Accounting News Roundup: The U.S.-China Audit Ripple Effect; MD&A in English, Please; Wasted Stimulus | 12.07.12

U.S.-China Audit Clash Could Have Broad Reach [Reuters]
The standoff over Beijing’s refusal to give regulators in the United States access to audit records for nine Chinese companies listed in North America has the potential not only to force Chinese companies to delist from stock markets in the United States, but could also put American companies that do business in China in a position where they have difficulty producing audited accounts, according to accounting experts.“ The potential consequences of failure to find common ground are almost too frightening to contemplate,” Thomas Shoesmith, a partner at the law firm Pillsbury, said in a note to clients. This past week, the U.S. Securities and Exchange Commission charged the Chinese affiliates of five of the world’s biggest auditing firms with violations of U.S. securities law, raising fears that it could go further and ban the affiliates from working on audits of companies listed in the United States. “If these five accounting firms are barred from practicing before the S.E.C., it seems certain that companies with major Chinese operations will find it difficult or impossible to find accountants,” Mr. Shoesmith said.

Minding the gap at Deutsche Bank [FT]
Three ex-employees claim that the bank’s books concealed losses of up to $12bn on derivative positions. Had the true situation been revealed, they say, it would have needed to raise a lot of capital, and might even have required a bailout. What is at issue is the way banks account for losses. In recent decades, such optionality as they once enjoyed has been steadily circumscribed. Most trading assets – such as the “leveraged super-senior” derivatives at the heart of the complaint – must now be marked to market. This has reduced banks’ ability to manipulate their balance sheets. Deutsche’s approach, it is claimed, drove a coach and horses through this principle.

Netflix CEO Hastings Faces SEC Action Over Facebook Post [Bloomberg]
Netflix Inc. (NFLX) and Chief Executive Officer Reed Hastings said they may face a U.S. Securities and Exchange Commission civil claim over a July Facebook post that coincided with the stock’s biggest gain in almost six weeks. SEC staff alleges Netflix and its CEO violated rules governing selective disclosure, according to a company filing yesterday. The July 3 post by Hastings said Netflix viewing “exceeded 1 billion hours” of videos in June. The shares rose 6.2 percent that day.
 
Eyebrows Go Up as Auditors Branch Out [WSJ]
Auditing wasn't all Deloitte LLP did for Autonomy Corp., the software firm recently accused of accounting improprieties by its parent company. To many observers, that sort of multitasking is potentially an industry problem. As auditor, the U.K. unit of Deloitte Touche Tohmatsu was in charge of signing off on Autonomy's financial statements before Hewlett-Packard Co. bought the company in 2011. But Deloitte also was paid significant fees for other work it did for Autonomy, like due-diligence work on a potential acquisition. In 2010, Deloitte received $1.2 million from Autonomy for nonaudit work, close to the $1.5 million the firm was paid for the audit itself. [...] "If firms become too preoccupied with consulting, I think it hurts the authenticity of the audit," said former Federal Reserve Chairman Paul Volcker in an interview. Mr. Volcker spoke last week at a New York University roundtable on the comeback of consulting by accounting firms.
 
Spaniards cope with crisis by drinking more beer [Quartz]
It's cheaper than liquor, naturally.
 
Fiscal Cliff? France Has ‘Fiscal Mountain’: PPR CEO [CNBC]
Francois-Henri Pinault, chief executive of luxury goods company PPR, said: "When we talk about the fiscal cliff in France it's a mountain, it's much higher than a cliff. And when it comes to France the only solution that has been put on the table is tax raises, nothing about cutting expenses. So it's a completely different situation."
 
“Plain English Works” in MD&A Statements [CFO]
Excessive financial jargon in documents filed with the Securities and Exchange Commission often clouds intended messages, said speakers at an American Institute of Certified Public Accountants conference this week. The sentiment particularly applies to the Management’s Discussion and Analysis (MD&A) section of quarterly and annual reports and other registration statements, where companies generally discuss their business, uncertainties, and market trends. “Everyone likes to prove they’re the smartest person in the room because they understand the jargon,” said Brian Lane, partner in the Washington, D.C., office of Gibson Dunn & Crutcher and former SEC director of the division of corporate finance. “Plain English works.”
 
Watchdog: More than $2B in unused stimulus has expired [The Hill]
The Department of Agriculture (USDA) had the largest amount of the expired funds at nearly $765 million, which can no longer be used for new projects. The money was appropriated to the agency by Congress, but not used by federally set deadlines. USDA said it allocated most of the expired funds to applicants who did not use them. The Department of Defense and the Department of Energy were nearly tied for the second highest amount of expired funds, with each forfeiting about $242 million.  Agencies will keep the expired stimulus funds on their balance sheets for an additional five fiscal years, in case prior appropriations were more expensive than projected. The agencies are not permitted to use the funds for new projects, however.
 
Dude, Should Marijuana Be Legalized and Taxed? [TaxVox]
Howard Gleckman puts it in perspective: "Legalizing dope and making it widely available certainly won’t prevent us from going over the fiscal cliff. On the other hand, maybe we won’t care as much."
 
Brazil Prison Gang Conducted 10-Hour Conference Call [ISC]
A Federal Police recording recently heard by Folha de Sao Paulo involves a 10-hour discussion between five members of the First Capital Command (PCC) gang. The conversation involved two inmates and three gang members based outside of the prison. According to the newspaper, the talk was all business: topics included trafficking drugs to Paraguay and Bolivia, and the distribution of marijuana and cocaine inside Brazil.

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