Audit & Accounting

A paper from the Governmental Accounting Standards Board has outlined key differences between the needs of users of state and local government financial information and users interested in for-profit businesses.

CPA and business advisory firm Hill, Barth and King, has merged in Presque Isle Capital Management with its financial planning unit HBK Sorce Advisory LLC.

The Public Company Accounting Oversight Board named Laura Phillips and Jennifer Rand to the position of deputy chief auditor.

E&Y RESIGNS AS A.P. PHARMA AUDITOR: Big Four firm Ernst & Young has resigned as auditor to Redwood City, Calif.-based pharmaceutical concern A.P. Pharma.A federal filing did not state a reason for E&Y's resignation, and a replacement has not been named.

Several columns back, we wrote about a recent report from the CFA Institute called A Comprehensive Business Reporting Model: Financial Reporting for Investors. This monograph is the long-awaited update of the influential Financial Reporting in the 1990s and Beyond.The new report is authored by a committee comprising a veritable who's who of highly experienced financial analysts, and speaks forthrightly about the highly limited usefulness of current generally accepted accounting principles financial reports. (The full report is available free at http://cfapubs.org/ap/issues/v2005n4/toc.html.)

SEC REQUIRES HEDGE FUND REGISTRATION: The Securities and Exchange Commission now requires hedge funds to register as investment advisors. Under the ruling, hedge funds will not have to register their individual funds. Rather, they have to provide basic information about the firm and are required to hire a chief compliance officer. Also, hedge fund firms are now subject to random inspections.Exceptions to the registration mandate include funds with less than $30 million under management, which will not have to register, although funds with $25 million or more are eligible for registration. Hedge funds that "lock up" their investors' money for two or more years or refuse to take new money can also avoid registration. The two-year loophole was meant to protect private equity and venture capital funds from getting caught up in the rule, but some managers invoked the exception to avoid registration.

In the current age of more stringent ethics codes and increased burdens on compliance officers, the level of compliance awareness in financial advisory firms has ratcheted up to new heights.During 2005, audits revealed that almost 80 percent of firms have some sort of conflict of interest not disclosed fully and fairly, with a majority of those issues centering on compensation streams - how and by whom the financial advisor is compensated.

It's not just the Baby Boom generation that is heating up the markets for financial planning and wealth management. Across the industry, the software is getting tighter, more polished and more capable.Driving these changes are four basic trends:

Although they are supporting new audit rules that give public companies the option to report the elimination of a material weakness in internal control over financial reporting, the Big Four accounting firms have called on the Securities and Exchange Commission to issue more detailed guidance for making these disclosures.At issue: the Public Company Accounting Standards Board's new Auditing Standard No. 4, which recently won SEC approval. That standard allows the management of audited companies to voluntarily commission their auditors to report whether a previously reported material weakness continues to exist - an option that accountants at PricewaterhouseCoopers described as "a useful tool" for providing the public with assurance that a previously reported internal control problem no longer exists.

A handful of boldface names from the financial world lent their signatures to a letter to federal regulators, asking that no public company be exempted from the internal controls provisions of the Sarbanes-Oxley Act.Former Securities and Exchange chair Arthur Levitt, former Federal Reserve chair Paul Volcker and former comptroller general Charles Bowsher joined John Biggs, former chair and chief executive of TIAA-CREF, and John Bogle, former chair of the Vanguard Group Inc., in signing the letter. The Feb. 13 letter was addressed to current SEC chair Christopher Cox and the acting chair of the Public Company Accounting Oversight Board, William Gradison.