Audit & Accounting

In 2007, financial reporting is at a crossroads - with far-reaching implications for businesses, investors and the capital markets.Appropriately, the International Accounting Standards Board and the Financial Accounting Standards Board have held public discussions with stakeholders and leading experts in Hong Kong, London, and Norwalk, Conn., discussing the creation of a new conceptual framework for financial reporting.

PWC EXITS AS BEARINGPOINT AUDITORBig Four firm PricewaterhouseCoopers resigned as independent accountant to troubled global consulting firm BearingPoint Inc., declining to stand for re-election.

Not long ago, one of us noted an inspirational quotation on the editorial page of the hometown paper. It captured our full attention because its insight applies to a major issue facing the financial reporting community and profession:"The disappearance of a sense of responsibility is the most far-reaching consequence of submission to authority."

Individuals typically transfer assets to family partnerships hoping to achieve large estate tax discounts for the assets that would not otherwise be available if the assets were retained in outright ownership. The discounts, in turn, could result in substantial tax savings. However, in order to achieve the desired results, a number of hurdles must be overcome.The Internal Revenue Service has issued Appeals Settlement Guidelines for family limited partnerships and family limited liability companies. These guidelines can help practitioners overcome some of the hurdles. By carefully examining this document and the pro- and anti-taxpayer cases examined in it, a practitioner should be in a position to craft an FLP or FLLC that will achieve a desired level of discounts for a client's estate.

FIDELITY GIFT FUND HAS RECORD YEARThe Fidelity Charitable Gift Fund reported its largest grant-making year in history, as overall grants to charity surpassed $950 million in 2006, up 13 percent from 2005. Since its inception in 1991, the Gift Fund has granted more than $6.5 billion to over 103,000 nonprofit organizations nationwide, as of Dec. 31, 2006.

The term "financial planning" covers a lot of area. On the high end, it can mean managing millions of dollars in assets, and continuously analyzing the results, yields and needs to determine the best allocation of capital.Financial planning also refers to the accountant or tax preparer who sees or hears from a client once a year, and uses the annual tax preparation appointment as a way of offering planning advice as well.

The Internal Revenue Service issued guidance identifying dozens of frivolous positions that taxpayers should avoid when filing their tax returns.The guidance lists 40 positions which have no basis for validity in existing law or which have been deemed frivolous by the U.S. Tax Court, or another federal court. If these or other frivolous positions are contained in a tax return, taxpayers could face a $5,000 penalty -- 10 times the previous maximum.

At least one in five workers eligible for the Earned Income Tax Credit will leave that money on the table this tax season, and Congress is looking to accountants and other tax professionals to help address the problem.During hearings before the House Ways and Means Oversight Subcommittee, congressional leaders said that while 22 million low-income families and individuals claimed EITC wage subsidies last year, millions more who are eligible for the tax credits don't receive them.

The Internal Revenue Service has rolled out its annual list of the 12 most blatant tax return scams. Topping the "Dirty Dozen" are fraudulent claims for the one-time Telephone Excise Tax refund. Also new to the list this year are abuses pertaining to:* Roth IRAs. Taxpayers should be wary of advisors who encourage them to shift under-valued property to these IRAs. In one variation, a promoter has the taxpayer move under-valued common stock into a Roth IRA, circumventing the annual maximum contribution limit and allowing otherwise taxable income to go untaxed.

The measures to close the tax gap offered by President Bush in his 2008 budget are somewhat modest, according to observers.The president's $2.9 trillion budget contains a number of legislative proposals to close the gap in four areas: by expanding information reporting, improving compliance by businesses, strengthening tax administration and expanding penalties.