Audit & Accounting

New York State does not have a mandatory peer review process, despite the fact that 41 other states have opted into the American Institute of CPAs' nearly 30-year-old peer review program.All this may change, however, as both the New York State Society of CPAs and the AICPA have come out with proposals that urge peer review to be made part of the CPA licensing process. The New York position, in fact, goes a step further by suggesting that the process involve disciplinary teeth, as well as educational and remedial programs.

The Public Company Accounting Oversight Board named Laura Phillips and Jennifer Rand to the position of deputy chief auditor. Both will report to Tom Ray, the PCAOB's chief auditor and director of professional standards.A former auditor at Big Four firm Ernst & Young, Phillips, 36, joined the PCAOB staff in July 2003 and was named associate chief auditor in February 2004. She played a substantial role in developing PCAOB Auditing Standard No. 2, which implements the internal control audit requirement established by the Sarbanes-Oxley Act.

The U.S. Chamber of Commerce said that the Securities and Exchange Commission is overstepping its bounds in seeking to punish corporate wrongdoing.In a report, the Chamber of Commerce, which lobbies for 3 million U.S. companies and 830 business associations and has been one of the commission's most vocal critics, recommended that the agency appoint an advisory committee to study its enforcement practices.

In the latest turf battle to come to light between the two groups, the American Institute of CPAs and the National Association of State Boards of Accountancy skirmished over NASBA's interest in the details of public company audit inspection reports.In a recent alert sent out from the AICPA Center for Public Company Audit Firms, director Lillian Ceynowa wrote that member firms were not required to comply with inquiries from some state boards requesting the identities of individuals and companies referred to in Public Company Accounting Oversight Board inspection reports.

In a move to simplify accounting for servicing assets and liabilities, the Financial Accounting Standards Board has issued a standard that makes it easier for mortgage bankers and other servicers of financial assets to report on the value of derivatives to offset risks associated with securitizations and other types of servicing.The new standard, SFAS 156, "Accounting for Servicing Financial Assets," amends SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" - itself a replacement of FASB Statement No. 125. It allows servicers to choose between fair value and amortization measurements to report the value of derivatives, as well as the assets or liabilities related to them.

Sarbanes-Oxley may be helping to protect investors, but it is also hitting small public companies with a big accounting burden.The Securities and Exchange Commission established an advisory committee in April of 2005 to see how the weight of SOX could be eased for small filers. The subsequent report, issued as an exposure draft for public comment, offers several recommendations that may relieve some, though by no means all, of the burden.

This is our third installment on the recent CFA Institute monograph, A Comprehensive Business Reporting Model: Financial Reporting for Investors. The work, authored by a committee of experienced analysts, updates the 1993 commentary called Financial Reporting in the 1990s and Beyond. Like its predecessor, this report speaks forthrightly about the highly limited usefulness of current generally accepted accounting principles financial statements. (It's available without cost at http://cfapubs.org/.)The report's centerpiece is 12 principles that serve as a manifesto for replacing the status quo. We covered other principles in two earlier columns, and we now tackle a couple more.

After 16 years, the executive director of the Securities and Exchange Commission will step down to pursue opportunities in the private sector.Jim McConnell, 58, who joined the SEC in 1984 as a management analyst, plans to retire in early June and said that he will spend the next two months assisting with transition efforts at the agency.

Freddie Mac, the second-largest mortgage provider in the country, announced that chief financial officer Martin Baumann has resigned.The company is still recovering from an accounting scandal, and recently announced that it would delay filing its 2005 financials by two months. Freddie Mac's president and chief operating officer, Eugene McQuade, will assume Baumann's responsibilities while the company looks for a permanent successor.

Six weeks after a public disagreement over how the issuance of subpoenas to two business columnists was handled, the Securities and Exchange Commission has released guidelines describing exactly when and how journalist subpoenas will be issued in the future.