmaster’s Luring of Live Nation to the Dark Side

Caleb Newquist
July 28, 2009

Congress isn’t so sure that Ticketmaster inviting Live Nation into its tentacles is a good idea. Lawmakers think that the deal would remove our only hope to defeat the Dark Side of the live entertainment industry.
Senator Herb Kohl, D-WI, who chairs the antitrust subcommittee, has said that the merged company “would enjoy a virtual stranglehold over the live entertainment industry.” Translation: Help us DOJ. You’re our only hope.
We get Congress’s desire to ask the DOJ to scrutinize the deal but if they really wanted to do something to help concert-goers, they need to have Ticketmaster explain how the “Convenience Charge” is actually convenient and why it is usually somewhere between 15 and 25% of the actual cost of the ticket. Oh, and why processing fees, handling fees, and venue fees are all ness. K, thanks. And may the force be with you.
Ticketmaster and Live Nation Merger Raises Concerns [DealBook]

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