Audit & Accounting

Big Four firm Ernst & Young will pay some $125 million to settle ongoing claims stemming from the firm's audit of failed thrift, Superior Bank FSB of Illinois. By virtue of a signed consent order with the Office of Thrift Supervision, E&Y will pay the Federal Deposit Insurance Corp. $85 million as receiver for Hinsdale, Ill.-based Superior, and an additional $40 million in restitution. In the settlement, Ernst & Young didn't admit or deny that its audits failed to comply with any professional accounting standards. The FDIC filed suit against Ernst & Young shortly after Superior Bank was declared insolvent three years ago. The FDIC contended that the audit firm had delayed alerting regulators about improper accounting practices at the banking concern because it was wary that the negative publicity would hinder E&Y's efforts to sell its consulting arm. The suit was dismissed in 2003, but the FDIC subsequently appealed. Ernst & Young said it has since implemented changes to its audit methodology for savings and loan association clients.

The International Public Sector Accounting Standards Board of the International Federation of Accountants has issued IPAS 21, 'Impairment of Non-Cash-Generating Assets', a guideline which prescribes the basis to help a government entity determine whether a non-cash-generating asset is impaired and whether a loss should be recognized. This new standard applies to governments and other public sector entities preparing general purpose financial statements under the accrual basis of accounting and requires that an asset not be carried at an amount in excess of its recoverable service amount. The entity would subsequently have to determine whether there is any indication that a non-cash generating asset may be impaired. IPAS 21 includes: Definitions of cash-generating assets and impairment. Guidance on identifying an asset that may be impaired. Guidance on measuring an asset's recoverable service amount. Guidance on measuring an impairment loss. Requirements for the recognition and reversal of an impairment loss. The standard may be downloaded from the IFAC Web site at www.ifac.org. The IFAC is a global accounting organization comprised of 163 professional accounting bodies in 119 countries.

Two top executives and auditor KPMG are out this week at Fannie Mae, following the Securities and Exchange Commission's decision that the mortgage giant violated accounting rules, leaving it faced with a massive restatement.

The Internal Revenue Service is allowing limited exceptions from coverage of the new deferred compensation rules for certain stock appreciation rights, or SARs, that "do not present potential for abuse or intentional circumvention of the purposes" of Section 409A.

H&R Block Financial Advisors, the investment arm of the tax prep giant, agreed to pay a $500,000 fine and to return $325,000 in clients' mutual fund trading profits to settle charges brought against it by the National Association of Securities Dealers related to the market-timing of mutual fund shares by two of its former financial advisors.

The Global Alliance, an association of top-ranked CPA firms formed last month, has expanded its ranks with the addition of West Coast firm Armanino McKenna LLP to the group.

The American Institute of CPAs has named California accounting professor Robert S. Roussey as the 2004 recipient of its Special Recognition Award, which is presented to individuals who have made substantial contributions to the accounting profession.

Section 331 of the American Jobs Creation Act included a provision that could potentially have a big impact on some investors.

A recent merger in wealth management has observers wondering if this time around, the cultures of banking and investment advisors will successfully mesh.

A taxpayer generally may exclude up to $250,000 ($500,000 for certain married couples filing joint returns) of gain realized on the sale or exchange of a principal residence. To be eligible for the exclusion, the taxpayer must have owned the residence and used it as a principal residence for at least two years during the five-year period ending on the date of the sale or exchange.