Audit & Accounting

CVS CAREMARK DISMISSES KPMGCVS Caremark Corp., a prescription drug provider, has jettisoned Big Four firm KPMG as its independent accountant and named Ernst & Young as its successor.

Our column in the previous issue considered the Securities and Exchange Commission’s recently appointed Committee on Improvements to Financial Reporting, which has been charged with finding ways to strengthen the system. As our readers might expect, we found flaws among the premises in a discussion paper by the chair, Robert Pozen (available at www.sec.gov/about/offices/oca/acifr/acifr_discussion.htm).In this column, we look at the first five of 10 specific points in Pozen’s paper that deserve exposure and that will demand additional attention from the committee. Our next column will address the remaining five.

As college costs increase with no end in sight, more and more of your clients are struggling to find ways to lighten the tuition load. Luckily, there exist several beneficial tax deductions, credits and scholarships that can help.ABOVE-THE-LINE DEDUCTIONS

While the word is that defined-benefit plans are no longer in favor, they can still provide a tax savings for the right client.“A lot of the press would lead you to believe that defined-benefit plans are on the way out,” said Karen Shapiro, chief executive of Dedicated DB, a San Mateo, Calif.-based provider of such plans. “But for some small-business owners, it’s a terrific tax strategy.”

In a special area on its Web site (in a Q&A on home foreclosure and debt cancellation), the Internal Revenue Service advised, “Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended.”Also, in recognition of the important role that the “insolvency exception” plays in excluding a beleaguered homeowner’s forgiveness-of-indebtedness income, the site further advised, “Consider the tax consequences before foreclosure.” This article explores what planning can be done to maximize the use of the insolvency exception to reduce or eliminate forgiveness-of-indebtedness income for the individual caught in the current mortgage financing or similar credit squeeze.

The Securities and Exchange Commission Statement of Policy reaffirming the status of the Financial Accounting Standards Board as a designated private-sector standard-setter (Release Nos. 33-8221; 34-47743; IC-26028; FR-70) recognizes FASB’s financial accounting and reporting standards as “generally accepted” accounting principles for purposes of the federal securities laws.As a result, registrants are required to comply with those standards in preparing financial statements filed with the commission, unless the commission directs otherwise. The SEC has emphasized the responsibility of FASB to consider international convergence, principles-based standards, timeliness, and cost-benefit issues in pursuit of high-quality accounting standards, as appropriate in the public interest and for the protection of investors. Official positions of FASB are determined only after extensive due process and deliberations.

The American Institute of CPAs has given a thumbs-up to a Securities and Exchange Commission plan that would allow U.S. corporations to abandon generally accepted accounting principles and report their financial results using international accounting standards.But critics warn that a shift to International Financial Reporting Standards would drive up audit costs for U.S. companies, lower the quality of information available to investors, and put smaller accounting firms at a distinct disadvantage.

One of accounting’s most complex and significant projects — the codification of the country’s generally accepted accounting principles — is about to step into daylight.After four years of intense and technically complex labor, the Financial Accounting Standards Board is about to release the massive compilation of standards, statements, issues, interpretations, bulletins, positions, guides, abstracts and opinions.

Labeling it the “Mother of all Tax Reforms,” Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, has introduced a bill aimed at repealing the alternative minimum tax and cutting the top corporate tax rate while raising taxes in other areas, including on the salaries of hedge fund and private equity fund managers.The $1 trillion plan would reduce the top corporate rate from its current 35 percent to 30.5 percent.

A jury trial is scheduled to begin Monday in hedge fund Costa Brava's lawsuit against accounting firm Goodman & Co. over its audits of defense technology contractor Telos.