Audit & Accounting

American Express Financial Advisors Inc. will pay New Jersey $5 million and implement company-wide reforms to address allegations that it failed to reasonably supervise its financial advisors. The settlement follows revelations that a financial advisor in AEFA's Voorhees, N.J., office stole more than $400,000 from at least 22 clients. The New Jersey Bureau of Securities discovered the theft, and expanded its investigation with the uncovering of widespread problems involving AEFA's failure to supervise financial advisors within its franchise offices. "In investigating and prosecuting this individual, we identified a larger issue of inadequate supervision of the company's financial advisors," said New Jersey Attorney General Peter C. Harvey. "To its credit, American Express has worked cooperatively with our office to address deficiencies in its oversight of financial advisors." Harvey vowed to continue his scrutiny of financial advisory services. "We are taking a hard look at the industry," he added. "Where we find firms failing in this area and the failures are significant, we will be imposing major penalties and demanding significant reforms."

Financial Executives International, a 15,000-member trade group for chief financial officers and other senior financial personnel has elected its new slate of officers. Robert Walker, former CFO of Agilent Technologies, will serve as chairman, while Richard Schrader, executive vice president and CFO of Parsons Brinckerhoff Inc., in New York, will become vice chairman. Additional officers include: Alexis Dow, elected auditor, metro, regional government in Portland, Ore., and Joseph DiLorenzo, co-founder and manager, M/D Group LLC, in Humarock, Mass., who will serve as vice presidents at large. Gerald Urich, corporate assistant controller, The Hershey Co., Hershey, Pa., will serve as treasurer. Jeffrey Curtiss, senior vice president and CFO, Service Corp. International, Houston, will become secretary.Mary Jo Green, immediate past FEI chairman, and senior vice president and treasurer, Sony Corp. of America, New York, and second past FEI chairman H. Stephen Grace, Jr., president of H.S. Grace & Co., Houston, will continue in their capacities as directors-at-large. Joan Netzel, first vice president, audit relationship manager for SunTrust Banks Inc., Atlanta, will remain as chairman of the Board of Trustees for Financial Executives Research Foundation -- FEI's research affiliate. The FEI officers slate began officially July 1.

President Bush formally nominated Rep. Christopher Cox, R-Calif., to become the next chairman of the Securities and Exchange Commission, succeeding William Donaldson, who stepped down June 30 after nearly two-and-a-half years at the helm of the regulator. In the interim, the president appointed SEC commissioner Cynthia Glassman to serve as acting SEC chair until Cox is confirmed. A confirmation hearing for Cox -- which requires Senate approval -- could occur in July. Meanwhile, Senate Minority leader Harry Reid, D-Nev., has recommended that Bush nominate Annette Nazareth, currently the commission's market regulation division director, for the commissioner post that will be vacated when Harvey Goldschmid leaves in the fall for a teaching post at Columbia Law School.

In yet another step toward global accounting standards convergence, the Financial Accounting Standards Board and the International Accounting Standards Board each published exposure drafts containing joint proposals for accounting for business combinations.The proposals include a draft standard that the two boards developed in their first major joint project, which could be used for both domestic and cross-border financial reporting. The proposed standard would replace the existing requirements of the IASB's IFRS 3 and FASB's Statement No. 141.The drafts retain the fundamental requirement of IFRS 3 and Statement 141 to account for all business combinations using a single method -- where one party is always identified as acquiring the other. The principal changes being proposed include a requirement to measure the business acquired at fair value, and to recognize the goodwill attributable to any non-controlling or minority interests.The exposure drafts are available on FASB's Web site at www.fasb.org, and on the IASB's Web site at www.iasb.org. The comment period ends Oct. 28, 2005. Both boards said that they would hold public roundtable meetings to gather additional input on the proposals.

Extensible Business Reporting Language, or XBRL, the technology that tags financial information through disparate applications and carries it through the business reporting chain, can lower costs and provide enhanced analytical capabilities for users, preparers and consumers of financial statements. "It usually takes two years for data to go from the corporate reporting chain to actual economic policy-making," said Mike Willis, a partner at Big Four firm PricewaterhouseCoopers and founding chairman of XBRL International. "Paper in the reporting process doesn't cut it; it's too manual and too expensive." Willis, one of the nation's leading authorities and proponents of XBRL, led a session titled, "Business Reporting in XBRL -- Tagging for U.S. GAAP" at the AICPA Information Technology Conference, here. Currently, XBRL International has 350 member organizations in 24 countries. In the United States, XBRL reporting programs are underway at the Securities and Exchange Commission and the Federal Deposit Insurance Corp. However, it has been slower to gain traction domestically. "Information labels are inconsistent from one application to another, such as ERP to Excel," said Willis. "Information goes in one direction -- there's no shared context." As an example, Willis said that large companies that have stakeholders in other countries have to publish annual reports or financial statements in other languages. In XBRL, the information is tagged and flowed into indigenous spreadsheets so that users don't have to be fluent in English to find the desired categories. "Accountants by nature tend to be reactive," Willis said. "But they need to be proactive with XBRL, or their relevancy in external reporting will dwindle."

The Securities and Exchange Commisson has settled with KPMG Canada and two of its partners for the audit firm's lack of independence related to its audit of Southwestern Water Exploration Co., a now-bankrupt Colorado-based concern.KPMG Canada provided bookkeeping services to Southwestern and then audited its own work, issuing what were supposed to be independent audit reports on Southwestern's financials for the years 1999-2002.The SEC's order censures KPMG Canada without the firm admitting or denying guilt. KPMG Canada also agreed to adopt new auditor independence policies and procedures and pay $73,682 -- its fees for the audit of Southwestern, plus interest.In addition, two KPMG Canada partners -- Gary Bentham, the audit engagement partner, and John Gordon, the concurring and SEC reviewing partner -- are prohibited from auditing SEC issuers for two years and nine months, respectively.

The chief financial officer of advertising giant Interpublic Group, which is the subject of a newly widened probe by the Securities and Exchange Commission, has stepped down. Robert Thompson had been CFO of the company for just a year; his successor, who will not be named until late July, will be Interpublic's fourth CFO in two years. In a statement, Interpublic chairman and chief executive Michael Roth said, "Bob and I have independently come to the conclusion that the next steps in our company's progress will require new financial leadership." The SEC, which had been investigating the company's accounting due to restatements made in 2002, recently expanded its probe to include its accounting for the many acquisitions that it made from 1996 through 2001, as well as for other issues. Interpublic has yet to file statements for 2004, citing material weaknesses in internal controls and the time required to complete its Sarbanes-Oxley Section 404 report. It also suggested that it might have improperly consolidated the results of some of the companies it acquired, and might have to restate prior results.

In a divisive 3-2 vote, the Securities and Exchange Commission amended and re-approved a proposed rule requiring the directors of mutual funds to be independent that had been ruled against by a federal court a little more than a week ago. Ruling in a suit brought by the U.S. Chamber of Commerce, the court said that the commission had not taken into account any alternatives and did not consider the costs of the rule, which would require that at least 75 percent of a fund's directors be independent. To address the court's concerns, the amended rule added details about compliance costs and other matters. "We've done the right thing," SEC Chairman William Donaldson said in a statement, adding that the SEC had laid out in detail what implementation would costs funds, and that it had concluded that simply disclosing whether or not directors were independent would not be adequate. Yesterday's vote was seen by some as a rush to get the rule implemented, since Donaldson is due to step down today, thus changing the balance of opinion at the commission. The Chamber of Commerce promised to sue again.

As one of the first companies to comply with the impending rule requiring the treatment of employee stock options as an expense, IBM might reasonably have expected a pat on the back. Instead, its reward is an investigation by the Securities and Exchange Commission. The company announced on Monday that it was cooperating with an informal SEC investigation into its financial reports for the first quarter ended March 31, in which IBM had expensed stock options, even though at the time the rule was not due to go into effect until June 15. (Implementation has since been delayed by another six months.) IBM said that it had been informed by the SEC that the investigation was not an indication that the company had violated any laws, and an IBM spokesperson said that they had no reason to believe that the financial statements or their treatment of stock options was inaccurate.According to published reports, the focus of the SEC's investigation was the way that IBM disclosed its expensing method, with some suggesting it might have been misleading. The company took a charge of 10 cents a share for options, while analysts had expected 14 cents.

Gathering here for their annual world meeting, 250 leaders from the member firms of Deloitte Touche Tohmatsu said that they expected the firms' aggregate revenues to hit $18 billion, with growth of more than 10 percent for fiscal year 2005.At the meeting, held earlier this month, Deloitte CEO William G. Parrett noted that this was the member firms' twelfth year of aggregate growth, adding, "The growth has been the direct result of the increased demand for services: Simply, it is a case of increased service hours across member firm markets."The firms said that audit and enterprise risk services had seen the strongest growth, at 15 percent, followed by financial advisory services and consulting growth, at 9 percent each. Parrett took the consulting growth as a sign that keeping its capabilities in that area "was the right strategic decision for Deloitte." Growth was particularly strong in the Asia Pacific/Japan region, at 15 percent, led by expansive growth in China. The Americas and Europe/Middle East/Afria regions saw 10 percent growth each. The firm leaders also considered a number of strategic scenarios during the meeting, including key competitor moves, major legal developments that could impair current business models and heighten risk, and new regulatory developments.