Credit crisis visualised

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

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Despite BearingPoint is not a Big 4. Still, it has common history with KPMG. And, this fact is a BIG Dangerous sign for all Big 4, especially those involved in advisory services.

McLean, Va., Feb. 18, 2009 – BearingPoint, Inc. announced today that it has achieved a financial restructuring agreement with its senior secured lenders that will significantly reduce its debt and improve its capital structure. To facilitate this process, the Company filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York (the “Court”). The Company’s operations based outside the United States are not included in the filing and will not be affected.

The Company plans to continue its operations in the normal course through the financial restructuring process. In addition, the Company plans to continue providing uninterrupted service to its clients around the world.

The filing was made with a “pre-arranged” restructuring plan with the support of the Company’s senior secured lenders. As a result, the Company expects that it will complete its restructuring process on an accelerated basis.

The decision to file was made after an exhaustive review of alternative options. In addition to significantly reducing its debt burden, the process resolves the Company’s near-term cash payment obligations relating to the right of the holders of certain of the Company’s debentures to require the Company to repurchase these debentures, as early as April 2009, as well as the prospect that the Company would have to repay all of its outstanding debt in the event that its common stock were delisted from the New York Stock Exchange.

As stated in the filing, BearingPoint and its senior secured lenders have reached an agreement in principle to support the proposed pre-arranged plan of reorganization (the “Pre-Arranged Plan”), which has been filed with the Court. The Pre-Arranged Plan, among other things, provides that (i) the $500 million senior secured credit facility, dated as of May 18, 2007 and as amended on June 1, 2007, will be replaced with a new secured, senior credit facility as follows: term loan in the amount of $272 million plus accrued interest and a synthetic letter of credit facility in the amount of up to $130 million; plus the issuance of new preferred stock; (ii) the unsecured debt will be exchanged for different classes of common stock; and (iii) all existing equity in the Company will be cancelled for no consideration.

The implementation of the Pre-Arranged Plan is dependent upon a number of factors, including final documentation, the approval of a disclosure statement and confirmation and consummation of the Pre-Arranged Plan in accordance with the provisions of the Bankruptcy Code. While the Company believes that its current plan provides the best available alternative for its creditors, clients and employees, the Company will continue to consider additional enhancements or alternatives to its current plan that would lead to an improved recovery.

The Company has filed a variety of first day motions with the Court that, with Court approval, will allow it to continue to conduct business without interruption. These motions are primarily designed to minimize any impact on the Company’s clients and employees. During the reorganization process, suppliers and subcontractors should expect to be paid for post-petition purchases of goods and services in the ordinary course of business.

The Company’s principal bankruptcy attorneys are Weil, Gotshal & Manges LLP. AlixPartners, LLP and Greenhill & Co. are the Company’s financial advisors.

Source: BearingPoint

PWC's history is mired with controversy

Price Waterhouse Coopers (PWC), a globally renowned audit firm serving clients across the world, is in the headlines for all the wrong reasons. 

PWC was the auditor of Satyam for at least eight years and the confession of Satyam’s director Ramalinga Raju revealing a $1.6 billion scam has turned the radar on PWC. Andhra Pradesh police are said to have conducted searches at the office of PWC in this regard. The Institute of Chartered Accountants of India (ICAI) is scrutinising the role of PWC in fudging the accounts to show inflated profits. The ICAI has sent a showcause notice to PwC asking for explanation. If found guilty, PWC could face a lifetime ban.

Investors hold PWC responsible since it is considered the responsibility of the auditor to verify the information. The fact that the chairman of the company was able to pull off a scam of such gravity without the auditor’s knowledge is seen as surprising. This could point either towards the inefficiency of the auditors or their involvement in the scam. However, this is not the first time PWC has been involved in such a scandal. Here’s a peek into a history dotted with controversy.

PWC was in news in 1999 for the Robert Maxwell pension fund scandal and paid nearly $100 million in settlement. Coopers & Lybrand, now part of PWC, and four of their partners were charged with failure in their duties in auditing. PWC admitted to falling short of their own high standards and said they were embarrassed by the turn of events. PWC also said that they had made major changes in their way of functioning to earn the confidence of their clients.

In 1999 and 2000, PWC was found to have participated in and approved of the improper accounting of its own non-audit fees by two public audit clients, Pinnacle and Avon. The US Securities and Exchange Commission (SEC) found that PWC had failed to exercise the objective and impartial judgment required by the independence rules. In consenting to the SEC's order, PWC agreed to undertake remedial measures to prevent such violations.

In 2003, PWC faced a $2.5 billion lawsuit by Amerco in the US for negligent conduct. According to Amerco, PWC offered wrong advice for seven years and delayed disclosing the error putting the company into serious financial trouble.

In 2005, PWC was involved in another lawsuit for carelessly or intentionally certifying erroneous financial statements for American International Group (AIG) since 1999. PWC reportedly had continual access to AIG's financial and business information and was taking hefty fees from AIG. Following the controversy, AIG's stock fell 32% much to the disappointment of the investors. PWC was blamed for compromising on close scrutiny expected of an auditor.

In 2007, PWC was included as a co-defendant in a lawsuit filed against PC manufacturer Dell. Dell’s association with PWC could be traced back to 1986. While Dell faced numerous investigations into its financial records, PWC was also blamed for being party to the misappropriations as its auditors were familiar with the company’s accounts.

The Global Trust Bank (GTB) case in India is an example of PWC’s involvement in a major scandal in India. The GTB collapsed and merged with the Oriental Bank of Commerce in 2004. The Reserve Bank of India later found that PWC was guilty of underproviding for non performing assets. The ICAI found PWC to be guilty of negligence based on preliminary investigations in the case. The ICAI referred PWC to a disciplinary committee and was banned from auditing banks and non banking finance companies (NBFCs) for financial years 2002 and 2003.

PWC was also reportedly involved in a multibillion-dollar accounting fraud involving Tyco International forcing PWC to settle the lawsuit by paying $225 million to shareholders of Tyco in 2007. Following this, the SEC barred Richard Scalzo, auditor of PWC permanently from preparing financial statements of publicly traded companies. In 2008, the SEC also charged two former San Francisco-area employees of PWC with insider trading.

Auditing is a complex process coordinated through a variety of formal and informal channels, involving the regulatory arrangements, government and accountancy associations. Accounting firms argue that they do not have access to all the information about the client and cannot be held responsible for misappropriations in accounts. They refuse to be “guarantors” for their clients. At the same time, they have to be charged with being guilty of not being alert or meticulous in recognizing misappropriations, which could have led to an earlier detection of fraud.

The effect of such negligence cannot be understated.

Source: ITExaminer

Happy Valentines Day!

Source of the 1st picture: unknown
Source of the others: xkcd.com

KPMG salary cuts in Asia

SINGAPORE: Accounting firm KPMG LLP (Singapore) will cut salaries of middle to top management staff from February. The salary reductions will range between 5 and 7.5 per cent.

KPMG said staff wages form the biggest component of costs outside of office rentals. However, it does not expect any retrenchments after the implementation of a series of measures to counter the impact of the recession.

It added that efforts to control business costs for non-essential operations have already been in place since the fourth quarter of 2008.

KPMG is the first of the "Big Four" accounting firms here to cut wages in the current economic downturn.

The other top accounting firms are Ernst & Young, PricewaterhouseCoopers (PwC) and Deloitte & Touche.

Responding to Channel NewsAsia, PwC said it would use its flexible wage system to help manage costs. Similarly, Ernst & Young said it prefers options like flexing its overall pay package, particularly bonus payouts.

Ernst & Young added that it expects to hire about 250 staff in Singapore in FY2008/2009. In the past six months, the firm has recruited over 20 partners in the region, including some from Singapore.

Source: ChannelNewsAsia

Keep your job: A 10-point survival guide

If layoffs, restructurings, and a foggy future at work have you rattled, try to take control of the things you can. Here's how.

1. Create successes for yourself. They needn't be earthshaking. "Just getting to the gym and working out when you didn't feel like it will do," even if you have to squeeze it in at 5 a.m. says Bright. "When there's a lot of negativity around, you need to find ways to feel successful."

2. Set 30-day and 60-day goals. Share them with your boss and then, as you get closer to your targets, update him or her on that, too. "Not only will measurable progress keep you upbeat and creative," Bright notes, but in practical terms, "your boss needs to know what his department is accomplishing, so he has ammunition if someone wants to chop it in half." Gulp.

3. Watch your attitude. "A pessimistic, bleak attitude makes it hard for people to work with you," Bright says. "And why be miserable eight hours a day, anyway?"

4. Keep your network active. "People always talk about networking, but they don't do it," says Bright. "I ask my clients to give me the names of five people they want to stay in touch with, and then make a plan for how they're going to do that, whether it's lunch or just a phone call." Always bring something of value to the conversation, even if it's just a tidbit of information or the name of a useful contact.

5. Update your skills. "Take a class, read a book, keep up with trade publications," Bright says. "You always want to be up-to-the-minute informed about what's going on in your industry that could affect you."

6. Make sure your work serves the larger goals of the organization. Take on as many responsibilities as you can, "especially the tasks no one else wants, like reporting to regulators," Bright suggests. "I had a client who did this and dodged a layoff." A word of caution, however: "At some point, do teach someone else how to do the extra tasks you've taken on, or you'll never, ever get to take a vacation."

7. For now, forget about work-life balance. A major preoccupation when the economy was humming along nicely, "having time for outside interests has to go right out the window now," says Bright. "You need to concentrate on doing whatever it takes to make yourself indispensable."
8. Take a hard look at your finances. Do you have the resources to coast through a seven- or eight-month (or longer) job hunt? If not, it's time to put yourself on a budget and stick to it. "And talk to your mate about finances," urges Bright. "Many high-ranking executives don't" - and then face shock and resentment at home when money gets tight.
9. Never badmouth anyone. "If you can't be positive toward someone at work, be neutral," says Bright. "In the next reorganization, the person you were trash-talking could be your new boss, and then you're gone."

10. Remember, in the knowledge economy, you are the product. So take care of yourself. Get enough sleep, eat right, and take time to work out a few times a week. "I had one client who was so nervous about everything that was happening around him, he gained 20 pounds," says Bright. "That's not good for your health - and if you do have to get out there and market yourself, being overweight won't do wonders for your confidence, either." In this job market, if heaven forbid you're plunged into it, you'll need all the confidence you can muster.

Source: Fortune