Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Posts Tagged ‘accounting fraud

Litigation cases that could possibly take down a Big 4 firm

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Image courtesy of Adobe Stock.

Image courtesy of Adobe Stock.

If a judgment at trial were big enough, it could mean the end of a large firm. Writing on August 13th at Market Watch, Francine McKenna explains PwC faces 3 major trials that threaten its business.

That threaten its business phrase in the headline actually means could take down the entire firm.

There are three major cases, each with a serious enough impact, that an adverse ruling in any one could take out the firm. One is in court now, another expected next February, with the final one in court within a year.

Work with me as I try to process through the cases. Here is the thumbnail version.

Two lawsuits over one client

Taylor Bean & Whitaker Mortgage Corp allegedly generated massive amounts of fraudulent loans, a large portion of which were sold to Colonial Bancgroup.  Both companies failed during the financial crisis.

PwC audited Colonial Bank and allegedly did not discover the bad loans that their client, Colonial Bank, bought from PwC’s non-client Taylor Bean.

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Written by Jim Ulvog

August 15, 2016, 7:14 am at 7:14 am

Cheating on your Fitbit? After you stop laughing, think about this from the fraud perspective.

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One option to get superb results on your exercise tracker. Photo courtesy of Adobe Stock.

One option to create superb results on your exercise tracker. Photo courtesy of Adobe Stock.

Sometimes you just have to laugh.

On June 9, The Wall Street Journal asked Want to Cheat Your Fitbit? Try a Puppy or a Power Drill.

Those informal office challenges to get people to exercise often involve using a Fitbit device to track how far participants walk or run.

Apparently a few folks have decided to take some shortcuts.

One fellow attached his tracker to the blade of an electric saw. After leaving it run overnight he had recorded 57,000 steps the next morning.

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Written by Jim Ulvog

June 15, 2016, 8:07 am at 8:07 am

Followup on Toshiba accounting scandal – “Record” fine as cost of doing business

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Cleaning up the numbers. Image courtesy of DollarPhotoClub.com

Cleaning up the numbers. Image courtesy of DollarPhotoClub.com

A couple of articles have caught my eye on Toshiba’s book-cooking fiasco.

Tiny lawsuit to recover damages

11/10 – Wall Street Journal – Toshiba Shares Fall After Loss, Lawsuits – Toshiba has sued three former presidents and two current executives. Goal is to recover ¥300M ($2.4M).

Claimed amount of the accounting fraud is still ¥155B ($1.26B) after tax. Previously mentioned the estimate in September was about $1.87B pretax and $1.29B after tax. Looks like the estimated of amount of book-cooking is holding firm.

Just as a completely wild guess, I’ll guess the $2.4M would not even cover the legal fees already incurred by Toshiba to deal with the mess created by the named executives.

“Record level” fine as a cost of doing business

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Written by Jim Ulvog

December 30, 2015, 9:13 am at 9:13 am

Posted in Accounting

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Audit of Parmalat’s fraud based on faked bank deposit settled by Grant Thornton for $4.4 million

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The amount will be $4,400,000. Image courtesy of DollarPhotoClub.com

The amount will be $4,400,000. Image courtesy of DollarPhotoClub.com

Chicago Business reports on 10/30 that Grant Thornton settles lawsuit for $4.4 million.  Another quick survey:  Reuters – 11/2 – Parmalat settles dispute with Grant Thornton.

If I got it straight, the international consortium of Grant Thornton is writing the check to settle up for the fiasco on the Parmalat audit.

You may vaguely recall that mess.  In two sentences, Parmalat had a fake bank account in the Cayman Islands that supposedly held €3.95B (yes, four billion Euros, that’s 4,000,000,000) which was around half of the consolidated balance sheet of about €8B as of 12/31/03. The auditors in the Italian affiliate (if I recall correctly) of GT sent a confirm to the address the client gave them for the bank in the Caymans which was, of course, intercepted, signed by company staff, and returned to the auditor.

The scheme fell apart and has been rattling around in the legal system for just over a decade, in and out of the US and bouncing between circuits when here.

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Written by Jim Ulvog

November 3, 2015, 8:00 am at 8:00 am

Current estimate of Toshiba book-cooking is at $1.9B, surpassing Olympus

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Cleaning up the numbers. Image courtesy of DollarPhotoClub.com

Cleaning up the numbers. Image courtesy of DollarPhotoClub.com

After delaying their earnings announcement a while, Toshiba announced a ¥224.8B pretax write-down for accounting irregularities which hits net income for ¥155.2B.

That would be US$1.87B pretax and US$1.29B after-tax. Even if those amounts don’t increase that means Toshiba has out Olympused Olympus at $1.7B.

The now-admitted fraud ran for seven years, not the six previously mentioned.

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Written by Jim Ulvog

September 10, 2015, 8:17 am at 8:17 am

Posted in Fraud

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Time to start paying attention to the Toshiba accounting scandal

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Picture courtesy of DollarPhotoClub.com

Picture courtesy of DollarPhotoClub.com

Yeah, yeah, I’m late to the party.  Since this has been in the news for a few months, I am a bit tardy talking about the issue. On the other hand, yet another round of billion-dollar book-cooking in Japan doesn’t have a lot of impact on accounting firms that only work in the US.

So what’s going on?

Apparently Toshiba has around a dozen different schemes to inflate profits. Make that two dozen. Make that two dozen and counting. Amounts involved are reported to be half a billion dollars, one billion, or three billion. Take your pick.

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Written by Jim Ulvog

August 3, 2015, 8:08 am at 8:08 am

Posted in Fraud

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Rationalization in action is frightening to see

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It is scary to see the power of rationalization. We humans can exert great effort to persuade ourself that wrong is right. With enough effort, we can persuasively argue that wrong is a positive good, the noble alternative.

It is unsettling to me when I see a client deeply believe that tax or accounting fraud is perfectly legitimate and I am the one who is in the wrong to suggest otherwise.  Worrisome is a watching a friend who believes that hurtful or destructive or nasty or evil behavior is Godly. Even more upsetting is when I catch my brain in full rationalization mode.

No, I’m not about to give any examples from clients, friends, or my life.

Unfortunately, we have a sad public example of rationalization racing at full power (sad pun intended).

Some background on Lance Armstrong’s massive doping schemes

Many public sources report that Lance Armstrong has been found to use performance enhancing drugs for a very long time. He won seven consecutive Tour de France races.

According to Wikipedia, in 2012 he received a life-time world ban on all competitive events in all sports. His seven wins were revoked. He was found to have engaged in sophisticated doping schemes for many years.

In 2013, he admitted massive doping in an interview with Oprah Winfrey. He admitted using a long and specific list of banned substances and did so in each of the 7 Tour de France races.

Rationalization on display

Having set the background, let’s look at an article in The Guardian:  Lance Armstrong: I would probably cheat again in similar circumstances. Thanks to Professor Mike Shaub (twitter @mikeshaub) for pointing out the article.

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Written by Jim Ulvog

January 27, 2015, 9:23 am at 9:23 am

Posted in Audits, Fraud

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