Audit & Accounting

PricewaterhouseCoopers announced the launch of a United States-based valuation practice offering a full range of valuation services. The Big Four firm has organized its valuation services into two teams. Offerings from the Transaction Services Accounting and Valuation Advisory practice are aimed at helping companies meet financial reporting and tax valuation requirements, especially those related to mergers and acquisitions. The practice will be lead by New York partner John Glynn, a former professional accounting fellow at the Securities and Exchange Commission and PwC's representative to the Appraisal Issues Task Force. Meanwhile, Chicago-based partner Mark Haller will head the firm's Business Analytics team that will offer applied valuation analysis and advisory services to help companies make business decisions. Haller is already the leader of PwC's Economics and Strategy practice. Both teams will operate with a goal of providing quantitative support to help clients makes decisions on issues such as new market entry and competitive threats, dispute resolution, changing and emerging business models, internal investment choices, product pricing, product rationalization and extension, and customer value assessment. The service was specifically created with non-audit clients in mind. PwC said that with the U.S. launch, it is capable of delivering valuation services worldwide through a team of more than 1,550 valuation professionals.

The Securities and Exchange Commission has awarded a trio of contracts -- totaling $54 million -- to transform the financial statements in its Edgar database to interactive information. The SEC hopes that the spending will propel the agency’s 1980s-vintage public company disclosure system from a form-based electronic filing cabinet to a real-time search tool with interactive capabilities. The investment is a likely precursor to widespread adoption of interactive data filing by companies that report their financial information to the SEC, which has been part of a voluntary pilot program loudly praised by SEC Chairman Christopher Cox. Financial organizations such as the Federal Deposit Insurance Corp., the Federal Reserve and the Comptroller of the Currency all already require banks to use the Extensible Business Reporting Language format. XBRL is a technology that tags financial information through disparate applications and carries it through the business reporting chain. The SEC hasn’t required companies to file their information in an interactive format largely because the XBRL labels haven’t all been completed, and because the commission’s own database can’t utilize the capabilities of the programming language. XBRL US Inc. received one of the contracts, for $5.5 million, to complete the writing of XBRL “taxonomies,” so that every item in a company’s financial statement, such as net income or gross sales, can be assigned a unique computer-readable label. The company, originally formed as a volunteer committee of the American Institute of CPAs, also announced that it will operate independently in the future -- as a nonprofit, member-supported entity of XBRL International Inc. XBRL US will have responsibility for the development of the computer standard in America and is expected to complete the SEC work within a year. The remaining contracts were awarded to: · Keane Federal Systems Inc., for $48 million, to modernize and maintain the database. The contract covers up to a six-year period -- an initial three-year contract term, plus three additional one-year terms. As part of the contract, Keane will partner with other technology firms, including BearingPoint, Microsoft, Rivet Software, EMC and Akamai. · Rivet Software and Wall Street on Demand, for $500,000, to create a new generation of interactive investor tools on the SEC’s Web site. The existing Edgar system is already one of the largest U.S. government presences on the Internet. Over 700,000 documents and data sets are filed on the system each year. However, the information Edgar stores is locked in essentially the same kinds of forms that the SEC has used for 72 years, since it first introduced Form A-1 for securities registration in 1934.

A federal appeals court ruling has essentially thrown the issue of whether shareholders should be able to nominate candidates in corporate board elections back to the Securities and Exchange Commission. A SEC has scheduled an Oct. 18 hearing on the issue, and Chairman Christopher Cox has said he wants the matter resolved before 2007 corporate meetings begin taking place. The Sept. 5 court ruling said that SEC staff improperly allowed American International Group Inc. to block a measure that would have made it easier for investors to nominate their own candidates for the board.

On the heels of the new risk assessment standards rolled out by the American Institute of CPAs, Thomson Tax & Accounting and the PPC brand are offering two new audit tools. PPC’s Smart e-Practice Aids focused on risk assessment, allows users to automatically generate customized audit programs based on risk assessments. Specifically, the aid will:

A church in California has refused to comply with an Internal Revenue Service request to turn over all the documents and e-mails it created during the 2004 election year containing references to political candidates. Last week, the 26-member vestry of All Saints Episcopal Church in Pasadena voted unanimously to challenge the IRS on the matter in court. The refusal to cooperate forces the IRS to either drop the case, or to ask the Justice Department to take the church to court. The agency could also revoke the church’s tax exemption. The church is one of dozens of tax-exempt groups under investigation by the Internal Revenue Service for possible violations of laws against political activities. The church said it regarded an IRS investigation of an antiwar sermon delivered by the church’s former rector on the Sunday before the 2004 election as an attack on freedom of speech and religion. The agency has not said what part of the sermon the reverend delivered may have violated the law. In the sermon, the former rector, imagined Jesus chiding President Bush and Democratic opponent Senator John Kerry on topics including the war in Iraq, nuclear weapons, poverty and the increasing income gap. In July, the IRS warned 15,000 tax-exempt groups across the nation to stay neutral on political matters. IRS officials said then that investigations into charges of improper campaigning would be carried out under a new enforcement program, the Political Activity Compliance Initiative. Under it, the IRS will no longer wait for an annual tax return to be filed or for the tax year to end before investigating allegations of improper campaigning.

California’s Franchise Tax Board is in the process of notifying more than 200 corporate taxpayers that their information was made public Sept. 19 when an employee accidentally e-mailed a list of companies under audit. The e-mail distribution list included two writers for BNA, a publisher of print and electronic news, which promptly reported that the listing of taxpayers under audit for tax years 2003 and earlier had been released. The list included the name of the taxpayers, their identification numbers, and the name of the auditor assigned to each case. The tax board is responsible for collecting state personal income taxes, as well as bank and corporate taxes for the entire state. Under California’s Revenue and Taxation Code, the board must notify taxpayers that their information had been disclosed, and the responsible employee can be charged with a misdemeanor. An FTB spokeswoman told BNA that the employee intended to send the message to himself, but accidentally sent the message to a broader distribution list. In a follow-up email sent the same day, he asked recipients to permanently delete the e-mail from their computers. According to BNA, the list includes several well-known corporations in a variety of industries, including entertainment, energy, electronics, and banking. Notes in the file appear to show that several of the taxpayers are being audited for possible participation in abusive tax shelters.

The Public Company Accounting Oversight Board has announced two upcoming meetings -- one for its Standing Advisory Group in Washington, another a Philadelphia forum on auditing in the small business environment. The advisory group, which is comprised of 31 individuals who advise the board on auditing and professional practice standards, will meet on Oct. 5 at the Army and Navy Club in Washington. The group will discuss the board’s proposed standards-setting activities for 2007 and ways of measuring the success of the PCAOB. A panel discussion on the attributes of auditing in a smaller-firm environment and the attributes of auditing smaller issuers will also be held. The meeting is open to the public and will be Web cast on the board’s Web site, www.pcaobus.org, where an agenda is available. Separately, on Oct. 16, the board will host one of its regular forums for small business auditors. The program will be hosted by board member Kayla J. Gillan along with staff from the offices of inspections, enforcement and standards-setting, and will focus on educating smaller registered accounting firms about the board’s work. The forum will be held at the Rittenhouse Hotel and be open to auditors from smaller registered public accounting firms, who can earn continuing professional education credits. The board plans to hold two more forums in New York City and Chicago. Information on how to pre-register for the event, which is a requirement, is available by calling (202) 207-9061.

In 1967, when every automaker was launching its own version of a “muscle car,” Mercury unveiled the Cougar, a sort of hybrid vehicle positioned between luxury sport and high performance, complete with 351-cubic-inch V-8 and a menacing grill that resembled a set of growling chromed teeth. My brother and I were instantly captivated by the car and begged my parents to get one. My father said our two-year-old Comet would do just fine, thank you, but he did point to an ad in a magazine that offered large model replicas of the Cougar at what seemed an unbelievable price of $2.75. We immediately clipped out the order form, emptied our banks and impatiently waited for the next five weeks until our packages arrived. You can probably guess the rest. In lieu of the flashy model pictured in the magazine, what came was actually a drab, olive-green car constructed of soft plastic, with no interior seats and with what appeared to be oversized roofing nails for axels. As I recall, my brother cried and I was thisclose to doing so as well. For once, my father spared us a Carrie Nation-like lecture and simply said, “You boys will find out you usually get what you pay for in life.” I often recall this adventure when the thorny issue of exorbitant executive pay comes up, and specifically how it measures up to company performance and the million-dollar question -- literally -- of do you really get what you pay for? No matter how well a company does with regard to appreciation in share prices and market capitalization, I somehow cannot justify or rationalize an executive compensation plan that is one hundred times the amount earned by the president of the United States. Along those lines, I recently was sent a copy of “Pay Dirt,” a review of executive compensation practices by proxy researcher Glass Lewis & Co. The Glass Lewis pay-for-performance study examined a total of six indicators of shareholder wealth and business performance, including such areas as changes in stock price over a two-year period and two-year changes in book value per share, as well as analyzing the chief executive’s total compensation and the top five executives’ total compensation. The study determined that a large number of companies shell out enormous salaries and perks to executives whose performances fell somewhere between mediocre and poor. Glass Lewis’ research identified 98 executives who were awarded more than $20 million in annual compensation in 2005, with media titan Barry Diller, chairman and CEO of IAC/InterActive Corp., banking the highest comp package in 2005 -- an estimated $85.1 million, a figure that doesn’t include roughly $290 million in exercised stock options. According to Glass Lewis, companies with the worst pay-for-performance result include advertising and media concern Interpublic Group of Cos., investment conglomerate Morgan Stanley, software publisher Ariba Inc. and Vitesse Semiconductor Corp. By contrast, the best ones were search engine Google Inc., Caterpillar Inc. and upscale retailer Nordstrom Inc. And four of last year’s 25 highest-paid chief executives were from companies now under government investigation over past stock-option-granting practices. And in a textbook example of executive logrolling, Glass Lewis unearthed five directors who sit on the compensation committees of at least two companies that received “F” grades in its pay-for-performance ratings for 2005, while two CEOs at companies that received F grades in pay-for-performance ratings for 2005 also sit on the boards of other companies that received Fs. Now, realistically, the Glass Lewis report won’t abolish the practice of absurd compensation packages for residents of the executive suite, But hopefully it will prompt investors to take a closer look at companies in which they have placed their money and demonstrate to the CEOs that their salary is not an annuity, and that they must either step up or step down. And for those that can’t measure up, you can throw in two 1967 Mercury Cougar replicas as part of the severance package.

With their sentencing dates approaching, former Enron chief executive Jeffrey Skilling and former chief financial officer Andrew Fastow are taking divergent routes in the image they portray to the court. Skilling, 52, was ticketed for public intoxication earlier this month in Dallas, according to a report in the Houston Chronicle. The paper said that Skilling, who was not drinking at the time of the arrest, received a $385 ticket on Sept. 9 at about 1:45 a.m. and was briefly detained in a city jail. Public intoxication is a misdemeanor and punishable by a fine of up to $500.

Did you ever stop and think why you are now at the ATM machine again taking more money out when you were just there a few days ago? Does it seem like you are constantly replenishing your wallet and can’t understand why? Visa did something about it. They decided to do some research on where money goes, other than, of course, paying for their credit cards or people charging on the Visa card. Actually, in England, they discovered that the Brits spend as much as $160 billion (yes, with a “B”) a year but have no idea where that money went. Actually, Visa surveyed more than 1,000 people and found out that the average adult was spending some $60 every week with no idea of where the money was going. In other words, in answer to the question, “On what did you spend that extra $60?” the response was “I don’t remember.” Now, according to Visa, if you didn’t spend that $60 a week for something you don’t recall, you could have paid for the following: 1) All your electric and water bills for a full year 2) 96 percent of traveling costs for year 3) Your weekly grocery shopping for some nine months of the year 4) Three months’ of mortgage payments. So, to where is this money traveling? Visa says that most people spend more than they would like when grocery shopping (that’s the impulse buying habit) and on entertaining for children or grandchildren, not to mention their own “night out.” Who spends the most? Oddly enough, men do, averaging some $70 a week compared to half that by women. So ends that woman/shopping myth. Also, those 18-24 year olds spend almost a $100 a week. Who spends the least? Besides a five-month old baby, it’s the over 55ers who only use up about $30 a week on items they don’t remember buying. So, what does Visa recommend? They suggest monitoring your money through online banking and by maintaining accurate records every time you go to that ATM machine; in other words, marking down what the money’s for. According to Visa, if you can check your bank balance from home, you will find this is an enormous benefit in indicating what’s happened to your money.