Tag: SEC

AICPA: CFOs Want More Input from Auditors on IT Matters

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

Certified Public Accountants are increasingly being asked to solve information technology problems for clients and prospective clients, according to a survey by the American Institute of Certified Public Accountants.

But that raises a potential conflict of interest of the sort that led the Securities and Exchange Commission to keep auditing and IT consulting separate. The pressure for auditors to help provide IT solutions will persist nonetheless, says the AICPA.


“The tide has really turned this year with the economy and increasing regulations,” said Joel Lanz, co-chair of the AICPA’s Technology Initiatives task force in a prepared statement.

“As small and medium-sized companies increasingly place IT under their chief financial officers, it’s becoming much more of a broad scope of responsibility,” added Ron Box, Lanz’s co-chair.

With a renewed focus on IT-related issues, the survey makes clear that CPAs need to be literate about information technology in order to collaborate effectively with clients and their IT partners.

Data security clearly is driving the new interest, and CPAs believe the issue will persist in importance for years, the survey suggests.

The biggest surprise from the survey, Lanz told CFOZone, is the fact that “CPAs are not only providing guidance on financial issues, but there is an expectation by audit committees that CPAs could advise on different IT governance issues. CPAs are now commenting to audit committees about business operations in addition to pure financial issues.”

It’s not that CPAs are expected to be the technology expert, but the expectation is that the CPA is able to provide business insight and IT guidance which then enables their clients to effectively leverage their technology to enhance the businesses value, he added.

Is this simply recreating the problem that led to the separation post-Enron and WorldCom of audit services from consulting, much of which was IT oriented? There’s the potential for a conflict of interest here, and a slippery slope toward bad audits as result. SEC rules specifically say audit firms cannot provide IT consulting services on matters that relate to financial reporting for the same client. And the audit committee must sign off on other types of consulting services.

Lanz concedes that CPAs will have to be careful. “It is a fine line,” said Janis Parthun, senior technical manager – IT, for AICPA, but she added that CPAs can help companies avoid problem here. “Sometimes audit committees do need some education in these areas and this is where they can reach out to CPAs that have some understanding of IT to give the audit committee options to make the right decision.”

Lanz adds says that the AICPA has helped on this front with some recent guidelines. “Recent standards provide CPAs with specific criteria for when they need to communicate with audit committees, as well as the type of communication required,” he said.

A spokesman for the Securities and Exchange Commission declined to comment on the trend.

Accounting News Roundup: Dell Looks to Settle SEC Probe; BP’s Request for Tax Docs Causes Issues for Fishing Communities; Salesforce CFO: We Need Sales People! | 06.11.10

Dell, CEO Are in Talks to Settle SEC Probe [WSJ]
The SEC’s probe, launched in 2006, into Dell had initially focused on some accounting manipulation that has now ensnared founder and CEO Michael Dell focusing on disclosure and omissions related to Intel Corp. and negligence-based fraud charges.

The Journal reports that the possible fraud charges “suggests that the SEC may suspect that Mr. Dell unintentionally made statements that he should have known were misleading.”

In anticipation of the settlement, the company will restate its most recent earnings report, reducing its net income by $100 million.


The fishermen and the tax man [Los Angeles Times]
BP is requesting tax records from people in fishing communities in order process claims of lost work related to the Deepwater Horizon spill. Those seeking payment need to submit a commercial fishing license, proof of residence and tax statements. The problem is that many of these people do not keep tax records since they are paid in cash for their work.

More than 25,000 claims have been submitted so far and payments to about 12,000 have been made, totaling $36 million, according to the LA Times.

BP, through Graham MacEwan says that there’s a plan although like most of this crisis, the company isn’t sure how it will be fixed, “BP Chief Operating Officer Doug Suttles has been telling parish council members over the past few days that if someone’s tax documents are not available, we will find other metrics. I don’t know exactly how we are going to do that yet.”

Salesforce CFO: Company Aggressively Hiring Sales Staff [Dow Jones]
Cloud trailblazer Salesforce.com is looking to add more sales personnel, having added 18,000 new customers over the last 12 months according to CFO Graham Smith.

Mr Smith also said the company is rolling out two new products in the near future including Chatter, a “a social-networking application for office collaboration” and VMforce, a collaboration with VMware, Inc. that will give Java developers a new way to deploy applications over the web.

Mary Schapiro Isn’t Too Concerned About the Convergence Delay

Earlier in the week we heard the devastating news that the FASB and IASB’s convergence efforts, despite a good hustle, would not meet the G20’s deadline of June 2011.

FASB Chairman Bob Herz indicated that this was a serious case of the Boards having bigger eyeshades than their double-entry stomachs could handle but he tried to squelch the disappointment by assuring everyone that the mission is not a failure and the Boards would “get most if not all of [the accounting standard proposals] done by the end of 2011.”

Roberto and IASB Chair Sir David Tweedie, feeling bad about how the whole thing turned out, decided to send a letter to the G20, presumably to keep them from getting their panties in knot:

It is expected that this action by the FASB and IASB will not negatively impact the Securities and Exchange Commission’s work plan, announced in February, to consider in 2011 whether and how to incorporate IFRS into the US financial system.

We appreciate the support of the G20 for the development of a single set of high quality global accounting standards. The two boards remain committed to achieving that objective. We shall continue to provide timely updates regarding our progress.

Ohhh, right. The SEC. What do they think about all this? Judging by Mary Schapiro’s attitude of “assuming completion of the convergence projects” as a precursor to IFRS, she’s totally cool with it, making her thoughts known in a statement yesterday:

The boards believe that the modified plan will contribute to increased quality in the standards because it provides additional time for stakeholders to thoroughly consider the proposals and give both boards quality feedback. I view this as time that is well invested.

Quality financial reporting standards established through an independent process are threshold criteria against which the Commission’s future consideration of the role of IFRS in the U.S. reporting system will be based. I foresee no reason that the adjustment to the targeted timeline for certain joint projects should impact the staff’s analyses under the Work Plan issued in February 2010, particularly when that adjustment is designed to enhance the quality of the standards. Indeed, focused efforts on those standards the boards consider highest priority for the improvement of U.S. GAAP and IFRS will facilitate the staff’s analyses.

Accordingly, I am confident that we continue to be on schedule for a Commission determination in 2011 about whether to incorporate IFRS into the financial reporting system for U.S. issuers.

In other words, no rush guys. Take it from Mary, this happens all the time.

IASB and FASB update to G20 Leaders [IASB]
Chairman Schapiro Statement on FASB-IASB Decision to Modify Timing of Certain Convergence Projects [SEC]

SEC: Diebold Financial Execs Would Step Over Their Own Mothers to Meet Earnings Forecasts

The Diebold CFO, controller and Director of Corporate Accounting had a fairly standard routine back from 2002 to 2007 – 1) get daily “flash reports” 2) look at BS estimates that analysts came up with 3) cook up some ideas for meeting those estimates 4) make up the numbers.

Pretty standard stuff, especially if you buy the idea that “legally cooking the books is a critical skill for attracting investors.”


The SEC presented the accounting hocus-pocus earlier today:

The SEC alleges that Diebold’s financial management received “flash reports” — sometimes on a daily basis — comparing the company’s actual earnings to analyst earnings forecasts. Diebold’s financial management prepared “opportunity lists” of ways to close the gap between the company’s actual financial results and analyst forecasts. Many of the opportunities on these lists were fraudulent accounting transactions designed to improperly recognize revenue or otherwise inflate Diebold’s financial performance.
…
Among the fraudulent accounting practices used to inflate earnings and meet forecasts were:

• Improper use of “bill and hold” accounting.
• Recognition of revenue on a lease agreement subject to a side buy-back agreement.
• Manipulating reserves and accruals.
• Improperly delaying and capitalizing expenses.
• Writing up the value of used inventory.

Gotta give yourself some options, amiright? Can’t just simply rely on channel stuffing!

But in all seriousness, if you’re a top financial executive at a company and part of your daily routine is finding ways to increase profitability through accounting manipulation, at some point you’d have to think to yourself, “This is one shitty business we’re running.”

Accounting News Roundup: PwC Dealt a Blow on Penn. Healthcare Bankruptcy Ruling; Zipcar Going Public; Altria Gets Smoked by IRS | 06.02.10

PwC loses ruling on big Pa. healthcare bankruptcy [Reuters]
We’re a little late to the party on this one – holiday and all – but we’ll get you caught up. Allegheny Health, Education and Research Foundation (“AHERF”), a large Pittsburgh hospital system, sought Chapter 11 bankruptcy protection in 1998 with over $1.3 billion in debt. Unsecured creditors of AHERF accused Coopers & Lybrand of “conspiring with AHERF officials in the 1996 and 1997 fiscal years to hide the increasingly dire financial health of the Pittsburgh-based system.”

In 2007, a District Court in ruled that the creditors could not recover any damages from PwC on behalf of AHERF due to “a legal doctrine governing cases of equal fault, concluding AHERF was at least as much at fault as PwC.”

The Third Circuit Court of Appeals finally got the case on their docket and unanimously overturned the ruling saying that PwC could be liable if they had “not dealt materially in good faith with the client-principal.” The Third Circuit also disagreed with the lower court’s finding that misstated financial statements could have a short-term benefit to AHERF, saying “‘a knowing, secretive, fraudulent misstatement of corporate financial information’ cannot benefit a company.”


Zipcar Files for a $75 Million I.P.O. [DealBook]
The car-sharing company announced yesterday that it has filed for a $75 million offering to pay off debt and pay for general expenses as it plans to expand its business in the U.S. and Britain. DealBook reports that the company, founded in 2000, has lost money every year and warned in its S-1 filing that it might not become profitable as it incurs significant expenses in the expansion.

Man accused of ‘bomb bag’ threat at IRS office [SF Chronicle]
Lawrence Rios was charged yesterday for allegedly threatening an IRS employee after he handed the woman a note that read “bomb bag” and patted his backpack, insinuating that he had more than trail mix in there, in August of last year. This occurred after the employee had been assisting him for 10 minutes. We’d hate to see how he reacts at the post office.

SEC Is Boosting Scrutiny of Offshore Accounting, Fagel Says [Bloomberg BusinessWeek]
Shoddy accounting practices that were/are rampant in the U.S. – revenue recognition and outright fraud – have not been rooted out offshore, so the Commission is looking to tighten up the controls and practices of foreign subsidiaries. Marc Fagel, head of the SEC’s San Francisco office told Bloomberg, “They’re not doing that so much in San Jose, but they may have a Hong Kong office where they haven’t figured out they’re doing that, or that it’s a problem.” The San Fran office is looking to add a dozen attorneys and accountants to help with the Commission’s efforts.

Altria to pay $971 million in taxes, interest to IRS [Reuters]
The payment settles a dispute between the company (aka Philip Morris) and the Service over its 2000 to 2003 tax returns.

Accounting News Roundup: Reasons Why CFOs Are Still Stalling on Cloud Solutions; IASB Trumpets Latest Convergence Steps; OCA Gets a Deputy | 05.28.10

What’s stopping CFOs putting their money on cloud computing? [Silicon.com]
Some CFOs are still hesitant to jump into cloud computing for three main reasons: 1) They aren’t sure what they’re getting for their money 2) Security and information assurance 3) The cost of migrating their data.

All legitimate concerns, however steps can be taken and questions asked in order to address most concerns (or at least put CFOs in a better informed position than before):


1) “Ask providers to clarify how they intend to deliver your service so that you understand the risks involved and know exactly what you are getting for your money.”

2) “Undertake due diligence and ensure that cloud providers can replicate the appropriate security policies and procedures. Agree realistic [Service Level Agreements] and make certain that services are scalable enough to meet present and future requirements. Finally, ensure that everything is clearly written down in the contract.”

3) “Evaluate how much time, effort and money will be required to migrate data and rework business processes.”

IASB unveils profit and loss proposals [Accountancy Age]
It appears that Tweeds and Co. like the U.S. GAAP method of presenting Other Comprehensive Income: “If adopted, these proposals will result in further convergence of IFRSs and US GAAP in an increasingly important part of the financial statements.”

Buffett to Testify to Crisis Panel on Moody’s [WSJ]
This will be a breeze – folksy insights with a dash of sexual metaphors will clear up this area of the crisis. Plus, no one is going to scold an old man.

H & H bagel big cops to $369,000 tax fraud [NYP]
Helmer Toro simply kept the money. He’ll spend 50 weekends in jail for that little stunt.

Brian T. Croteau Named Deputy Chief Accountant for Professional Practice in SEC Office of the Chief Accountant [SEC]
Prior to the new gig, Mr Croteau was a Senior Associate Chief Accountant at the OCA. He joined the OCA after being a partner in the Assurance practice at PwC in the Auditing Services Group. He obviously wasn’t bothered by the Partner to Senior Associate title change. It must have been the “Chief Accountant” suffix.

Accounting News Roundup: The SEC’s Hunt on Banks’ Repos Continues; McKenna Named as a Loeb Finalist; Pabst Gets a New Owner After IRS Order | 05.26.10

SEC Shakes Down Banks on Repurchase Accounting [Compliance Week]
The SEC has received information from 19 “financial institutions” on their repurchase accounting that could help determine if the treatment at Lehman Brothers was ” an outlier in classifying asset repurchase agreements as sales even when those assets were destined to return to the balance sheet.”

Compliance Week reports that Steven Jacobs, associate chief accountant in the Division of Corporation Finance at the SEC said that the Commission wants companies (i.e. banks) to be more forthcoming in their disclosures, “In a situation like this,s a snapshot in time.” Disclosures should more clearly describe the company’s economic situation and its liquidity apart from the moment-in-time snapshot, he said. “I would be willing to bet companies would be more willing to do that if that position on the balance sheet didn’t look as good.”


2010 Gerald Loeb Award Finalists Announced by UCLA Anderson School of Management [UCLA]
Congratulations are due to our own Francine McKenna (look for her column later today) who was named as a finalist for a Gerald Loeb Award for Distinguished Business and Financial Journalism in the “Online Commentary and Blogging Category” for her work at re:The Auditors.

Other nominees include Adrian Wooldridge, Steven N. Kaplan, Nell Minow, Patrick Lane, Brad DeLong, Luigi Zingales, Saugato Datta, Thomas Picketty and Chris Edwards for “Online Debates” for The Economist; David Pogue for “Pogue’s Posts” for The New York Times; Jim Prevor for “Business, Finances and Public Policy” for The Weekly Standard.

Rewarding Failure [Portfolio.com]
The old idea of combining the SEC and the CFTC came up again last week and Gary Weiss thinks that it’s a terrible idea. Be that as it may, he thinks that it may “have some mileage” since some big names have recently come out to support the idea, including Mary Schapiro who was posed the question “can you explain any rational reason that both the CFTC and the SEC exist?”:

Schapiro’s response was wordy, but it boiled down to a qualified “yes.” If it were up to her, she said, there would be just one agency. Headed by her, I presume.

Evidently this seems to be a trend. Only about a week ago, the idea was endorsed by Arthur Levitt, the former head of the SEC. He told Barron’s that merging the two agencies is “so basic to any kind of regulatory reform, that to neglect that is really outrageous.”

Gary argues that an independent CFTC could “light a fire under a somnolent SEC” with the right leadership, although the current team doesn’t seem to be up for the job. If that continues, he adds, we could end up with one large(r) ineffective bureaucracy protecting the markets.

Pabst’s New Owner Built Fortune on Old Brands [WSJ]
The Journal has learned that Pabst is being purchased by investor C. Dean Metropoulos who has made a fortune in food branding. His past investments include Chef Boyardee, Duncan Hines and several others.

Pabst was up for sale after the IRS forced the sale by California-based Kalmanovitz Charitable Foundation. The Foundation had owned the company for a decade, after the Service allowed a five year extension for the nonprofit to own a for-profit business.

Accounting News Roundup: Cassano Dodges Criminal Charges; Mary Schapiro Acknowledges Some ‘Convergence Gaps’; IRS Audits of Colleges May Look at Coaches Salaries | 05.24.10

Crisis Probes Fail to Meet High Bar [WSJ]
Late on Friday, former AIG executive Joseph Cassano learned that he wouldn’t face criminal charges for his actions as the head of the company’s Financial Products division. According to the Journal, prosecutors did come close to filing criminal charges against Cassano and others but it was felt that the high burden of proof that “there was criminal intent behind executives’ decisions and that they intentionally misled investors” could not be met.

The government isn’t quite finished with Cassano, as he still may face civil charges from the SEC, which has a lower standard of proof.


The SEC’s Mary Schapiro on the Myths of GAAP/IFRS Convergence: The Lady Doth Protest Too Much [Re:Balance]
Jim Peterson took a closer look at Mary Schaprio’s speech at the annual conference of Chartered Financial Analysts where she mentioned IFRS but also convergence efforts between the IASB and the FASB. The SEC has maintained that convergence should be the initial goal for reporting standards.

Jim is concerned that the gap between the ultimate goal of convergence and the reality of some of the key issues at stake are no small feat:

There is, indeed, no more eloquent concession of the “convergence gap” than Schapiro’s own admission that “US GAAP and IFRS are currently not converged in a number of key areas,” including “the accounting for financial assets (the very types of securities at the center of the financial crisis), revenue recognition, consolidation principles, and leases.”

Any other problems, Madame Chairman? These on her list are so comprehensively grave that they will keep the international standards standoff alive until the end of time.

Which would put IFRS on a even longer track to adoption.

IRS audits of schools might delve into salaries of coaches [USAToday]
The IRS’ interest in the determination of the highest paid employees for colleges and universities has a few people worried. Not necessarily because anything is wrong but because the IRS is just a scary beast, “John D. Colombo, a University of Illinois law professor who has written about tax exemption and college athletics, says he doesn’t think the IRS action will fundamentally alter college athletics business. But he adds, ‘Audits are never comfortable. Just the IRS being there asking questions makes people nervous.'”

Primarily, the IRS is concerned over the business activities that higher education institutions engage in that aren’t “related to the schools’ primary purpose.” The interest in athletic coaches’ salaries is such that these individuals are often some of the highest paid employees of the school. The IRS is interested in how colleges and universities justify these salaries and to ensure that corporate sponsorships (not considered to be a business activity) are complying with certain rules so they are not considered advertising revenue.

You Can Forget About Landing That CFO Position at the SEC

Mary Schapiro took some time out of her fraud fighting Friday to ask Kenneth Johnson to quit acting as the Commission’s CFO and to take on the official responsibility of running the Office of Financial Management.

Mr Johnson (KenJo?) vehemently accepted the offer and threw in a shout out to the boss, “I’m honored to accept this new role at such an important time for the agency. Chairman Schapiro is deeply committed to strong financial management, and I’m proud to lead the agency’s initiatives in this area.”


Presumably, the CFO position isn’t a kicking-down-doors type job so Johnson’s first order of business should be to determine the savings on a group rate at one porn site that can appropriate service all tastes.

Washington, D.C., May 21, 2010 — Securities and Exchange Commission Chairman Mary L. Schapiro today announced that Kenneth A. Johnson has been named Chief Financial Officer for the agency.

Mr. Johnson has been serving as acting CFO for much of the past year. The agency’s CFO is responsible for leading its Office of Financial Management, which handles the budget, finance, and accounting operations for the SEC.

“I’m delighted that Ken has agreed to take on this role at the SEC,” said Chairman Schapiro. “His deep experience in the financial arena will be incredibly valuable as we grow as an agency.”

Mr. Johnson added, “I’m honored to accept this new role at such an important time for the agency. Chairman Schapiro is deeply committed to strong financial management, and I’m proud to lead the agency’s initiatives in this area.”

Mr. Johnson, 37, joined the SEC in 2003 as a Management Analyst in the Office of the Executive Director. In that role, he advised on all aspects of the budget process, developed strategy initiatives, and responded to inquiries from the Office of Management and Budget (OMB) and Congress regarding the SEC’s budget and financial operations. He became Chief Management Analyst in 2006.

Mr. Johnson has served as a valuable staff expert on legislative proposals, and he managed the development of the SEC’s long-range Strategic Plan that would guide agency policy through 2015.

Prior to joining the SEC staff, Mr. Johnson worked as a Commerce Analyst at the Congressional Budget Office. His primary responsibility in that role was to analyze and report on the budgetary effects of committee-approved legislation.

Mr. Johnson earned his Masters in Public Policy from the Kennedy School of Government at Harvard University, and earned his BA at Stanford University.

Michel Barnier: EU Is ‘Impatient’ with SEC, FASB Pussyfooting Around on Accounting Standard Convergence

Michel Barnier is certainly doing his damnedest to make a name for himself by virtue of the accounting standards convergence and scrutinizing the role of auditors.

Accountancy Age reports his latest soundbite at a speech in Washington today, telling “leaders” that while their efforts to converge international accounting standards and U.S. GAAP are admirable, that he and the entire continent of Europe are getting sick of the stalling.

“I appreciate that the US authorities have made progress towards convergence, but in the EU, we are getting impatient.”

Apparently Mr Barnier has had enough with this little dance going on between the FASB and the SEC. The FASB has been punting to the SEC fairly regularly and we’re all aware of the SEC’s tendency for inaction, so maybe Barns figured that a Frenchman calling out Americans on their own turf would help move things along.

Barnier tells US that Europe is “getting impatient” on accounting convergence [Accountancy Age]