TIME TO RELAX
April 15 came and went relatively quietly -- but it was the quiet of intense concentration, as the profession put its head down to finish up an unusually compressed and complex tax season. Here's what happened while you were busy.
Scott London, a CPA and former lead audit partner at Big Four firm KPMG, was charged by the Securities and Exchange Commission with insider trading, for sharing non-public information about firm clients like Herbalife and Skechers with a friend who would then trade on it. The friend is alleged to have made as much as $1.2 million, while London allegedly received as much as $50,000 in cash, as well as jewelry, a Rolex, and show tickets. At press time, London had issued a statement of regret, and was expected to plead guilty. KPMG, meanwhile, fired London and resigned from the Herbalife and Skechers engagements because of the potential impairment of its independence; it noted that it had no reason to believe that either companies' statements had been materially misstated.
President Barack Obama formally unveiled the administration's fiscal 2014 budget in mid-April with some familiar proposals for tax reform, along with key concessions on entitlement reform. Some of the proposals, for controlling spending on Medicare and Social Security by using a formula known as "chained CPI" tied to the Consumer Price Index, had already been floated by the administration, and would also have an effect on the calculation of tax brackets. The administration had also earlier previewed a proposal that would limit the size of individual retirement accounts.
The leaders of Congress's main tax-writing committees said that they plan to ask for proposals from the public for tax reform ideas using social media in an effort to make the process more transparent. Senate Finance Committee Chairman Max Baucus, D-Mont., and House Ways and Means Committee Chairman Dave Camp, R-Mich., wrote in a joint editorial for The Wall Street Journal that they have been meeting on a weekly basis to discuss comprehensive tax reform, but they want input from regular citizens, as well.
The U.S. Senate unanimously confirmed Mary Jo White to lead the Securities and Exchange Commission, putting the former U.S. attorney in charge of an agency that has failed to satisfy critics with its response to the financial crisis.
At the same time, an audit by the Government Accountability Office of the SEC's Investor Protection Fund financial statements for fiscal years 2011 and 2012 found two areas of significant deficiency in the commission's internal controls, as well as a number of other non-significant deficiencies. It did note that the commission had taken action to fully address 25 of its 47 prior recommendations.
The commission also reminded corporate filers that the forthcoming release of its Edgar financial statement database will support the 2013 U.S. GAAP Taxonomy, but not the older 2011 taxonomy. Edgar 13.1 was due out at the end of April.
Finally, an SEC report cleared companies to use social media outlets like Facebook and Twitter to announce key information, provided that investors have been alerted about which social media will be used.
The Financial Accounting Foundation named Iowa Auditor of State David A. Vaudt as the next chair of the Governmental Accounting Standards Board, succeeding Robert Attmore, who will step down on June 30. Vaudt, 59, was appointed to a single, seven-year term, a change from the past practice of appointing GASB chairs to an initial five-year term with the possibility of serving a second five-year term. Prior to taking up his post in Iowa in 2003, Vaudt was a partner with KPMG. He served as president of the National State Auditors Association from 2011 to 2012, and as chair of the National Association of State Boards of Accountancy from 2003 to 2004.
The Financial Accounting Standards Board proposed improvements to financial reporting about discontinued operations of major business lines or major geographic areas of operations. It also released a staff document that provides answers to questions about its recently issued proposal on expected credit losses, as well as a new implementation guide for the Extensible Business Reporting Language that focuses on modeling other comprehensive income transactions in XBRL.
The Public Company Accounting Oversight Board released a proposal to re-organize its auditing standards into a single system. The proposed re-organization would provide a potential framework for the existing interim and PCAOB-issued auditing standards into a topical structure with a single integrated numbering system. Comments are due by May 28, 2013.
TAX NEWS
In a report issued in late March, the Internal Revenue Service released data showing that it has stepped up its examinations in the past year of taxpayers with high adjusted gross incomes. The IRS said that it had examined just under 1 percent of all tax returns filed and about 1 percent of all individual income tax returns during fiscal year 2012.
That may all change for 2013, though, according to a new report from Syracuse University's Transactional Records Access Clearinghouse. Based on an IRS planning document obtained under the Freedom of Information Act, the report said that the agency is planning an 18 percent reduction in its audits of large businesses, and a decline in the audit rate for individual taxpayers as well -- and that was without taking into account the expected impact of sequester-related budget cuts.
Those cuts will, among other things, hamper IRS efforts to combat identity theft and assist taxpayers -- at least according to a recent survey by the National Treasury Employees Union. The IRS has had its budget cut for the past two fiscal years and is planning to furlough employees after tax season as a result of the budget sequester.
As a money-saving measure, the service will no longer film parody videos of old TV shows, after the embarrassing revelation that it had spent $60,000 on recreating Star Trek and Gilligan's Island in two training videos. The relatively small sum was probably less mortifying that the truly terrible quality; the IRS apologized for the lapse, but remains committed to its video training and outreach efforts.
More disturbing were the 247 pages of documents released by the American Civil Liberties Union suggesting that the IRS's criminal tax division has been reading taxpayers' e-mails without a warrant, despite a court decision saying that it violates the Fourth Amendment.
On a more positive note, the IRS expanded a program nationwide to help law enforcement get access to tax return data to help fight identity theft. It also released a draft of Form 8957, which financial institutions will need to use to register in compliance with the Foreign Account Tax Compliance Act. And it issued proposed regulations on the requirement that charitable hospitals conduct community health needs assessments.
IN OTHER NEWS
The American Institute of CPAs announced the 39 winners of the 2012 Elijah Watts Sells Award, given to outstanding performers on the CPA Exam. More than 92,000 candidates sat the exam last year; award-winners must have obtained a cumulative average score above 95.50 across all four sections of the exam, completed testing during the 2012 calendar year, and passed all four sections on their first attempt.
Spending on outsourcing of accounting and finance functions is expected to reach over $25 billion around the world this year, according to a new report from KPMG and HfS Research. Corporate leaders are looking at more radical strategies to increase productivity and global business effectiveness in the aftermath of the recession, according to the report, and enterprises want to look at new ways to take advantage of lower-cost operations and standardized financial processes.
The National Association of Certified Valuators and Analysts announced that it was merging its Accredited Valuation Analyst credential into the Certified Valuation Analyst credential. Holders of the AVA may continue to hold themselves out as AVAs through March 31, 2014, after which they must use only the CVA. AVAs may adopt the CVA appellation anytime between April 2013 and March 2014, but may not use both appellations.
Internet-based companies Amazon.com and Overstock.com lost a challenge to New York's Internet sales tax law, with the state's highest court rejecting their arguments that it was unconstitutional. The companies sued the state separately in 2008, seeking to overturn a law requiring retailers to pay taxes if they solicit business in New York through a link to a Web site. Their suits were dismissed in 2009, and again by an appeals court in 2010. Overstock is expected to appeal to the U.S. Supreme Court.
