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Accounting News Roundup: Tesla’s Numbers; Valeant’s New Name; Deloitte’s Cybersecurity Spending Spree | 05.08.18

Posted on by Caleb Newquist

This Is Why Tesla Should Answer Boring Questions [Bloomberg]
Bloomberg columnist Liam Denning expressed some surprised as to how Tesla’s gross margin improved despite sales going down in the first quarter. It involved some accounting sleight of hand:

One big factor was a change in how Tesla accounts for vehicles it leases. Whereas previously many of these would have been accounted for as operating leases, with much of the revenue deferred, they are now effectively accounted for as sales, but with a right of return.

Tesla cited this as a factor in last week’s release, but without details. The numbers in the 10-Q filing show that, stripping it out, the like-for-like automotive sales margin drops from the headline 18.4 percent to 17.1 percent. Underlying growth in sales was 11.2 percent, rather than the 25.9 percent the headline revenue figure suggested.

Someone in the finance department gets an A+ for that one.

Valeant Will Become Bausch Health Companies Inc. [VPI]
To those of us who remember this 8-K that, at the time, I called “an amazing feat in impregnable corporate argot,” Bausch Health Companies will always be Valeant Pharmaceuticals in our hearts.

Four Women Accuse New York’s Attorney General of Physical Abuse [TNY]
Eric Schneiderman resigned a few hours after this New Yorker article was published. Mr. Schneiderman’s career as New York Attorney General involved many tussles with the Big 4, including EY’s settlement over Lehman Brothers’ bankruptcy, a subpoena of PwC’s audit workpapers of ExxonMobil, last year’s hack of Deloitte, among others.

Deloitte plans $600m of cyber security spending [FT]
Speaking of that hack of Deloitte, if you recall, the firm failed to use two-factor authentication for its global email server, which helped grant access to the intruder. So naturally, the firm is spending over half a billion on its cybersecurity to get things up to snuff.

Previously, on Going Concern…

I wrote about my real fear in the aftermath of a massive cloud failure: old, crusty CPAs saying “I told ya so.”

In Open Items, someone is asking about assessment tools for hiring.

In other news:

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Why CEOs Avoided Getting Busted in Meltdown [Bloomberg]
“Fraud, it turns out, begets fraud.”

Old Mutual Hedge Fund Group Hires New C.F.O. [DealBook]
Old Mutual Asset Management, the hedge fund arm of the London-based life insurer, is set to name Steve Belgrad as chief financial officer on Wednesday. Mr. Belgrad, a graduate of Princeton and Harvard Business School, is leaving his post as chief financial officer of HarbourVest Global Private Equity, which he joined in 2008. Mr. Belgrad, who previously worked for the Affiliated Managers Group, the Janus Capital Group and Morgan Stanley, will begin at Old Mutual on June 1.

SEC to Form Small-Business Committee [WSJ]
The U.S. Securities and Exchange Commission is forming a small-business committee to review fundraising rules for small private firms that critics say hinder access to capital and are stunting economic growth. Testifying before the House Oversight and Government Reform Committee on Tuesday, SEC Chair Mary Schapiro said the new division will focus on “regulatory questions posed by new capital-raising strategies,” among other issues.

IRS Demands $6 Million More from Racing Champ Castroneves [AT]
The Internal Revenue Service has filed suit in U.S. Tax Court against three-time Indianapolis 500 champion Helio Castroneves after he won a high-profile victory against the IRS two years ago and paid $5 million in taxes.

The Top 400 Taxpayers: Incomes Fell 21.5%, Tax Rates Rose 8.2% in 2008 [TaxProf Blog]
Are the rich getting eaten?

IRS Asks for Input on Health Care Law [Forbes]
Guess who’s out of ideas?

AICPA Wants IRS to Let Small Businesses E-file S Corp Form [AT]

Sweat Protection Without the Stains [WSJ]

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Gov. Christie vs. ‘Jersey Shore’ [NYT]
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Accounting Firms Face ‘Big Impact’ From Draft EU Restrictions [Bloomberg]
Companies that are publicly traded “shall appoint at least two statutory auditors” under the measures, which are designed to improve trust in “the veracity of the financial statement,” according to a draft version of the proposals from the European Union’s executive arm obtained by Bloomberg News. “Many of these ideas aren’t new but we’ve never seen proposals that include all of these ideas at the same time,” Michael Izza, the chief executive of the Institute of Chartered Accountants of England and Wales, said in a telephone interview today. “They’ve been aggregated in one place and that’s where you get the big impact.”

Don’t Count On Europe To Reform Auditors And Accounting [Forbes]
Francine McKenna: “If coalminers operated with as little foresight and acknowledgment of mistakes as the auditors, more would be trapped below ground as a result of “accidents” that could have been averted. If you trusted a doctor with the kind of reasonable assurance approach the auditors claim is sufficient to protect the financial system and the level tolerance for mistakes and being “duped” they believe we should accept, you’d be dead.”

Barnier vows to break the big four [Independent]
“This isn’t about the Big Four versus Brussels. We know from our contacts and discussions with BIS [the Department for Business] and the CBI that they don’t support many of these more radical proposals because they don’t think they will increase quality or competition… [Mr Barnier] has set out his stall and that is the world of politics.”

As InterOil tumbles, actor Shia LaBeouf and John Thomas Financial CEO Thomas Belesis have egg on their faces [WCF]
Those Transformer residuals will come in handy.

Benefits Tax Hits Businesses Twice [WSJ]
State and federal taxes are rising for employers across the U.S. as states struggle to repay federal loans for unemployment benefits, including more than $1 billion in interest due Friday. The increases in state and federal unemployment-insurance taxes—paid primarily by businesses—are hitting as the recovery appears close to stalling, consumer confidence is low and unemployment remains high at 9.1%. These tax increases come on top of measures intended to tame government budgets, including other state tax increases and spending reductions as well as federal cuts.


Tax wars: the accidental billion-dollar break [FT]
The rule is known as “check-the-box.” It allows US companies to shift profits from operations in high-tax countries simply by marking an Internal Revenue Service form that transforms subsidiaries into what the agency calls a “disregarded entity”. Others have labelled them “tax nothings”. Check-the-box allows companies to avoid the normal 35 per cent US corporate tax on certain types of income. The Treasury Department estimates that annual revenue losses from check-the-box have hit almost $10bn. Other countries are also said to lose billions as income is shifted from other high tax jurisdictions to places with low or no taxes, although there is no official estimate.

Chaoda’s Chairman and CFO, Fidelity Manager Accused of Insider Trading [Bloomberg]
Chaoda Modern Agriculture Holdings Ltd. (682)’s Chairman Kwok Ho, Chief Financial Officer Andy Chan and Fidelity Management’s George Stairs were accused of insider trading by Hong Kong’s financial secretary. The government alleges Kwok and Chan told Stairs about a June 2009 share placement three days before it was publicly announced, according to a notice released by Hong Kong’s Market Misconduct Tribunal today. The portfolio manager at Fidelity Management & Research Company allegedly netted HK$1.98 million ($254,000) on behalf of the funds that he managed by selling 374,000 shares prior to the placement and then buying 630,000 shares at a lower price as part of the stock sale.

Auditor defense may have holes in Deloitte case [Reuters]
“It’s always difficult to believe that an auditor that’s been auditing for seven years or more during an alleged ongoing fraud had no red flags,” said Andrea Kim, a partner at Diamond McCarthy LLP in Houston.