Audit & Accounting

RSM McGladrey Inc. announced that the 50 employees in its 2006 class of managing directors is its largest ever. Similarly, partner-owned CPA firm McGladrey & Pullen LLP has appointed a record 35 new partners. RSM McGladrey also said that it has seen a 59-percent revenue growth over 2005. The professional services firm is a wholly owned indirect subsidiary of H&R Block Inc. McGladrey & Pullen also saw strong revenue growth in 2006, with revenues up 20 percent from 2005. The two firms operate under an alternative practice structure.

KPMG International will combine its member firms in the United Kingdom and Germany in an effort to makes its services more consistent and risk-free. The combined firms will operate under the name KPMG Europe LLP and remain a member of KPMG International, which said in a statement that the hope is for other KPMG member firms in Europe to eventually merge into the new entity. Besides giving the combined firm a chance to pool its talent to better serve clients, the business said the KPMG Europe will be able to present a unified voice when it comes to international standards setting. The deal is the first announced by a Big Four firm after the introduction of the European Commission’s Eighth Directive legislation, which will allow cross-border mergers between accounting firms beginning in 2007. Both Germany and Britain are expected to incorporate the directive into national laws some time next year. The Big Four currently operate as networks of national partnerships in Europe because the law in most countries prevents them from being foreign-owned. With combined revenues of more than $2.5 billion in the current fiscal year, a statement from the firm said that KPMG Europe LLP will be the largest professional services firm on the continent. More than 17,000 partners and staff will work in the firm’s 44 offices across the U.K. and Germany. The firm’s head office will be located in Frankfurt and be chaired jointly by KPMG LLP U.K. chairman John Griffith-Jones and the chairman of KPMG Deutsche Treuhand-Gesellschaft AG’s managing board Dr. Rolf Nonnenmacher. Both the German and U.K. boards have already unanimously approved the proposal, but the merger must still be okayed by the firms’ partners in December.

Federal prosecutors will split the 18 defendants facing charges over the sale of questionable-legal tax shelters into two separate groups. Sixteen former KPMG executives are among the defendants in what’s being billed as the largest criminal tax case ever. The other two indictees include a lawyer and an outside investment adviser to the Big Four firm. Under a proposal submitted in Manhattan Federal District Court, prosecutors have asked to hold two separate trials -- one for a group of former senior partners and executives and another for a group of more junior employees. The proposal doesn’t provide a timeline for when the separate trials might start, or in what order. Lawyers for certain defendants have previously argued that their clients should be tried separately. According to the New York Times, the senior defendants would include former vice chairman Jeffrey Stein, who was the No. 2 executive at the firm; former vice chairman in charge of tax services John Lanning; former chief financial officer Richard Rosenthal; former associate in-house lawyer Steven Gremminger; former partner Robert Pfaff, who worked with co-defendant John Larson to set up Presidio Advisory Services; former senior tax partner David Greenberg; and a former lawyer at Sidley Austin Brown & Woo, Raymond J. Ruble. The junior defendants would include the head of KPMG’s personal financial planning division, Jeffrey Eischeid; former KPMG employee Larson, who set up an investment boutique that sold shelters; former Deutsche Bank employee David Amir Makov, who later worked at Presidio; and former partner Gregg Ritchie, among others.

The chairman of the House Ways and Means Committee has asked for information on the NCAA’s finances -- suggesting in the process that he might next be questioning the association to justify its tax-exempt status. "Most of the activities undertaken by educational organizations clearly further their (tax) exempt purpose," Rep. Bill Thomas, R-Calif., wrote in a letter to NCAA president Myles Brand. "The exempt purpose of intercollegiate athletics, however, is less apparent, particularly in the context of major college football and men's basketball programs." Specifically, Thomas asked for information on the NCAA’s television contract, the salaries of coaches, school sports facilities and total annual revenues and expenditures for Division I-A football programs and Division I basketball programs. He requested a response by the end of this month. Since 2004, the Ways and Means committee of Representatives has been conducting a broad review of the tax-exempt sector -- already looking into the tax-exempt status of nonprofit hospitals and credit unions among others. The NCAA's projected 2006-07 budget anticipates nearly $563 million in revenue, most from its TV contracts. More than half that figure is distributed to member leagues and schools, through student-athlete welfare, academic-enhancement and other programs. The remainder is paid according to the success of schools in the annual NCAA men's basketball tournament. Thomas notes in his letter that the annual returns filed by the NCAA with the IRS states that the primary purpose of the NCAA is to "maintain intercollegiate athletics as an integral part of the educational program and the athlete as an integral part of the student body,” and goes on to obliquely question college athletics' connection to higher education.

It’s no secret that more and more people are turning to professionals for help in preparing their financial future. The problem becomes a question of who do you actually turn to for such advice. Manarin Investment Counsel based in Omaha, Nebraska, is an independent investment advisory firm offering professional financial planning and investment management services to small businesses, families, and individuals. Founded in 1983 by Roland Manarin, who immigrated to Omaha from northern Italy at the age of 10, it is an independent, fee-based investment advisor registered with the SEC. Manarin has some 30 years of experience working as a professional in investment management. He says that he educates the public in a variety of ways including a Wealth-Building Seminar Series, which he has presented since 1977 teaching investors to ignore conventional wisdom and practice true wealth-building strategies,a weekly radio talk show, "It’s Your Money," that he hosts, and a quarterly newsletter -- not to mention numerous lectures around the country. In 2004, he was named one of "America's Best Wealth Advisors" by Barron's and in 2005 was selected as a keynote speaker for the "Excellence in Financial Planning Conference." Manarin feels there is a basic question the vast majority of Americans face: Do you ‘go it alone’ when it comes to planning your financial future, investments, and savings plans; or do you get the help of an ‘expert’ to guide you through the process and ensure you get the most bang for your buck? “Increasingly, most of us choose to seek professional help. But to whom do you turn to and trust? There are five essential facts one needs to know before hiring a financial professional.”

Apple Computer Inc. said that chief executive Steve Jobs knew about the company’s practice of backdating stock options awarded to executives, but wasn’t aware of the full accounting implications. Apple made the announcement after wrapping up a three-month internal investigation into the timing of stock option grants that resulted in the resignation of former chief financial officer Fred Anderson from its board of directors. Apple also said in a statement that it had expressed concerns to the Securities and Exchange Commission about actions, related to stock option grants, taken by two former officers.

The European Commission has rolled out a study arguing for a cap on the liabilities of auditing firms. Conducted by a London-based consulting firm, London Economics, the study says that a cap would reduce market concentration and help the Big Four firms -- which are the same across the pond as they are in the United States -- retain experienced staff. The major firms have all publicly lobbied for a cap, saying that legislating the change would shield them from the potentially ruinous lawsuits often filed in the wake of corporate scandals. According to the study, firms in the European Union currently face nearly a dozen claims ranging from costs between $220 million and $1 billion, in addition to another handful of claiming each totaling damages of more than $1billion. The study also noted that the commercial insurance taken out by the firm’s would cover less than 5 percent of some of the larger claims. The study also says that smaller accounting firms are unlikely to become a major alternative to the Big Four due to the high barriers to entry. The United Kingdom is in the process of introducing legislation that would allow auditors to ink proportionate liability agreements with corporate clients -- making them responsible for only their own errors. European Union internal market commissioner Charlie McCreevy has said he supports a fixed cap on liability claims, and the European Commission has promised to issue its own report on auditor liability before the end of the year. Caps already exist in five EU member states -- Germany, Austria, Belgium, Greece and Slovenia – however, opponents of the measure say that offering auditors the refuge of limited liability could lead to audit complacency.

A “practice privilege” requirement introduced in Illinois -- which would have required out-of-state CPAs to register with a state agency -- appears on the verge of meeting a fate close to a similar proposal in California. That fate being, in this case, compromise. Both the Illinois CPA Society and the American Institute of CPAs had objected to the new registration requirement -- with the society requesting a delay to the law’s Oct. 1 effective date and the institute voicing its concerns over the “onerous” stipulation in a Sept. 28 letter to Illinois Gov. Rod Blagojevich. Contained in a broader piece of legislation that made changes to the regulation and licensing of CPAs in the state, the Illinois Department of Financial and Professional Regulation would have required CPAs from other states to apply for temporary practice privilege or obtain full licensure as a CPA in the state of Illinois, regardless of whether the CPA or client ever entered the state. According to the AICPA, thousands of CPAs from across the country could have been impacted. On Sept. 29, the Illinois regulation department filed an emergency amendment, which read that out-of-state accountants would not have to follow the new requirement, “So long as the individual CPA is temporarily practicing in this state incidental to practice in another state and does not solicit Illinois clients nor have a physical presence in Illinois.” After much debate, a requirement that would have required out-of-state CPAs doing business in California to register with the state’s Board of Accountancy never made it out of committee this past June. Several taxpayer groups said that not requiring the registration could make it easier for accounting firms to market improper tax shelters without proper oversight. Proponents of the bill, including the state Board of Accountancy and the California CPA Society, said that their intention was merely to eliminate unnecessary red tape for neighboring accountants to provide basic services across state lines.

A yearlong audit revealed that the AFL-CIO has some tightening to do over its own internal financial controls and record keeping. A spokesman from the Labor Department saidthatthe audit found problems beyond “mere technical bookkeeping errors” -- pointing specifically to the lack of travel policy for AFL-CIO officers, poor reporting of travel expenses for spouses, improper handling of credit card charges and missing loan documents -- according to published reports. The department released a 14-page letter that suggested improvements in financial procedures for the federation, which represents more than 50 unions and 9 million workers and is one of the largest shareholders in public companies, with more than $400 billion in assets. A spokeswoman for the federation said that the group plans to comply with the department's recommendations. In a letter to the federation's executive council, federation president John Sweeney did note that the audit raised no questions regarding the federation's expenditure of funds on behalf of workers. He also took a political shot at the White House, saying that the scope of the audit reveals that, "enforcing the nation's worker protection laws has taken a back seat to union oversight in the Bush administration." Less than a month ago, the federation sent a letter to the Big Four, specifically asking for more information about the role that the major accounting firms might have played in the handling of stock options grants the government is now investigating in a separate matter.

The Public Company Accounting Oversight Board announced that chief administrative officer Paul Schneider and public affairs director Christi Harlan will leave the board this month. Schneider joined the PCAOB in January 2003 as interim chief administrative officer, taking responsibility for a variety of start-up related activities. He was named chief administrative officer four months later. PCAOB Chairman Mark Olson said Schneider was instrumental in leading the selection of key personnel to head the board’s administrative offices, including information technology, finance, human resources and facilities management, as well as managing the budget and design aspects of the board’s benefit plans. Before joining the board, Schneider was the managing principal of Vector Recovery Group LLC, a turnaround management firm that provided restructuring and crisis management services. He has not announced his future plans. Harlan joined the board in April 2003, and said in a statement that she would be leaving to seek a new venture in public service. Harlan came to the PCAOB from the Securities and Exchange Commission, where she served as public affairs director from January 2002 until April 2003. Prior to her SEC service, Harlan was director of external affairs at the Federal Emergency Management Agency and communications director for the Senate Committee on Banking, Housing and Urban Affairs.