Audit & Accounting

Here’s something that may be of interest to you.As you know, there are all sorts of lists out there ranging from Accounting Today’s most influential people in accounting to Practical Accountant’s regional survey of accounting firms to CPA Wealth Provider’s financial planning annual awards of excellence.

A Greenville, S.C. federal judge has permanently barred Robert Barnwell Clarkson and his "Patriot Network" from promoting tax fraud schemes, the Justice Department announced. The court found that Clarkson falsely instructed Patriot Network members that they need not file federal income tax returns, and helped members obstruct Internal Revenue Service efforts to collect taxes. In seeking the permanent injunction, the Justice Department submitted Clarkson's Untaxing Packet, which he sold for $300. The packet contained form letters that he falsely claimed would exempt purchases from federal tax laws. Papers filed in the case showed that Clarkson boasted that he "untaxed" more than 8,000 people over 30 years. The court detailed Clarkson's efforts at interfering with tax collection, including his instruction to transfer property to nominees and to sue IRS agents who attempt to collect taxes. Clarkson, a disbarred attorney from Anderson, S.C., has twice been convicted of federal tax-related crimes. The court ordered Clarkson to give copies of the injunction to people who bought his products and to post the injunction on the Patriot Network Web site.

The Internal Revenue Service has redesigned Form 8857, Request for Innocent Spouse Relief, to help reduce follow up questions and taxpayer burden. The form will ask more questions initially, but collecting critical information early in the process will allow faster processing of the request. The IRS says that the new design will eliminate an estimated 30,000 follow-up letters annually, resulting in a reduced burden and quicker answer for taxpayers and less cost for the government. When a taxpayer files a joint return, both spouses are jointly and individually responsible for the tax. If one taxpayer believes that only his or her spouse or former spouse should be responsible for the tax, the taxpayer can request innocent spouse relief. The redesigned form will be easier to understand and to complete and will help educate taxpayers about the process. Previously, the questionnaire was separate from the form.

The Center for Audit Quality, a group affiliated with the American Institute of CPAs, will host a panel discussion featuring former Sen. Paul Sarbanes and former Rep. Michael Oxley to mark the fifth anniversary of signing Sarbanes-Oxley into law. Scheduled for July 30 at the National Press Club, additional speakers include SEC Chair Christopher Cox, former SEC Chairs William Donaldson and Harvey Pitt, Mark Olson, Chairman of the Public Company Accounting Oversight Board and former PCAOB Chairman William McDonough. For further information, call (202) 609-8291 or e-mail info@thecaq.org.

The Securities and Exchange Commission has reappointed Daniel Goelzer to a second five-year term at the Public Company Accounting Oversight Board. Prior to joining the PCAOB in 2002, Goelzer spent seven years as general counsel at the SEC. He is also a CPA and was an auditor at Touche Ross, the predecessor firm to Deloitte & Touche. SEC chairman Christopher Cox said that Goelzer "brings broad perspective to the board through his substantial experience as a regulator and practitioner. We are fortunate that he is willing to serve the nation, investors, and our markets in this capacity."

I have always found regional accounting firms fascinating. Just take three recent developments regarding the regional firm of Virchow, Krause & Company. One was that Wells Fargo Insurance Services of Minnesota, a subsidiary of Wells Fargo & Company, acquired Virchow, Krause & Company's Twin Cities employee benefits operations, including the head of the employee benefits practice in Minneapolis and his team. It is a good example of how regional firms view these very specialized practice areas. The acquire them and spin them off reminding me of many businesses that view the acquisition and the selling of a portion of their business as a regular means for increasing profitability.

The Public Company Accounting Oversight Board has faulted eight audits performed by global audit firm Grant Thornton, citing departures from generally accepted accounting principals as well as problems with evaluating financing costs and rental income. During the eight-month process, the PCAOB said it conducted the inspection at the firm's national office in Chicago as well as 13 of its field offices. As with all PCAOB inspection reports, the audit clients remained anonymous. However, in a letter to PCAOB director of inspections, George Diacont, Grant Thornton took umbrage to the board's use of descriptions such as "failed to identify" and "failed to perform" appearing in the reports. It also stated that it has enhanced its training programs and developed additional guidance to address problems in previous inspection reports. Meanwhile, a Grant Thornton spokesperson said, "While we disagree with the some of the terminology used by the PCAOB and disagree with some of the conclusions that were reached, we support the PCAOB's mission to better protect investors through the reports. We think it is an excellent time for the PCAOB to develop recommendations culled from three years of major accounting firm inspections to establish the most effective approaches to auditing, with the investor being the ultimate beneficiary." Earlier this year the audit overseer released its inspection reports on Big Four firms Ernst & Young and Deloitte, both of whom were cited for audit deficiencies in eight of their clients' audits. The report can be viewed at: http://www.pcaobus.org/Inspections/Public_Reports/index.aspx.

The IRS has publicized a new draft version of Form 1118, "Foreign Tax Credit - Corporations," used by U.S. corporations to compute the foreign tax credit for taxes paid or accrued to foreign countries or U.S. possessions. "They adjusted the form to accommodate changes made by the 2004 American Jobs Creation Act," said Selva Ozelli, a New York-based CPA and international tax attorney. Under the act, the number of separate foreign income categories has been reduced from eight to two, and U.S. source income is re-characterized as foreign source income in cases where a taxpayer's foreign tax credit limitation has been reduced in an earlier year due to an overall domestic loss. "The most important change is that they've added a column to help taxpayers determine U.S. income that could be recharacterized due to recapture of overall domestic losses," said Ozelli. "This column will also help them in tracking their balances of overall domestic losses," she said.

The nation's technology companies continue to struggle with the challenges of accounting for stock options, in particular, the guidelines of Financial Accounting Statement 123(R), Share-Based Payment, according to a survey conducted by Grant Thornton of tech company executives. Some 85 percent of those participating in the GT poll said that the overall process of option valuation is significantly more complex than it was before Statement 123(R), while 76 percent indicated that they are outsourcing option valuation as a result of the accounting rule. Roughly 60 percent of those surveyed said their company's compensation committee have become more involved in designing comp programs as a result of 123(R). Grant Thornton surveyed more than 100 technology company executives in the poll.

Two interesting pieces of information have popped up by two highly reputable sources, one dealing with tips on choosing a financial planner and the other showing survey results of the five most frequent mistakes made when selecting such an advisor.