Accounting News Roundup: PCAOB vs. China; Ukraine vs. PwC; Psychic Readings | 07.27.17

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PCAOB vs. China

Paul Gillis notes that the PCAOB’s ban of Crowe Horwath Hong Kong means that “[the] 22 US listed clients (mostly microcaps) must find new auditors (and most of its employees must find new jobs).” But also, that the PCAOB chose an easy fight:

While I think the PCAOB is right in its actions, I am disappointed that they do not pick on someone their own size. Most of the market capitalization of Chinese companies listed in the US belongs to companies audited by the Big Four, yet the PCAOB seems unwilling to take these firms on.

It seems that the PCAOB has put itself in an awkward position. Even if the Big 4’s Chinese and Hong Kong affiliates have agreed to “allow certain documents to flow to the SEC after review by Chinese authorities” what if they don’t comply? Will they be so eager to ban then?

Ukraine vs. PwC

Speaking of bans, Jim Peterson wrote about Ukraine’s ban of PwC, pointing out that the repercussions will ripple:

[PwC] will lose whatever cross-border work it does for the subsidiaries and affiliates of home-country institutions outside Ukraine; and it will also be challenged to conduct audits for foreign banks with Ukrainian operations requiring audits under the NBU’s authority – needing to seek out the resources in-country either from the other Big Three or among whatever cross-border banking expertise may reside in other, smaller firms.

Perhaps that won’t amount to much, but the real danger is if PwC, or any Big 4 for that matter, receives a ban in a more economically important country. Peterson writes that a bar in a G20 country “would mean a network-wide failure of client service capability” and possibly result in an Andersen-esque implosion.

SEC enforcement

I think some of my favorite regulatory enforcement actions are the ones where everything — or, seemingly everything — is a lie. This litigation release from the SEC is a good example:

[F]rom approximately November 2012 through December 2014, Joey Stanton Dodson, of Porter Ranch, California, made numerous material misstatements and statements that were materially misleading as a result of omissions to investors. As described in the complaint, Dodson misled investors regarding, among other things, his compensation arrangements, the intended use of investor proceeds, the status of an important land lease agreement, the ownership of certain assets or income streams, and prior litigation against himself.

The SEC says that Dodson commingled investor funds and then helped himself to $1.7 million. And of course there was lavish spending; that included:

large cash payments to himself and his family members, Ponzi-like payments to prior investors in unrelated projects, casino vacations, lease payments for a BMW automobile, and psychic readings and spiritual products.

Digging into the complaint, you’ll find that Dodson spent — not kidding — “at least $78,049 for psychic readings and spiritual products.” That is a lot of calls to Miss Cleo.

Previously, on Going Concern…

Rachel Andujar wrote about the number of female audit partners. In a guest post, Jason Zuckerman and Matthew Stock wrote about Sarbanes-Oxley and whistleblowers. In Open Items, someone asks, “[I]s actual experience in manufacturing necessary, or do some manufacturers value my experience in public almost equally?”

In other news:

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