Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

A few more updates in the ongoing world-wide banking fiascos

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Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

A few recent reports: Reason for no criminal prosecution of one too-big-to-fail bank is that it was TBTF, an indictment and a settlement in forex cases, and progress in the money laundering investigations.

Since I use the term a lot, here is a definition of fiasco from Google:

a thing that is a complete failure, especially in a ludicrous or humiliating way. Synonyms: failure, disaster, catastrophe, debacle, shambles, farce, mess, wreck.

Seems to me throwing away $530 million of bank capital because bank staff and leaders wanted to cheat customers meets the definition of fiasco.

7/11 – Francine McKenna at Market Watch – HSBC wasn’t prosecuted because it was ‘too big to fail’: House Committee – A House committee concluded that HSBC wasn’t prosecuted for willful AML violations because it was TBTF. One part of the violations was intentionally leaving out of wire instructions any indication that the funds were related to activity in countries with bans.

Staff recommendations were to pursue a criminal prosecution. Attorney General Eric Holder determined the systemic risk was too high and thus agreed to a deferred prosecution agreement.

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Written by Jim Ulvog

July 28, 2016, 8:17 am at 8:17 am

Posted in Other stuff

Tagged with ,

Perhaps reporting under GAAP is not reporting the numbers investors need

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Image courtesy DollarPhotoClub

Image courtesy DollarPhotoClub

Consider this idea: perhaps GAAP-based accounting numbers aren’t giving stock investors all the information they need.

What is wrong with this picture?

In April, Netflix announced their earnings fell short of analysts’ expectations. Usually that would drop the stock price. What happened?

Nexflix stock jumped 18%.


What could cause that? The market supposedly has incorporated the consensus into the price. Missing the expectation should drop the price.

Consider this: At the same time, Netflix announced their new-subscribers were 4.9 million instead of the expectation of 4.0M.

That means they will have stronger earnings for the next several quarters than was expected the day before the announcement. Thus, the stock price rose.

Investors looked at the new subscriber tally as a better indicator of future earnings and thus future stock price than this quarter’s GAAP net income. New subscribers is more important than EPS.

If you wonder are wondering why GAAP EPS isn’t the driving force in that story, here is a brain stretcher for you:

“The End of Accounting”

Professors Baruch Lev and Feng Gu point to The End of Accounting and the Path Forward for Investors and Managers in their June 21 Wall Street Journal article.

You can find the book at Amazon here. It is a bit steep, $32 in hardback and $26 in Kindle format, which is really high for an e-book. I already have a copy on my e-reader. Started reading it yesterday.

The professors suggest that reported earnings under GAAP are losing relevance for investors as we move further and further away from an industrial economy. When know-how, processes, patents, using the internet, and other intangibles are the source of income, GAAP doesn’t report useful information for figuring out future earnings.

By the way, keep in mind that providing historical information to readers of the financial statements to allow them to make estimates of future earnings and cash flows of the company is, like, sorta’, kinda’, the purpose of GAAP financial statements.

The problem with GAAP

Some drawbacks in looking at GAAP numbers, according to the professors:

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Written by Jim Ulvog

July 25, 2016, 7:57 am at 7:57 am

Posted in Accounting, Pondering

Two deadlines to keep in mind if your peer review didn’t go well

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Image courtesy of

Image courtesy of

If your peer review resulted in anything other than a pass report there are a couple of deadlines you need to remember if you are in California.

Keep in mind you are responsible for your compliance with regulations. Here are a few tips to point you in the right direction. These comments discuss the regs in California. If you are in another state, you really ought to check out what your board of accountancy has to say. I’ll guess there is some comparable reporting requirement when a peer review does turn out well.

Notification requirement for reports less than pass — 45 days

If you received either a pass with deficiency or a fail report, you need to be in touch with the California Board of Accountancy (CBA).

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Written by Jim Ulvog

July 20, 2016, 9:20 am at 9:20 am

If you have been blowing off Peer Review, you really ought to get with the program.

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Image courtesy of

Image courtesy of

Seriously, if you are providing audit, review, or compilation services to your clients, you really need to be in the peer review program. And you really, really need to be doing fairly good work. I doubt any CPAs in California who desperately need to read this post will be doing so, but it is still worth mentioning.

The California Board of Accountancy is coming down hard on CPAs who have avoided the peer review program. Seriously missing the boat on audit quality is getting hammered as well.

Quarterly newsletter

The Spring/Summer 2016 edition of the quarterly Update newsletter from CBA, issue 81, has several reports of firms drawing serious sanctions. There are 21 pages of narrative describing the sanctions through April 24, 2016. Of 28 disciplinary issues, 7 deal with peer review, which are the ones I will highlight.

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Written by Jim Ulvog

July 19, 2016, 9:09 am at 9:09 am

Posted in Peer Review

Tagged with ,

Negative mindsets to avoid as an entrepreneur or local audit firm partner

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Entrepreneur magazine tells us to Stop These 8 Negative Mindsets That Make Entrepreneurs Miserable. The article is focused on entrepreneurs and the ideas apply to every sole practitioner, even partners in small firms.

Actually, these warnings apply to everyone who is looking at flower petals instead of flower roots.

Here are some highlights of the points, along with my comments. (If you aren’t an entrepreneur or partner in a small CPA firm, focus on the numbered points and translate my comments to your situation.)

1 Seeking the approval of others

Hey, you’re running a small firm because you want to. It is astoundingly fun. You don’t need anyone else’s approval. You approve of yourself.

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Written by Jim Ulvog

July 18, 2016, 9:15 am at 9:15 am

Posted in Pondering

Guess on the value of all loot taken by Alexander the Great

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Tetradrachm from Alexander the Great. Image courtesy Adobe Stock.

Tetradrachm from Alexander the Great. Image courtesy Adobe Stock.

My discussion continues of how much wealth Alexander the Great looted while on his rampage around the world. These calculations are based on two books I’ve really enjoyed:

Loot from Persia

Prof Holt provides a couple of ancient estimates of the total haul in Persia. Here is a recap:

  • ?? Babylon
  • 50k talents – Susa
  • 120k – Persepolis
  • 6k – Pasargadae
  • 26k – Ecbatana

That gives a point estimate of 202k talents. Back out some poetic license exaggeration and add an amount at Babylon about equal to Susa (author’s estimate) gives me an estimate of about 225k talents, give or take. That is only the precious metals without art, statuary, spices, clothes, pottery, or gold inlaid stuff.

In addition, Darius fled with maybe 8,000 talents, Alexander paid bonuses of around 12,000 talents to his soldiers, with another 2,000 talents to Thessalain soldiers. There was enough stray coins found a century later to mint 4,000 talents of coins. That is around another 26,000 talents or so of additional bullion. Add in the unquantifiable amount soldiers looted and all the non-bullion treasures means there was an incalculable amount of wealth looted from the Persian empire.

I’ll work with 202K point estimate, plus 50K from Babylon, less 25K for poetic license, plus 26K sundry disposition. That gets to a point estimate of 253K, with my very wild guess of a margin of error of minus 50K to plus 100K.  Let’s work with a 250,000 Talent estimate. That means I’ll roughly estimate Alexander looted 250,000 talents of silver-equivalent from Persia.

Total haul during Alexander’s extended raid around the world

The total haul from looting is estimated by the Prof. Holt as 69( X) + 216,820 talents, where X is an unknown amount from one raid or battle. The total is unknown and unknowable.

Shortly after that estimate the author adds in tribute from conquered areas that were not looted in return for payments and loyalty.

Total proceeds from the wars is then estimated in a formula expressed as 81.67( X) +311,761.

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Written by Jim Ulvog

July 15, 2016, 9:52 am at 9:52 am

The overwhelming change you feel today is going to increase. Engage the change.

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Image courtesy of before they closed their doors.

Image courtesy of before they closed their doors.

The massive volumes of change you see surrounding you everywhere you look isn’t going to stop. In fact the pace of change is going to increase.

Each of us have a choice. Either figure out how to cope with and embrace the change or ignore it.

The cost of ignoring massive change is that you and your organization will get left behind. That doesn’t just mean you will be a laggard as you continue doing next month what you did last year. Instead that means your organization will radically shrink and before you know it, will disappear.

The downsides are serious. There is an upside and it is exciting.

Four articles I’ve seen lately focus the mind. While these articles are written in either the accounting or church context, they also fully apply in the church and accounting context. They also apply to every individual and organization.

This article will be posted across all my blogs because it applies to all of them.

7/7 – Bill Sheridan at LinkedIn – Embrace change or resist it: Only one option is viable.

The odds are really high that tax preparation will be completely automated in the next two decades. Estimated odds are almost as high that both accounting and auditing will be fully automated.

Consider my business and my core tasks of auditing charities. There is a real possibility those types of audits could be heavily automated in 10 or 15 or 20 years. I am not old enough to bank on retiring before that massive change starts eating away the entire audit profession.

Automation will take over an increasing number of tasks. The world of tax, accounting, and audit will be affected. Mr. Sheridan explains the shelf life of education and experience we have is shrinking.

As the Maryland Association of CPAs routinely points out our learning needs to be greater than the rate of change; L>C is their formula.

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Written by Jim Ulvog

July 8, 2016, 10:01 am at 10:01 am


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