Was It a Sh*tty Deal?

I’ve been pondering the role of Goldman Sachs in the transactions that Senator Levin objected to during recent hearings of the Senate Governmental Affairs Subcommittee on Investigations.  Did sales personnel for Goldman Sachs, when offering certain securities at a particular price, owe an obligation to the potential buyer to inform that the price might be too high?

Senator Levin, wash your mouth out.

Senator Levin seems to think so, but the business folks at Goldman Sachs seem to think not.  Levine kept saying, you were offering a “sh*tty” deal.  Goldman Sachs personnel responded, buyers are the judge of a deal’s value given the time and place. Senator Levin, please wash your mouth out with soap!

Various senators kept saying during the hearing, you have a fiduciary responsibility.  Goldman Sachs personnel kept saying, not at at a market-justified price.

I have to side with Goldman Sachs (and Warren Buffet) on this one.  No one expects a car salesman to have a fiduciary responsibility to a customer (best not to be a single female shopping for a car).  No one expects a telemarketer to have a fiduciary responsibility to a customer.  So why do politicians expect a securities dealer to have a fiduciary responsibility to buyers?   I guess it’s because investors are assumed to be too stupid to look out for themselves.

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SEC’s Schapiro on Accounting

Thanks to Rick Telberg at CPATrendlines, I am now aware of Mary Schapiro’s latest comments on accounting (to the CFA Institute 2010 Annual Conference in Boston, Mass.).  We now have proof that the spirit of Professor Philip Barbay is alive and well inside the beltway.  You don’t remember Professor Philip Barbay?  He was the fool to Thornton Melon (played by Rodney Dangerfield) in the 1986 classic, Back to School.  Here’s the scene I best remember:

• Dr. Phillip Barbay: …now, not withstanding Mr. Mellon’s input. The next question for us is where to build our factory?
• Thornton Melon: how ’bout fantasyland?

The Rodney Dangerfield (I don’t get no respect) character got no respect from Professor Barbay, and we in the accounting world get no respect from SEC Chair Mary Schapiro.

Let’s take a close look at Schapiro’s remarks.

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Sen. Sherrod Brown Prods SEC/FASB to Fix Accounting Standards

Senator Sherrod Brown (D-Ohio)

Freshman Senator Sherrod Brown (D-Ohio), on May 5, 2010, offered an amendment to S. 3217:  Restoring American Financial Stability Act of 2010.  On May 7, 2010, a joint letter from seven prominent organizations was sent to the Senate, objecting the Brown’s excursion into accounting standard setting.

What’s going on, ProfAlbrecht?

Thanks for asking.  I’ll lay it out for you.  Senator Brown is a voice of reason on this issue and the seven prominent organizations are blowing smoke.

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Deloitte’s Inspection Report: Good or Bad News?

The Public Company Accounting Oversight Board (PCAOB) has released (May 4, 2010) its 2009 inspection report for Deloitte & Touche, LLP, and Deloitte’s response.  The PCAOB is charged, under the Sarbanes-Oxley Act of 2002, with inspecting each of the largest audit firms each year, as well as smaller audit firms (with public company clients) once every three years (see Note A).

As a basis for this report, the PCAOB inspected aspects of 73 Deloitte audits, and finds 15 significant deficiences, for an apparent error rate of 21% (later on I’ll show that this is not a true error rate).  In sharp contrast to its reaction to previous inspection reports, Deloitte says only, “We have evaluated the matters identified by the Board’s inspection team for each of the Issuer audits described in Part I of the Draft Report and have taken actions as appropriate in accordance with D&T’s policies and PCAOB standards.”

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SEI Sues FASB

In a lawsuit against the Financial Accounting Standards Board (FASB) and the Financial Accounting Foundation (FAF) filed Wednesday, May 5, 2010, Silicon Economics, Inc., charges that that the FASB has illegally appropriated its intellectual property:  a proposed set of alternative accounting standards.  At stake are the accounting rules that could be used by over one million business and non-profit organizations that are not designated as SEC reporting companies (about 9,500).

SEI’s complaint seems reasonable, and I hope it prevails.

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