Tag: PCAOB

So You Want to Work for the PCAOB…

You could have a worse career path… like this lady.

Currently, the PCAOB is seeking the following professionals:

* Accountants and Auditors, especially those with extensive auditing experience in:

* International Financial Reporting Standards
* Industry expertise (banking, insurance, oil and gas pharmaceuticals)
* Fair value measurements
* IT auditing
* Forensic Accountants
* Enforcement Attorneys and Accountants

Their own employees say great things about their employer, like Greg, an Associate Director out of Atlanta who gushes “the most exciting part of working here is that we are still a fairly new organization. My experiences with the PCAOB have enabled me to utilize and expand on the skills I acquired both in industry and public accounting and still make it home in time for dinner.”

Or Todd, an Inspections Specialist out of Denver who says “When I was recruited and interviewed, they talked about work-life balance. Everybody talks about having work-life balance, and I think as auditors, we all took that talk with a grain of salt. But then to come here and see it’s actually true, well, that was a nice surprise. At the same time, I continue growing here and developing my career. It really is a nice balance.”

Well then, sounds like a sweet gig.

The PCAOB offers all kinds of benefits such as tuition assistance, 401(k) and retirement, a PPO health plan and a metric shit ton of paid time off.

You’ll probably have to actually apply with them to get any real salary info, so if big-time bureaucracy and work-life balance are what you’re after, get on that.

Who Wants a $10,000 Scholarship from the PCAOB?

Any accounting students that happen to have an above-average aptitude for accounting or auditing will be happy to know that the PCAOB has been given the go-ahead to award fifty-two $10,000 scholarships for the 2011-2012 academic year. There are some conditions, however, including:

• Be enrolled in a bachelor’s or master’s degree program in accounting
• Demonstrate interest and aptitude in accounting and auditing
• Demonstrate high ethical standards
• Not be a PCAOB employee or a child or spouse of a PCAOB employee

In addition, we think it makes sense that anyone with “Ernst” or “Young” in their name will be forced to undergo a more rigorous examination of their qualifications. Also anyone named “Arthur Andersen” should be immediately ineligible. If you have other conditions you’d like to see attached to these scholarships, leave them below.

And here’s the list of schools:
Brigham Young University
Central Washington University
CUNY Bernard M Baruch College
DePaul University
Eastern Michigan University
Eastern University
Fairfield University
Florida State University
George Washington University
Georgia Southern University
Golden Gate University
Hope College
Indiana University-Purdue University-Indianapolis
Indiana Wesleyan University
Kean University
Lewis University
Louisiana State University and A & M College
Michigan State University
Middle Tennessee State University
Missouri State University
North Carolina State University
Northern Illinois University
Nova Southeastern University
Rhode Island College
Tulane University
University of Alabama
University of Colorado-Denver
University of Connecticut
University of Florida
University of Georgia
University of Hartford
University of Illinois at Chicago
University of Illinois-Urbana-Champaign
University of Louisiana at Lafayette
University of Maryland-University College
University of Michigan-Ann Arbor
University of Minnesota-Twin Cities
University of Missouri-Columbia
University of North Carolina-Charlotte
University of North Carolina-Greensboro
University of North Texas
University of Notre Dame
University of Oregon
University of Pittsburgh
University of Southern California
University of Southern Mississippi
University of Texas at Austin
University of Texas at Dallas
University of Virginia
University of Wisconsin-Eau Claire
Walsh College of Accountancy & Business
Weber State University

PCAOB, SEC to Be All Up in China’s Business Next Week

Perhaps you’ve heard that some U.S.-listed Chinese companies have had some trouble with their financial reporting. Often times this leads to CFOs quitting, auditors resigning or workpapers being held hostage. None of which are good. Occurrences such as these have been going on for a little while and more recently the SEC admitted that they had, in fact, heard something about it. Perhaps even more surprisingly, a Chinese official also confessed that some of these companies weren’t exactly on top of their shit and in some may not have the faintest idea of what they’re doing.

All this excitement has finally gotten the teams at the SEC and PCAOB worked up enough that it has been decided that they’re popping over to Beijing to meet with the country’s Ministry of Finance and the China Securities Regulatory Commission next Monday and Tuesday to see what’s what.

“This meeting is the commencement of our accelerated efforts with the People’s Republic of China to forge a cooperative resolution to cross-border auditing oversight. I believe we share a common objective with Chinese regulators to protect investors and safeguard audit quality through our mutual cooperation,” said James R. Doty, PCAOB Chairman.

The delegation will be led by Board Member Lewis H. Ferguson and include staff from the PCAOB’s Office of International Affairs and Division of Registration and Inspections, and the SEC Office of International Affairs and Office of the Chief Accountant. The delegation will meet with senior leadership of the Ministry of Finance and the CSRC.

“The purpose of this meeting is to provide an opportunity to exchange information about how each country conducts inspections of auditing firms and to move toward a bilateral agreement providing for joint inspections of China-based auditing firms registered with the PCAOB,” said PCAOB Board Member Ferguson.

Reuters reports that Ferguson considers the trip a “confidence-building exercise,” just in case you were still a little queasy on Sino-Forest, et al.

Statement on Delegation to China [PCAOB]
U.S. audit watchdog, SEC plan Beijing visit [Reuters]

PCAOB Member Steven Harris Shares Some Thoughts on Auditors

For anyone that missed it earlier, the PCAOB issued a concept release today putting out some ideas for changes to the auditor’s report. The members of the Board also took the opportunity to say a few words and Mr. Harris saw an opportunity to point some things out:

The events of the last few years have been a case study of the inability of auditors to provide investors with any meaningful signal about increases in financial reporting risks when management assessments or estimates change dramatically, or when debates over significant accounting issues become difficult or contentious.

And he added the following for good measure:

Out of the ten largest bankruptcies during the financial crisis, only two had going concern opinions. During the year leading up to their bankruptcy filings, the market capitalization of the eight companies without going concern opinions declined from a collective $75.5 billion in the year prior to their respective bankruptcy filings to a collective market capitalization of just under $700 million at the time of their filing – a 99% loss in investor value.

[via PCAOB]

Here Are the PCAOB’s Ideas for Changes to the Auditor’s Report

Now before you get all worked up about these, the Board is inviting everyone to throw out comments before September 30th, make other suggestions and participate in a roundtable during the third quarter in case you are inclined to heckle them for making your life more difficult. Anyway, here’s what they’ve got:

• An auditor’s discussion and analysis;
• Required and expanded use of emphasis paragraphs;
• Auditor assurance on other information outside the financial statements; and,
• Clarification of language in the standard auditor’s report.

These are just suggestions mind you, so if you’ve got something better in mind, feel free to share below.

Fact Sheet

Broker-Dealers, Prepare Thyselves for More Intrusive Audits

SEC commissioners will vote today on proposed changes to broker-dealer auditing and reporting rules at a meeting in Washington. As with the 2009 rules, which tightened oversight of advisers’ custody of client assets after Bernard Madoff Ponzi scheme was exposed, the new changes increase oversight of the minority of about 300 broker-dealers who hold customers’ cash.

The proposals — which would be opened for a 60-day comment period — would require that a broker-dealer’s internal controls be checked by a registered public accounting firm and would let regulators examine the broker-dealer’s audits. Broker-dealers would have to file quarterly reports describing whether they have access to client money and how any access is controlled. [Bloomberg]

KPMG, Center for Audit Quality Weren’t Too Keen on PCAOB Inspection Documents Being Subpoenaed

Last week, we told you about Jonathan Weil’s latest scoop exposing a PCAOB issuer in an inspection report. The issuer in question was Motorola and it, once again, featured KPMG as the auditor on the receiving end of the Board’s criticism. It was also noted that PCAOB Chair Jim Doty mentioned this particular case (without naming names) in his speech at USC the previous week when he described “one large firm tam was aware that a significant contract was not signed until the early hours of the fourth quarter. Nevertheless, the audit partner allowed the company to book the transaction in the third quarter, which allowed the company to meet its earnings target.”

J Dubs put this all together in a nice little package, citing court documents from a class-action lawsuit in Chicago. What isn’t mentioned in Weil’s column but is spelled out in other court documents that we’ve reviewed is that KPMG and the Center of Audit Quality fought the release of the documents related to the PCAOB’s inspection report because they’re afraid that more lawsuits could result if issuers’ identities are made public.

The CAQ submitted an amicus curiae brief (in full on the next page) stating:

The supervisory model of regulation created by Sarbanes-Oxley and implemented by the PCAOB has thus far worked well and has improved the quality and reliability of audits of public companies. It has worked to the satisfaction of both the Board and the regulated community.

Since the PCAOB’s own Investor Advisory Group issued a report entitled “The Watchdog that Didn’t Bark … Again,” one might say that the Center’s final point is debatable.

Yet, the CAQ argued that if the PCAOB inspection documents were released, “the [Sarbanes-Oxley] Act’s carefully supervisory model will be adversely affected.” That is, the confidentiality afforded to the communication between auditors and the PCAOB would be compromised and would allow Board information into the ‘hands of litigating lawyers.’ The CAQ declined to comment for this post, saying that they did not “have anything to add to the amicus brief.”

In her ruling denying KPMG’s motion (in full, on page 3) to squash the subpoena of the PCAOB documents, Judge Amy St. Eve cited KPMG’s argument that sounds very similar to the CAQ’s:

KPMG argues that “if litigants can compel production of materials related to the PCAOB’s confidential inspection process notwithstanding section 105(b)(5)(A), open and constructive engagement between the PCAOB and accounting firms could be chilled by the threat of increased civil litigation, and the statutory framework carefully crafted by Congress to improve the quality of public company audits could be frustrated.”

So basically auditors are afraid that if their super-special-secret discussions with the PCAOB are out there for all the world to see, they’ll get sued more often. But hasn’t suing audit firms already reached critical mass? Can they really fear more litigation? The only thing that keeps audit firms from being on the same level of litigation risk as tobacco companies is that they aren’t killing people.

Weil and those that agree with him argue that the PCAOB owes it to investors to name names in their inspection reports. To continue keeping issuers confidential protects them from legitimate criticism for shoddy accounting and perpetuating equally shoddy audits. Of course, if you’re an investor and that doesn’t bother you, then maybe you’re okay with auditors trying to stop the release of more information related to their work. Work that cost the investors in Motorola $244 million from 2000 to 2010.

caqamicusbrief

Minute Order 1

Another KPMG Client Gets ID’d in a PCAOB Inspection Report

Back in March, Bloomberg’s Jonathan Weil called attention to a PCAOB report that was pretty harsh on KPMG-Bermuda’s audit of Alterra Capital Holdings. At the time he wrote the column, KPMG, the PCAOB and Alterra weren’t talking but then Alterra filed a 8-K admitting that they were the filer in question.

Today Weil lets the cat out of the bag again and yes it’s another KPMG client, Motorola:lockquote>Four years ago, inspectors for the auditing industry’s chief watchdog discovered that KPMG LLP had let Motorola Inc. record revenue during the third quarter of 2006 from a transaction with Qualcomm Inc. (QCOM), even though the final contract wasn’t signed until the early hours of the fourth quarter. That’s no small technicality. Without the deal, Motorola would have missed its third-quarter earnings target.

The regulator, the Public Company Accounting Oversight Board, later criticized KPMG for letting Motorola book the revenue when it did. Although KPMG had discussed the transaction’s timing with both Motorola and Qualcomm, the board said the firm “failed to obtain persuasive evidence of an arrangement for revenue-recognition purposes in the third quarter.” In other words, KPMG had no good reason to believe the deal shouldn’t have been recorded in the fourth quarter.

This may sound familiar to some of you that read PCAOB Chairman James Doty’s speech from last week when he said this:

PCAOB inspectors found at one large firm that an engagement team was aware that a significant contract was not signed until the early hours of the fourth quarter. Nevertheless, the audit partner allowed the company to book the transaction in the third quarter, which allowed the company to meet its earnings target. Although the firm discussed the timing of the transaction with the customer, it failed to obtain persuasive evidence of an arrangement for revenue recognition purposes in the third quarter. The company had been an audit client of the firm for close to 50 years.

Weil writes, “KPMG has been Motorola’s auditor since 1959; it had been Motorola’s auditor for 47 years at the time of the Qualcomm deal.” So, yeah. How did he piece this one together? Elementary, my dear auditors:

Motorola’s identity was disclosed in public records last month as part of a class-action shareholder lawsuit against the company in a federal district court in Chicago. The plaintiffs in the case, led by the Macomb County Employees’ Retirement System in Michigan, filed a transcript of a September 2010 deposition of a KPMG auditor, David Pratt, who testified that Issuer C was Motorola. KPMG isn’t a defendant in the lawsuit.

Pratt also identified the Motorola customers cited in the board’s inspection report. It’s his deposition that allows me to describe the report’s findings using real names.

The oversight board said a significant portion of the company’s earnings for the 2006 third quarter came from two licensing agreements that were recorded during the last three days of the quarter. One was the Qualcomm deal that wasn’t signed until the fourth quarter. The board also cited other deficiencies in KPMG’s review of Motorola’s accounting for the transactions.

As is their wont, KPMG isn’t talking. Motorola isn’t talking (but maybe there’s another 8-K in our future?). The PCAOB, bound by the law -which, some say, is debatable – isn’t talking. My guess is that Jon Weil will continue to talk…er…write columns shining the lights on shoddy audits until the Board breaks its silence.

Dirty Secrets Fester in 50-Year Relationships [Jonathan Weil/Bloomberg]

PCAOB Chairman James Doty Is Concerned That Some Auditors Either Don’t Care or Are Completely Ignorant About the Notion of Independence

As you may have heard, PCAOB Chairman Jim Doty gave a speech at the University of Southern California yesterday where he discussed among other things, the possibility of mandatory auditor rotation and changing the standard auditor’s report. The prospect of these two changes aren’t exactly something auditors are stoked about but some people are of the opinion that a) auditors like to get a little too chummy with their clients which leads to b) not taking the “independence” thing too seriously and c) the auditor’s report, in its current form, its pretty much worthless.

You can read Doty’s entire speech over at the PCAOB website where touches on all of these but here’s one example around independence that probably qualifies for, in Doty’s words, “[an] approach [to] the audit with an inappropriate mindset”

[An] audit partner’s self-assessment claimed that he “overcame long-standing barriers against non-audit services at [two audit clients] with a series of well-planned meetings and supporting presentations with the Audit Committee Chair, the full Audit Committee, the CEO and the CFO at both companies.”

In response, his reviewing partner noted that he was –

highly alert to cross service line opportunities and has successfully penetrated both of his accounts where few services had been
provided in the past. The results of these efforts were a number of proposals and wins but the efforts will likely impact FY 11 in [a] more significant way.

Anyway, there are other stories of bad auditor behavior, so check the whole speech if you feel so inclined. And while Chairman Doty admitted that “We don’t see these problems in all the files we look at,” it causes he and others to wonder if “these audit partners are unaware of, or simply unconcerned about, the independence rule that should make such considerations irrelevant to their compensation, and why a firm would allow such unawareness or unconcern to continue unabated.”

So flagrantly bending the rules to the point where they might as well be breaking or stupidity? Neither is too flattering.

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

Alterra Blows Off Proxy Advisors; Recommends Shareholders Reappoint KPMG as Auditor

After all the hubbub over the PCAOB inspection report that was brought to light by Bloomberg’s Jonathan Weil, including two recommendations by proxy advisors Glass Lewis and Institutional Shareholder Services Inc., Alterra Capital Holdings has recommended to its shareholders that they vote “FOR” the ratification of KPMG as the company’s independent auditor.


From thc.gov/Archives/edgar/data/1141719/000093041311002842/c65254_defa14a.htm”>SEC Filing dated April 19th (all emphasis is original):

TO THE SHAREHOLDERS

We are writing to bring your attention to a disagreement between Alterra Capital Holdings Limited (the “Company”), on the one hand, and each of ISS Proxy Advisory Services and Glass Lewis (each, a “Proxy Advisor”), on the other hand, with respect to the recommendation by each of the Proxy Advisors to vote “against” the Company’s proposal to ratify the appointment of KPMG Bermuda as the Company’s independent auditors for fiscal year 2011 and authorize the Company’s board of directors (the “Board”) to set the remuneration of the independent auditors at the Company’s Annual General Meeting of Shareholders scheduled to be held on May 2, 2011. The Proxy Advisors’ recommendations are primarily related to a report issued by the Public Company Accounting Oversight Board (the “PCAOB”) regarding the Company’s auditors, KPMG Bermuda. The PCAOB is a nonprofit corporation established by the U.S. Congress to oversee the audits of public companies. One of the principal roles of the PCAOB is to perform inspections of the audit files of accounting firms that conduct public company audits. Each audit firm is selected by the PCAOB for inspection at least once in every three years.

In November 2009, the PCAOB reviewed KPMG Bermuda’s 2008 audit files of a public company client located in Bermuda in connection with a routine periodic inspection. In March 2011, the PCAOB publicly issued its findings in a report dated January 28, 2011 (the “PCAOB Report”). Although the PCAOB Report did not identify the public company by name, an article posted on Bloomberg News on March 30, 2011 alleged that the public company client at issue was the Company (formerly Max Capital Group Ltd.). The Company confirmed that it was the client referenced in the PCAOB’s Report in a Current Report on Form 8-K dated March 31, 2011.

The Proxy Advisors’ recommendations also cite concerns that certain of the Company’s directors and officers previously worked at KPMG.

For the reasons set forth below, the Board disagrees with the Proxy Advisors’ recommendations to vote “against” the Company’s independent auditor proposal. The Board unanimously recommends that you vote “FOR” the ratification of KPMG Bermuda as the Company’s independent auditor.

Since this decision by the Board might not sit well with a few people, they’ve carefully laid out the case as to why sticking with the House Klynveld is the right thing to do. They are as follows:

1. The PCAOB Report did not question the Company’s valuations that are reflected in its financial statements.

2. The PCAOB Report did not impact KPMG Bermuda’s unqualified opinions on the Company’s financial statements in 2008, 2009 and 2010; there was and is no restatement issue.

3. The PCAOB made similar findings regarding all four major accounting firms.

4. The Audit and Risk Management Committee was aware of the PCAOB review and made an informed decision in recommending KPMG Bermuda as the Company’s Independent Auditor for 2011.

5. KPMG Bermuda is independent from the Company.

6. The Audit and Risk Management Committee will reassess KPMG Bermuda’s qualifications and suitability in 2012.

Just a few thoughts on some of these:

• It’s not the job of the PCAOB to question the Alterra’s valuations. That’s what KPMG was supposed to do. The PCAOB said KPMG did a lousy job of getting enough evidence to support those valuations.

• Just because there wasn’t a restatement doesn’t mean the auditors did their jobs correctly.

• Admitting that “all four major accounting firms” had similar findings says a lot about what the Board thinks of auditors.

• Is point #5 supposed to be a reminder for the shareholders that have no business acumen whatsoever?

• Point #6 could be better stated as “Our Board is getting good at jumping through hoops. See you next year.”

Any other thoughts? Leave them below.

Glass Lewis Recommends That Alterra Shareholders Drop KPMG-Bermuda as Auditor

Remember Alterra Capital Holdings Ltd? They’re were exposed by Bloomberg’s Jonathan Weil last month as the KPMG-Bermuda audit client that was selected by the PCAOB for inspection. The audit didn’t go so hot as the inspectors found “the firm did not obtain sufficient competent evidential matter to support its opinion on the issuer’s financial statements.” To put this in context, Weil explained that available-for-sale securities were the largest asset on Alterra’s balance sheet and it accounted for “half of the company’s $7.3 billion of total assets as of Dec. 31, 2008, and a little more than half of its $9.9 billion of total assets at the end of last year.”


In wake of this little revelation, research firm Glass Lewis & Co. has recommended to Alterra Capital Holdings that they kick KPMG-Bermuda to curb (after nine glorious years), according to a copy of the “Proxy Paper” sent to Going Concern. The report rehashes the whole story and then concludes with this:

Despite the lack of any restatements of previous financial statements, we believe that shareholders should be concerned about the reappointment of KPMG following the lapses uncovered by the PCAOB. Therefore, we believe that shareholders should hold the audit committee responsible for reappointing the same audit firm.

Glass Lewis also wanted to make shareholders “aware” of the fact that Alterra’s Audit Committee Chair, CFO and CAO are all KPMG alumni but stopped short of citing it as a reason to oppose KPMG at the meeting on May 2. According to the report, Glass Lewis had recommended that Alterra retain KPMG as auditor prior to the last shareholder’s meeting which the shareholders did by an overwhelming margin with nearly 91 million votes voting “For,” 182k voting “Against” and 32k abstained.