Is There More White Collar Crime Today?

Sam E. Antar, the convicted felon and former CEO of Crazy Eddie, puts forth the theory that the bad economy is accusing white collar crimes to float to the surface: Is there really more white collar crime today? No.

The Madoff scheme is an example of a scheme that fell apart whent he markets went south. A combination of decreased asset value (at least the few that he actually had) and increased redemptions due to the declining markets prevented him from being able to cover up the scheme.

Mr. Antar draws the parallel to the NYPD pulling more bodies out of the water during the spring months than other months. The warmer spring water just makes them float. The bodies sink in the colder winter months.

The current crash in economic markets is going to cause more bodies to float.

Market Reaction to Adoption of IFRS in Europe

Christopher S. Armstrong, Mary E. Barth, Alan D. Jagolinzer, and Edward J. Riedl published Market Reaction to Adoption of IFRS in Europe (.pdf)

This study examines the European stock market reaction to sixteen events associated with the
adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS
adoption represented a major milestone towards financial reporting convergence yet spurred
controversy reaching the highest levels of government. We find a more positive reaction for
firms with lower quality pre-adoption information, which is more pronounced in banks, and with
higher pre-adoption information asymmetry, consistent with investors expecting net information
quality benefits from IFRS adoption. We also find that the reaction is less positive for firms
domiciled in code law countries, consistent with investors’ concerns over enforcement of IFRS
in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with
high quality pre-adoption information, consistent with investors expecting net convergence
benefits from IFRS adoption. Overall, the findings suggest that investors in European firms
perceived net benefits associated with IFRS adoption.

With IFRS coming to the US in a few years it is interesting to see the reaction to the new accounting standards.

The SEC proposes that implementation of the use of IFRS by U.S. issuers would be staggered into three phases based on the size of the reporting company. IFRS filings for large accelerated filers would begin for those filers with fiscal years ending on or after December 15, 2014, while IFRS filings for accelerated filers would be begin for those filers with fiscal years ending on or after December 15, 2015, and for non-accelerated filers and smaller reporting companies for those filers with fiscal years ending on or after December 15, 2016

Right to Audit

From the KPMG 2008 Anti-Bribery and Anti-Corruption Survey:

While 63 percent of those respondents that require periodic compliance certifications said they incorporate a right-to-audit clause in their third-party contracts, a significant majority of these (68 percent) has never exercised the right (see Chart 4). A right-to-audit clause appears to be the kind of oversight expected by regulators and prosecutors, and has been included as an essential element of FCPA compliance in several recent deferred or nonprosecution agreements that companies have reached with the SEC and the DOJ. Recent agreements entered into in 2008 included, for example, stipulations that the parties agree to adopt new or to modify existing procedures to include “rights to conduct audits of the books and records of” agents or business partners “to ensure compliance” with anti-bribery laws and regulations.

Investigating Suspected Financial Accounting Irregularities

I watched the webinar from EthicsPoint and Kroll on Investigating Suspected Financial Accounting Irregularities. Jed Davis is the Managing Director in the Business Intelligence and Investigations Division of Kroll and Dave Hess is the Managing Director of the Forensic Accounting and Litigation Consulting Division of Kroll.

Dave emphasized the need to have a plan in place to deal with an investigation.

In Planning the investigation:

  • Establish an independent team with required expertise:
  • Identify and preserve relevant documents and evidence
  • Determine the scope and timing of investigation
  • Develop work plan and approach
  • Establish internal communication protocol

Some key objectives and considerations are:

  • to ensure and maintain rigor and credibility of investigation
  • to work with outside counsel to establish and maintain procedures to protect attorney‐client privilege
  • communicate with the investigating parties and stakeholders.
  • Establish procedures to avoid “scope creep”
  • Determine if alleged misconduct was an isolated act or a systemic problem
  • Establish verifiable chronology of policies, decision‐making and actions in issue
  • Identify internal control deficiencies and make recommendations for improvements
  • Report investigation results to stakeholders

Presentation slides for Investigating Suspected Financial Accounting Irregularities.(.pdf)

PCAOB Standard No. 5

pcaob_logoThe Public Company Accounting Oversight Board released Auditing Standard No. 5 – An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statement (.pdf) on June 12, 2007. The standard was approved by the SEC on July 25, 2007 and became effective for audits of fiscal years ending on or after November 15, 2007.