Big 4
EY split threatens to weaken both sides of firm, say retired partners [Financial Times]
More than 150 retired EY partners have written to the accounting firm’s leadership objecting to the radical plan to split its consulting and audit businesses. In a three-page memo seen by the Financial Times, the retired US partners say the plan as envisaged threatens to weaken both halves of the firm, while also asking whether EY’s global chief executive, Carmine Di Sibio, is properly protecting the interests of the audit business.
KPMG blocked from Abu Dhabi audits as it elects new regional boss [Financial Times]
KPMG has been blocked from winning new audit contracts in Abu Dhabi after regulators removed the Big Four firm from the list of accountants authorised to sign off companies’ financial statements. The move by the Abu Dhabi Accountability Authority comes just weeks after a separate watchdog in Dubai fined KPMG and one of its former partners $2mn for failings in its auditing of Abraaj, the emerging markets private equity group that collapsed in 2018.
Senators slam EY’s ‘very unusual’ economic modelling [Australian Financial Review]
Senators have criticised research produced by EY economists, alleging the firm adopts “very unusual” models to give clients the answers they want, and suggesting one particular report was “worthless” as it was “not factually correct”. Two senators cited an EY report prepared for lobby group Master Builders Australia (MBA) and released during the May federal election campaign as evidence that dodgy modelling had been used to exaggerate the economic cost of disbanding the Australian Building and Construction Commission. The senators made the claims in hearings for the Secure Jobs, Better Pay inquiry last Friday.
Nelson Mandela Foundation appoints ex-Deloitte Africa boss Bam as new trustee [IOL]
The Nelson Mandela Foundation has announced former Deloitte Africa CEO Lwazi Bam as a new trustee. Bam is a chartered accountant and an outstanding South African. He was the CEO of Deloitte Africa from 2012 until early this year.
Big 4 affiliate firms continue to lead audit business in India [The Economic Times]
In India, the Big Four firms conduct their audit business through affiliate firms. The EY group has emerged as the market leader with 153 mandates and KPMG group will audit 147 enterprises. Meanwhile, Deloitte affiliates are at number 3 with 141 clients and Grant Thornton Bharat LLP associates have taken the fourth spot with 87 audits, as per the study of auditors of all listed companies. The PwC affiliates have been very careful in adding audit clients – 70 listed companies – and have chosen to focus on the quality MNC clients which have high profitability and low-risk profile.
Audit
Defense Department fails another audit, but makes progress [The Hill]
The Defense Department has failed its fifth-ever audit, unable to account for more than half of its assets, but the effort is being viewed as a “teachable moment,” according to its chief financial officer. After 1,600 auditors combed through DOD’s $3.5 trillion in assets and $3.7 trillion in liabilities, officials found that the department couldn’t account for about 61 percent of its assets, Pentagon Comptroller Mike McCord told reporters on Tuesday. McCord said the department has made progress toward a “clean” audit in the past year, but later added “we failed to get an ‘A.’” “I would not say that we flunked. The process is important for us to do, and it is making us get better. It is not making us get better as fast as we want,” he said.
Audit Regulators Vow a Tougher Regime [CFO]
The PCAOB and the SEC, its parent regulator, are making it clear that the “new” PCAOB will be (1) increasing enforcement activity and imposing stiffer penalties and (2) holding auditors responsible for failures to spot fraud perpetrated by issuers, particularly fraud that harms investors.
US Audit Board Urged to Aid ESG Validation With Updated Rules [Bloomberg Tax]
Investor advocates, finance executives and auditors are urging the US audit board to overhaul its outdated and little-used assurance requirements to keep pace with expected SEC mandates for greenhouse gas disclosures. Stakeholders support the Public Company Accounting Oversight Board’s plans to update a suite of attestation rules that accountants tap to provide certain compliance audits and other reviews that go beyond financial statement audits, according to letters submitted to the board in late October.
Education
Teaching Accounting Students an Alphabet Soup of Technology [The CPA Journal]
Accountants are using this alphabet soup of applications, including Enterprise Resource Planning (ERP), Power BI, and R, as well as decision support tools, such as Excel, Tableau, and Alteryx. Unfortunately, many accounting students are not prepared to properly use, implement, or maintain most of the technical tools used today. Many college students do not possess a solid functional footing in Excel, let alone the vast array of the other tools mentioned above. Students who do not have a strong foundation in basic technical concepts and tools will struggle to be relevant in today’s business world. As such, research from the AICPA (“Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits”) suggests that employers have begun to hire from other more technical undergraduate degree fields, such as management information systems (MIS), instead of accounting graduates.
Tax
For the IRS to-do list: Build trust with Congress, use clearer language with taxpayers [Journal of Accountancy]
The IRS needs to build trust with members of Congress and speak more plainly with taxpayers in order to capitalize on the modernization that’s expected of the agency, an advisory panel said in a report issued Wednesday. “As the IRS continues to recover from the far-reaching impacts of the COVID-19 pandemic, builds on its budgetary success achieved through the Inflation Reduction Act, and encounters shifting political and economic conditions and workforce issues, the IRSAC has endeavored to support the IRS in providing effective, timely taxpayer service,” the 34 members of the IRS Advisory Council wrote in the report.
Why Crypto Taxes Get Complicated (Especially for Institutions) [CoinDesk]
Accounting and tax compliance in crypto is much more complicated for institutions, such as funds, exchanges and prime brokerages, due to the volume of transactions that require record-keeping. Failing to file taxes properly can result in substantial fines and, in some cases, audits.
Law & Order
Dallas Attorney and Members of Accounting Firm Charged with Promoting Illegal Tax Shelter [Department of Justice]
A superseding indictment was returned by a federal grand jury in Dallas today charging a Texas lawyer and three co-conspirators with wire fraud, conspiracy to commit wire fraud, helping their clients file false tax returns, and conspiracy to defraud the United States, all based on an illegal tax shelter they promoted and helped implement. Joseph Garza, of Dallas, was previously charged on Oct. 18. The superseding indictment adds charges against three tax professionals, Kevin McDonnell, James Richardson and Craig Fenton. The superseding indictment alleges that Garza directed clients to use hand-picked CPAs and other tax professionals, including McDonnell, Richardson and Fenton. McDonnell and Richardson, both CPAs, allegedly owned and operated McDonnell Richardson, P.C., an accounting, tax preparation, and legal services business located in Waxahachie. McDonnell allegedly is also a licensed attorney. Fenton allegedly was employed as a tax manager at McDonnell Richardson.
Joseph Nocito, whose massive Bell Acres mansion was built on tax fraud, pleads guilty [Pittsburgh Post-Gazette]
Investigators founds dozens of company ledger entries that painted building and other personal expenses as legitimate costs faced by his companies. Ledger entries were written as categories such as “consulting,” or “repairs and maintenance,” and construction invoices were paid through Nocito’s companies. In one example presented as would-be evidence by federal prosecutors, a check for $76,000 for interior design kitchen work was classified as “consulting” in one of the company’s ledgers. In another example classified as “consulting,” the check was for $6,100 for artwork for the home’s wine cellar. Prosecutors said they found a document from September 2000 titled “list of thoughts and life lessons.” Among the 25 bullet points, No. 7 was “Maintain the lifestyle of the millionaire next door at least until you achieve the stage in your life where you have all the material things you want and the next generation is taken care of. Then it becomes a choice of giving it to the government or building the house of your dreams.”
Federal agents raid San Luis Obispo accounting firm [CalCoastNews]
More than a dozen FBI and IRS agents descended on 755 Santa Rosa Street in SLO on Thursday morning to serve a search warrant. One agent pulled a car in front of a BMW owned by Pamela Fitzpatrick, the owner of Fitzpatrick Professional Accountancy, blocking the accountant from leaving the parking garage. Shortly after agents entered the second floor, most of the accounting firm’s employees left the building. After about five hours, a group of agents displaying “Police, IRS-CI,” on their shirts left the building. CI stands for criminal investigation, which is the law enforcement branch of the IRS.
Firm Watch
BDO acquires PwC Canada’s Saskatchewan audit, accounting and tax practice [Yahoo! Finance]
BDO Canada LLP, (‘BDO’) one of the largest accounting and advisory firms in Canada, is pleased to announce its acquisition of PwC’s Saskatchewan audit, accounting and tax practice, effective November 16, 2022. The addition of the Saskatoon-based team strengthens BDO’s position in Saskatchewan and creates a strong local team to support businesses in the province.
Other Stuff
Financial Accounting Foundation issues new strategic plan [ABA Banking Journal]
The Financial Accounting Foundation—the organization that oversees the Financial Accounting Standards Board and the Governmental Accounting Standards Board—has released the final version of its new strategic plan, which outlines the goals that the organization will address for the next several years. The plan’s goals include promoting the importance of independent standard setting to capital markets; ensuring that financial accounting and reporting standards advance as needed; embracing new technology to make the standard-setting process more effective; building on the foundation’s commitment to diversity, equity and inclusion; and engaging with stakeholders, regulators and Congress to determine the appropriate way, if any, for the organization to contribute to future sustainability reporting.
Guys! It’s “the next Enron” as foretold in the prophesy!
That’s all we’ve got for headlines. If you crave more, get on our newsletter list.