What is your price?

(Cross-post from my other blog, Attestation Update.)

We know the price Mr. Scott London, former partner of KPMG,  is accused of setting for his integrity, honor, and reputation. The entrance price tag was several thousand dollars and added up to under $100,000.

Cumulative amount is allegedly $50,000 cash plus a watch with claimed value of $12,000 plus some concert tickets for his family, with asserted total around $70,000 or $90,000.

That total allegation isn’t the real measure of his price. The starting point was a few thousand dollars in the first deal. If the story outlined in the criminal indictment is correct, that is the point his integrity was sold.

An old joke about your price

There is an old joke with many variations that goes something like this:

Man to woman in a social setting: “would you sleep with me for a million dollars?”

She indicated she would be willing to do so.

Him: “How about for $20?”

With great indignation, she said “Of course not! What kind of woman do you think I am?”


Insider trading fiasco in audit world

In a major embarrassment for one particular CPA firm and all CPAs in general, last week a partner from one of the Big 4 firms was indicted for conspiracy to commit insider trading.

Mr. Scott London, formerly a partner with KPMG, was indicted by the US government and charged with insider trading by the SEC in the context of allegedly passing information about his clients to a buddy who allegedly traded on the info.  He obtained that information as a part of his role as a senior level audit partner.

Several posts at my other blog, Attestation Update, talk about the story as it developed during the week. Here’s the posts in chronological order: (more…)

Joint Cost Allocation is drawing attention

Chronicle of Philanthropy has a major article out on joint cost allocation, written by Suzanne Perry – Watchdog Cracks Down on Misleading Statements on Fundraising Costs (behind paywall).

The issue is that under certain circumstances, the accounting rules allow allocating fundraising costs into the program category on the functional allocation of expenses. The million dollar question is whether the particular fundraising cost meets very specific conditions.

Here is the crux of the issue in four sentences:


“Tragedy of Fraud” e-book now available at Amazon

“Tragedy of Fraud – The Ripple Effects from Fraud and the Wages Earned” describes the tragic consequences from fraud.

There are ripple effects that spread out to harm innocent bystanders.  The perpetrator draws a wide range of well-deserved wages that will be paid in full.

The book looks at two fraud incidents to learn what happens after a fraud is discovered. One took place in a local megachurch and the other in the mayor’s office of a small city.

The book closes with a discussion of the fraud triangle. That’s the idea that three components need to be present for a fraud to take place – opportunity, motivation, and rationalization. There are steps an organization can take to reduce those factors.

You can find the book at Amazon here

This book is a compilation of blogs posts that have been previously published at Nonprofit Update and Attestation Update. The posts have been edited slightly and reorganized for easier reading.

Major sections of the book: (more…)

Level of Services Provided by a CPA – The Differences Between Compilations, Reviews, and Audits

There are three different levels of services you could obtain from a certified public accountant.  These are referred to as compilation, review, and audit.

Financial statements are presented on the basis of some set of accounting rules. This is referred to as the financial reporting framework.

The vast majority of the time, this would be a large body of knowledge that is called generally accepted accounting principles, or GAAP. Imperfect in implementation though it may be, the concept is that similar transactions will be recorded by all organizations in the same way. In addition, financial statements of similar organizations will actually look similar.

If there is some unique reason to do so, the financial statements could be presented on another basis of accounting.



‘Tragedy of Fraud’ in e-book format – soon to be released

Tragedy of Fraud – The Ripple Effects from Fraud and the Wages Earned will be released soon in Kindle format. This is a compilation of blog posts about the damage caused by fraud. It will also discuss the fraud triangle.

The sections of the book are: (more…)

Fraud triangle illustrated in a movie

I recently enjoyed the 1968 version of The Producers. Wonderful stuff. Lots of laugh lines I’d forgotten about since I watched it last.

While watching, I realized there was a great illustration of a fraud triangle developed in about 5 minutes or so. For an edifying, educational exercise, let’s review the sequence to illustrate the concept of fraud triangles.


The new Audit Guide’s here! The new Audit Guide’s here!

Well, maybe the release of the draft Not-for-Profit Entities Audit and Accounting Guide isn’t quite as exciting as those ancient commercials announcing the release of the new phone book by showing people running around celebrating that it arrived. (The line was also in the movie The Jerk, starring Steve Martin.) For auditors of NPOs, the arrival of the long-expected audit guide is far better than what the old commercials would have you think about a new phone book.

The draft guide can be found here. The AICPA’s page for the draft is at Overhaul of the Not For Profit Entities Audit and Accounting Guide.

The AICPA’s announcement can be downloaded here. Some highlights, as described in their announcement: (more…)

Working draft of the NPO audit and accounting guide expected in August

The 7-26-12 edition of CPA Letter Daily says a working draft is expected soon:

The AICPA’s Financial Reporting Executive Committee is expected to issue a working draft of the accounting content of a proposed Audit and Accounting Guide, Not-for-Profit Entities, on Aug. 15

If you work in the financial area of the NPO world, this would be something to watch for. The revised guide has been in development for a number of years.

Evaluating a used car as an illustration of the differences between compilation, review, and audit

You could figure out how good a car is by looking at it from across the street. 

Or you could look inside & drive it around the block. 

Or you could take the car to your mechanic for a couple of hours to get it really checked out .

We can use that as an analogy of the differences between a compilation, a review, and an audit.


Charity Navigator’s raises idea to revise prior year reports for changes in GIK valuation – A brief discussion of the rules for restating financial statements

Caroline Preston, from The Chronicle of Philanthropy, reports in Watchdogs Zero In on Charity Drug Valuations, that Charity Navigator is floating the idea of asking some charities to restate the last four years of financial statements.

Many NPOs that applied SFAS #157 saw their revenue drop dramatically because of using lower valuation for medicine, especially deworming meds, most specifically mebendazole. (I know, I know, it’s actually ASC 820-10, but my brain still thinks in terms of SFAS numbers when it comes to pre-ASC rules.)

The rating methodology used by Charity Navigator, according to Ms. Preston’s article, penalizes NPOs whose income drops. That means a lot of relief & development NPOs will take a big hit on their ratings.

I don’t have any information beyond the article, so I don’t know what reaction they are getting.

It’s just my guess, but I think they will not get a very good response to their idea.  I don’t think NPOs will be at all amused to take this approach.


Q: Are overhead ratios the perfect measure of NPO efficiency and effectiveness?

A: No way.

This is the conclusion of Saundra Schimmelpfennig in her e-book, Lies, White Lies, and Accounting Practices; Why nonprofit overhead doesn’t mean what you think it means

Many people believe that the ratio of supporting services to total expenses is the ideal way to measure the efficiency of a nonprofit organization.

Even at a conceptual level, that is a flawed idea.

At a practical level, Ms. Schimmelpfennig explains it is so easy to play games with the functional allocation that the overhead ratios should be viewed skeptically.


My guest post at re:The Auditors on accounting for the Olympus fraud

Francine McKenna asked me to combine my short comments on the Olympus fraud into a guest post on her blog.

I’m quite happy to announce my revised, expanded, and edited discussion is available. You can read the full thing at How Do You Hide A Multibillion Dollar Loss? Accounting For The Olympus Fraud

Many thanks to Francine for the wonderful opportunity to speak to a big audience.

Filling up a bucket – word picture for levels of assurance in audit, review, and compilation


(cross-post from my other blog, Attestation Update.)

In a webcast on August 31, 2011, Mr. Michael Glynn, CPA, of the AICPA staff, gave a wonderful word picture of the levels of assurance in a review and audit.  Here’s his idea:  Filling up a bucket with procedures produces different levels of assurance.  I would like to expand Mr. Glynn’s description and provide an illustration.

  • In an audit, the accountant obtains provides reasonable assurance that there are no material errors in the financial statements.
  • In a review, the accountant obtains provides limited assurance that there are no material errors in the financial statements.
  • In a compilation,the accountant does not obtain provide any assurance that there are no material errors in the financial statements.

Notice the similarity and difference?  The overlap between these definitions is how much assurance the accountant obtains for himself or herself provides that there are no material errors in the financial statements.

The differences? (more…)