Word to the Wise: Don't Get Duped in India

The PwC/Satyam Computer Services fraud is becoming bigger news as more is learned about the case is reported on.

The partners on the engagement are currently in "judicial custody" for their alleged complicity in for not discovering a phantom $1 Billion on Satyam's books. Original NYT article here.

Sounds like paradise, "They sleep on the floor in a cell with other inmates, in temperatures that often exceed 100 degrees."

But one of the auditors is keeping it real, thank the Creator:

The other PricewaterhouseCoopers partner, Srinivas Talluri, a youthful 48-year-old with wire-rim glasses, is trying to maintain his professional mien behind bars. In the interview, his hair was neatly brushed, he carried a notepad and a plastic water bottle and his T-shirt was so smooth it seemed ironed...He recently offered to check the accounts at the prison’s canteen, just to keep his mind sharp.

No word from the Times if Mr. Talluir was also carrying his 10-key calculator.

The Tramp will be following this story closely as the repercussions of this fraud may fall hard on PwC...stay tuned.

2 Auditors Held in India Fault System [New York Times]
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I Hope You Can Sleep At Night!

Okay, you've been fired. It sucks (or maybe it didn't). Anyhoo, did you stop and think for the poor sap that had to fire you? They had to antagonize over the look of defeat, shock, and oops I crapped my pants that was plastered all over your face when the words "this is a difficult decision for the Company" were slowly uttered in your direction.

Regardless of what you think that heartless prick (who's address conveniently found it's way into your possession) who gave the parting remarks, he/she may have had an ethical quandary going on inside their heads. And, chances are, you aren't the only one they chopped.

So the question really is...is firing people unethical? Before you scream out, "You bet your ASS it's unethical" at least read the post by Randy Cohen at the Times so you can leave insanely self-righteous and achieve legendary status at the next company where you get the can.

Specifically, this might help:

...people are not machines. Many ethical systems mandate that you do not treat a person like a thing. You must regard other people as full human beings with the same moral rights as you. And that must include the right to make a living.

So, get back out there and get your ass fired again! At least you'll have a snappy response this time!

Is Sacking People Unethical? [Sox First] Sphere: Related Content

...And Then the PCAOB Celebrated at TGI Friday's

The PCAOB is continuing its rape and pillage of auditors of public companies. After having its way with Deloitte and McGladrey & Pullen, the PCAOB thought it would take a little detour through Times Square to E&Y.

According to the PCAOB, E&Y sucks at a lot of things including but not limited to:

• Revenue recognition
• Compiling enough evidence for valuation of securities
• Obtaining appropriate evidence for estimating the valuation of income tax allowances

Per CFO.com:

The deficiencies were linked to the firm's national office in New York and 22 of its 85 U.S. offices. These errors were significant enough for the oversight board to conclude the firm "had not obtained sufficient competent evidential matter to support its opinion on the issuer's financial statements or internal control over financial reporting."

Ok, so deficiencies at 22 out of 85 offices is approximately...not very fucking good.

Oh, and the best part is that two of clients with the revenue recognition deficiencies ending up restating their financial statements. Oops.

PCAOB Rips E&Y on Revenue Recognition [CFO]

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Ethics Exam? I Don't Remember an Ethics Exam

Let's talk about a serious topic people: Independence. For the FB4 audit firms, it's kind of a big deal.

Arthur Andersen went the way of the Dodo back in 2002 due to a, some may say, lack in judgment. Others may say it was a monumental fuckup.

Said fuckup was due to a bunch of things but the independence of AA was certainly in question because of consulting work that AA did for Enron, plus some racy photos from the Enron/Arthur Andersen mixer at Gavelston Island.

In the wake, SarbOx seemingly put an end to auditors doing most non-audit, consulting work. Good, great, grand, FINE.

Well, seven years later, PwC has had enough of this independence/shmindependence and has been trying to get IT implementation and integration services back into their Advisory practice (after they sold out to IBM back in '02) because auditing fees just don't cut it people.

Which begs the question: What else is PwC trying to get back into that could potentially get them into hot water? Some initial speculation:

• Reinstating the no fat chicks rule
• Public depantsing of associates that fail any section of the CPA exam more than once
• Confiscation of laptops on engagements with 500 or less billable hours and audits will be completed on pencil and paper
• Mandatory engagement team sleepovers at client locations during busy times

Wait, that last one is still ongoing. If there are any other policies out there that should be brought to light, by any firms, please inform.

How Satyam Supported PwC’s Schizophrenic Strategy To Reenter The Systems Integration Business [re: The Auditors]

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Tramp Weekend: Unfounded Rumor That's Probably True About KPMG

The house of Klynveld is FREEZING pay for rest of this fiscal year. Those getting promoted usually get a bump in the summer and then a little boost at fiscal year end (Sept 30 for the Radio Station). Yeah, well not so much this year. No raises in the summer and no raises at the end of the fiscal year for anyone.

Heavy drinking and massive red meat consumption may now ensue. Sphere: Related Content

The Tony's Decide to Go With Different Dorks to Walk Onstage With Briefcases

Bloomberg is reporting today that KPMG will be taking over the counting of votes for the Tony Awards ousting long time bean vote counters Lutz & Carr.

When asked why the change was made, Alan Wasser, an executive with the awards said, "It gives the Tonys the imprimatur of credibility".

Ok, a couple of comments on that quote:

1. OUCH, Lutz & Carr - did an artsy-fartsy executive just call you out as not being good at vote counting?

2. Since when does KPMG give anything the "imprimatur of credibility"?

Regardless, I'm sure Tim Flynn is busting out the show tunes out of the speakers at 345 Park right now.

KPMG Takes Over Vote Counting for Tonys, Ousting 50-Year Firm [Bloomberg] Sphere: Related Content

Bureaucracy To Get in the Way of the Fed's Plan to Make the SEC the Red-Headed Step-Child of Government Agencies

An article over at Bloomberg today lays out some of the details about the plans being drawn up to overhaul the financial regulatory system.

Some of the plans include pretty much marginalizing the SEC to the point of irrelevance, oh with the whole missing the impending financial crisis, and the Bernie Madoff Ponzi scheme thing. Much of the oversight would go to the super-geeks at the Fed and a new regulatory body, yet to be given a ridiculous name (how about Accountants with Badges Commission, A.B.C.? Yeah! I'll take other suggestions).

Not to worry though SEC fans! The agency has plenty of powerful and well known supporters that will more than likely stifle these insidious plans. Big shots like Arthur Levitt, Chris Dodd, and money bag pensions like CalPERS and the New York retirement fund all support the SEC in its current form, just not the substance (um, really?).

Oh, but M. Schape is working on that, hiring smart people who actually might end up doing something besides going to Kinko's. Problem is, she's currently getting cockblocked by the administration on discussions of regulatory changes, which is probably a little, um, awkward.

Here's to you, fighting the good fight, SEC! Don't let the bastards get you down!

U.S. May Strip SEC of Powers in Regulatory Overhaul [Bloomberg] Sphere: Related Content

FASB Passes Rule, Bankers Vow to Find New Ways to Hide Risky Assets and Massive Liabilities

So, the Oracles of Double-Entry Accounting passed amendments to FIN 46(R) yesterday: “The desire to provide additional transparency to investors was the key driver behind today’s decisions.”

Ok, so what that really means is that the FASB passed new rules on the interpretation of the off-balance sheet accounting rules originally issued in the shitstorm that followed Enron's little booboo. Banks were doing some fancy-schmancy things to get those not-so-good loans made to the dead and unemployed people off their books. The new amendment will force banks, as the party who absorbs a majority of expected losses or returns, to move tons of assets and their related liabilities onto their balance sheets.

Banks, shockingly, didn't approve:

The rule change will hurt banks and the economy by discouraging lending, said Wayne Abernathy, executive vice president at the American Bankers Association in Washington. “It will affect fee income and the economy’s ability to rebound on the lending side,” he said in an interview before the vote.

The good news is that Barney Frank has already gotten wind of this and Congress will soon be writing the accounting rules and we can all get back to living in a world where anyone can buy a house.

FASB Rule Will Force Banks to Move Assets Onto Books [Bloomberg] Sphere: Related Content

A Note to the PCAOB Lawyers: Bring Some Homemade Videos for Clarence Thomas and You'll Be Fine

The constitutionality of the existence of the PCAOB, created by the Sarbanes-Oxley Act, will be argued in front of the Supreme Court this fall, per CFO.

In a case that will be far less interesting than Hustler Magazine v. Farwell, the high court will decide whether the PCAOB's existence "violates the Constitution's separation-of-powers principle".

The plaintiffs in the case are the Free Enterprise Fund, a policy group that supports "small government". Timing might not be the best, Free Enterprise Fund...

...With Souter stepping down and Obama likely to appoint someone likely to support to more regulation as opposed to less, good money would be with the PCAOB on this.

Supreme Court to Rule on PCAOB's Fate [CFO] Sphere: Related Content

Just When You Thought You'd Never Hear About Stock Options Again...

Monster Worldwide, the company that helped thousands of used car salesmen get new jobs at Robert Half International, settled stock option backdating charges with the SEC today.

Naturally, as is uber-popular in all SEC settlements, "Monster neither admitted nor denied the charges", per DealBook.

We now return you to your regularly scheduled, fraud-related, news.

Monster Settles S.E.C. Backdating Charges [DealBook] Sphere: Related Content

Ex-Ernst Partner Off to his Retirement Home

Sort of...

In the latest edition of auditors behaving badly, a former partner at E&Y was found guilty on Friday of securities fraud for an insider trading venture scheme. The poor bastard is looking at doing up to 20 years and paying millions in fines after tipping off a friend about deals going down that E&Y clients were involved in.

On the bright side, if the judge goes easy on him at sentencing, his credentials are strong for any openings at the SEC.

E&Y continued the FB4 policy of staying mum after someone walks the plank.

Ex-Ernst Partner Guilty of Insider Trading [DealBook]

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The SEC Continues to Impress

So there are reports of two SEC employees being investigated for insider trading, initially reported by CBS.

So if I understand this correctly, the bureaucratic nightmare bumblefuck government agency that investigates and enforces insider trading rules has employees breaking said rules? I guess that's what happens when you have trouble filling the hours.

Authorities Probe Insider Trading At SEC: Source [Reuters/NYT] Sphere: Related Content

Contrary to Anyone's Knowledge, HealthSouth's Fraud is Still in the News

The Ghosts of Bush Administration Corporate fraud are still lingering. There is currently a civil case against Richard Scrushy, the former CEO of HealthSouth and some shocking news came out of a deposition of an executive that was/is helping (isn't clear from the article) turn the company around.

According to the AP, Scrushy, who beat criminal charges back in 2005 (only by virtue of a carefully negotiated deal with the Morning Star), left the company with "no internal controls".

SHEESH, I guess it makes you wonder how fraud was able to occur in the first place...

Scrushy Left HealthSouth in Disarray, Executive Says [AP via DealBook] Sphere: Related Content

Charlie Munger Thinks Accountants Suck, Greenspan is Bonkers, and Doesn't Want Any Democrat but Barack Obama to be President Right Now

The Stanford Lawyer has a kick ass interview with Charlie Munger where he gives his opinion on several topics. Here's the best quote regarding the accounting profession:

"I would argue that the majority of horrors we face would not have happened if the accounting profession developed and enforced better accounting. They are way too liberal in providing the kind of accounting the financial promoters want. They've sold out, and they don't even realize that they've sold out." (Emphasis mine)

Are you listening, KPDeloitteErnstCoopersMG?

I definitely recommend reading the whole thing for those of you who are interested. Those of you who aren't, all you need to know is that this guy has been Warren Buffet's right hand man since the Johnson Administration (literally) and last time I checked, WB is still doing ok.

Munger on Phony Accounting, Cultural Decay, and Derivatives [naked capitalism]

Q&A: Legal Matters with Charles T. Munger [Stanford Lawyer] Sphere: Related Content

IASB Attempting to Start a Hip Hop-esque Fued with the FASB

Hip hop feuds. What would our ubiquitous pop culture world be without them? Well, thank all that is good and holy that now the accounting world has its own version.

John Smith (who is obviously upset about being left out of the This American Life episode) is calling out the United States from way over in Europe, in his dorky bean counter version of a dis song:

"If it doesn't adopt," [Smith] warned, the United States "will be the outlier and those countries already adopting and committing themselves to IFRSs will not accept a situation where the United States remains outside the system indefinitely, yet has a seat at the table."

Whoa. This is striking similar rhetoric to the old East Coast-West Coast days if you ask me. It's clearly a verbal retaliation to Bob Herz's earlier statement, and Smith is bringing it HEAVY. Words like "outlier" and "will not accept a situation" are obviously not going to sit well with his FASB rivals.

It strikes me that the evangelicalism of IFRS is still alive over in the EU while Team America, FUCK YEAH! is not too welcoming of the accounting "good news".

As you were.

U.S. "Will Be The Outlier" Without IFRS [CFO] Sphere: Related Content

Link Presented without Comment

http://nymag.com/daily/intel/2009/05/bernie_madoffs_cameltoe_more_e.html Sphere: Related Content

No, Seriously, the Financial Crisis is Really Killing Us.

So, it's Sunday evening and I'm unwinding and I come across an article in the Denver Business Journal that lists seven industries that are thriving. To my surprise (or perhaps not) "CPA's" is on the list, "Average revenues at accounting firms grew by 10.2 percent in the past year, making the accounting industry among the top 20 in the country by sales growth."

Ok, I think to myself, this is disturbing primarily because of all the cost cutting (i.e. primarily firing people) the FB4 firms are doing. This certainly goes towards disproving the premise that the firms are putting out that they are hurting because of the economic shitshow. This got me curious to see what the FYE 2008 FB4 numbers were... TA-DAH:

KPMG - Up 14.5% to $22.7B (FYE 9/30)
Deloitte - Up 18.6% to $27B FY (FYE 5/31)
PWC - Up 14% to $28B (FYE 6/30)
E&Y -Up 16% to $24.5B (FYE 6/30)

SHEESH, looks like they're really hurting, right? Oh, and get that nonsense about the recession not starting until late in 2008 right the hell out. The Wall St. Journal, as early as July 2008 was wondering if the recession had started in 2007. Keep in mind that this was before AIG, Lehman, et al.

Knowing that I could get some sane information from re: The Auditors, I revisited a post from last month to find out what the hell the rationalization is for these cuts heading into FYE 2009. Whole thing here and my musings here.

Per Francine, there's all kind of excuses out there from the ripples from the bank fiascoes, to over-hiring, to off-shoring being a complete and utter failure. But does anyone believe for a nano-second that these firms are going put out results in the coming months with anything less than double digit growth in revenues? I suppose they could sandbag the numbers to make it look like thing are tough but would anyone (especially their clients) really believe it?

Isn't it about time these firms started issuing annual reports so we can know the whole story about the businesses? It's not like there's an investment strategy to be stolen here, long hours + lots of accountants = lots of money.

AND, let's not forget, dude, that if firms would present ALL information rather than just revenue numbers, maybe they could legitimately rationalize cost cutting rather than be like, "oh well, just trust us, it's rough out there".

When the FYE 2009 numbers come out, no one is going to feel bad for the FB4 because all they're going to see is that there was double digit revenue growth for the umpteenth year in a row. If costs were out of control, no one will know because the firms don't release that data. More of the "trust us, we're getting killed".

I'll wrap this up by bitterly reminding everyone that the FB4 CEO's like talking about how we, er, you have the responsibility to serve the "capital markets" (whatever the hell that means). If the capital markets are being served, shouldn't they know how well you're doing and maybe, just maybe, that there might be a smidgen of conflict of interest?

I guess that it might be kind of awk if the firms told everyone that they are making metric asstons of money being the "watchdog" and basically showing everyone that the watchdog is blind, missing half its teeth, and is three-legged.

Report: 7 thriving industries in the U.S. [Denver Business Journal] Sphere: Related Content

Ready for Your Rectal Exam Wall St?

Big names are being thrown around by Bloomberg as to who will head the commission that will investigate the financial crisis/meltdown/debacle.

Apparently Sandra Day O'Connor, Paul "No One Talks to Me" Volcker, and Arthur Levitt are all on the short list. Why such heavy-hitters?

“Whoever investigates this is going to have to dig way below the surface and get to the bottom of what caused all these problems,” said Charles Geisst, a finance professor at Manhattan College in New York and author of a history of Wall Street. “If you don’t get someone who has a big name and a good reputation, it sends a signal that you are just going through the motions.”

Ohhhh, you mean that if you just let members of Congress do the bloviating questioning, the witnesses might not take the investigation seriously? Get out!

Congress Weighs O’Connor, Volcker, Levitt to Investigate Crisis [Bloomberg] Sphere: Related Content

PCAOB Continues to Bitch-Slap Auditors of Public Companies

McGladrey & Pullen is the latest victim of the PCAOB's wrath. You might recall my post regarding the results for Deloitte.

The reoccurring theme, as far as anyone can tell, is that auditors of public companies really don't do the work they are supposed to do. Everything just appears reasonable, as some of you are quite aware...

Here's an excerpt from the report, courtesy of CFO:

Issuer A: The auditor failed to perform sufficient procedures concerning the valuation of investment securities. A McGladrey-hired specialist came up with two different fair values of securities that were both lower than the issuer's estimates. McGladrey didn't know why the specialist had changed his or her estimate nor fully grasp the methods and assumptions the specialist had used.

Issuer B: The firm failed to sufficiently evaluate the reasonableness of specific impairment reserves. For one of three large impaired loans used to test the client's overall impaired-loan population, the firm didn't test the sources of data and the reasonableness of assumptions used to make a fair-value estimate.

Issuer E: The firm failed to perform sufficient procedures to test the existence of revenue. In addition, the firm's sample size to confirm accounts receivable was "insufficient to achieve the necessary level of assurance.

I'll translate/opine one at a time:

Issuer A: Fancy-pants specialist came up with two numbers both lower than the issuer and M&P didn't know why the estimate changed or fully understood the methods used or assumptions made by said fancy-pants specialist. I'm going to wildly speculate that the auditors ended up going with the higher valuation anyway. Forget that they can't understand that they don't know what the hell the specialist is doing.

Issuer B: Impaired loan reserves not sufficiently tested for reasonableness. M&P apparently shares notes with Deloitte. That must come in handy during peer review, "Oh, you test this just like us and we came to the same conclusion. Great minds think alike!"

Issuer E: Noted without comment: "Failed to perform sufficient procedures to test the existence of revenue".

Next!

PCAOB Knocks McGladrey on Loan-Loss Reserves [CFO]

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GAO Totally Throws Chris Cox Under the Bus

The General Accounting Office put out a less-than flattering report on the SEC under Chris Cox, saying that basically, corporate malfeasance was pretty much, not that big of a deal.

I guess one could conclude that this is a fair report since the likes of Bernie "Let's Get a Rub and Tug" Madoff and Allen Stanford are popping up all over the place.

Blaming the Bush Administration is almost like a mantra these days. Its popularity will be around much longer than the Jonas Brothers. Just sayin...

Cox’s SEC Hindered Probes, Slowed Cases, Shrank Fines, GAO Says [Bloomberg via footnoted.org] Sphere: Related Content

It Just Keeps Getting Better for Ruth Madoff

This Vanity Fair article is being opined on anywhere, so I'll give some short highlights:

Rub and tugs. Zipping up in full view. Harassment. Hookers. Horny old man.

This is just gross.

Bernie Madoff's Secretary Spills His Secrets [Vanity Fair] Sphere: Related Content

KPMG Might Need to Change Their Shorts

Breaking news from Dealbreaker: The SEC has filed a complaint against the operators of the Reserve Primary Fund charging them with, wait for it....fraud.

For those of you unfamiliar, this is the money market fund that "broke the buck" when Lehman imploded in September. Again, for those of you unfamiliar, money market funds are not supposed to break the buck. Does not happen. Should not happen.

It happened.

The Radio Station performs the audit for the Reserve Fund. What does this mean? Well, let's wildly speculate for a moment, shall we?

In the complaint, "a representative from KPMG LLP" (i.e. big shot partner) was in the board meetings (there were three) held on September 15, 2008, the day that Lehman filed for bankruptcy and the day before the buck breaking occurred.

It's hardly believable that the partner in charge of this engagement was clueless of the exposure that the Reserve Fund had to Lehman (although you'd be surprised). And, unless that partner was living under a rock for the six months prior to these meetings, he/she knew the pressure on Lehman was, shall we say, intense.

All this being said, what did this partner know as it relates to the complaint filed by the SEC? On an engagement of this size, partners are in contact with management constantly. If Reserve Management Company Inc. (RMCI) was not giving investors and rating agencies all the information regarding the value of the Lehman securities as the complaint alleges, are we to believe that the auditor was being lied to as well?

This had to be a HUGE issue on the engagement team at that time. Valuation is a huge risk area so it's not like the auditors weren't thinking about it. Also, if the valuation was so indeterminable, it's likely that the auditors would have been consulting with valuation specialists to determine the fair value of the securities.

New Century and now this? Radio Station might have just jumped a notch on the endangered auditing species list.

Complaint here.

Updates to come.

Breaking: Fraud Everywhere! [Dealbreaker] Sphere: Related Content

It's Not Exactly Law & Order SVU...

Bloomberg sheds some light on two professional aspects that are thriving in this jolly good ride we call the United States economy: bankruptcy and fraud.

Lehman. Madoff. Stanford. These are just the sexy ones. Nobody hears about the measly $255 million that WexTrust Capital, LLC allegedly swiped or Sentinel Management Group allegedly using investor money to try and secure a $500 million line of credit while it was losing nearly a $1 billion.

After the poo hits the fan, trustees and receivers get to sell off all the office furniture for cents on the dollar and scramble all over the blue marble trying to find every last dollar that is stashed in a closet in Panama City.

It's nice to know that bean counters, lawyers, etc. are out there looking out for their fellow now broke-as-shit Americans.

The other thing I've noticed is that there's always a cherry on top in these situations. Examples range from the highbrow, like millions spent on priceless artwork, to thousands spent on strippers in a few hours. Really puts the swindled into an even better place.

Someone's entire life savings ended up going to a USC student that went by "Candy" in a few hours in Vegas. Great. Just great.

Bankruptcy Sleuths Find Cash in Trader Receipts for Lap Dancers [Bloomberg] Sphere: Related Content

FROM THE NOT-SO-SURPRISING DEPARTMENT: CFO's Still Make Lots of Money

CFO Magazine reports news that's about as shocking as, oh, I don't know, Sean Hannity supporting waterboarding. An FEI survey says that 31% of finance executives didn't get a raise after 2008! Or...69% got raises...

Salaries averaged $257,800 for private company CFO's and public company CFO's averaged $410,100.

Populist outrage may now ensue.

FEI: No Raises for 31% of Finance Execs [CFO] Sphere: Related Content