The European Union is proposing a rule change for auditing firms in Europe. They want to ban audit firms from offering most non-auditing services to their clients and t require that large companies rotate their auditors. This proposal is intended to increase competition between auditing firms. It is also designed to end such a relaxed relationship between auditors and their clients.
The United States is also planning a change for auditing firms. The public company accounting oversight board wants to implement the idea that companies must rotate audit firms. The reasons for the change in the United States are the same as the ones for changing in Europe.
With frauds to seem to be happening all the time, change had to happen. There was obviously a lot of serious problems with auditing, including that firms were getting too comfortable with their clients and didn't want to ruin their relationship with the client. This makes it a tough situation for the auditors because if they give their clients a bad report then they will lose them as a client. So i think that this proposed rule change will actually benefit both parties. As long as no one has anything to hide then this rule should be a good idea.
Wednesday, November 30, 2011
New Jerseys Accountants Found to be Lying
During a recent audit of New Jersey's accountants, there has been a disturbing trend found. A record number of accountants have been lying about their continued education. The report said that about 780 of 20,000 of licenses accountants in New Jersey were falsely reporting that they returned to school to take additional courses, which are required to do every three years.
This doesn't seem like a lot but it only takes one person to lie and commit a major fraud, as we all saw with Arthur Anderson. So, if there 780 people are capable of lying on their continuing education, what else could they be lying about. Some of the offenders included local tax preparers, school accountants, state officials, and members of large accounting firms.
Despite all of the negative things related with this report there are some positives to take away as well. One positive is that they were actually found out to be lying. This is because the accountancy board used a new method in looking for fraud. They used to randomly select about 10% of applications but now they compared applications with enrollment records of the law and ethics course that is required. Another positive outcome of this situation is that all licenses who need continuing education will now be looked at closer. After something like this it is obvious that better internal controls have to be set up so this doesn't happen again.
This doesn't seem like a lot but it only takes one person to lie and commit a major fraud, as we all saw with Arthur Anderson. So, if there 780 people are capable of lying on their continuing education, what else could they be lying about. Some of the offenders included local tax preparers, school accountants, state officials, and members of large accounting firms.
Despite all of the negative things related with this report there are some positives to take away as well. One positive is that they were actually found out to be lying. This is because the accountancy board used a new method in looking for fraud. They used to randomly select about 10% of applications but now they compared applications with enrollment records of the law and ethics course that is required. Another positive outcome of this situation is that all licenses who need continuing education will now be looked at closer. After something like this it is obvious that better internal controls have to be set up so this doesn't happen again.
Olympus Corp. Hiding Losses
Olympus Corp., a Japanese camera company, was found to have used some accounting tricks to hide big losses. After being found out Olympus even admitted to using payments to merger advisers and venture capital funds to cover up securities losses dating back to the 1990s. This being said, You have to wonder what the Japanese arms of KPMG and Ernst & Young were looking at during their audits of Olympus. Both firms declined to comment on the matter. Olympus removed the Japanese arm of KPMG as their auditor in 2009 after a dispute over how to account for some controversial acquisitions. Olympus decided not to reveal this information to the stock market.
Following the firing of KPMG, Olympus hired Ernst & Young to handle their audits. To avoid any suspicion Olympus cited the reason for hiring Ernst & Young as, KPMG's contract had expired. Despite Olympus trying to hide their activities, Recently outed chief executive Michael Woodford said he had questioned the excessive advisory payments for the acquisition of British medical device firm Gyrus. Olympus paid one third of their acquisition costs for advisory costs. It is normal to pay about one to two percent for these costs.
It is scary to think that two firms from the big four let something like this slip right past them. It is very troubling to see, especially when both firms have been in situations like this before. I hope they decide to get their act together and do things right.
Following the firing of KPMG, Olympus hired Ernst & Young to handle their audits. To avoid any suspicion Olympus cited the reason for hiring Ernst & Young as, KPMG's contract had expired. Despite Olympus trying to hide their activities, Recently outed chief executive Michael Woodford said he had questioned the excessive advisory payments for the acquisition of British medical device firm Gyrus. Olympus paid one third of their acquisition costs for advisory costs. It is normal to pay about one to two percent for these costs.
It is scary to think that two firms from the big four let something like this slip right past them. It is very troubling to see, especially when both firms have been in situations like this before. I hope they decide to get their act together and do things right.
Wednesday, November 23, 2011
Naval Academy Audited
During a recent audit by the Defense Departments inspector general, it has been found out that the naval academy wasted $3.5 million on a contract for a short film and six commercials. In addition to this, they also wrongly accepted $184,000 in gifts and $343,208 in corporate sponsorship funds. The academy spent $214,000 in 2006 to create two commercials and a short film for their visitor center.
These commercials were made for the same purpose as the ones found in the audit that cost much more. The audit report described the $3.5 million expenditure as "careless and extravagant". The audit also found that the academy may have violated the anti-deficiency act by using money from outside sources. This means that they were spending more money than their budget allowed them to use.
In addition to all of the findings, the audit also found that the naval academy spent $189,265 on activities that didn't benefit the students. This money was spent on catered tailgating at football games, support for a superintendent's dinner, holiday parties, and golf outings for academy employees.
In a department of the government that is supposed to be disciplined, i cannot believe that they are spending in excess to make commercials. I would think that the navy would have great internal controls, so something like this wouldn't happen. If money can be accepted and spent that goes against regulation in the navy, then it could happen anywhere and that is a scary thought for our future. Also, if we have to watch agencies that are supposed to protect our country then our country may be in a lot of trouble in the near future. I hope that the naval academy better their internal controls so something like this doesn't happen again.
These commercials were made for the same purpose as the ones found in the audit that cost much more. The audit report described the $3.5 million expenditure as "careless and extravagant". The audit also found that the academy may have violated the anti-deficiency act by using money from outside sources. This means that they were spending more money than their budget allowed them to use.
In addition to all of the findings, the audit also found that the naval academy spent $189,265 on activities that didn't benefit the students. This money was spent on catered tailgating at football games, support for a superintendent's dinner, holiday parties, and golf outings for academy employees.
In a department of the government that is supposed to be disciplined, i cannot believe that they are spending in excess to make commercials. I would think that the navy would have great internal controls, so something like this wouldn't happen. If money can be accepted and spent that goes against regulation in the navy, then it could happen anywhere and that is a scary thought for our future. Also, if we have to watch agencies that are supposed to protect our country then our country may be in a lot of trouble in the near future. I hope that the naval academy better their internal controls so something like this doesn't happen again.
Sunday, November 13, 2011
IRS Pilot Project
The IRS is currently working on a pilot project that may be able to improve taxpayer compliance by mailing notices when there are discrepancies on returns. The IRS plans for this project to be an educational experience for taxpayers and to encourage people to correct their returns if necessary.
IRS spokesman, Eric Smith says the program is going to generate letters based on discrepancies between taxpayer's return and third party reports. Many accounting professionals believe this is a good idea for the IRS because it is an effort to reduce the tax gap. I believe that this is a great idea. In the past, taxpayers would get nervous any time they would receive a letter from the IRS. With this program the IRS can create a better image of themselves. An image that is needed to drastically be improved, especially in a time of financial hardship. Also, by trying to educate the taxpayers instead of just telling them what they did wrong it gives them an opportunity to learn and avoid future mistakes. However, as an accounting major i do worry that this will take away from some accounting jobs in the future.
With educating people about taxes it allows people to be able to do their taxes on their own without any help from an accountant. Despite this, I still believe it is a step forward for the IRS.
IRS spokesman, Eric Smith says the program is going to generate letters based on discrepancies between taxpayer's return and third party reports. Many accounting professionals believe this is a good idea for the IRS because it is an effort to reduce the tax gap. I believe that this is a great idea. In the past, taxpayers would get nervous any time they would receive a letter from the IRS. With this program the IRS can create a better image of themselves. An image that is needed to drastically be improved, especially in a time of financial hardship. Also, by trying to educate the taxpayers instead of just telling them what they did wrong it gives them an opportunity to learn and avoid future mistakes. However, as an accounting major i do worry that this will take away from some accounting jobs in the future.
With educating people about taxes it allows people to be able to do their taxes on their own without any help from an accountant. Despite this, I still believe it is a step forward for the IRS.
Audits could require signature
The US public company accounting oversight board (PCAOB) has proposed a rule change. The change states that the name of the person " responsible for the engagement and performance" of an audit must be disclosed. The current rule only requires the name of the firm that prepared the audit.
With current problems involving the Big four and china, the PCAOB hopes that the proposed rule will increase "transparency into and accountability for the preparation and issuance of audit reports. However, the major accounting firms are opposed to this rule change happening. This makes me wonder why they would be so opposed to signing their names after performing an audit. If the auditor is being professional and performing with due professional care then there shouldn't be a problem with the proposed change. However, that may be the problem with today's audit firms. That they aren't being professional and more internal controls have to be set up to try and prevent sandals from happening.
I believe that this rule change, if implemented, would have a positive effect on auditing because people primarily look out for themselves and if their name is on the line they may try to avoid any sort of scandal. Even though i think this rule would have a positive impact on auditing i still believe there is a long way to go to lock down on the corruption that is happening in the auditing field.
With current problems involving the Big four and china, the PCAOB hopes that the proposed rule will increase "transparency into and accountability for the preparation and issuance of audit reports. However, the major accounting firms are opposed to this rule change happening. This makes me wonder why they would be so opposed to signing their names after performing an audit. If the auditor is being professional and performing with due professional care then there shouldn't be a problem with the proposed change. However, that may be the problem with today's audit firms. That they aren't being professional and more internal controls have to be set up to try and prevent sandals from happening.
I believe that this rule change, if implemented, would have a positive effect on auditing because people primarily look out for themselves and if their name is on the line they may try to avoid any sort of scandal. Even though i think this rule would have a positive impact on auditing i still believe there is a long way to go to lock down on the corruption that is happening in the auditing field.
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