Nightmare clients

department-of-defense-audit

The Defense Logistics Agency Be Like, “Accounting? What’s Accounting?”

Occasionally I will see something charged on my credit card that I don’t remember. I rack my brain. Sometimes I start to think maybe someone’s stolen my card number. But, more often than not is a charge from an obscure parking meter or something similarly mysterious that I didn’t commit to memory. The credit card […]

KPMG Drops an Annoying, Dysfunctional, Possibly Corrupt Client

An editorial from the Orlando Sun-Sentinel has some wonderful details about the fallout between KPMG and Broward Health, one of the largest health systems in the country. Broward announced on Monday that KPMG was resigning as auditor. This came about, according to the Broward chairman, due to a misunderstanding: In a Friday letter to the […]

Swiss Regulator Investigating Whether KPMG’s Audit of FIFA Is Worth Investigating

Well, this is something? Switzerland's Federal Audit Oversight Authority ("FAOA") will be kicking the tires on KPMG's audit of corruption factory/sports organization FIFA. "The FAOA is monitoring developments related to FIFA, and has selected for evaluation aspects of KPMG's work in connection with the auditing of the financial statements of FIFA," the FAOA, which helps […]

Sometimes Clients Say Shady Things

“We don’t pay taxes. Only the little people pay taxes.” Leona Helmsley had a way of endearing herself to the general public. Regardless of income, many people think rules don’t apply to them and aren’t shy about it. Hiding money If you’ve worked with people in retail you’ve heard the expression “Cash is king.” Sure, […]

Auto Supplies, a Condescending Partner and Chick-fil-A: An Inventory Count Horror Story

What is the worst inventory observation you’ve ever done? My coworker once counted grain and had to scale the enormous storage vat and look down into it. That wouldn’t work for me. I harbor a pathological fear of falling into one of those things, suffocating among the wheat shafts, and winding up ground into a box of breakfast cereal. (I had a damaged childhood, okay?)

BDO Should Be Thanking Its Lucky Stars That Swisher Hygiene Fired Them

BDO, an audit firm, had a difference of opinion with Swisher Hygiene, Inc., a client, about the company's internal controls over financial reporting. Specifically, BDO identified 12 material weaknesses and 5 significant deficiencies. Contrast that with Swisher's analysis that found no material weaknesses and 1 significant deficiency. Also! BDO's audit opinion for for 2014 contained a going […]

Why Yes, This Guy Did Pay His Accountant’s £800 Bill in Coins Purely Out of Spite

The problem is that you can't really do that. The stunt backfired when Philip Lawrence took Robert Fitzpatrick to court, arguing that it is illegal to pay off debts higher than £10 with coins. Mr Fitzpatrick, 24, ended up with a £1,118.62 bill after a judge ruled that the delivery was unacceptable. Okay, unacceptable. Strange? Duh: […]

Analysis: Are Clients Being More Dickish Than Usual or Are Accountants Just a Little Too Sensitive?

It's been quite some time since we checked in with our friends across the pond and since many of you may be dealing with client relation issues yourself, this seems like as good of an opportunity to discuss all the fun you're having. I know it's our busiest time of year and maybe that's making […]

Future Ernst & Young Intern Wants to Know How to Land on a Prestigious Engagement

Welcome to the slightly-less-mad-Friday edition of Accounting Career Emergencies. In today’s edition, a future E&Y intern only wants to work on the sexiest tech clients that the House of Turley has to offer. How can one ensure that he/she lands only on the clients worth bragging to their peers? Let’s find out!

Caught in a busy season love-triangle (audit-cleaning crew-admin)? Not sure if your auditor is being honest with you? Upset over a rival’s shady moves? Email us at advice@goingconcern.comDear Going Concern,

I am a future 2011 Assurance Intern for EY. Do you suggest emailing my contacts in the firm regarding preferences as to industry and clients? They know from my interviews that I prefer tech clients, but is it wise to go into greater detail? I don’t want to seem entitled, but I also don’t want to get stuck on some crappy client because everyone else voiced their preferences and got spots at Apple, Google, Facebook, etc. Suggestions on how to voice such opinions would be welcome also.

– Future Staff 1


Dear FS1,

I like it when someone knows exactly what they want but I feel that you need some perspective. Let me start by answering your question directly. I don’t see anything wrong with voicing your interests in the clients you mentioned to your contacts at E&Y, especially if those contacts work on those engagements. If none of the people that you met during the recruiting process serve those clients, attempt to get in touch with someone via the contacts you did make. “The squeaky wheel gets the grease” or “the hooker won’t land the john in the Mercedes across the street if they don’t yell at him” certainly applies here.

Now for that perspective I mentioned – Apple, Google, Facebook are all sexy names and are obviously prestigious clients but let me be clear, these engagements’ allure is extremely deceiving. When I was a resident in the House of Klynveld, I worked on one of the most prestigious private equity clients the firm had. I landed a spot on this team because this is exactly what I wanted at the time, I spoke up and with some luck, I got what I asked for. It was great experience and I worked with a lot of talented people but the majority of the time, I wouldn’t say it was a pleasant experience. The hours were long, there were lots of political games and it was a GIANT rumor mill. Now if you think you can thrive in such an environment, then I say go for it but in my experience it wears on most people. I would expect the teams you mentioned would be a similar experience.

However, as an intern, I’d expect that you’ll be mostly on the fringes of most of the negative aspects of working on such a team because the firm wants you to think it’s a great place to work and managers and partners on those clients want you to think it’s a great engagement. And because you want a full-time job someday, you’re going to do your best to impress the wrinkled pants off these people. If you accomplish that feat, they will want you back on their team. The problem is that once you’re on that team, it may be very difficult to get off that team when you discover that it is Hell on Earth. Now maybe you’ll get mentored by one of those I’m-working-my-ass-off-for-very-little-gratitude-because-I-want-to-get-ahead-in-this-firm types and you’ll really like it. But if that doesn’t sound like your cup of tea, then learn as much about the team while you are an intern to determine if you want to work on it or a similar client in the future. Talk to the A2s and SA1s (sorry A1s, you’re still clueless) to get their perspective but make sure it’s the people that will level with you about what life is really like on that engagement. HINT: If you get a rah-rah speech about the “experience on such a great client” you’re not getting an honest take.

So make your client desires known to get a taste of the life on a sexy client but once you land there, be sure to take a look around to see what life (or a pathetic version of it) will be really like if you’re still there in the future. Good luck.

Thankless Audit Client: Tui Travel Edition

Tui Travel is “an international leisure travel group” (which is fancy-speak for a travel agent) out of the UK. KPMG has been audited the books for awhile but this year they found a booboo that resulted in a £117 million write off. At the time the company copped to the error, although you don’t get the impression they were grateful.


From today’s report in the Guardian:

Just two months ago, Tui chief executive Peter Long said: “KPMG identified some system weaknesses and ledgers that had not been reconciled … Yes, they identified some of these control weaknesses which had then manifested themselves into the issues subsequently identified through a detailed investigation.”

Nothing unusual really, these things happen, clients usually grin and bear it but not our “international leisure travel group.”

KPMG said its relationship with “certain [Tui Travel] directors became increasingly strained” following “extensive discussions with the directors”. Among the areas where KPMG had raised concerns, the letter added, were the implications arising from the restated accounts and “their disclosure and accounting treatment in the financial statements”. Relations had reached such a low ebb, KPMG concluded, that “we are not confident that in the future we could carry out an audit of the company to the appropriate standard, but others may be able to do so.”

So it kinda sounds like their annoyance with the whole thing slowly boiled over into flat-out bitterness, leading to some increasingly unpleasant conversations. Sure, the directors in question would start out acting cool about it, “You know [chuckling], you really didn’t do us any favors there.” But eventually it became, “Boy, you’ve really outdone yourself, this time.” And finally, “For crissakes! You couldn’t leave it alone, couldja? [extremely patient KPMG partner explaining on the other end] What?!? [increasingly steamed, drumming fingers] We don’t care if it’s your job; we don’t like being embarrassed. [Pause, eyeroll] Stewards of generally accepted accounting principles?!? What does that even mean? [brief pause] Whatever, you can plan on us being uncooperative going forward.”

Or something like that.

Tui drops KPMG after it found £117m hole in accounts [Guardian]

And If Only American Apparel Hadn’t Burned Through All That Cash, They Could Have Made Bigger Campaign Contributions

“If it weren’t for the immigration bust by the Obama administration, the company would have been OK this year.”

~ “[A] source close to American Apparel” quoted in the Post obviously isn’t familiar with the company’s debt position.

American Apparel Subpoenaed Over Auditor Switcheroo

American Apparel’s downward spiral continues as Bloomberg reports that the company has been subpoenaed by the U.S. Attorney for the SDNY over the company’s “change in accounting firms.”

If you’re justl started with Deloitte quitting as the auditors of APP late last month. At that time, Deloitte warned that the ’09 financial statements may not (read: definitely are not) reliable and that they were getting the hell out of Dov.

Former APP auditor Marcum – for reasons unbeknownst to us – went back to their old client to try and help them straighten things out. Here’s the latest from the “preliminary results” for the second quarter, while thetardy 10-Q remains elusive. These prelims (i.e. a wild stab?), that were filed today warn that things are likely to get worse before they get better:

Potential Restatement of previously issued financial statements

Effective July 22, 2010, Deloitte resigned as our independent registered public accounting firm. On July 26, 2010, we engaged Marcum as our independent registered public accounting firm. On July 28, 2010, we reported on a Form 8-K that we had been advised by Deloitte that certain information had come to Deloitte’s attention that if further investigated may materially impact the reliability of either Deloitte’s previously issued audit report or the underlying consolidated financial statements as of and for the year ended December 31, 2009 included in our Annual Report on Form 10-K for the year ended December 31, 2009. Deloitte has requested that we provide Deloitte with the additional information Deloitte believes it is necessary to review before any conclusions can be reached as to the reliability of the previously issued consolidated financial statements as of and for the year ended December 31, 2009 and auditors’ report thereon.

Depending on the outcome of this review, a restatement of our financial statements as of and for the year ended December 31, 2009 could be required. Any restatement may subject us to significant costs in the form of accounting, legal fees and similar professional fees, in addition to the substantial diversion of time and attention of our Chief Financial Officer, our other officers and directors and members of our accounting department in preparing and reviewing the restatement. Any such restatement could adversely affect our business, our ability to access the capital markets or the market price of our common stock. We might also face litigation, and there can be no assurance that any such litigation, either against us specifically or as part of a class, would not materially adversely affect our business, financial condition or the market price of our common stock.

But that’s not all! The company discusses a few more issues, “We are subject to regulatory inquiries, investigations, claims and suits. We are currently defending one wage and hour suit, one sexual harassment suit and responding to several allegations of discrimination and/or harassment that have been filed with the Equal Employment Opportunity Commission or state counterpart agencies.”

At that point, the filing finally gets to the problem du jour:

In addition, in connection with our previously disclosed change in auditors, on July 30, 2010, we received a grand jury subpoena from the United States Attorney’s Office for the Southern District of New York for the production of documents relating to the circumstances surrounding the change in our auditors. We have also received inquiries from the Securities and Exchange Commission regarding this matter. We intend to cooperate fully with these requests and any related inquiries.

If consider all that, plus the fact that the company is spending cash like Pacman Jones at a strip club and that they’re likely to be in noncompliance with a major debt covenants at September 30th, it’s no surprise that the stock is off even more than when Deloitte first quit as auditors.

American Apparel Drops After Receiving Subpoena on Change in Accountants [Bloomberg]
10-Q [SEC]

American Apparel Goes Two for Two: Q2 Filing Late, Q1 Still Pending

Fashion cannot be rushed people. Ask the gang at Fashionista. They’ll tell you.

However, it is still a business which sometimes includes dealing with auditors and other outsiders that want various documentation and whatnot that can simply be delayed if it hinders the creative process. That is, if you keep your company private.

But the second you want to give the American public the opportunity to invest in your skinny jeans, leggings, and thong tanks, you’re playing on the SEC’s turf. This means things happen on a schedule. Delays, excuses or pervy CEO behavior will not be tolerated if it results in late filings.

American Apparel expects to report a loss in the second quarter and requested additional time to file its financial report after the resignation of its auditor, Deloitte & Touche.

It is the latest bump for the hipster clothing chain. The company said in May that it expected a loss for the first quarter, but it hasn’t filed that quarterly report with the Securities and Exchange Commission either.

[…]

Deloitte & Touche resigned as American Apparel’s auditor after the accounting firm said it found material weaknesses in internal controls over financial reporting. Deloitte requested more information from the company to determine if there were problems in previous financial reports. American Apparel said Tuesday it was working to provide that information.

Dov! These 10-Qs are not optional! Plus, it doesn’t help that the financial data that you provide is less reliable than what the federal government issues.

Presumably Marcum was persistent (and comfortable) enough to get you to push the button before so what the hell man? You’ve got them back on your team so this should NBD. You best get the house in order before your stock gets banished to the sheets that are the same color as your undies.

American Apparel expects 2Q loss; request 2Q delay [Bloomberg BusinessWeek]

Earlier:
Deloitte Resigns as American Apparel Auditor; Hotness of Engagement Team Presumably Not an Issue

KV Pharmaceutical Will Get to Know BDO

As we’ve mentioned, it’s been a rough summer – hell a rough year – for KV Pharmaceutical. The company paid nearly $26 million to the Justice Department back in February, had massive layoffs in March and their Chairman and CFO back in June.

Last month, KPMG decided it had had all the drama it could handle and resigned as the auditor of the company.

But as the second half of 2010 gets into full swing, KV managed to find a new CFO and now they’ve managed to land a new auditor – BDO.


BPR:

K-V Pharmaceutical Company (NYSE: KVa/KVb) announced today that the Audit Committee of its Board of Directors has engaged BDO USA, LLP (“BDO”) as the Company’s independent registered accounting firm.

The Company and BDO will commence work immediately on the planning, audit and filing of the fiscal year 2010 Form 10-K and will then follow with the review of its quarterly filings for fiscal year 2011. K-V’s fiscal year end is March 31.

Mr. Mark Dow, Chair of the Board’s Audit Committee, stated, “The Audit Committee and the entire Board is pleased to be able to announce the selection of BDO as the Company’s new accounting firm. BDO has extensive knowledge of the pharmaceutical industry and also a previous relationship with K-V, and the Company believes BDO will be able to assess and complete its audit of the Company’s Fiscal Year 2010 financial statements expeditiously. We look forward to working closely with BDO to bring the Company back into compliance with all of its Securities and Exchange Commission filings as quickly as possible.”

Right! Staying compliant! That sounds a bit maj. Not only that but the New York Stock Exchange (sort of of a big deal in their own right) is sick of KV stinking up their big board with their 30-day average stock price hovering under $1.

The company has assured the NYSE that they’re on this stock price problem, “The Company will furnish to the NYSE on or prior to August 10, 2010 a response affirming its intent to cure this deficiency and outlining the steps it is currently taking and plans to undertake in the near term to restore compliance with the NYSE’s continued listing standards.”

Let’s just say BDO has their work cut out. KV has no internal controls to speak of, is having trouble convincing the FDA their products are safe and the SEC and NYSE breathing down their necks. Now maybe this won’t all translate into the auditors’ magic wand but there’s got to other potential clients in the St. Louis area with far less drama.

K-V Pharmaceutical Company Engages BDO USA, LLP as Independent Registered Accountants [PR Newswire]
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing [SEC]

Deloitte Resigns as American Apparel Auditor; Hotness of Engagement Team Presumably Not an Issue

So for those of you that aren’t too fashion conscious, you probably don’t the name Dov Charney. He’s the Chairman and CEO of American Apparel and you’d be hard pressed to find something in one of his stores that qualify under your firm’s dress code.

Nevertheless! AA is a publicly traded company and is subjeities laws as everyone else. Last year they opted to drop Marcum as their auditor for Deloitte. One year later, the firm has apparently had all they can stand of AA because they resigned today, citing possibly unreliable financial statements for 2009, sending the company’s stock reeling.


The 8-K has the usual language that you would expect from a typical auditor/client break-up but here are the gory details for those you that enjoy that sort of thing (citations omitted and extra fun stuff is bolded):

During the period from April 3, 2009 through July 22, 2010, there were no “reportable events” except that (i) in Deloitte’s report dated March 31, 2010 (which was included in the 2009 Form 10-K) on the Company’s internal control over financial reporting as of December 31, 2009, Deloitte identified material weaknesses in internal control over financial reporting related to the control environment and to the financial closing and reporting process, which are further described under Item 9A in the Company’s 2009 Form 10-K, and advised that the Company has not maintained effective internal control over financial reporting as of December 31, 2009; and (ii) Deloitte advised the Company that certain information has come to Deloitte’s attention, that if further investigated may materially impact the reliability of either its previously issued audit report or the underlying consolidated financial statements for the year ended December 31, 2009 included in the Company’s 2009 Form 10-K. Deloitte has requested that the Company provide Deloitte with the additional information Deloitte believes is necessary to review before the Company and Deloitte can reach any conclusions as to the reliability of the previously issued consolidated financial statements for the year ended December 31, 2009 and auditors’ report thereon.

As we mentioned, this has spooked plenty of people, including Ed Yruma an analyst at KeyBanc quoted by Bloomberg in a letter to investors, “The company has struggled since its IPO with both its internal controls and its ability to file SEC filings on a timely basis. An ability to file SEC filings on a timely basis has been an ongoing issue.”

Back to the superficial. Dov Charney is, what you might call, a character. Here’s a brief chat we had with Nick, Breaking Media web developer and occasional contributor to our sister site Fashionista:

me: When i say the name
Dov Charney
your response is…
Nick: LECH
PERV

You only need to snoop around the web briefly (e.g. here, here, here) to pick up what Nick is referring to.

Deloitte’s letter to the SEC is brief and makes no mention about the plethora of models not wearing pants or Dov judging the young auditors’ hot or not-ness, so that likely wasn’t part of the problem. Anyhow, AA ran straight back to Marcum who might be more comfortable with, what we imagine to be, an interesting work environment.

8-K [SEC]
American Apparel Falls After Deloitte Resigns as Accountant [Bloomberg BusinessWeek]

KPMG Has Gotten Tired of KV Pharmaceutical’s Financial Reporting Side Effects

Last week we ran a post courtesy of Sheryl Nash at CFOZone that discussed the tough 2010 that KV Pharmaceutical was having. Well, it’s getting worse. KPMG, not completely adverse to risk,ps and has dropped KVP like a sack of spuds.

In an 8-K rammed through just before quitting time yesterday, “On June 25, 2010, KPMG LLP (“KPMG”) notified K-V Pharmaceutical Company (the “Registrant” or the “Company”) that it had resigned from its engagement as the Registrant’s principal accountant. KPMG’s resignation was not recommended or approved by the Audit Committee of the Registrant’s Board of Directors.”

What was the problem, you ask? Where do we start? There’s a lot in this 8-K so we’ve bolded the good parts for you:

KPMG’s report on the consolidated financial statements of the Registrant and subsidiaries as of and for the year ended March 31, 2009 contained a separate paragraph stating that “As discussed in Note 3 to the consolidated financial statements, the Company has suspended the shipment of all products manufactured by the Company and must comply with a consent decree with the FDA before approved products can be reintroduced to the market. Significant negative impacts on operating results and cash flows from these actions including the potential inability of the Company to raise capital; suspension of manufacturing; significant uncertainties related to litigation and governmental inquiries; and debt covenant violations raise substantial doubt about the Company’s ability to continue as a going concern.”

The audit report of KPMG on the effectiveness of internal control over financial reporting as of March 31, 2009 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, except that KPMG’s report indicates that the Registrant did not maintain effective internal control over financial reporting as of March 31, 2009 because of the effect of material weaknesses on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states “Material weaknesses have been identified and included in management’s assessment in the areas of entity-level controls (control awareness, personnel, identification and addressing risks, monitoring of controls, remediation of deficiencies and communication of information), financial statement preparation and review procedures (manual journal entries, account reconciliations, spreadsheets, customer and supplier agreements, stock-based compensation, Medicaid rebates and income taxes) and the application of accounting principles (inventories, property and equipment, employee compensation, reserves for sales allowances and financing transactions).

We’ll interject here with…why didn’t they just admit, “We have internal controls in place but they suck. Every last one of the controls is ineffective and we’re really not sure they’re being performed anyway. In fact, we don’t even employee people with accounting degrees. We have a weekend COSO crash course to get temps up to speed.” ?

Back to the filing:

As of the date of their resignation, KPMG had not completed the audit of the consolidated financial statements and the effectiveness of the internal controls over financial reporting of the Registrant as of and for the year ended March 31, 2010. KPMG had informed the Audit Committee prior to the date of their resignation that upon completion of their audit of the consolidated financial statements as of and for the year ended March 31, 2010 they expected their audit report would contain a separate paragraph expressing substantial doubt about the Registrant’s ability to continue as a going concern and their report on internal controls over financial reporting would indicate that the Registrant did not maintain effective internal control over financial reporting as of March 31, 2010 because of the effect of material weaknesses reported as of March 31, 2009 that had not been remediated.

We’d continue but it’s probably not necessary.

Apparently PwC Partners Aren’t Eligible for Anti-Bullying Protection

When you become a partner at a Big 4 firm, the culture rewards you with certain privileges. Some of these include: 1) the ability to strut out the door before 5 pm and no one gives you the stink eye; 2) stealing food out of the fridge without fear of retribution; 3) “Black” Starbucks cards; 4) private bathrooms that blast “You’re the Best” when you walk in the door, among others.

Unfortunately, it turns out that sometimes you lose some privileges when you take seat at the big table.

We previously mentioned Colin Tenner, who is suing PricewaterhouseCoopers for disability discrimination, alleging that he was fired after taking time off due to depression and anxiety. His suffering was caused, he claims, by a client bullying him (e.g. taking his lunch money, using emails as TP and returning them) and PwC’s mishandling of the situation.

His fellow partners weren’t buying it, claiming that he was a total wuss, “partners simply do not get sick” and possibly just faking it.


At first, we thought this sounded a little harsh but the Times Online is now reporting that there is a perfectly good explanation for partners’ reaction. They had a policy to back them up:

Mr Tenner, 45, said that a junior member of his team had raised a formal complaint against the same individual, which was investigated by PwC.

Although he complained about his treatment from the individual on several occasions over six months and had asked PwC to implement specific procedures in its anti-bullying policy, “nothing was done”, it is alleged.

Instead, Mr Tenner said, several senior managers told him that he was not protected by the anti-bullying policy because he was a partner.

Now this makes sense. Had this been one of P. Dubs’ rank and file, certainly there would have been hell to pay for this type of treatment by a client. But since a partner was involved, they figure your bully tolerance should be at such a keen level that no protection is necessary.

Bullying ‘did not apply’ to PwC partner [Times Online]