Considering the lengths that some companies go to manipulate massage their revenue, this passage from […]
We don't have an official headcount for this particular IFRS rally, but it's our understanding […]
IFRS Will Never Be Adopted in the U.S. If These Two Pointy-Headed Pauls Have Anything to Say About It
I know. What the hell? Isn't IFRS a predetermined given like Avengers 2 and Kardashian […]
Or in some cases, just plain fraudulent.
In prepared remarks at an investors conference, Luis Aguilar said he is increasingly concerned about the proliferation of small private companies that elect to merge with public shell companies in lieu of more rigorous methods of becoming public, such as a traditional IPO. “While the vast majority of these companies may be legitimate businesses, a growing number of them have accounting deficiencies or are outright vessels of fraud” Aguilar said, speaking at a Council of Institutional Investors conference here.
”There appear to be systematic concerns with quality of auditing and financial reporting,” he said. “Even though these companies are registered in the U.S., we have limitations when it comes to enforcing U.S. securities laws with them.”
US Securities Regulator Aguilar Sounds Backdoor-Merger Alarm [Dow Jones]
SEC official concerned with ‘back-door’ listings [MarketWatch]
He may be on his way out the door but still IASB chair David “that’s Sir David to you” Tweedie is still sick of all our heel-dragging on IFRS in the U.S. He hasn’t gone so far as to say we’ll be left in the capital market dust if we don’t adopt tomorrow but he’s clearly fed up with our procrastination.
If they put off a commitment to international financial reporting standards beyond 2011, U.S. accounting rulemakers and standard-setters would impose “unnecessary costs and risks on U.S. companies,” Sir David Tweedie, chairman of the International Accounting Standards Board, said Wednesday at a U.S. Chamber of Commerce gathering on the future of financial reporting.
The major risks are competitive ones, said Tweedie. U.S.-based multinationals already must fill numerous sets of accounting books. Many must file their financials under U.S. generally accepted accounting principles even as they report on the activities of their overseas subsidiaries under IFRS or the standards crafted by individual nations, he pointed out. At the same time, their foreign competitors can use IFRS for all purposes, even for filing with the Securities and Exchange Commission, he added.
As is, the transition to IFRS is estimated to cost American companies $35 million per year (remember 3 years of restatements will be required). We’re not sure if he has access to different estimates that somehow make qualified IFRS monkey restatements more expensive in 2012 and beyond than they would be by the end of this year but it seems painfully clear that he means business.
I’m not sure if he missed the memo but we don’t seem as enthusiastic about convergence as we did when we delayed the release of a roadmap in 2008. Three years later, we don’t appear to be any more prepared for the transition than we were then and still have three (or make that four) more good years to drag our heels according to recent statements by the SEC.
How much clearer does Tweeds need it? We’re just not that into your standards.
Merging the iconic New York Stock Exchange with Germany’s Deutsche Boerse AG will force European companies to switch to using U.S. accounting rules which have superior disclosures, Mayor Michael Bloomberg said on Friday.” This will force a common set of accounting standards on the world; the American disclosures are better,” Bloomberg said on his weekly WOR radio show, though he admitted U.S. rules did not prevent Bernard Madoff from swindling billions of dollars through a Ponzi scheme. [Reuters]
I see that FASB is sticking to its schedule for ending most off-balance-sheet treatment for leases, and so is the IASB. It’s about time, frankly, if only to spare us poor, I mean, intrepid financial journalists from having to sort through the particulars of the current accounting treatment a moment longer than necessary.
I speak from personal experience here, having wrestled with the false distinction between capital and operating leases for a sidebar to a piece I wrote for CFO Magazine way back when. The article delved into the details of a particularly complex variation that companies were using to finance real estate, called synthetic leases.
I swear, that sidebar itself shaved a year off my life, and at my age, every one counts, and did even a decade or so ago.
In fact, the hoops that companies must jump though to get a deal to qualify as an operating lease still make my head spin. Consider: In order to qualify, the current rule, known as FAS 13, requires that the lease fail all of four tests aimed at distinguishing the financing from being the equivalent of ownership.
The thing that puzzled me about all this is that many, if not most, CFOs claimed that accounting treatment wasn’t the reason, or at least not the main one, that they used such financing techniques in the first place.
But the reason they gave often came down to their advantageous cost, and like all off-balance-sheet financing techniques, I could never quite understand how that lower cost arose without the accounting treatment.
After all, it seemed to me the only reason operating leases were less expensive than capital leases was that the underlying asset wasn’t counted as the property of the company by a sufficient number of investors willing to therefore pay a premium for the company’s equity. And if they did that, they were ignoring the fact that the asset was indeed the property of the company on anything other than a narrow, legal basis, and that the arrangement wasn’t financing its purchase.
So tell me again how off-balance-sheet financing results in lower cost if it doesn’t really do that.
Accounting News Roundup: 1099 Reporting Is the Latest Political Football; Financial Reporting Overhaul in the Works?; Zynga’s CFO Hire Spurs IPO Talk | 08.02.10
Parties Play Politics With Unpopular Tax Measure [WSJ]
The new 1099 reporting requi a bit of belly aching to point of many groups asking for a repeal. Too bad the members of Congress are the ones with the power to actually make something happen:
“The House rejected a bill Friday that would have repealed the provision. The two parties disagreed on how to make up the lost revenue.
‘This foolish policy hammers our business community when we should be supporting their job growth,’ Sen. Mike Johanns of Nebraska said in the Republicans’ weekly radio and Internet address Saturday. ‘It’s only one example of how the administration’s promise to support small businesses really rings hollow.’
Democrats blamed Republicans for Friday’s failure.
‘Despite all of their rhetoric about the need to eliminate this reporting requirement, Republicans walked away from small businesses when it mattered most,’ said Rep. Sander Levin (D-Mich.), chairman of the House Ways and Means Committee.”
FASB Alumnus Trashes GAAP (and IFRS) [The Accounting Onion]
“I suspect that the folks being paid the big bucks to make the tough calls on accounting standards don’t pay a lot of attention to to the likes of Tom Whatshisname, even were I to announce that the sky is falling. But, I don’t take it personally. Over the past 40 years, any PhD not drawing a salary from the Big Four has been viewed with more suspicion than respect by the standard setting establishment.
I mention all of this now, because there is a new voice, whose credibility and qualifications cannot be so easily dismissed. That voice belongs to FASB alumnus David Mosso, who has written an 80-page monograph entitled Early Warning and Quick Response: Accounting in the Twenty-First Century). If you don’t want to believe me, take it from him: GAAP is broken.”
Group formed to overhaul financial reporting [Accountancy Age]
Meanwhile: “A project to overhaul company reporting has been launched by a high level group of accountants, businesses, regulators and market participants.
The International Integrated Reporting Committee will look at the wider concerns about financial reporting, in terms of addressing risk, and presenting a clearer and broader picture of companies’ performance, including governance and environmental issues.”
Goldman Details Its Valuations With AIG [WSJ]
“How did Goldman come up with the mortgage-securities prices it used to extract cash from AIG?”
Before There Can Be An IPO, First Comes A New CFO For Zynga [Tech Crunch]
Dave Wehner comes in from Allen & Co. taking the spot of Mark Vranesh who is becoming Chief Accounting Officer. What does all this mean? First, it gives most MSM outlets a day or two worth of stories about when Zynga will go public but mostly it means the business of Farmville, no matter how you hate it, is serious business.
Facebook Would-Be Owner Says He Owes His Claim to Arrest [Bloomberg]
“Paul Ceglia, who claims in a lawsuit that he owns 84 percent of Facebook Inc., said his case wouldn’t have been possible if state troopers hadn’t come to his house in October to arrest him for fraud.”
Forced Employee Engagement and the Overworked Employee [The Exuberant Accountant]
“In my many interactions with business owners, I have heard some speak of employees as being ‘lucky to still have a job.’ While that may be true, thinking (and acting) in such a manner is very short sighted.”
Twitter, Facebook, LinkedIn? [AccMan]
Got business model?
Accounting News Roundup: Senate Will Get to Financial Overhaul Post-July 4; Google to Cover Extra Health Benefit Costs for Gay Couples; Barry Wins a Stevie | 07.01.10
House Vote Sends Finance Overhaul to Senate [WSJ]
“The House agreed Wednesday to a sweeping rewrite of the nation’s financial regulations, moving the initiative one step closer to becoming law.
Focus now shifts to the Senate, where questions linger about whether Democrats have nailed down enough support from the handful of Republicans needed to overcome a likely filibuster. The Senate won’t take up the bill until after the July 4 recess, creating an awkward pause in which the bill’s opponents will have one last chance to derail it.”
Google to Add Pay to Cover a Tax for Same-Sex Benefits [NYT]
“On Thursday, Google is going to begin covering a cost that gay and lesbian employees must pay when their partners receive domestic partner health benefits, largely to compensate them for an extra tax that heterosexual married couples do not pay. The increase will be retroactive to the beginning of the year.
‘It’s a fairly cutting edge thing to do,’ said Todd A. Solomon, a partner in the employee benefits department of McDermott Will & Emery, a law firm in Chicago, and author of ‘Domestic Partner Benefits: An Employer’s Guide.’
Google is not the first company to make up for the extra tax. At least a few large employers already do. But benefits experts say Google’s move could inspire its Silicon Valley competitors to follow suit, because they compete for the same talent.”
Senate chairman starts probe of Transocean’s taxes [AP]
Senator Max Baucus (D-MT) would like to know whether Transocean’s move offshore was an exploitation of U.S. tax law, “The chairman of the Senate Finance Committee is launching an investigation into the tax practices of Transocean Ltd., owner of the Deepwater Horizon rig that exploded in the Gulf of Mexico, leading to the massive oil spill.”
Sadly, this will lead nowhere since exploitation ≠ illegal in this case. Deplorable? Yes. Tax malfeasance? No. Political pandering? Absolutely.
Deloitte CEO Barry Salzberg Wins Executive of the Year – Services at the 8th Annual American Business Awards [PR Newswire]
It’s a Stevie award! BS beat out Jeffrey Bezos, chairman, president and CEO, Amazon.com; Dominic Barton, managing director of McKinsey & Company; and Joseph Neubauer, chairman and CEO of ARAMARK for the Stevie.
In his own words, “I am very honored by this recognition, which truly is a testament to Deloitte’s progress and the industry-leading work of our more than 40,000 people in the United States. Although we have faced challenging economic times in the past few years, Deloitte’s diverse portfolio of quality services and investment in talent continue to drive our business and differentiate us in the marketplace. We are eager to approach the opportunities that await us and our clients in the economic upturn.”
GAAP and IFRS: Six Degrees of Separation [CFO]
That is, six major differences between the two sets of rules that will have to be ironed out. Namely: error correction, LIFO, reversal of impairments, PP&E valuation, component depreciation and development costs. After that, this convergence thing will be a breeze.
Accounting News Roundup: PwC Has an Iceland Problem; Chief Audit Execs as the Bad News Messengers; Would IFRS Result in More Shareholder Litigation? | 05.13.10
How Dangerous is the Two-Billion Dollar Suit Against PwC Over Iceland’s Glitnir Bank? The Answer is Blowin’ in the Wind [Re: Balance]
In terms of a European financial laughingstock, prior to Greece, there was Iceland. Glitnir Bank (or what’s left of it) is suing its former chairman, CEO, other directors, and PricewaterhouseCoopers for their implosion last year.
For PwC’s part, one might think that since the lawsuit is in a country no one really pays much attention to, that it’s a bit of a joke. Well, that would not be so:
PwC faces a real lawsuit (for the complaint, here), in a real court – Manhattan’s New York Supreme – brought on behalf of the bank’s creditors and advised by Steptoe & Johnson and Slaughter & May – real lawyers who know their billions from their millions. Nor, any more than any of the other Big Four accounting firms, does PwC have the resources to absorb a ten-figure litigation blow (here).
Prosecutors Ask if 8 Banks Duped Rating Agencies [NYT]
Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch come on down!
When the CAE is the bearer of bad news – and gets shot in the process [Marks on Governance]
What’s that saying about messengers? Chief Audit Executives (“CAE”) are often bad news messengers and talk about a thankless job. As Norman Marks tells us about one person that shared with three tricky situations with past employers:
In each of these situations I firmly believed that something that the organization was doing was highly unethical and/or not in the best interest of the organization, placing it at risk. Two of the organizations actually admitted that what was being done was in direct violation of the organization’s policies and in one situation state employment laws. In one situation I had my exit meeting with HR, and in the other two organizations only with the CAE.
In case you’ve misremembered, whistleblowers usually have a rough go of it, as Norman states, “All CAEs recognize that this is a risk, and in my experience they all accept it with full knowledge that their career at their company may effectively end with the delivery of the bad news.”
GAAP’s Lawsuit Buffer [CFO]
Some might argue that U.S. GAAP has a very distinct advantage over a more principles-based accounting system – lower litigation risk.
Of course companies could document the hell out of their “principles-based” conclusions to mitigate this risk but shareholders would likely still question their cockamamie reasoning. Now a recent study entitled “Rules-Based Accounting Standards and Litigation” is suggesting “that companies that violate rules-based standards have a lower likelihood of getting sued than those that are accused of violating more-principles-based standards,” giving the pro-U.S. GAAP contingent more to stand on.
The authors did admit that it’s difficult to conclude that principles-based would absolutely, 100% lead to more litigation due to our “unique litigation system” and the fact that we live in a sue-happy paradise.
Ed. Note: This is the second installment of our dialogue with experts on International Financial Reporting Standards. See our first post with IFAC President Bob Bunting here and if you are an IFRS expert interested in joining the discussion, please contact us at [email protected]
It’s appropriate to disclaim that The Summa’s Professor David Albrecht is a friend of Going Concern and for the most part he and I share similar views on the US conversion to IFRS. If you have not read any of our previous rants