Wrapping paper: Covering some year-end news
It's almost a wrap on 2024 but there is always accounting and audit news! Here are some updates, where I'll be in the next month, news of the PCAOB, and news of one of the Big 4.
It’s that time of year! Barring any big accounting news in the next few days this will be my final newsletter of 2024.
Last year at this time, I was very reflective!
This year I am so busy!
I am getting ready to teach for Deniz Appelbaum at Montclair State University beginning January 17 and, again, for Miguel Minutti-Meza at University of Miami later this spring.
I will be in Charlotte for the Audit Mid-Year meeting on a panel on Saturday with Ally Zimmerman, Olga Usvyatsky, and Brad Jacklin from the CAQ:
4.01: The Pros and Cons of Hyping your Research: What You Need to Know Before Talking to a Journalist
Auditing - 1.8 CHModerator: John Keyser, Case Western Reserve University
Panelists: Brad Jacklin, Center for Audit Quality
Francine McKenna, The Dig
Olga Usvyatsky, Deep Quarry
Aleksandra Zimmerman, Florida State University
On January 28 I will be in New York for the inaugural Securities Enforcement Forum New York!
My friend and former MarketWatch colleague Andrea Riquier is the full-time national housing reporter at USA Today. She has also been busy during the holidays. She wrote two great stories on Boxing Day while almost everyone else was recovering from Christmas, celebrating Hanukah, or savoring Kwanzaa and its seven principles.
Here’s some holiday service journalism at Your First Byline. My comments are included.
Less is more, says my old friend Broc Romanek.
We've supposedly heard the last word, for now, on Macy's.
I wrote earlier about what might have happened.
In the meantime I went to the University of Toronto to give the keynote lunch address for its ProfessionalAccounting Centre Annual Conference. The topic was internal controls and I did a quick survey to see what attendees thought was the reason for Macy’s big $150 million understated expenses. Almost everyone thought it was going to turn out to be a big Health South/World Com capitalizing of expenses scandal!
I predicted a mistake that had snowballed with someone feeling too intimidated to admit it until too late.
Well, if what Macy’s disclosed is the end of it, I was right. In the December 18 Wall Street Journal:
Macy’s decision to not withdraw old financial statements despite making sizable adjustments to earnings figures after finding $151 million in false bookkeeping entries has some accountants scratching their heads.
The retailer last month said an employee responsible for small-package delivery expense accounting intentionally made erroneous bookkeeping entries since late 2021. The discovery led Macy’s to delay reporting its quarterly results for two weeks and spurred a selloff of shares.
Last week, Macy’s said an internal investigation found no material impact or needed restatements to previously filed financials. The errors didn’t affect net sales, vendor payments, operating cash flows or compliance with debt covenants, the company said in a filing, so it treated the errors as a minor revision.
The decision is questionable given the weight of revisions on the retailer’s 2023 earnings, academics and accountants said.
Macy’s, in an 8-K filing, made several adjustments to its fiscal year 2023 earnings, among other periods. The company corrected its net income for the period as $45 million, down 57% from an initially reported $105 million.
The retailer also fixed its pretax income at $43 million, down 65% from the $124 million it had booked.
Oh really!
Penn State Professor Ed Ketz and former SEC Chief Accountant Lynn Turner were having none of it. That’s because it still does not explain why the employee would intentionally make false entries for three years that just happened to also be totally aligned with what the company had been promising markets in every conference call post-pandemic.
Macy’s last week also said longtime auditor KPMG’s blessing of its financial-reporting controls should no longer be relied upon because of the material weaknesses the retailer found, and that it is making changes to its controls to address the weaknesses. Such weaknesses are defined as one or more deficiencies that could lead to a major misstatement. KPMG declined to comment.
“I’m happy that Macy’s has at least told us what’s going on, but I’m not happy with their not restating,” said Ed Ketz, an associate accounting professor at Pennsylvania State University.
The Securities and Exchange Commission in recent years has warned companies and their auditors against improperly casting large adjustments as immaterial based on non-numeric factors. When an adjustment is large, such as 5% or more of pretax net income, the SEC and courts require companies to assess if it is significant in other ways, said Lynn Turner, a former SEC chief accountant and an author of SEC guidance on materiality.
“The larger the number gets, such as in the case of Macy’s where it is over 10%, it’s very hard to justify as being immaterial,” Turner said, referring to the company’s 2023 net income and pretax income. “It’s just out of the ballpark.”
After the jump, more accounting news, PCAOB news, Paul Atkins news, KPMG news, and Big 4 lobbying news.
