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Forensic Accounting

Another Major Vendor Billing Fraud Hits The Entertainment Industry

May 2016 Vendor billing schemes can occur in any industry, but two recent cases demonstrate the particular risks of the entertainment industry, which relies heavily on services whose actual delivery and consumption may be harder to track. A fraudulent billing scheme using a shell company can sometimes be accomplished with little more than a fictitious name [...]

SEC Utilizes Big Data And Statistics To Target Trading Fraud

July 2015 The Securities and Exchange Commission recently announced its first fraud charges involving what some have called an attempt at “Robocop”, derived from tracking behavior using data analytics of large volumes of investment advisors’ trade allocation detail.  The enforcement target is Welhouse & Associates Inc. and its owner Mark P. Welhouse. Mr. Welhouse is [...]

GAO Tells SEC to Look in the Mirror Regarding Internal Control Failures

May 2015 The U.S. Government Accountability Office (“GAO”), a government watchdog group, recently reported the results of its 2014 audit of the Securities and Exchange Commission (“SEC”) financial statements.  The findings included (i) troubling reports of internal control failures at the very agency tasked with policing the reporting activities of others and (ii) warnings of [...]

Planning Should Continue Despite FASB’s New Revenue Recognition Standard Delay

April 2015 The Financial Accounting Standards Board (“FASB”) has announced a proposal to delay by one year the effective date of implementation of the new revenue recognition standard under Generally Accepted Accounting Principles (“GAAP”), making the new date of change for public companies those reporting periods beginning after December 15, 2017.  Private companies would have [...]

FASB Says There’s Nothing Extraordinary About Your Financials

January 2015 The Financial Accounting Standards Board (“FASB”) has issued its first accounting standards update of 2015.  Simply put, FASB wishes to inform preparers of financial statements that there is nothing special about the results they are reporting, i.e., the end of the concept of “Extraordinary Items” on Income Statements. Accounting Standards Update No. 2015-01, Income Statement—Extraordinary [...]

Fraudulent Revenue Recognition Order Causes Rift At The SEC

September 2014 A settlement agreement has been reached In the Matter of Lynn R. Blodgett, Adm. Proc. File No. 3-16045 (August 28, 2014), but without consensus on the part of the Securities Exchange Committee (“SEC”) as to the appropriate penalty. The underlying circumstances involve a financial fraud action against two executives at Affiliated Computer Services, Inc. [...]

Conflicting Definitions Create A Confusing Tax System

July 2014 There is no doubt that the current tax laws are lengthy and complex, making it difficult for many taxpayers to comply without the assistance of professional advice. However, the already burdensome task is exacerbated by conflicting definitions across various provisions. The U.S. Government Accountability Office (“GAO”) recently issued a letter to the Senate [...]

Forensic Accounting|

SEC Warns Against Social Media Investor Scams

July 2014 The Internet provides many tools useful in assessing investment decisions. The easy access to analyst research, background information, historical performance and current events has made it indispensable to many investors. Although the benefits are many, one must be cautious of the risks, especially when using information outside the bounds of well-known, established sites. [...]

Internal Control Failings At The IRS Contribute to Over $100 Billion in Improper Payments

July 2014 The U.S. Government Accountability Office (“GAO”) recently issued “Management Report: Improvements Are Needed to Enhance the Internal Revenue Service’s Internal Controls”, describing how the Internal Revenue Service (“IRS”) continues to have internal control deficiencies, both new and old. The purpose of the report is to present internal control deficiencies identified during the GAO’s [...]

New Rules Aimed At Increasing Auditor Scrutiny Of Critical Fraud Areas

June 2014 With its new audit standards and amendments aimed at specific transaction types, the Public Company Accounting Oversight Board (“PCAOB”) has targeted three critical areas in its ongoing efforts to combat financial reporting fraud. The new rules are intended to increase heighten auditor scrutiny regarding (i) related-party deals, (ii) significant unusual transactions, and (iii) [...]

Spring Break Turns Sour For Investor

May 2014 In the matter of Division Entertainments, LLC and Wicks Walker v. Spring Breakers LLC and Muse Productions, Inc. et al., Mr. Walker asserts that he was denied a return of his investment, along with an additional profit, because of Defendants’ breach of contract via improper business practices and faulty accounting.  Mr. Walker, a [...]

Recent SEC Cases Demonstrate A Desire To Hold Audit Committee Members Accountable

April 2014 The Securities Exchange Commission (“SEC”) has set its sights on audit committee chairs who fail to exercise appropriate oversight and stewardship over financial reporting, recently targeting two who allowed ongoing fraud in the organizations they were tasked with overseeing.  Audit committee chairs of two firms with major Chinese operations, L&L Energy (“L&L”) and [...]

CAQ Proposes Audit Quality Indicators To Assist Audit Committees With Oversight

April 2014 Regulators and standard setters, such as the Public Company Accounting Oversight Board (“PCAOB”) and the International Auditing and Assurance Standards Board (“IAASB”) have been working to develop and standardize a framework for evaluating and encouraging audit quality.  After a two year effort, the Center for Audit Quality (“CAQ”), an autonomous public policy organization [...]

The True Cost Of Lowering Audit Fees Is Increased Restatement Risk

March 2014 In association with general cost cutting measures over recent years, many companies have pressured their vendors to reduce fees.  This downward pressure has extended to the accounting firms hired to provide independent audit opinions, resulting in a significant drop in audit fees.  According to Audit Analytics, audit fees in 2012 were $472 per [...]

Auditing Standards Board Provides Guidance for Reliance on Internal Auditors

February 2014 The Auditing Standards Board (“ASB”) has issued its Statement on Auditing Standards (SAS) No. 128, “Using the Work of Internal Auditors”.  SAS 128 defines the external auditor’s responsibilities in situations where they are (a) using the work of the internal audit function to obtain audit evidence or (b) using internal auditors to provide [...]

New Standard For Revenue Recognition Standards Is Coming

January 2014 The final touches are being put on the new single, principles-based standard that will update and converge revenue recognition under the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board.  The change will impact entities that use US generally accepted accounting principles (“GAAP”) or International Financial Reporting Standards (“IFRS”).  FASB describes the [...]

Too Many Fail To Properly Manage Licensing Agreements, Leaving Royalties Hiding Beneath The Surface

October 2013 A patent and license portfolio can provide a consistent and reliable revenue stream. However, many companies have technology, trademarks, and merchandising opportunities that are not fully exploited. Even if fully licensed, there is often considerable upside available via vigilant enforcement of audit provisions to ensure all amounts due are paid. Unlike almost any [...]

A Lack Of Internal Controls Allows Repetitive Small Thefts To Really Add Up

October 2013 A recent article in the Los Angeles Times (found here) exemplifies how relatively small repetitive thefts can translate into large dollar amounts when allowed to perpetuate undetected over many years.  In this circumstance a Rialto school district accountant is accused of embezzling between $1.8 and $3.16 million of school lunch money, in weekly [...]

Major Changes In Standard Audit Reports Coming?

August 2013 The Public Company Accounting Oversight Board (PCAOB) is considering changes to the standard auditor's report, which has remained relatively unchanged for decades.  The hope is that these changes will make the standard auditor’s report more informative, relevant and useful to investors and other financial statement users.  The proposed expanded language would require auditors to [...]

The International Community Has Different Opinions On Mandatory Auditor Rotation

July 2013 In the past year, the issue of mandatory auditor rotation has been an active area of debate, both domestically and abroad.  The idea of mandatory auditor rotation has been around for years, but has consistently (and successfully) been opposed by the public accounting profession and its large clients.  While the European Union still [...]

New Guidelines To Assist Companies With Fraud Deterrence

June 2013 Internal Control – Integrated Framework, is a new framework for fraud deterrence that was recently released by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  It provides expanded practical advice regarding effective implementation of internal controls.  COSO is a joint initiative of five private sector organizations with a shared interest in [...]

Battling Auditor Involvement In Fraudulent SEC Reporting

May 2013 Even after the increased regulation associated with the Sarbanes-Oxley Act (SOX) in July 2002, the audit profession continues to deal with questions of whether they are truly independent from the companies who employ them and overall audit effectiveness. A recent report commissioned by the Center for Audit Quality (“CAQ”) specifically examines Securities and [...]

Recent Research On Compensation Structure And Fraud Reinforces The Principals Of The Fraud Triangle

May 2013 A recent study in The Journal of Financial Economics suggests that a compensation structure that relies on financial performance measures can be tied to incidences of fraud.  Generally, the study concludes that individuals are more likely to engage in financial misstatements when the there is little downside and high upside.  The implication is that [...]

SEC Hesitating To Impose Internal Audit Function Requirement On NASDAQ Companies

April 2013 On March 4, 2013, NASDAQ issued a proposed new rule (Release No. 34-69030; File No. SR-NASDAQ-2013-032) which would require listed companies to have an internal audit function: “Each Company must establish and maintain an internal audit function to provide management and the audit committee with ongoing assessments of the Company’s risk management processes [...]

PCAOB Issues Second Mixed Report On Audits By Smaller Firms, But Ultimately Puts Them On Par With Larger Firms

April 2013 On February 25, 2013, the Public Company Accounting Oversight Board (PCAOB) issued its summary report on smaller accounting firms. The PCAOB described its inspections and related reporting here as follows: “This report covers domestic audit firms that audit the financial statements of issuers, and that regularly issue 100 or fewer audit reports each [...]

SEC To Utilize Data Analytics To Identify Accounting Irregularities

February 2013 Data is valuable.  The question is once you have it, how can you use it?  Data analytics uses processes to extract and evaluate information from large data sets and identify potential areas of risk, fraud, or error.  Among the often used data analytics activities is benchmarking or trending of data.  Developing these strategies [...]

Government Improves Its Fraud Recovery Results, Mainly Through The Efforts Of Private Citizens

January 2013 The False Claims Act, 31 U.S.C. § 3729 et seq., allows penalties of $5,500 to $11,000 per claim and triple damages against those who knowingly submit or causes the submission of a false or fraudulent claim to the United States government.  In December, the Department of Justice (DOJ) released a statement bragging about [...]

DOJ & SEC Issue Guidance on Foreign Corrupt Practice Act

November 2012 The U.S. Justice Department (DOJ) and Securities and Exchange Commission (SEC) jointly published a much anticipated guidance on the U.S. Foreign Corrupt Practices Act (FCPA).  Entitled “A Resource Guide to the U.S. Foreign Corrupt Practices Act”, the “Guide” is 120 pages long, and is significantly more comprehensive than its predecessor, the “Lay Person’s [...]

PCAOB Initial Inspections Of Smaller Broker Dealers Uncover Significant Audit Failures

September 2012 On August 20, 2012, the Public Company Accounting Oversight Board (PCAOB) released its first report on the progress of the interim inspection program for auditors of brokers and dealers. The inspection program was implemented approximately a year ago in response to new oversight authority given to the PCAOB by the Dodd-Frank Wall Street [...]

Standard Charter Bank Still In Trouble Over Iranian Money Laundering Fraud

August 2012 In a quick settlement over Iranian-related illegal conduct, Standard Chartered Bank (SCB) agreed on August 14 to pay $340 million in a settlement with the New York State Department of Financial Services (DFS). The DFS settlement allows SCB to continue operating in New York, but requires an on-site monitor who will report directly [...]

Proposed Changes To Litigation Accounting And Disclosures Are Dropped

July 2012 In July 2012, the Financial Accounting Standards Board (FASB) voted to drop a controversial project that would have required companies to disclose more about contingent losses, including most notably those arising from litigation. The now-withdrawn proposal would have required significant additional disclosure of litigation. The vast majority of those commenting on the proposal [...]

SEC Staff Report A Big Disappointment To Those Seeking Rapid IFRS Adoption

July 2012 On July 13, 2012, the staff of the Securities and Exchange Commission (SEC) issued a long-awaited report regarding adoption of International Financial Reporting Standards (IFRS) in the United States. Currently, Generally Accepted Accounting Principles (GAAP) in the U.S. is determined by the Financial Accounting standards Board (FASB), with support of the SEC. The [...]

Europe’s LIBOR Manipulation Is A Big Deal, But The Story Is Probably Different Than You Heard

July 2012 UK-based Barclays is the fourth largest bank in the world, with operations in over 50 countries. Barclays recently received huge publicity pertaining to its manipulated reporting of interest rates that go into the calculation of both Libor and Euribor rates. But, the larger story, which is just unfolding, involves a combination of similar [...]

Accounting Standard Will Require Significantly More Leases To Be Put On The Balance Sheet

June 2012 On June 13, 2012, after more than a year of deliberation, the International Accounting Standards Board (IASB) and U.S. Financial Accounting Standards Board (FASB) agreed on an approach for accounting for leases that generally will be simpler to implement than some of their earlier and more controversial proposals. The Boards plan to release [...]

Private Company Accounting May Become Simpler

May 2012 On May 23, the Financial Accounting Foundation (FAF) Board of Trustees established a new body to improve the process of setting accounting standards for private companies.  The need for such a group has been debated for decades.  The new group, the Private Company Council (PCC), will determine whether exceptions or modifications to existing [...]

California’s Business Judgment Rule Offers No Protection For Officers

January 2012 Before its failure, IndyMac Bank was the largest savings and loan association in the Los Angeles area and the seventh largest mortgage originator in the United States.  IndyMac was the fourth largest bank failure in United States history, and the second largest failure of a regulated thrift.  IndyMac was founded as Countrywide Mortgage [...]

Scienter (Almost) Required for 1933 Act Securities Suits

November 2011 It just got a lot harder to successfully sue preparers of financial statements and their auditors under the 1933 Securities Act.  In Fait v. Regions Financial Corporation, et al., the Second Circuit upheld a District Court ruling that threw out a case having remarkably common facts. The case involves allegations that financial statements [...]

California Passes Tough Law On Independent Contractor Misclassification

October 2011 On October 9, 2011, Governor Brown signed into law Senate Bill 459 regarding independent contractors.  The law significantly increases the risks and penalties for misclassifying workers as independent contractors by imposing significant penalties on employers found to have engaged in a misclassification, as well as on non-lawyer advisors (like accountants) who advise an [...]

IRS Payroll Tax Amnesty Regarding Independent Contractors Should Be Carefully Analyzed

October 2011 Many small businesses attempt to save taxes and employee benefit cost by classifying their workers as independent contractors.  When business owners classify workers as independent contractors they do not pay the employer’s share of Social Security and Medicare costs, state employer taxes, state unemployment insurance taxes, and workers’ compensation insurance premiums.  Independent contractors [...]

PCAOB Reopens Auditor Rotation Issue

August 2011 On August 16, 2011, the Public Company Accounting and Oversight Board (“PCAOB” - the regulator of auditors of publicly-traded companies) issued a concept release that reopenes the idea that auditors of publicly traded companies should be forced to rotate/drop their clients after some lengthy period, such as ten years.  This would dramatically change [...]

First-Ever SEC Deferred Prosecution Agreement Is Hardly A “Game Changer”

August, 2011 On May 17, 2011, the Securities and Exchange Commission (SEC) announced its first-ever deferred prosecution agreement with a company who voluntarily reported a violation of the Foreign Corrupt Practices Act.  Such agreements are intended to facilitate and reward cooperation in SEC investigations.  The SEC announcement praised the settling company (Tenaris S.A.) for its [...]

Getting More Money From Licenses

  Intellectual Property licensing is big business, and is getting bigger.  But most licensors do not earn as much as they should because they fail to perform royalty audits allowed under their license agreements.  The remedy is obvious, but is often not done for fear of the audit's cost or concern over disrupting the licensee [...]

Computer Forensics Deserve A Place In Your Human Resource Toolkit

June 2008   Computers contain evidence useful in many human resource circumstances. Allegations of discrimination, sexual harassment, and unfair discharge are serious threats that are better understood by knowing what an employee did. Since computers are such a pervasive part of most employees’ work lives, analysis of data stored on these computers helps address these [...]

Addressing Electronic Database Discovery – Challenging Yet Rewarding

Imagine litigation in which the sales and profits of a particular product or in a particular region were at issue. Such questions are commonplace in commercial litigation. Other than accepting your opponent’s word regarding the amounts reported in an interrogatory response, how would you determine this information? Or, imagine you wish to assemble information regarding [...]

Revised Contingency Accounting Rules Delayed Again

November 2010   Significant negative feedback from legal executives and groups caused the Financial Accounting Standards Board (FASB) to delay implementing expanded financial statement disclosures of lawsuits and other loss contingencies. The FASB received 347 comment letters, including criticism from the American Bar Association, large collections of general counsel from major corporations organized by the [...]

California Appellate Court Says Attorney-Prepared Witness Statements Are Discoverable

March 2010 Discovery requests regularly ask (often through form interrogatory 12.3 and a related document production request) for all witnesses interviewed, and to produce copies of any witness statements. Non-producing parties regularly object to such requests based on Nacht & Lewis Architects, Inc. v. Superior Court, 47 Cal. App. 4th 214 (1996). In Nacht, such [...]

SEC Inspector General Report Shows Incompetence At Best, And Fraudulent Cooperation At Worst

September 2009 The Madoff scandal is the largest financial fraud to have ever occurred. The U.S. Securities and Exchange Commission (SEC) Office of Inspector General (OIG) recently issued a report (OIG-519) entitled “Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme”. To anyone experienced in auditing matters, the OIG report is nothing [...]

Former Madoff CFO Pleads Guilty, Pledging Cooperation That Will Help Both Criminal And Civil Cases

August 2009 One of Bernard Madoff's lieutenants, Frank DiPascali Jr., pled guilty last week to ten federal felony counts and settled an SEC complaint. Of primary importance to the thousands of investors who lost money in Madoff's Ponzi scheme, DiPascali agreed to cooperate with authorities in investigating the Madoff fraud. Because of DiPascali's cooperation, additional [...]

U.S. Private Companies Now Have Additional Accounting Alternatives

July 2009 Although there has often been a call for simplified accounting principles for smaller or non-public enterprises, U.S. generally accepted accounting principles (GAAP) do not have a separate financial reporting standard for smaller companies. This changed last week, when the International Accounting Standards Board (IASB) approved a new and simplified set of accounting rules [...]

FASB Proposes New Revenue Rules As Part Of Dramatic Change To Principles-Based Worldwide Standards

June 2009 In accounting, revenue recognition refers to the point when one is able to record a sale in the financial statements. In a typical retail environment, sales timing is straightforward because there is a clear point when a buyer makes a selection, makes a payment, and takes the merchandise. But, in many commercial environments, [...]

FASB Toughens Off-Balance-Sheet Accounting

June 2009 Existing accounting guidance permits companies to report transfers of portions of financial assets as sales. The off-balance-sheet entities that enabled banks to keep securitized assets and other activities off their financial statements will now need to be included on their sponsor’s consolidated financial statements. An important accounting change which will be finalized this [...]

GAAP Reorganization Will Cause Short-Term Frustration, But Should Improve Research Capabilities

May 2009  On July 1, 2009, the Financial Accounting Standards Board (FASB) is expected to issue their “Accounting Standards Codification” (ASC) as the sole authoritative accounting guidance for U.S. generally accepted accounting principles (GAAP). The ASC will not change GAAP, but nevertheless represents a major shift in its organization and presentation. It is intended to [...]

Central District of California Case Poses New Requirements For Internal Investigations

April 2009 In an April 2009 written Order following a three-day hearing, federal judge Cormac Carney criticized Irell & Manella for "ethical failures" arising from its internal investigation on behalf of Broadcom (in re: United States v. Nicholas, No. SACR 08-00139-CJC (C.D. CA, April 1, 2009)). The case pertains to criminal stock option backdating allegations [...]

M&A Accounting For Lawsuit Contingencies Revoked

April 2009 An accounting pronouncement highly criticized by the legal profession was formally revoked this month.   The Financial Accounting Standards Board (FASB) issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”.  As described in our previous article, the “old” rule (which was effective starting in [...]

More Resources Will Be Allocated To Financial Fraud Initiatives

February 2009 Government resources are usually allocated based on the political sentiment of the day. Those in charge of investigations understandably want to show that they are accomplishing something. Consequently, once resources are allocated to an investigative area, prosecutions invariably follow. White collar defense lawyers face improving business conditions. This is occurring because (i) increased [...]

Detailed Audit Provisions Save Headaches

February 2013 The audit provision within many licensing agreements is nothing more than a short paragraph in what may otherwise be a highly detailed document. We sometimes see audit provisions that are nothing more the following: Licensor, at their own expense, shall have the right to nominate an independent certified public accountant satisfactory to Licensee, [...]

Largest-Ever Ponzi Scheme Should Have Been Obvious To Anyone Who Looked Seriously

January 2009 In mid-December, Bernard Madoff was arrested for operating a giant ponzi scheme. After his two sons reported him to regulators, Madoff admitted that losses could be as much as $50 billion. Bloomberg tallied around $37 billion that is currently invested with Madoff, but the total numbers will obviously include amounts not subject to [...]

Electronic Data Is Always Difficult … If You Don’t Try

November 2008 The Obama campaign shattered all fund-raising records. The President-elect raised approximately twice as much money (approximately $300 million more) than McCain. A surprising amount of this additional money, over $225 million, reportedly came over the internet from U.S. citizens contributing less than $200 per individual. Donations under $200 per person do not have [...]

IRS Scales Back Its Draconian Schedule UTP Draft, And Requires The Finalized Schedule In 2010

September 2010 On September 24, 2010, the IRS issued Announcement 2010-75. This covers final Form 1120, Schedule UTP (Uncertain Tax Positions Statement) and related instructions. While the final schedule eliminates some two particularly onerous provisions, the remaining disclosures are still of great importance to all corporate taxpayers. The IRS instituted a five-year phase-in for filing [...]

Insurance Claims For Large-Scale Hurricanes

September 2008 Every year, at least a few large hurricanes cause evacuations, flooding, and other physical damage. Businesses are interrupted because of physical damage to their own facilities, their surrounding communities, or the operations of key suppliers. These natural disasters create special insurance claim issues. Homeowner Coverage for Water Damage Most homeowner’s policies cover only [...]

DOJ’s McNulty Memo In Evaluating Corporate Cooperation Is No Longer DOJ Policy

July 2008 Cooperation with prosecutors by a corporate suspect has previously been one of the means of determining whether an indictment will be filed, and the amount of penalties sought. The Department of Justice (DOJ) has previously demanded controversial actions as part of the demonstration of this cooperation. In response to legislative pressure, the DOJ [...]

Significant New Litigation Disclosures Proposed

June 2008 The Financial Accounting Standards Board (FASB) proposed expanded disclosures regarding contingencies, most notably those arising from litigation. Unless delayed or altered, litigators and in-house lawyers will be asked for significant additional information for 2009 fiscal periods (including interim financial statements). FASB Statement 5 is the current pronouncement for addressing contingencies. SFAS 5 requires [...]

Weak Credit and Economic Conditions Cause Litigation Over “Material Adverse Change” Clauses

February 2008 A number of current stalled deals involve material adverse change clauses. Litigation in this area will increase because of uncertainties involving (i) the credit markets and (ii) operating disappointments associated with an economic downturn. Regardless of whether you represent sellers, buyers, or lenders, lawyers are well-advised to pay greater attention to these “standard” [...]

Delaware Case Alters Existing Practice Regarding Use Of Special Committees

January 2008 The Delaware Chancery Court issued a ruling in Ryan v. Gifford, C.A. No. 2213-CC (Del. Ch. Nov. 30, 2007) that runs afoul of current common practice in dealing with investigations performed by a Special Committee of the Board of Directors. Although the case involves stock option backdating, the rationale applies equally to any [...]

GAO Admits The Big 4 Audit Competition Problem, But Fails To Suggest Any Remedies

January 2008 The U.S. Government Accountability Office (GAO) survey released last week found that the concentration within the audit firms was a problem, but then failed to suggest a single suggestion to deal with the problem. The GAO’s conclusion (report GAO-08-163) conflicts with other reports by private-sector groups (including the U.S. Chamber of Commerce), and [...]

SEC Allows Foreign Reporting Standards in the U.S.

November 2007 Last week, the Securities and Exchange Commission (SEC) eliminated its requirement for international companies to reconcile financial statements prepared under the International Financial Reporting Standards (IFRS) to generally accepted accounting principles in the United States. This creates an unprecedented situation of two co-existing financial reporting standards in the U.S. The move is likely [...]

Tax Accrual Workpapers Are Probably Safe From The IRS’s Probing Eyes

To maintain accounting records under generally accepted accounting principles, companies need to assess the likelihood of judgmental positions being sustained. The recent tax case United States vs. Textron, No. 06-198T (Aug. 29, 2007), is important in establishing a taxpayer’s right to prevent disclosure of (i) its internal analyses of these controversial tax positions, and (ii) [...]

IRS Loses Another Case Involving Auditor Work Papers

  In Regions Financial Corp. v. United States, (N.D. Ala., No. 2:06-CV-00895-RDP, 5/8/08), the IRS lost another battle in its effort to get information from outside accountants’ tax accrual work papers. This case could be particularly damaging to the IRS’s position because the Court’s rationale arguably would apply regardless of which split in authority is [...]

First Circuit Applies New Standard Restricting Work Product Privilege When Information Is Used For Financial Reporting

The attorney work product doctrine, now codified in Federal Rule of Evidence 26(b)(3), protects from discovery documents prepared "in anticipation of litigation or for trial." Courts apply different tests to interpret this phrase. A minority of courts apply a stringent test under which documents are protected only if they were created for the "primary purpose" [...]

10b5-1 Plans Deserve Greater Scrutiny by Boards of Directors

July 2007 Stock option backdating scandals have grabbed headlines for quite some time. These scandals were initially identified by academic research that noted unexplained stock movements relative to option grant dates. A similar issue may exist with 10b5-1 plans. The volume of potential insider trading is substantial. For example, in late July, the former CEO [...]

The FASB’s Gift To The IRS

Updated January 2007 In June 2006, the Financial Accounting Standards Board (FASB) issued FIN 48, an amendment to existing standard no. 109, "Accounting for Income Taxes."  At first blush, the pronouncement seems simple, fair, and straightforward, but it will have a huge unintended consequence.  The pronouncement requires that, starting in 2007, corporations that took aggressive [...]

Alter-Ego Allegations Require Expert Accounting Assistance

March 2013 Alter-ego is one of the most commonly alleged equity-based principals.  Where the facts warrant, courts will disregard the separate legal existence of corporations (including LLCs) and its shareholders (or members).  The purpose of "piercing the corporate veil" is to prevent the abuse of corporations, and thereby protect creditors who might otherwise not be [...]

Claim Preparation Tips For Business Interruption Insurance

September 2012 Beyond the physical property loss, your business will incur significant additional costs and will not be as profitable as before.  Most businesses have business interruption (BI) insurance to address these risks.  However, getting a proper claim prepared and paid will likely be a challenge.  The tragedy that caused your business interruption may have [...]

New Accounting Rule Requires Lawyer Input

June 2005 Lawyers issuing legal confirmation letters to their client's auditor will have one more item to consider.  No later than December 31, 2005, companies with future environmental cleanup obligations may (depending upon the practices previously adopted) face a major change.  Because the new rule requires complex judgments and estimates, lawyers and their clients should [...]

How Principles-Based Accounting Affects Lawyers

August 2003 In late July 2003, the Securities and Exchange Commission (SEC) released a staff study required by Section 108(d) of the Sarbanes-Oxley Act.  The study strongly recommends that accounting standards be developed using a principles-based approach.  In several prior articles, we encouraged this change.  Although the full impact will take years to occur, the [...]