Tag: Auditors

How Should a Big 4 Auditor Handle a Manager Blocking a Transfer to Transaction Services?

Welcome to the at-least-you’re-not-John-Edwards edition of Accounting Career Emergencies. In today’s edition, a first-year auditor has an opportunity to do a rotation with Transaction Services but feels that his senior manager has taken an aggressive cock-block position. Will our hero have to get their performance manager involved or resort to thinly-veiled threats?

Looking for new endeavors? Are the men in your office giving you a hard time? Is your job making you ill? Email us at advice@goingconcern.com and we’ll give you a remedy for your troubles.

Meanwhile:

Caleb,

I am a long time GC reader, and I usually only read the career advice postings to feel slightly better about my own situation. Now, however, I find myself with a question that I would love to put before the GC readership. I am a first year at a B4. I enjoy my job, but am always interested in a new opportunity. Recently, I was offered a rotation in transaction services that will last a few months. I accepted the opportunity, but the timing of the rotation was not set in stone. I just found out that a sr. mgr. on my biggest client is trying to keep me staffed on that engagement at the expense of the opportunity of taking the rotation.

I have made my interest in taking a TS rotation since day one, and my performance manager supports it 100%. He knows that I was offered the rotation, but not that the sr mgr is standing in the way. I would like to know how to proceed. Should I go over the sr mgr? Should I forget the rotation? I enjoy my audit clients and don’t want to be seen as someone who will leave as soon as a better opportunity comes along, but this is a particular interest of mine that I made know upfront.

Please help!

Dear Cock-blocked Auditor,

Sounds like your senior manager has a non-sexual, professional crush on you. That can be a good thing but in your case, it’s a very bad thing. Your senior manager probably wants the best team possible and it sounds like that would involve you but you’ve got your own ambitions and those need to be respected. This especially true because TS has already offer has been extended to you. It’s not for someone else (senior manager or not) to stick their beak in your business and prevent you from following the career path you choose.

Having said all that, I suggest that you first talk to the senior manager on your audit engagement. You say that they are blocking the rotation but how do you know? Nothing in your email indicates that (s)he walked straight up to you, pointed a finger in your chest and said, “You’re mine, bitch!” It’s entirely possible that the SM kept you on to prevent you from getting picked up by anyone else. This will allow you to get the story straight before running off to your performance manager. If your suspicions are true (or you did experience a finger pointing incident), then it’s time to get your PM involved. If he is “100%” behind this opportunity like you say, then this should get resolved rather quickly. Transaction Services obviously wants you to work with them and it’s something you’re interested in doing. That isn’t complicated but these things do take time and that may be the hold-up.

So be patient but be direct. Until your rotation’s timing is finalized, there’s no need to get anxious but confirm the motivation behind the scheduling before you have to pull out the big guns. Good luck.

Investors in Allen Stanford’s (Alleged) Ponzi Scheme Sue BDO

Nearly two years after Texas financier Allen Stanford was indicted in an alleged massive Ponzi scheme, investors have just filed a $10 billion proposed class action suit against his auditor—the giant accounting firm BDO.

The suit—filed Thursday in federal court in Dallas—says BDO did not only aid and abet the $7 billion dollar fraud…it was a “co-conspirator.” “BDO’s cozy relationship with the Stanford Financial Group was steeped in conflicts of interest and required ongoing deceptive and duplicitous manipulation of the facts to allow the Ponzi scheme’s exponential growth for over a decade,” the complaint says. “The result of this deception is the loss of thousands of investors’ life savings.” [CNBC]

Based on This Letter, You May Get the Impression That Deloitte Staff Were Lucky They Weren’t Taken Hostage Along with Their Workpapers

On Monday, we reported on Longtop Financial Technologies was the latest Chinese company to have their CFO quit, auditor resign and be accused of being a massive fraud. This particular story was interesting as one of the reasons cited by Deloitte for dumping LFT included “the unlawful detention of DTT’s audit files.” These accusations were described in much more detail in Deloitte’s letter to the company’s audit committee that was filed with the SEC and you may even conclude that the staff were thisclose to being hos

We italicized and bolded the best part.

The Audit Committee
Longtop Financial Technologies Limited
No. 61 Wanghai Road, Xiamen Software Park
Xiamen, Fujian Province
People’s Republic of China
Attention: Mr. Thomas Gurnee, Chairman of the Audit Committee

Dear Sirs,

Longtop Financial Technologies Limited (the “Company”) and together with its subsidiaries (the “Group”)
Audit for the Year Ended 31 March 2011

We hereby give you formal notice of our resignation as auditor of the Company.

Background and significant issues encountered by Deloitte Touche Tohmatsu CPA Ltd. (China) (“Deloitte”)

As part of the process for auditing the Company’s financial statements for the year ended 31 March 2011, we determined that, in regard to bank confirmations, it was appropriate to perform follow up visits to certain banks. These audit steps were recently performed and identified a number of very serious defects including: statements by bank staff that their bank had no record of certain transactions; confirmation replies previously received were said to be false; significant differences in deposit balances reported by the bank staff compared with the amounts identified in previously received confirmations (and in the books and records of the Group); and significant bank borrowings reported by bank staff not identified in previously received confirmations (and not recorded in the books and records of the Group).

In the light of this, a formal second round of bank confirmation was initiated on 17 May. Within hours however, as a result of intervention by the Company’s officials including the Chief Operating Officer, the confirmation process was stopped amid serious and troubling new developments including: calls to banks by the Company asserting that Deloitte was not their auditor; seizure by the Company’s staff of second round bank confirmation documentation on bank premises; threats to stop our staff leaving the Company premises unless they allowed the Company to retain our audit files then on the premises; and then seizure by the Company of certain of our working papers.

In that connection, we must insist that you promptly return our documents.

Then on 20 May the Chairman of the Company, Mr. Jia Xiao Gong called our Eastern Region Managing Partner, Mr. Paul Sin, and informed him in the course of their conversation that “there were fake revenue in the past so there were fake cash recorded on the books”. Mr. Jia did not answer when questioned as to the extent and duration of the discrepancies. When asked who was involved, Mr. Jia answered: “senior management”.

We bring these significant issues to your attention in the context of our responsibilities under Statement on Auditing Standards No. 99 “Consideration of Fraud in a Financial Statement Audit” issued by the American Institute of Certified Public Accountants.

Reasons for our resignation

The reasons for our resignation include: 1) the recently identified falsity of the Group’s financial records in relation to cash at bank and loan balances (and also now seemingly in the sales revenue); 2) the deliberate interference by the management in our audit process; and 3) the unlawful detention of our audit files. These recent developments undermine our ability to rely on the representations of the management which is an essential element of the audit process; hence our resignation.

Prior periods’ financial reports and our reports thereon

We have reached the conclusion that we are no longer able to place reliance on management representations in relation to prior period financial reports. Accordingly, we request that the Company take immediate steps to make the necessary 8-K filing to state that continuing reliance should no longer be placed on our audit reports on the previous financial statements and moreover that we decline to be associated with any of the Company’s financial communications during 2010 and 2011.

Our consent

We hereby consent to a copy of this letter being supplied to the SEC and the succeeding auditor to be appointed.

Section 10A of the Securities Exchange Act of 1934 (U.S.)

In our view, without providing any legal conclusion, the circumstances mentioned above could constitute illegal acts for purposes of Section 10A of the Securities Exchange Act of 1934. Accordingly, we remind the Board of its obligations under Section 10A of the Securities Exchange Act, including the notice requirements to the U.S. Securities and Exchange Commission. You may consider taking legal advice on this.

Yours faithfully,
/s/ Deloitte Touche Tohmatsu CPA Ltd.
c.c.: The Board of Directors

How Should an Associate Handle the ‘Sink or Swim’ Nature of His Small Firm?

Welcome to the can-we-trade-twisters-for-raptures? edition of Accounting Career Emergencies. In today’s edition, a small firm associate works in a sink or swim environment and he feels like sandbags are tied to his feet. Is there anything he can do to sink less?

Have a career question? Need some help outfoxing your competition? Is a client giving you trouble? Email us at advice@goingconcern.com and we’ll breakator skills.

Back to accountant who needs a life preserver:

Howdy!

How do I deal with not having much support at my office? I just started around 4 months ago as a staff accountant and anytime I have a question, my boss tells me to figure it out, to bring him the financials so he “can do (my) job for (me)” or to just move on to the next audit.

There are seven full time employees here and my boss and I are the only ones working through audits. I really want to learn the entire process of performing audits, but I can’t get anyone to help me. I’ve asked around, Googled and even asked him to guide me through the process. There has not been any training as to their methodology for auditing. Is this typical for very small local firms? I’ve heard the first year is the hardest and you dont really know anything. I feel like I’m trying to drink out of a firehose! Help!

– Doing My Best

Dear Doing My Best,

To quote a Scotsman from some terrible over-budgeted spoon-fed cinema: losers whine about their best and winners go home and fuck the prom queen. Since you work at an accounting firm (where no one really wins) and haven’t been in sniffing distance of a prom dress in ages, that advice doesn’t really do you much good. Lucky for you, I’m familiar with your plight.

Small firms are enormously diverse and you’re at an extremely small firm. I started my career in a similar situation, at firm with less than 20 people. In that scenario, it was difficult to get anyone to explain anything to me, “methodology” wasn’t really thrown around much (literally or figuratively) and training was virtually non-existent. So to answer your question: your experience is common at a small firm and the first year is extremely tough.

Now, as for what you can do about it – my advice would be to really think about your questions before you ask them. If you’re running to your “boss” every five minutes with a question, it’s not surprising that they might lose patience with you. Really try to work through problems until you’re absolutely stuck on something. Small firms are fond of “look at last year’s file” as standard operating procedure and you should do just that. Most of these clients won’t have much for changes and their business shouldn’t be complicated, so using last year’s files as reference will be helpful.

If you find yourself having done as much work as possible and are at a dead end, then go to your boss and explain exactly what you’ve tried to do and why you’re stuck in neutral. If you explain to them all the roads you’ve tried to take, then they might be more willing to point you in the right direction. If he/she is still unwilling to help, then you might consider calling them out for it or request to work on something other than audits. If you don’t feel like you’re learning anything because no one has taken the time to teach you anything, that reflects poorly on them not you. If they act like they’re above giving you any guidance, then it’s pretty clear that they suck at their job.

If you manage to make some headway, you’ll start to notice that things eventually begin to make sense and year two (granted you survive) will be much easier than the first. Good luck.

Auditor Resignation Du Jour: Deloitte Didn’t Appreciate Their Audit Files Being Held Hostage

And yes the perpetrator, Longtop Financial Technologies, is a Chinese company.

As we mentioned, Deloitte had some decent reasons for kicking LFT to curb, among them:

(1) the recently identified falsity of the Company’s financial records in relation to cash at bank and loan balances (and possibly in sales revenue); (2) the deliberate interference by certain members of Longtop management in DTT’s audit process; and (3) the unlawful detention of DTT’s audit files. DTT further stated that DTT was no longer able to rely on management’s representations in relation to prior period financial reports, that continued reliance should no longer be placed on DTT’s audit reports on the previous financial statements, and DTT declined to be associated with any of the Company’s financial communications in 2010 and 2011.

And because it seems to be the standard narrative in stories such as these, Longtop’s CFO has resigned and “The Audit Committee has also initiated a search for a new auditor.” Although were not sure if there’s a firm out there that will pick up a client who has engaged in hostage taking.

[via Longtop Financial Technologies]

KPMG Lands More Audit Work From Bridgewater Associates

Big win for the KPMG audit practice in New York as we’ve confirmed that the Asset Management group has won more audit work from the Westport, Connecticut hedge fund.

This week Institutional Investor compiled the largest 25 Hedge Funds and Bridgewater was at the top with $58.9 billion in hedge fund assets. Our source, someone familiar with matter, was impressed, “Huge win for them considering they’re typically fighting for 3rd in those major bids.” It’s our understanding that KPMG had some work from BW but adding more engagements will make for a prestigious addition to their client roster. Congrats to KPMG and the team that made it happen.

Comp Watch ’11: Deloitte Auditor Has PwC Bonus Envy

From the mailbag:

Caleb,

I am reading about PWC getting some spring love in the form of a bonus, and other firms already openly discussing compensation with their employees. Apparently Big D missed that memo.

Everybody at Deloitte had a terrible busy season, that is no secret. We changed our audit methodology, and then in December the powers that be decided to do some last minute tweaking, aka destroy any hope of a bearable busy season. I am a senior working out of Boston and have been pretty busy since October. To reward my hard work Deloitte has given me absolutely nothing. There was no post audit dinner, no monetary reward, not even a free cup of coffee. I did however (and so did everyone else in Boston) receive emails from every executive partner in the NE thanking us for all our hard work, reminding us how much money we made the firm, and telling us to reward ourselves by taking some time off. Apparently being rewarded now means using our own PTO to take a day off. I have had to work both firm holidays up to now (one in January and one in April for the Boston Marathon), so I am not sure when they think we can reward ourselves by using the PTO we already earned. Usually engagement teams hand out “Applause Awards” to their people for hard work, and maybe I am just on a few teams with Ebenezer Scrooge Partners, but I think it is crazy that either Deloitte, or the Boston Office, or one of my engagement partners couldn’t scratch together a few dollars as a thank you for the long hours.

Partners and HR continue to wonder why people leave, but we are continually asked to do more and more and never rewarded for it. With the other firms opening up the piggy banks already, what are the chances that Deloitte follows suit? They missed the mark last year on the compensation, and everyone suffered as a result with the crush of seniors headed for the door. As a result they ended up giving a mid-year raise just to stem the bleeding. Are partners too busy looking to next year or playing golf at their fancy country clubs to remember the little people?

Of course our writer is referring to the PwC bonuses we wrote about on Monday. Don’t know if this is a Deloitte problem or a Boston Deloitte problem but it sounds like Green Dots in Beantown are wicked pissed. How’s your office faring? Tell us below or email us.

Center for Audit Quality Concerned That No One, Outside of a Few Auditors, Knows What Auditors Actually Do

The CAQ’s continuing dialogue with individual investors indicates that many in the marketplace do not fully understand the scope of the audit process and the responsibilities placed on public company auditors. The In-Depth Guide to Public Company Auditing will help to bridge that information gap. The new Guide describes how a public company audit firm decides to accept a new audit engagement, how it assesses the risk that the financial statements contain material misstatements as part of determining the audit’s scope, and then how the auditors perform and report their findings – all in plain English. [Cindy Fornelli/CAQ, Guide]

Today in Chinese Company Auditor Resignations: KPMG Doesn’t Appreciate Being Ignored

The House of Klynveld resigned as the auditor Shanghai-based ShengdaTech, Inc. effective April 29th after less than three years. According to the 8-K filed yesterday, KPMG was none too impressed with management blowing off their concerns:

KPMG previously informed the Company’s Audit Committee of certain concerns arising during its incomplete audits of the Company’s consolidated financial statements as of and for the year ended December 31, 2010, and the effectiveness of internal control over financial reporting as of December 31, 2010. These concerns included serious discrepancies and unexplained issues relating to, among others: (i) the Company’s bank balances; (ii) transactions with major suppliers; (iii) VAT invoices and payments; (iv) sales and payments for sales by third parties; (v) sales to the Company’s second largest customer; (vi) discrepancies between KPMG’s direct calls to customers and confirmations returned by mail; and (vii) concerns raised by directly confirming customer sales and accounts receivables.

In a letter dated April 19, 2011, KPMG informed the board of directors of the Company that in KPMG’s view the Company’s senior management has not taken, and the board of directors has not caused senior management to take, timely and appropriate remedial actions with respect to these discrepancies and/or issues, and KPMG stated that the continued lack of resolution of the issues would materially impact the financial statements for the year ended December 31, 2010 and possibly prior periods.

And as you might expect, this resulted in KPMG taking its audit reports and going home:

On April 29, 2011, we were also informed by KPMG, our former independent accounting firm, that disclosures should be made and action should be taken to prevent future reliance on their previously issued audit reports related to the consolidated balance sheets of ShengdaTech, Inc. and its subsidiaries as of December 31, 2008 and 2009, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for the years then ended and the effectiveness of internal control over financial reporting as of December 31, 2008 and 2009.

8-K [SEC via ShengdaTech]

PCAOB Permanently Bans Utah Accounting Firm, Ex-Managing Partner From Auditing Public Companies

The PCAOB has just made a serious example out of Bountiful (yes, it’s a town), Utah-based Chisholm, Bierwolf, Nilson & Morrill by banning the firm permanently from auditing public companies after “numerous violations of professional standards, including failure to detect fraud.” The Board also barred former managing partner Todd Chisholm for life and partner Troy Nilson for five years.

Curious about what kind of shoddy work the firm performed to get such a slap? Us too. Luckily the Salt Lake Trib has an example:

One of the companies that the firm audited was Powder River Petroleum International Inc., an Oklahoma corporation with offices in Alberta, Canada.

Until it was placed into receivership in 2008, Powder River’s public filings reported that it acquired, developed and resold interests in oil and gas properties. The company resold interest in oil and gas leases to investors in Asia, but reported those investments as income despite also promising investors a return of 9 percent until their principal was recouped, the board said.

That resulted in the company, traded over-the-counter, overstating its revenue by up to 2,417 percent, its pretax income up to 441 percent and assets up to 48 percent.

I called the PCOAB to see if this was the most severe ban every given to a firm and a CPA but couldn’t get an immediate answer. The five year ban also seems pretty severe. Doesn’t seem like too much of a stretch since the Board has only issued 36 disciplinary actions since 2005. I’ll update the post when I get some definitive answers. UPDATE: We’ve been informed that “it’s among the most severe” penalties issued.

It’s also worth noting that two of the firm’s clients – Hendrx Corp. and Jade Art Group – had substantial Chinese operations which wouldn’t be an issue if it wasn’t for this, “Chisholm, who does not speak or understand Chinese, relied on Firm assistants with Chinese language skills to identify audit issues, communicate with management and third-parties, and analyze documents provided by the issuer.”

Maybe those “assistants” were audit wizards, maybe they weren’t but either way, Mr Chisholm might be looking to change careers.

Chisholm

Navistar Says Deloitte Sucks at Auditing; Deloitte Not Amused

Last week Navistar International Corp. sued Deloitte for $500 million alleging “fraud, fraudulent concealment, breach of contract and malpractice” on audits from 2002 to 2005. That, in and of itself, isn’t too unusual. What is pretty fun (not fun in a “man, the circus is fun” kind of way but in “you’ve gotta love this stuff” kind of way) is when a company comes right out and says that Deloitte lied about its competency to provide audit services.

Bloomberg reports:

In other words, not only is Navistar saying that Deloitte is a buncha liars, they’re saying, “Biggest accounting firm in the world, you say? How about the suckiest accounting firm in the world?” They’re saying that Deloitte isn’t qualified to be in business. In essence, that the firm shouldn’t even exist. Because such fighting words simply can’t be taken sitting down, Deloitte spokesman Jonathan Gandal emailed the ‘Berg (which is good because he never calls us back) to express the firm’s position:

“A preliminary review shows it to be an utterly false and reckless attempt to try to shift responsibility for the wrongdoing of Navistar’s own management,” Gandal said in an e-mailed statement. “Several members of Navistar’s past or present management team were sanctioned by the SEC for the very matters alleged in the complaint.”

HA! Now who’s a bunch a liars? So who’s really to blame here in this round of ‘liar, liar pants on fire’? Well, over at Fraud Files Blog, our friend Tracy Coenen tries to shed some light on this spat:

Navistar’s story about the fraud seems to keep changing. Early on in the case, the company denied wrongdoing and said the problem was with “complicated” rules under Sarbanes-Oxley. I’m not sure how SOX is to blame for management having secret side agreements with its suppliers who received “rebates.” Or improperly booking income from tooling buyback agreements, while not booking expenses related to the tooling. Or not booking adequate warranty reserves. Or failing to record certain project costs.

And now the company says Deloitte is to blame.

Here’s what’s funny about lawsuits like this: They essentially say… Our employees committed fraud and actively took steps to avoid discovery by the auditors. The auditors did not discover the fraud (at all, or soon enough), and now we’re going to hold them responsible for that failure.

In the case of Navistar, the each of the fraudulent accounting schemes above are nearly impossible to detect. The company failed to book items or provide information about them to the auditors, yet they are suing the auditors for failing to find the items.

So it appears that Navistar was expecting Deloitte to have some magical powers of fraud detection that even the likes of Tracy or Sam Antar don’t possess. Does that make them incompetent? You tell us.

Navistar Sues Its Former Auditor Deloitte & Touche [Bloomberg]
Navistar v Deloitte: Blame the auditors for fraud committed and concealed by employees [Fraud Files Blog]

Wanted: Auditors for Inventory Count Who Won’t Get Queasy at the Sight of a Few Dead Chickens

Did I say a few?

The Alabama Poultry and Egg Association estimated that five million chickens probably died in the tornadoes, which slammed the northern part of the state, where the industry is centered.

Not to worry though, you’ll still be able to get your McNugget™ fix:

That alone isn’t enough to disrupt chicken supplies nationally. The state usually produces about 21.5 million chickens in a week. The U.S. produces roughly nine billion chickens annually.

Storms Destroy Hundreds of Poultry Houses [WSJ via JDA]