Professor Elam

IIA Protests PCAOB Proposed Rule

Thursday Feb 2 2023

IIA Call to Action
Stop the PCAOB Attack on Internal Audit
▪ On December 22, 2022, the Public Company Accounting Oversight Board (PCAOB) published, for
public comment, a proposed auditing standard entitled: “The Auditor’s Use of Confirmation, and
Other Proposed Amendments to PCAOB Standards.”
▪ The proposed standard, in relevant part, bars external auditors from utilizing an internal audit
function to provide direct assistance in the confirmation process (selecting, sending and receiving
confirmations).
▪ The IIA encourages all chapter leaders and members to request their employer and/or board of
directors submit a public comment letter to the PCAOB supporting the internal audit profession and
opposing this change.
▪ If your employer is unable or unwilling to send a letter, we ask that you seek permission from your
employer to send a letter in your own capacity as an internal auditor.
▪ Such a letter is intended to provide objective support for the internal audit profession from relevant
stakeholders. The letter should focus, in part, on the following themes:
o General and/or specific examples of the contributions an internal audit function brings to an
organization
o Stress that internal auditors provide boards of directors and/or audit committees with
objective assurance that is independent from management
o Reiterate that internal auditors are required to comply with mandatory professional standards
and a code of ethics
o Highlight the fact that internal auditors and external auditors maintain the same reporting
relationship to an organization’s audit committee
o Call for the PCAOB to continue with its existing standard, AS 2605, which allows external
auditors to assess internal auditors for objectivity and competence and then decide whether
or not to seek the assistance of the internal audit function
▪ Stakeholders may also utilize the enclosed one-pager as an additional resource in developing
language refuting the PCAOB’s assertions. The document contains more information on the proposed
rule and outlines key characteristics of internal audit seemingly neglected by the PCAOB. Please do
not use the text verbatim. Rather, place the message in your own words.
▪ The IIA will host a virtual meeting with chapter leadership/members on February 9, 2023, at 3:00
PM EST to further review the process for obtaining an employer letter of support.
o If you are interested in participating in the IIA’s virtual meeting, please register your
attendance by clicking here.

 

 

 

▪ Public comment letters drafted in support of the internal audit profession must be submitted to the
PCAOB via the online rulemaking docket or by email at comments@pcaobus.org (referencing “PCAOB
Rulemaking Docket Matter No. 028). Public comments are due no later than February 20,
2023.
▪ Please also send a copy of any external PCAOB letters of

7 audit Procedures

Tuesday Jan 31 2023

7 Audit Procedures

January 27, 2023

 

Be proud and say it loud if you’re an auditor, because unlike many journalists and political leaders, we can back up what we say with evidence! Auditors can be trusted to tell the truth. Hallelujah!

But how do we gather this convincing, truthful evidence? We can use one of seven types of audit procedures:

1. Inspection. Here we look at records, documents or physical assets to prove or disprove a statement or an assertion by the auditee. For instance, if we want to prove a payment was made to a vendor, we could look at a bank statement (a document either on paper or online) and find the check number, date and payment amount.
2. Observation. Here we watch a process or event occurring. For instance, if you want to prove recently laid-off employees are receiving job training offered through a state program, you could sit in on one of the classes and note how many students are in attendance.
3. External Confirmation. Here we ask an objective third-party to verify that something occurred. For instance, your auditee might show you an engineer’s report to confirm they cleaned up a hazardous waste site. Since engineering reports can be forged, you contact the engineering company to confirm they did indeed create the document.
4. Recalculation. Here the auditor runs the numbers themselves ensuring the formulas and calculations were applied correctly by the auditee. For instance, the auditee may have reported a specific dollar figure for police officers’ overtime pay. To verify the dollar figure, the auditor calculates the overtime pay based on pay rates and hours then compares the auditor’s result to the auditee’s figure.
   

   

   Recalculation is one of the 7 common audit procedures.

5. Reperformance. Here the auditor verifies the auditee’s procedures by performing the procedures themselves. For instance, if the auditee asserts a password is necessary to access critical data, the auditor will try to access the data with and without the password.
6. Analytical Procedures. Here the auditor manipulates data to show trends or patterns. For instance, the auditor might sort all purchasing card transactions by user to find out who uses the card most often and for what purposes.
7. Inquiry. Here the auditor asks questions of the auditee or another party. The answers to the questions are considered testimonial evidence, which is more credible and convincing if it comes from someone other than the auditee.

The AICPA and GAO command auditors to describe the ‘nature’ of a procedure in audit documentation. Adding these seven to the description of your audit procedure will fulfill that command.

Why Are So Many Accountants Leaving the Field?

Wed Dec 28 2022 WSJ Article today

More than 300,000 U.S. accountants and auditors have left their jobs in the past two years, a 17% decline, and the dwindling number of college students coming into the field can’t fill the gap. 

The exodus is driven by deeper workplace shifts than baby-boomer retirements. Young professionals in the 25- to 34-year-old range and midcareer professionals between the ages of 45 and 54 also departed in high numbers starting in 2019, according to the Bureau of Labor Statistics. Recruiters who have been luring experienced accountants into new roles say they are often moving into jobs in finance and technology.

The huge gap between companies that need accountants and trained professionals has led to salary bumps and more temporary workers joining the sector. Still, neither development will fix the fundamental talent pipeline problem: Many college students don’t want to work in accounting. Even those who majored in it.

Jordan Pixley put his attention to detail and love of numbers into his Clemson University accounting classes. But in internships, he felt bogged down by the repetitive tasks of accounting—such as balancing cash sheets—and the work proved less interesting than the college class he enjoyed most—data analysis.

The 22-year-old accounting major attended a KPMG LLP recruiting event in Orlando, Fla., but ultimately chose not to apply. He graduated last week without a job lined up and is exploring opportunities with the U.S. military. Accounting’s grueling hours—70- and 80-hour weeks are common at the biggest public firms before tax and audit deadlines—were part of the turnoff, he said. 

“I was a little scared of it, not going to lie,” Mr. Pixley said. “I don’t know if I want to do all that.”

KPMG said it is considering ways to reduce overtime hours and workloads during busy seasons. While salaries vary by market and position, most entry-level workers across audit, tax and advisory services at KPMG in 2023 will earn salaries that are 5% to 15% higher than those who graduated and joined in 2022, the firm said. One entry-level tax associate job based in New York City, which requires firms to disclose pay, has a posted range of between $71,000 and $82,000.

In the past 12 months, most KPMG employees have received three successive pay increases, a company spokeswoman said. Chief Executive Paul Knopp spent several days this fall on college campuses, including the University of Texas at Austin and the University of Illinois, pitching the company and meeting with students. He said the profession hasn’t done enough to help students understand the career options in accounting. 

“The accounting degree is an incredible, powerful tool to help you succeed longer term in the business world,” he said. 

It isn’t an easy sell, said Steven Kachelmeier, who leads UT-Austin’s accounting department. As the number of accounting majors has dropped, the bidding war to recruit students has intensified. 

Firms promise higher salaries after a few years on staff, Prof. Kachelmeier said, but “when you’re 19 years old, you don’t think about 10 years from now or even five years from now. You think about right now.”

Students want to make more money up front than many accounting firms are paying—and they are finding it in other industries, according to professors. The expanded opportunities have come during a decadelong economic boom that has created new roles in sectors from banking to tech. Top students straight out of college can make significantly more going to work for consulting outfits and banks, rival fields that are drawing quantitatively minded students, according to recruiters.

“I don’t know who we’re not competing with, quite honestly,” said Rod Adams, who leads PricewaterhouseCoopers LLP’s hiring in the U.S. and Mexico.

The firm, which needs to recruit 4,200 entry-level associates for fall 2023, has prospects in its hiring pipeline as early as their sophomore years. Students do an internship after their sophomore year, and many of those interns are funneled into a second internship after their junior year, Mr. Adams said. Many go on to receive full-time offers. 

SHARE YOUR THOUGHTS

What is the best way for big businesses to attract young talent? Join the conversation below.

One significant barrier to entry remains for many newly minted accounting graduates. To earn a certified professional accountant license, a professional needs 150 credit hours, or 30 college credits beyond the typical 120-hour bachelor’s degree requirement. The 10 extra classes can add up to a fifth year of college, which can cost tens of thousands of dollars in additional tuition and fees. 

PwC has joined with Saint Peter’s University, based in Jersey City, N.J., so that some students can get the 30 extra college credits by working at the firm. The company is paying tuition and paying the students for the year of work. Company leadership hopes the pilot project that allows work for credit will result in more young professionals sticking with accounting and becoming full-fledged CPAs. 

The number of U.S. students who completed a bachelor’s degree in accounting declined nearly 9% to about 52,500 in 2020, down from almost 57,500 in 2012, according to the Association of International Certified Professional Accountants. The slump has continued over the past two years, according to the group, though it hasn’t published final numbers for 2021 and 2022. Fewer students are also sitting for the four-part examination to become a CPA.

While some mathematically inclined students are drawn to accounting, the field still suffers from a stigma that it is uncool, with tedious work and daunting hours, said Keith Wolf, managing director at the Houston-based recruiting firm Murray Resources. Companies are sending young professionals into high-school classrooms to try to change that perception, and an industry group has drawn millions of views with a TikTok campaign to show the field in a fresh light.

Accounting is a reliable path to stable, steady work, Mr. Wolf said, but there are easier ways to enter the business world.

“There’s so many options,” he said. “Why pursue a much more difficult path

Exam Cheating at UK CPA Firms, and Elsewhere

Dec 26 2022

On the heels of the EY $ 100 M fine and the KPMG PCAOB fiasco, read this.

Going Concern pulls no punches nor four letterl anguage in its descriptions of CPA misdeeds, note one tab is devoted to the Big 4 firms.

https://www.goingconcern.com/

 

DeLoitte Pays $ 1 M fine in th UK for Shoddy Audit

Monday Dec 26 2022

As the author states, for once it is not KPMG

Along with the financial penalties, the FRC imposed several sanctions against both Deloitte and Mr. Manning, most of which involve a public reprimand not unlike the pillories of yore where naughty people would be set up in the town square so the citizenry could point and laugh. These sanctions include a published statement in the form of a severe reprimand, a declaration that the 2015 and 2016 audit reports signed on behalf of the firm did not satisfy the relevant requirements, and an order requiring the firm to take specified action to mitigate the effect or prevent the occurrence of the contravention (a.k.a. “knock it off and don’t do that again ok”). Mr. Manning got off easier than the firm, he racked up just the fine and a published reprimand.

 

Or as Wanda Sykes said about the Catholic Priest Scandal, what does it take to get kicked out of this racket?  Any second semester audit student would know this, but somehow the lead auditor of the largest CPA firm in the world ignored it, and got a  27.5% discount on the penalty.

As you will see in my audit and ethics class, firms pay a fee, usually not admitting any guilt though they did this time (but then that got them a discounted fee, do you suppose Manning got a percent bonus of that for engineering the discount?

Armanino the new Arthur Andersen

Fri Dec 2 2022

Armanino is the CPA firm which signed off on FTX,

click here to read the story.

Michael Malekzadeh Joins the Fraudster List

Friday Nov, 25, 2022

 

Self-described sneakerheads bidding up prices for limited-edition kicks sold online have created profits for tens of thousands of entrepreneurial kids and adults.

In nine years, Michael Malekzadeh outpaced the crowd to become an American sneaker celebrity. He made more than $300 million in the sneaker resale market, where scarcity and cool have driven runaway prices.

Mr. Malekzadeh was known as one of the largest buyers and sellers of exceptional sneakers, including many he offered before they hit retail stores and some at cheaper-than-retail prices. He could get the rarest Nike Inc.’s Air Jordans, as well as Yeezys, which are expected to see a spike in resale prices after Adidas AG ended its partnership last month with rapper and entrepreneur Kanye West, who now goes by Ye.

Mr. Malekzadeh’s apparent success afforded him the kind of insouciant, gold-plated lifestyle that luxury sneakers are thought to reflect. On Instagram, the 39-year-old showed off his Ferraris and a six-figure Girard-Perregaux watch next to a hamburger. He also posted shots of himself riding a $29,000 Louis Vuitton bicycle inside his million-dollar home in Eugene, Ore.

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The business, in real life, was collapsing under the weight of unfulfilled orders, late payments and customer complaints. In May, Mr. Malekzadeh’s fiancée—also the company’s finance chief—pushed for both of them to come clean, according to people familiar with the situation.

Federal prosecutors a few months later charged the couple with bank fraud and Mr. Malekzadeh with wire fraud and money laundering. Customers claim they paid millions of dollars for shoes that never arrived. A court-appointed receiver is sorting out the remaining inventory of the entrepreneur’s company, Zadeh Kicks.

Early last year, Mr. Malekzadeh collected orders for about 600,000 pairs of Air Jordan 11 Cool Grey sneakers months before they hit stores, netting over $70 million, according to prosecutors. He priced the sneakers between $115 and $200 a pair, cheaper than their expected retail price of around $225, prosecutors said.

Mr. Malekzadeh was able to get only 6,000 pairs.

Prosecutors allege he collected preorder funds from customers while knowing he couldn’t fill all the orders. Since at least 2020, he spent more than $10 million of the company’s preorder proceeds on luxury goods, including watches, furs and handbags, they said. In a seizure warrant affidavit, federal authorities allege the couple also used customer money to help make a down payment on a house and complete about $600,000 of work to remodel it.

This is a Bernie Madoff-size scam for the sneaker market,” said Michael Schneider, chief executive of Secret Sauce, a sneaker reseller who runs an online community focused on sneakers and collectibles.

Mr. Malekzadeh and his fiancée, Bethany Mockerman, 39, have pleaded not guilty. They are cooperating with authorities and working to minimize the financial harm to customers, their attorneys said in separate written statements.

Thousands of individuals and businesses have filed claims against Zadeh Kicks, including one creditor that reported being owed roughly $15 million plus interest, according to documents filed by the court-appointed receiver. The company had 23,000 customers, the affidavit said, and unfilled orders went back as far back as 2018, according to former customers. Some of them were given now-worthless store credits.

“The Zadeh Kicks thing was the big hit that kind of wiped a lot of people,” said Minnat Azad, a sneaker reseller from Boca Raton, Fla.

Based on the company’s reputation among sneakerheads, Mr. Azad said, he ordered 100 pairs of Air Jordan 11 “Jubilee” sneakers in October 2020. Even though he received just 50 pairs, he said, he made a $5,000 profit reselling them.

It was the easiest money he had ever made, Mr. Azad said. “This guy is better than the S&P 500,” he recalled thinking about Mr. Malekzadeh.

It was such a good investment opportunity that he paid $100,000 for another 400 or so pairs of other sneakers. None came, he said.

First steps

Mr. Malekzadeh was born in Eugene, where Nike also took its first steps, and graduated from the University of Oregon in 2005. He enrolled at the Art Institute of Portland to study footwear design but dropped out. In 2010, he worked for a Nike store in the Portland area and was fired for reselling items that he was buying with an employee discount, according to people familiar with the matter.

In 2013, the same year Mr. Malekzadeh began dating Ms. Mockerman, he embarked on his sneaker-reselling career, according to the seizure warrant affidavit. He borrowed about $20,000 from his father to start his business, records show.

He didn’t think it was enough. Prosecutors allege that since 2013, the couple sent at least 15 fraudulent loan applications to banks, using doctored financial and bank statements to net around $20 million in loans.

Next, Mr. Malekzadeh built a supply chain for in-demand sneakers.

Resale markets have operated on the internet since the 1990s, mostly through sites like eBay, forums and consignment stores. Early on, sneaker resellers sought a competitive advantage through insider knowledge about inventories and securing pairs through personal connections at retail stores.

Buying online eventually rivaled the practice of waiting in line at retail stores on the day a highly sought sneaker went on sale.

Images of high-end fashion designers and celebrities in limited-edition shoes flooded social media, elevating sneakers to markers of wealth and prestige. Retail demand soared and expanded the secondary market, where people buy and resell items through eBay and newer platforms such as StockX and Goat.

Nike made $29 billion in revenue from Nike- and Jordan-branded footwear in the year ended in May. Analysts at Cowen, an investment bank, predict the $6 billion-a-year resale market will reach $30 billion by the end of the decade.

Buying limited-run sneakers by computer at first gave buyers a fair shot at getting a pair when sales opened, a moment known as a drop. Some models sell out in less than a minute.

Resellers pay thousands of dollars for software to push them ahead of other online buyers and, at times, to place larger-than-allowed orders.

Mr. Malekzadeh initially relied on deals with store managers at authorized retailers around the country to buy in bulk before sneakers hit store shelves, according to people familiar with that issue.

He definitely had this image of being the end-all, be-all, backdoor plug,” Mr. Schneider said of Mr. Malekzadeh’s renown for acquiring inventory.

As supply pipelines began to close in the Covid-19 pandemic, Mr. Malekzadeh turned to buying items in large quantities primarily through StockX, paying for many in-demand sneakers at a significant markup, these people said.

A spokeswoman for StockX said that “no single buyer has ever represented more than 1% of our overall trade volume in a given year.”

High jump

2019 was a landmark year for the sneaker market. StockX secured a private market valuation of more than $1 billion. Sotheby’s sold a worn-and-torn pair of one of Nike’s first designs for $150,000 during its first-ever sneaker auction. Nike’s Jordan brand also recorded its first billion-dollar quarter in sales.

Zadeh Kicks sales also were on the rise, especially among other resellers. Some of them posted photos showing bulk orders from the company. Others gave shout-outs for the seemingly unbelievable deals they got. Mr. Malekzadeh left his signs of success across social media, giving the impression that anybody could make a buck reselling sneakers.

For years, the company had accepted money from customers preordering Air Jordans, according to its now-deleted website. As demand increased, so did customer wait times and cancellation fees. Customers were charged a 20% fee if they canceled a preorder, according to policies shown on the website. Later, it was 50%.

Refund rules also changed. In 2018, the company told customers they had to wait as long as 10 months past their order date to cancel without penalty. Instead of cash refunds to every customer, Mr. Malekzadeh offered store credits and gift cards.

He didn’t tolerate his customers bad-mouthing the company in posts over unfilled orders and delays, and threatened to ban them from buying his shoes.

When Damian Ortiz commented on Instagram about a problem, Mr. Malekzadeh emailed him. “We want to give you a one time courtesy (which we normally do not) that typically we BLOCK those who do not follow our listed policies,” the July 2019 email said.

Mr. Ortiz, of Oakland, Calif., estimated he lost about $14,000 in unfulfilled orders. He broke even overall doing business with Zadeh Kicks, he said, taking into account his earlier profits.

Missed shot

As luxury sneakers became more popular, the limited releases had the potential for hefty resale profits, especially if the shoes were a collaboration between a brand like Nike and a well-known fashion designer such as the late Virgil Abloh or rapper Travis Scott.

Some sneakers fail to match the hype, and investors lose money. Other times, sneakers drop in value because a shoe company decides to restock the model, killing the lure of exclusivity.

Indiana University finance major Arnav Kamra learned about the market’s ups and downs firsthand. He started reselling sneakers in 2020, as a 15-year-old high-school sophomore in Cary, N.C.

When his school moved to remote instruction during the pandemic, reselling sneakers became his focus, he said. With money from his parents, Mr. Kamra set up an online sneaker store.

By last year, he said he amassed a portfolio of assets, both sneakers and other collectibles valued at $40,000.

One deal in particular caught the teen’s attention. Zadeh Kicks was selling pairs of Air Jordan 1s that Nike released in collaboration with Mr. Scott for $590. The white leather and brown suede high-tops fetched about $2,000 in the resale market.

“The ROI was simply insane,” Mr. Kamra said, “I just convinced myself that I had to buy more.” He paid Zadeh Kicks close to $18,000 in various orders.

Mr. Kamra said that two days before his 18th birthday in May, he got an email from Zadeh Kicks. He was expecting a new, unbelievable deal from Mr. Malekzadeh. Instead, he said, it announced that Zadeh Kicks had been dissolved and no more orders would be filled, including his.

Mr. Kamra said he was still reselling but has turned his focus to schoolwork.

Early this year, Ms. Mockerman learned more details than she had previously known about significant discrepancies between the amount of money coming in and orders being filled, according to people familiar with that.

After some Zadeh Kicks buyers made threats about unfilled orders, Mr. Malekzadeh and Ms. Mockerman started fearing for their safety, according to people familiar with the situation. The couple sought help from lawyers who directed them to federal authorities, the people said.

In late May, Mr. Malekzadeh petitioned to dissolve his company.

Nike representatives have since been working with the court-appointed receiver and law enforcement, evaluating the remaining inventory in the Zadeh Kicks warehouse, according to reports filed by the receiver. A spokeswoman for Nike declined to comment.

Mr. Malekzadeh’s assets are being liquidated to cover debts. The Federal Bureau of Investigation seized cashier’s checks for $6.1 million and $290,000 from Mr. Malekzadeh, as well as handbags and watches.

Close to 60,000 pairs of shoes were found at the company warehouse. The receiver said it had fielded inquiries from customers seeking a share of the remaining inventory: some 48,000 pairs of Nike shoes, close to 8,500 Adidas and about 1,100 pairs in Mr. Malekzadeh’s personal collection.

Write to Inti Pacheco at inti.pacheco@wsj.com

 

CIA

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Audit Internship

Tuesday Nov 8 2022

 

I thank you so much for your response.  We are still looking for a Full-Time Spring 2023 Audit Intern, so if you know of any additional candidates, please send them my way.  We appreciate our ability to reach to you at any time.  Have a great week!

RSM Responds to $3.75M SEC Fine & A Few Other Items

Monday Oct 3 2022

RSM responds to recent fine

SEC statement on 3.75 M fine

https://www.sec.gov/news/press-release/2022-180

Independence Rule fine

https://finance.yahoo.com/news/sec-fines-audit-firm-rsm-174848622.html?fr=yhssrp_catchall

Improper Professional Conduct Fine

https://www.sec.gov/enforce/34-88287-s