Audit & Accounting

Many profitable small-business owners would like to have a retirement plan that can provide more than $50,000 of deductible contributions to the owners and other key employees.A defined-benefit plan is perhaps the only tax-qualified retirement plan that can achieve this. However, in traditional DB plans, the worker benefit costs are too high to make them practical. A cash-balance plan is the solution (see box).

A worker's Social Security benefits are reduced for each month that the worker starts getting the benefit before reaching full Social Security retirement age. The reduction is five-ninths of 1 percent of the primary insurance amount of that worker for each of the first 36 months before full Social Security retirement age, and five-twelfths of 1 percent for each additional month.Thus, if a worker retires exactly 36 months before reaching full Social Security retirement age, his benefit will be reduced by 20 percent (36 x 5/9 of 1 percent) of the PIA. If a worker retires 48 months before reaching full retirement age, the benefit will be reduced by 25 percent (36 x 5/9 of 1 percent plus 12 x 5/12 of 1 percent).

The Auditing Standards Board recently issued eight new auditing standards, Nos. 104-111, collectively referred to as the risk assessment standards. The new standards will change many of the planning and risk assessment procedures performed during an audit (though most of the steps performed throughout the audit process remain largely the same).Implementation of the new standards should increase the effectiveness of financial statement audits, as auditors will now be required to:

A study sponsored by the Institute of Management Accountants indicated that some of the problems with the Sarbanes-Oxley Act might stem from a professional bias that emphasizes public accountancy over management accounting.IMA president and chief executive Paul Sharman said that the public, professional and governmental assumption that public accountancy is the only accountancy has resulted in regulation that cannot be implemented, and the use of an auditing standard as an accounting standard.

Schedule M-3 is part of the effort by the Internal Revenue Service to get a better handle on abusive tax shelters and other aggressive tax techniques by getting sufficient detail on book/tax differences that it can guide IRS auditors to transactions in need of further examination.The IRS is sufficiently confident in its ability to track book/tax differences on Schedule M-3 that earlier this year it removed book/tax differences as a criteria required for reportable transactions. While the former Schedule M-1 required only 10 lines of information, Schedule M-3 expands that to 90 lines of information, with an emphasis on making a distinction between temporary and permanent book/tax differences.

The Public Company Accounting Oversight Board recently issued its inaugural audit practice alert, warning auditors to be on the watch for problems with the timing of, and the accounting for, stock-option grants."Auditors planning or performing an audit should be alert to the risk that the issuer may not have properly accounted for stock-option grants and ... may have materially misstated its financial statements," the alert said, alluding to recent investigations by the Securities and Exchange Commission and the Internal Revenue Service into whether companies routinely backdate, spring-load or otherwise manipulate stock-options grants to top executives.

Pension reform had a longer shelf life than anticipated, finally winning legislative approval after a number of false steps.The Pension Protection Act of 2006 passed the House by a margin of 279 to 131. Meanwhile, the Senate voted 93 to 5 to approve the bill, clearing it for President Bush's signature.

"The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase."

Nationwide bookseller Barnes & Noble Inc., operator of book stores under the Barnes & Noble and B. Dalton brands, has received a subpoena from the U.S. Attorney for the Southern District of New York requesting documents on its practice of awarding stock options.The company said that it intends to cooperate fully with the probe.

Big Four firm PricewaterhouseCoopers is being audited by the Internal Revenue Service for possible tax reporting violations, according to a published report.