Audit & Accounting

Securities and Exchange Commission Chairman Christopher Cox has established an advisory committee to help make financial reporting more "user-friendly." The SEC Advisory Committee on Improvements to Financial Reporting will examine the U.S. financial reporting system in an effort to reduce complexity, make financial reports clearer to investors reduce costs for preparers and determine how to better capitalize on the use of technology. "Our current system of financial reporting has become unnecessarily complex for investors, companies, and the markets generally," Cox said. "The time is ripe to review how that system can be made less complex and more useful to investors." Robert C. Pozen, chairman of MFS Investment Management in Boston and former vice chairman of Fidelity Investments, was appointed the committee chair. Cox said he expects between 13 and 17 additional members with varied backgrounds to be named to the advisory committee within the next few weeks.Some of the areas the committee will focus on include: * The current approach to setting financial accounting and reporting standards; * The current process of regulating compliance by registrants and financial professionals with accounting and reporting standards; and * The current systems for delivering financial information to investors and accessing that information. Both the Financial Accounting Standards Board and Financial Executives International lauded the development. "This advisory committee represents an important step toward addressing the institutional, structural, cultural, and behavioral issues that create complexity, reduce transparency, and impede usefulness of reported information to investors," said FASB chairman Robert Herz. Meanwhile the 15,000-member FEI said that it "applauds the SEC's announcement today regarding the formation of an SEC Advisory Committee on Improvements to Financial Reporting. We reiterate our belief that the current complexity in accounting and reporting harms the ability of users of financial statements to understand the information provided and impairs the ability of preparers to explain their financial results in a meaningful way."

The Internal Revenue Service ruled that a partial termination of a qualified plan occurred where 23 percent of a plan's participants were no longer active due to the closing of one of the employer's four locations. Therefore, all plan participants were fully vested. Under Code Section 411(d)(3), a plan is required to provide that, upon its partial termination, the rights of all affected employees to benefits up to the date of the termination must be non-forfeitable. Under the regs, the IRS uses a facts and circumstances test to determine whether a partial termination has occurred. The IRS ruled that if the turnover rate is 20 percent or more, there is a presumption that a partial termination of the plan has occurred. The IRS determined the turnover rate by dividing the number of participating employees who had an employer-initiated severance from employment during the applicable period - in this case, the plan year - by the sum of all of the participating employees at the start of the applicable period and the employees who became participants during the applicable period. The 20 percent threshold merely creates a presumption, according to the IRS. Facts and circumstances indicating that the turnover rate for an applicable period is routine, and not the result of a shutdown as in this instance, favor a finding that there is no partial termination. The IRS also noted that a partial termination of a qualified plan can also occur for reasons other than turnover. For instance, a partial termination can occur due to plan amendments that adversely affect the rights of employees to vest in benefits under the plan, plan amendments that exclude a group of employees who have previously been covered by the plan, or the reduction or cessation of future benefit accruals resulting in a potential reversion to the employer.

Broker/dealer H.D. Vest Financial Services said that its assets under management in advisory accounts recently passed the $5 billion mark. The company said that figure helped propel its total assets under management to roughly $25 billion. The company began offering advisory solutions in 1987, and currently supports over 1,900 independent advisory consultants in its system of 5,500 advisors.

Florida A&M University has been given a six-month window to straighten out its accounting problem or risk losing its accreditation by the Southern Association of Colleges and Schools. The school has come under fire after a state auditor revealed that the school's inspector general's office had gone 40 months without any formal reports on internal investigations, and that $39 million in transactions and budget amendments were made without approval of the school's board of trustees. In addition the school has some $1.8 million in missing receipts for athletic-event tickets and $11,000 in bad checks were written by the administration. Students attending an unaccredited school are typically not eligible for financial aid.

Prosecutors are urging a U.S. district Judge to dismiss indictments against 13 of executives of Big Four firm KPMG on charges of marketing illegal tax shelters. According to The Wall Street Journal U.S. District Judge Lewis A. Kaplan had previously ruled that the government had overreached in its years-long investigation, violating the defendants' constitutional rights to counsel and due process. In a June 22 filing in federal court in Manhattan, prosecutors said that Kaplan's decision showed that there was a fundamental flaw in the proceedings and that he must dismiss the indictments. As a result, 13 of the 18 defendants may now never stand trial, including the accounting giant's former vice chairman, Jeffrey Stein, the highest-ranking executive named in the indictment. However, legal experts opined the petition was a strategy to allow allowing prosecutors to appeal Kaplan's ruling, a maneuver that may yet allow prosecutors to resume the proceedings against all 18 of the defendants. The indictments were initially handed down in 2005 accusing the defendants of selling fraudulent tax shelters from 1996 through 2002, that cost the government some $2.5 billion in revenues. In striking an agreement to escape a potentially fatal criminal indictment that could have shuttered the firm, KPMG agreed to pay a $456 million fine to the federal government and spend the next 16 months on probation overseen by a federal monitor. The firm also agreed to close its tax business for high-net-worth individuals. Kaplan has scheduled a hearing July 2. A decision regarding the government's argument, as well as the motions to dismiss the indictments, could be issued this summer.

After collating some 80 comment letters on valuation guidance for financial reporting, the Financial Accounting Standards Board unveiled plans to form a resource group on the subject. Specifically, the cadre will provide the standard-setter with input on potential clarifying guidance on issues relating to the application FASB Statement No. 157 on Fair Value Measurements. FASB said the composition of the group will comprise of a cross section of constituents and added that its initial meeting will be sometime during the third quarter of 2007.

The Joint Committee on Taxation has issued a report on the individual alternative minimum tax in advance of a Senate Finance Committee hearing scheduled for Wed., June 27. The JCT report listed several selected reform options, which include: indexing or increasing the exemption amounts; allowing the deduction for personal exemptions and standard deductions to be used when computing the AMT; permitting state and local taxes against the AMT; reducing the minimum tax rates; eliminating the phase-out of the minimum tax exemption; allowing nonrefundable personal credits to offset the minimum tax after 2006; and repealing the AMT. The report is available at: http://www.house.gov/jct/x-38-07.pdf.

The LexisNexis Tax Center platform will now include exclusive content from Ernst & Young's International GAAP Online. Written by the International Financial Reporting Group of Ernst & Young, International GAAP Online includes the full text of every International Financial Reporting Standard and a set of model IFRS financial statements. LexisNexis has also paired with Danielle Rolfes, tax attorney and CPA with Ivins, Phillips & Barker, to present information on FIN 48. "There's a sea change that's less about the mechanics of FIN 48 and more abut rigorous accounting to give investors enhanced insight into companies' overall income tax positions and the consequent ability to scrutinize and compare," said Rolfes. LexisNexis launched its Tax Center last year to help streamline analysis of tax strategies across the broadest array of tax publishers available on a single platform, including LexisNexis, CCH, BNA, Tax Analysts, the ABA Section of Taxation and Matthew Bender.

Many of my friends are already retired, whether they have money or not. And, I keep hearing all the time the same question: When will I pack it in? After all, I’ve been at this for the past 45 years and you know something, I still love it. I may be one of the few people who on a Sunday night has trouble sleeping because I can’t wait to get to the office Monday morning.

Though financial reporting and Sarbanes-Oxley Section 404 oversight remain a top priority for audit committees, other areas such as IT are fast rising as high-risk concerns, according to a survey sponsored by Big Four firm KPMG. According to the 2006-2007 Public Company Audit Committee Member Survey, conducted by KPMG's Audit Committee Institute and the National Association of Corporate Directors, just 15 percent of 282 audit committee members participating the survey indicated that they were "very satisfied" with their company's oversight of IT, while 20 percent admitted that their IT risk oversight needed improvement. Some 90 percent of respondents said the audit committee should devote more agenda time to upgrading IT risk oversight. Despite ongoing challenges posed by complex accounting standards and Section 404 compliance, most audit committee respondents were confident of their oversight in that area. About 80 percent of audit committees were "very satisfied" with their oversight of management's accounting judgments and estimates and some 60 percent said they were "very satisfied" with the amount of time the audit committee spends discussing the issue. For more information on the survey, visit: www.kpmg.com/aci.