No One Should Be Surprised to Learn FTX Used QuickBooks
Before the House Committee on Financial Services on Tuesday, recently-appointed FTX CEO John J. Ray III gave testimony to back up comments he made to the New York Times last month about FTX being a “complete failure” the likes of which he hadn’t seen in two decades. Back in the day, Ray was chairman of […]
Egad, Pharma Bro Martin Shkreli Was an Insufferable Client
Everyone who works in public accounting experiences a bad client or two. But then again, there are bad clients, and then there are the Martin Shkrelis of the world. It’s really a disservice to the bad clients out there to lump Martin Shkreli in with them. This CNBC report details the testimony of Corey Massella, […]
Lois Lerner Knows What You People Are Thinking
"I have not done anything wrong. I have not broken any laws. I have not violated any IRS rules or regulations," Lerner, the head of an IRS division overseeing tax-exempt groups that targeted conservative groups, said before the House Oversight Committee. Lerner then said she was following her counsel's advice not to testify. " "I know that […]
Tim Cook Is Sorry He’s Not Sorry
Apple Inc Chief Executive Tim Cook made no apology on Tuesday for the iPad maker saving billions of dollars in U.S. taxes through Irish subsidiaries and told lawmakers that his company backs corporate tax reform, even though it may end up paying more. The Senate Permanent Subcommittee on Investigations has found that Apple in 2012 alone […]
Acting IRS Commissioner Admits That Planting a Question About Reviewing 501(c)(4) Orgs at a Sleepy Tax Conference Wasn’t Such a Great Idea After All
Under less-than friendly questioning from members of the Senate Finance Committee Steven Miller was all, "Yeah, that was my bad." “I will take responsibility for that,” Miller said, expanding on last week’s admission that he knew mid-level manager Lois Lerner had answered a question planted by a member of an IRS advisory council. “Now that we had […]
It Looks Like Clifton Gunderson Knew About Rita Crundwell’s Secret Bank Account
Everyone remember Rita Crundwell? She's the horse lady that gave Dixon, Illinois a long face when it was discovered that she had been helping herself to the city's money. About $53 million or so over a couple of decades. That's not Madoff, Stanford, or Petters money, but it's not exactly a small sum. Last summer Dixon […]
MF Global CFO Was Too Busy Trying to Save the Company to Be Bothered with Things Like Illegal Transfers of Customer Funds
Henri Steenkamp will not be going down for this: MF Global Holdings Ltd. […] Chief Financial Officer Henri Steenkamp plans to tell a House panel he had "limited knowledge" of money transfers during the securities firm's final days that led to an estimated $1.6 billion shortfall in customer funds. Mr. Steenkamp was "taken up with other […]
Lehman Whistleblower on Ernst & Young’s Reaction to His Letter
“They certainly didn’t support it. On the Repo 105 issue, they knew about it; they did not appear to know that the number was so large.”
~ Matthew Lee, the Lehman Brothers whistleblower, in testimony today.
The FASB Punts Repo Accounting to the SEC
It’s not surprising that FASB’s Bob Herz was called to submit comment on the House Financial Services Committee’s hearings on Lehman – more specifically, Public Policy Issues Raised by the Report of the Lehman Bankruptcy Examiner – and it’s even less surprising that Herz stated that the FASB will be ready when the SEC is to alter repo accounting rules should this be, you know, a big deal going forward.
As many of you already know, the FASB has a history of taking a reactive stance to accounting issues during the financial crisis (case in point: mark to market) and repo accounting is no exception. Sort of like the SEC cracking down on Madoff-esque Ponzi schemes after Madoff, it defeats the purpose as financial criminals very rarely repeat techniques that have already been uncovered and prosecuted. But oh well, showing up late to the party is still showing up and proves FASB is at least paying attention.
Herz’s testimony reinforces FASB’s position as standards setter, not regulator. Working with the SEC will allow the regulators to put together a case for accounting standards that could address repo accounting should the SEC discover it is widespread among financial firms but for now, FASB will be sitting back and waiting to see what the SEC comes up with.
As it turns out, FASB isn’t nearly as reactive as it appears on the surface: plenty of guidance already exists for handling these transactions and perhaps had Ernst & Young been looking hard enough, they would have easily found something amiss.
When developing the guidance for determining whether a company maintains effective control over transferred assets, the FASB noted repo transactions have attributes of both sales and secured borrowings. On one hand, having a forward purchase contract is not the same as owning the asset. On the other hand, the contemporaneous transfer and repurchase commitment entered into in a repo transaction raises questions about whether control actually has been relinquished. To differentiate between the two, the FASB developed criteria for determining whether a company maintains effective control over securities transferred in a repo transaction.
Control? Is that was this about?
Regardless, FASB is prepared to offer even more guidance on the matter should current guidance not be sufficient to make sense of future contracts that could be used in a fraudulent manner. Of course, the financial criminals have likely already discovered a new, innovative way to hide liabilities or stash nasties off-sheet but instead of looking for those, the SEC will be working closely with FASB in the future to prevent another Lehman. History always repeats itself but, sadly, financial crimes rarely do. It appears our friends at FASB never got that memo.
Source: Discussion of Selected Accounting Guidance Relevant to Lehman Accounting Practices