Audit & Accounting

An advisory committee to the Securities and Exchange Commission intends to make its decision on Feb. 11 on whether to issue an eagerly anticipated report on improvements to financial reporting.

The American Institute of CPAs and Fiduciary360 have published the U.S. edition of a handbook for investment advisors.

The IASC Foundation has set four principles for a funding system in 2008 for its activities, which include its work overseeing the International Accounting Standards Board.

Deloitte Financial Advisory Services has introduced a service that issues fairness opinions on the consideration offered to companies on financial deals such as mergers, acquisitions, going-private transactions and divestitures.

The American Institute of CPAs has written to the Treasury Department and the Internal Revenue Service about proposed regulations for automatic contributions to 401(k) plans, as well as cafeteria plans.

Every once and a while you come across a firm that knocks your socks off. Dezan Shira & Associates (dezshira.com) is just such a firm.

Securities and Exchange Commission Chairman Christopher Cox said he expects to see the SEC start allowing U.S. companies to file financial statements in accordance with International Financial Reporting Standards in the year ahead.

The Public Company Accounting Oversight Board released expanded versions of two reports it had originally issued in 2005 on two audit firms, highlighting problems with technical competence.

The Securities and Exchange Commission has begun a cost-benefit study of the upcoming attestation requirement for smaller companies under Section 404(b) of the Sarbanes-Oxley Act.

Did you know that today most investment advice zeroes in on the development of portfolios that are on the “efficient frontier,” which is one where no added diversification can lower a portfolio’s risk for a given return expectation? At least, that’s according to my friend Larry Swedroe who is the principal and director of research for both Buckingham Asset Management and BAM Advisor Services in St. Louis. He’s also the author of the recently released Wise Investing Made Simple plus a half dozen other best sellers. His words are deemed golden. In any event, working with this efficient frontier, Swedroe says that investment advisors can then tailor portfolios to the individual investor’s unique situation but unfortunately far too many investors and their advisors focus only on the risks of the investments themselves. Swedroe believes that when developing the overall financial plan, there are other risks that are important to consider and that not integrating the management of these risks can cause the best investment plans to fail. These other risks are human capital (which means wage earning), mortality, and longevity. Taking these one at a time, Swedroe notes that as we age and accumulate financial assets and the time we have remaining in the labor force decreases, the percentage of human capital to financial assets shrink. “This shift over time should be considered in terms of the asset allocation decision.” He also considers that with all else being equal, people with a high earning capability have a greater ability to take more financial risk because ether can moiore easily recover from losses. “However, they also have a lower need to take risk.” As to mortality, he believes that protecting the capital via the purchase of life insurance should be part of the overall financial plan. “Life insurance is the perfect hedge for mortality risk as its return is 100 percent negatively correlated with the human capital asset.” Looking at longevity risk, which he defines as the risk that you will outlive the ability of your portfolio to support your desired lifestyle, he suggests that investors might consider purchasing annuities at around 65 years of age and certainly buying them before reaching 85. All in all, in general younger investors with more labor capital should invest more in stocks than older investors and that individuals with safer human capital have a greater ability to invest more in risky assets. Of course, those whose human capital more highly correlates with equity risks should allocate more to safer fixed income investments. Swedroe also believes that individuals should diversify their human capital, minimizing investments in assets that correlate with their labor income and should hedge their human capital risks through the use of insurance contracts such as disability, life and long-term health care. Finally, individuals should consider hedging their longevity risk through the use of payout annuities.