Accounting "Rules"

Early Exit of FASB Chairman Raises Anxiety

The group that sets U.S. accounting rules said Tuesday that its longstanding chairman would retire, causing new uncertainty over highly contentious accounting issues that have major bearing on how U.S. companies report their results.

The departure of Robert Herz, who has served as chairman of the Financial Accounting Standards Board since 2002, came as a surprise. Mr. Herz had two years remaining in his term as FASB chairman and hadn't publicly indicated he might step down. Mr. Herz wasn't available to comment.

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Mr. Herz's departure, set for Oct. 1, also comes as the body is enmeshed in a battle over a proposal to expand the use of mark-to-market accounting, which requires companies to use market prices rather than management estimates to value financial holdings.

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The lack of a full board is likely to slow many of FASB's projects, particularly the move to converge with international rules, said former FASB Chairman Dennis Beresford. "They're not going to issue anything important on the basis of having only four board members," he said, adding that Mr. Herz's departure came as "a complete surprise."

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But he also suffered what many saw as a big defeat in the wake of the financial crisis. After Mr. Herz was browbeaten by members of Congress during a hearing on Capitol Hill over mark-to-market accounting, FASB subsequently changed some rules governing this practice.
http://online.wsj.com/article/SB10001424052748704125604575450073232699814.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

This is huge, the timing is crucial. FASB dictates financial reporting. Mark to market "popped" the credit bubble. I would imagine we are in for another crisis.

More to read here.
http://wallstreet.blogs.fortune.cnn.com/2010/08/24/fasb-chairman-steps-down/

Herz Leaving Marks Boon for Banks

A new front has opened up in the war over mark-to-market accounting. Suddenly banks find themselves with an unexpected advantage in the fight over how they should value their vast holdings of financial instruments.

That is due to the surprise announcement Tuesday of the departure of Robert Herz as chairman of the Financial Accounting Standards Board. This will give banks an opportunity to push for a successor who is more friendly to their views on the mark-to-market question, as well as the overall idea that accounting should be for more than just investors.

Mr. Herz had backed a recent proposal to expand the use of market-value accounting to banks' loan books. That is in contrast to current practice, in which banks value loans at their cost and create a reserve based on management expectations of how the assets will perform.

Now, with Mr. Herz out of the picture, the future of the rule change may be in doubt. That may cheer some bank investors. But it would prove a longer-term setback for markets and investors overall.
http://online.wsj.com/article/SB10001424052748703447004575450162981341240.html?mod=googlenews_wsj

This will give banks an opportunity to push for a successor who is more friendly to their views on the mark-to-market question, as well as the overall idea that accounting should be for more than just investors

someone who will let them lie and get away with it?

Here's What Mike Mayo Thinks Citi Is Doing To Cook Its Books



Image: wikipedia
In analyst Mike Mayo's view, Citigroup needs to re-do its accounting.

He thinks the profitable firm should be in the red.

Mayo argues that Citi is "cooking the books," by wrongly writing off Deferred Tax Assets that legally, should appear no where on their books.

From HuffPo:

In Mayo's view, Citigroup needs to take an immediate loss of some $10 billion on its DTAs (deferred tax assets), something that would place the marginally profitable bank, back in the red.

Banks can use DTAs to reduce the amount of tax that they’ll need to pay in a later tax period*, as FTAlphaville puts it. But there are some restrictions as to when firms can use them. Mayo thinks Citi is in violation of those restrictions.

According to Gasparino:

Banks are allowed to write-off DTAs as long as they've been profitable for at least one of the past three years. They aren't allowed to write off DTAs if they've been unprofitable three years in a row.

Citi recorded a net loss in 2009, 2008 and 2007. According to Mayo, and several accounting experts I've come across, that means the firm is required to give a chunk of the money back, and take a large multibillion writedown.



Read more: http://www.businessinsider.com/heres-what-mike-mayo-thinks-is-citis-cooking-the-books-2010-8#ixzz0xvvi3N00

they let them get away with it because asking the hard questions is just that..to hard..

Start Spreading the News: A Public-Pension Crisis May Be Brewing

As the saying goes, if you can make it here, you can make it anywhere. But it seems New York public employees may be making too much -- on their pension plans. And it’s not good news for taxpayers.

According to a foreboding new report from the Empire Center for New York State Policy, tax-funded employer contributions to New York's pension funds (the amount of money taxpayers fork over each year to cover the state’s obligation to its public-employee pension system) will be $17.3 billion in 2010, which is up a staggering 1,630% in the last 10 years. (In 2000, it was $1 billion.) The dramatic jump in contributions isn’t part of the natural course of funds -- it’s a direct result of the financial crisis.

“This is to make up for the big investment losses of the last few years,”said E.J. McMahon, one of the authors of the report, entitled New York’s Exploding Pension Costs.

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A bill introduced last week by Republican Representatives Paul Ryan (Wis.), Darrell Issa (Calif.) and Devin Nunes (Calif.) proposed legislation that would require all state and local governments who want to sell tax-exempt bonds to report their pension liabilities with the Treasury Department.

“Right now there are five or six different actuarial methods that states use to come up with their estimates. This bill would help give a better picture by using a common benchmark,” said Maria Doulis, a senior research associate for Citizens Budget Committee, a nonprofit civic organization.

New York, which is among the states viewed as more responsible for its pension obligations, is still deeply in the red. According to the Empire Center’s reports, its $132.8 billion pension plan is underfunded by $71 billion when private sector standards are used.

That’s important because watchdogs like the Empire Center believe the pension crisis is being muddled up by the Government Accounting Standards Board’s lax accounting rules, which they feel don’t stand up to private sector scrutiny.
http://www.foxbusiness.com/markets/2010/12/10/start-spreading-news-public-pension-crisis-brewing/

hmmm a bill that requires pension reporting...no matter what method you use...they are underfunded in a big way.

Accounting for Public Pensions

A generation ago, when Ronald Reagan was president, the accounting rule makers forced American companies to come clean on the cost of the pension plans they were promising to employees. That decision, perhaps more than any other, heralded the eventual demise of defined-benefit pensions for employees of American companies.

Now something very similar may be in store for public sector employees, thanks in part to the Republican victories in last month’s Congressional elections

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Estimates of unfunded pension liabilities can be breathtaking. Two economists, Robert Novy-Marx of the University of Rochester and Joshua Rauh of Northwestern, put the figures at $3 trillion for state governments and almost $600 billion for municipalities. Those figures are far greater than official government figures, and are highly dependent on interest rate levels, which can and do fluctuate. They may be too high, but there is no way to be sure of that.

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This week, three Republican members of Congress, led by Representative Devin Nunes of California, a senior member of the Ways and Means Committee, proposed legislation to force states and cities to report pension fund liabilities on the same basis, and to force them to disclose market values of assets. The bill would not even allow smoothing, so the state of pension funding will seem volatile as markets rise and fall. Such volatility could be reduced by putting more pension money into bonds than stocks, but doing so would force governments to admit they were likely to earn less on investments, and thus need to put even more money into pension plans.

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Disclosures are likely to lead to growing pressure to rein in pension costs, even though that will be resisted by public employee unions, which often have considerable political clout.

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But it is not clear what will happen when cities go bankrupt, in part because there are not that many precedents, and states apparently cannot file for bankruptcy at all. Of course, the fact a state cannot file in bankruptcy court does not mean it cannot go broke.

There has been talk of shared sacrifice, in which employees accept lower benefits, taxpayers pay more and bondholders also take hits. You can argue that is what happened in New York City a quarter of a century ago, when some bondholders were forced to extend maturities. But widespread expectations that such a thing was possible could drive up borrowing costs for all localities, making their fiscal problems that much worse.
http://www.nytimes.com/2010/12/10/business/10norris.html?_r=1&adxnnl=1&pagewanted=2&adxnnlx=1292032900-teFl42kGNSNv8gE/WLrqMg



Introducing a bill is not the same as passing one...but this looks like a "sh*t show" waitin to happen

E&Y to strengthen IT advisory services

MUMBAI: The leading global tax, transactions and advisory services provider Ernst & Young has decided to strengthen its focus on IT advisory services by launching new offerings, besides massively ramping up its global headcount.

IT advisory has been identified as a focus area for E&Y globally with plans to more than triple global team within three years, using India as the key hub for this growth, E&Y said here today. The new offerings will be in areas of IT strategy, programme advisory and implementation services.
http://economictimes.indiatimes.com/tech/ites/EY-to-strengthen-IT-advisory-services/articleshow/7083339.cms

gearing up for global IT fraud

if ernst are there you are correct!

FACTBOX-Major lawsuits against accounting firms

Ernst & Young was sued by New York regulators on Tuesday over its role as outside auditor to bankrupt Lehman Brothers Holdings Inc

Following are some other high-profile legal cases against accounting firms brought by government authorities, investors or others:

* NEW CENTURY FINANCIAL - KPMG was hit with a $1 billion lawsuit in 2009 by the trustee of bankrupt of New Century, a subprime mortgage lender that collapsed at the start of the U.S. housing crisis. The still-pending lawsuit accused KPMG of helping cover up accounting and financial errors at New Century that led to its collapse.

* TYCO INTERNATIONAL - PricewaterhouseCoopers LLP in 2007 agreed to pay $225 million to settle a class-action case brought by investors in Tyco International Ltd (TYC.N) following an accounting scandal at the diversified manufacturer.

* XEROX - KPMG in 2006 agreed to pay $22 million to settle U.S. Securities and Exchange Commission charges involving its audits of copier maker Xerox Corp (XRX.N). The SEC said KPMG allowed Xerox to manipulate its accounting from 1997 through 2000.

* TAX SHELTERS - KPMG in 2005 paid $456 million to settle a federal investigation into questionable tax shelters. The settlement, in which KPMG agreed to make internal changes and be overseen by an outside monitor, allowed it to avoid a criminal indictment that might have crippled the firm.

* ADELPHIA - Deloitte & Touche in 2005 agreed to pay $50 million in a settlement with U.S. securities regulators over its role as auditor of bankrupt cable company Adelphia Communications Corp.

* ENRON CORP - Arthur Andersen was convicted in June 2002 of obstruction of justice for its role in the collapse of energy trader Enron. The U.S. Supreme Court overturned the conviction in 2005, but Andersen was virtually out of business by then, felled by a mass client exodus and billions of dollars in lawsuits.

* CENDANT CORP - Ernst & Young in 1999 agreed to pay $335 million to shareholders of Cendant Corp to settle a case stemming from an accounting scandal at the travel and real estate service company.
http://www.reuters.com/article/idUSN2120939320101221

it will be interesting to see how the E&Y lawsuit pans out.

very..good work..

Seidman Named Chairman of FASB

Leslie Seidman was named chairman of the panel that sets U.S. accounting standards, as the panel gears up for a busy 2011 that could dramatically alter how U.S. companies report their financial results.

Ms. Seidman was named head of the Financial Accounting Standards Board by the trustees of the foundation that oversees FASB. She has been a FASB member since 2003 and has served since September as the board's interim chairman, since then-Chairman Robert Herz's unexpected early retirement.

Ms. Seidman will serve as chairman for the rest of Mr. Herz's term, through June 2013. She said in a statement that she was "honored to be leading the FASB at such a pivotal time in our history."

Ms. Seidman will play a critical role in a number of hot-button issues now before FASB, especially the "convergence" plan to bring U.S. and global accounting rules closer together. The FASB and the International Accounting Standards Board are trying to eliminate major differences between the accounting standards U.S. companies follow and International Financial Reporting Standards, or IFRS, used by most of the rest of the world.

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Another area of contention is a FASB proposal that would require banks to value their loans at market value—a move the banking industry bitterly opposes and a move that would lower banks' book value. The board has acknowledged the reaction to its proposal—made last May, when Mr. Herz was still chairman—has been strongly negative, and it has begun considering potential revisions to its proposal. A final version is expected by June. http://online.wsj.com/article/SB10001424052748704278404576037733622398362.html?mod=googlenews_wsj


big news!

Ernst & Young charges highlight grey area in leverage accounting – Complinet

Civil fraud charges against Ernst & Young LLP have raised the question of whether accounting standards have become so specific that institutions view them as obstacles to maneuver around rather than guidelines for accurate reporting. Legal and accounting experts said that the suit filed by Andrew Cuomo, New York attorney general, was likely to mean the end for transactions such as the “Repo 105″ device at the center of the controversy, particularly if it led to a settlement. It could break new ground in the liability of accounting firms, they added

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If there is a settlement this type of transaction would not be used again. The ‘Repo 105′ is radioactive. I don’t think accounting firms will be allowing their clients to use them again,” said Howard Schilit, founder and chief executive of the Financial Shenanigans Detection Group LLC.

Schilit told Complinet that the accounting standards for repurchase agreements such as ‘Repo 105′ were written clumsily and Lehman was easily able to find loopholes. “This is a case to show that if rules were written as they should have been then nobody would have attempted to misinterpret them,” Schilit said.

The Cuomo lawsuit was notable because it focused on the role of the accounting firm and not the role of Lehman executives, said Peter Henning, professor of law at Wayne State University. It raised questions about whether accountants were liable if a financial institution failed to disclose accurately an accounting transaction to investor, he said. “The fact that Cuomo is going after accountants first raises questions. What is the responsibility of the accountant in this? Accountants will always say we are not responsible for financial statements,” Henning told Complinet.

Cuomo said that Lehman engaged in “Repo 105″ transactions approved by E&Y for more than seven years prior to its bankruptcy. The lawsuit is seeking the return of more than $150m in fees that E&Y charged for auditing work and is one of the biggest government cases involving an accounting firm since Arthur Andersen was criminally indicted in 2002 over the Enron scandal. That indictment led to Andersen’s collapse and the introduction of new laws to govern financial reporting and auditing standards.

Schilit said that he did not expect the Cuomo case to have as dramatic an impact on the role of auditors today as the Andersen case because it would likely be resolved in a financial settlement, rather than go to trial. He said, however, that auditors would be forced to stop their clients from using repurchase agreements such as “Repo 105″.

http://blogs.reuters.com/financial-regulatory-forum/2010/12/23/ernst-young-charges-highlight-grey-area-in-leverage-accounting/

Accounting "rules"..it is all part of the plan

grey areas = fraud and theft

Deloitte plans to move offices to Midtown

Deloitte has decided to consolidate its offices in Midtown, putting the kibosh on a long expected downtown deal for the accounting giant to move from 2 World Financial Center into 400,000 square feet at 4 World Financial Center owned by Brookfield Properties.

Instead, Deloitte, which was also going to lease an additional 100,000 square feet at 30 Rockefeller Center in Midtown, may consolidate in that tower and lease even more space -- if it can find the elbow room, The Post has learned.


Deloitte is currently located at Paramount's 1633 Broadway in Midtown. If the new deal gets inked, Deloitte would move to the Rockefeller Center 2.15 million-square-foot flagship around 2013 when its current 2 WFC sublease from Merrill Lynch expires.
http://www.nypost.com/p/news/business/deloitte_plans_to_move_offices_to_v4mC1y4X6exIsJlChfxryK#ixzz192Us6kAD

hope they dont lose/destroy any documents...just noting the move 2013 hmmm