Audit & Accounting

Congress is considering new legislation that could streamline accounting procedures for tens of thousands of U.S. companies by liberalizing the rules for the use of the cash accounting method by small business taxpayers. The bill, introduced by Sen. Olympia Snowe, R-Maine, dovetails neatly with President Bush's drive to streamline the federal tax code -- a move that she said is needed to improve the efficiency of the U.S. tax system "and strengthen our overall economy." The main thrust of her legislation, however, is to provide relief for small businesses from "the burdensome record-keeping requirements that they must deal with currently in paying their income taxes." Some companies already enjoy such relief under rules set by Congress, allowing many small businesses with annual income under $5 million to use cash accounting. Cash accounting recognizes revenue and expenses when cash is received or disbursed, as opposed to when it is earned or incurred. Larger companies, however, are required to follow the accrual method of accounting, which Snowe said "tends to impose additional financial and administrative costs that should be eliminated." Under her proposal, the "obsolete $5 million threshold" for use of cash accounting would double to $10 million -- a change that would allow many more small business owners "to satisfy their tax obligation in a cheaper, more efficient manner," she told lawmakers. As a result, these entrepreneurs "will be able to invest more time and resources into their business," Snowe said. In urging other lawmakers to support her proposed accounting change, the senator argued that small businesses are overwhelmed by the complexity of today's tax system and by the burden of complying with unneeded accounting requirements.

The Securities and Exchange Commission appointed New York attorney Lee S. Richards III as the independent examiner for Islandia, N.Y.-based software manufacturer Computer Associates. Richards will serve as examiner for a minimum of 18 months. His appointment was part of an agreement that CA signed in September to end an investigation onto accounting fraud. In his new role, Richards, a partner in the New York law firm of Richards Spears Kibbe & Orbe LLP, will oversee compliance with the settlement, make best practices recommendations to the board, and revamp the company's finance and accounting departments. The SEC settlement stems from a $2.2 billion accounting fraud that ultimately led to the ouster of several top managers, including chief executive Sanjay Kumar. The company had been backdating purchase orders and keeping the books open past the period close.

Internal audit and risk-consulting firm Protiviti Inc. has partnered with Tibco Software -- a provider of business integration software -- for a Sarbanes-Oxley Section 404 solution. Terms were not disclosed. Under the agreement, the companies have co-developed a SOX 404 product that integrates Protiviti's SOX portal application with Tibco Staffware Process Suite. The resulting product is a framework to assist users with documenting, testing, assessing and monitoring their internal controls. The companies said that the co-branded SOX solution would help user companies reduce compliance costs and improve transparency.

Deloitte Touche Tohmatsu chief executive William G. Parrett has been named chair of the United States Council for International Business, a pro-trade group with 300 company members. Parrett will begin his two-year-term April 15. He becomes the 20th chairman to lead the organization, which lobbies for a pro-America stance on an array of global business and policy issues. "I am excited about the prospect of leading the USCIB on the international stage," said Parrett in a statement. "Like the Deloitte organization, with member firms around the world, the council is truly multinational, with a worldwide network that reaches into all corners of the world."

The Internal Revenue Service Oversight Board released a report requesting an additional $11.6 billion in funding for fiscal year 2006, a 9 percent increase over the Bush administration's recommendation. President Bush is required to submit the board's request, without revision, to Congress along with his own request. "One of the board's roles is to provide a private sector perspective," observed board chairman Raymond T. Wagner Jr. "And from this vantage point, it makes perfect sense to make the additional investments in enforcement that will pay for themselves many times over. The IRS and administration estimates show that every dollar invested in enforcement generates four dollars in increased revenues." The board estimated that an additional $435 million for enforcement would result in $1.74 billion in additional tax revenue. The board also called for additional funding toward maintaining and improving customer service and supporting the Business Systems Modernization program, which is replacing the agency's antiquated computer system. In its report, the board stated that its recommendations are backed by taxpayers. Those surveyed in its annual tax compliance survey called for additional funding for the IRS -- 62 percent favored more funding for enforcement and 64 percent favored more taxpayer assistance.

Dallas - High-profile Texas investor and entrepreneur Sam Wyly has filed an $80 million suit against Big Four firm Ernst & Young, charging that the firm's audits of troubled Computer Associates influenced his decision to sell his company, Sterling Software, to CA in a stock transaction.Wyly's suit, which was filed in Texas District Court here, said that he relied on E&Y audits for CA's fiscal 1999 to sell his company to the concern for stock. Roughly one month later CA's shares plunged some 12 percent when its earnings reports were delayed, and then fell further when the company failed to make its earnings forecast. Computer Associates replaced E&Y in 1999 with Big Four rival KPMG.

While college costs continue to rise faster than the level of inflation, parents and grandparents now have more tools than ever before to better afford this cost years before a child graduates from high school.To most parents, saving for their children's higher education costs can seem like a daunting task, which makes planning all the more critical.

A homeowner may exclude up to $250,000 of gain from the sale or exchange of a home if he owned and used it as his principal residence for at least two of the five years before the sale or exchange took place.The maximum exclusion is $500,000 for joint filers, if certain conditions are met. A taxpayer who uses a property partially as a principal residence and partially for business purposes is treated as using the entire property as his principal residence for purposes of the two-year use requirement if the residential and business parts are within the same dwelling unit. The exclusion doesn't apply, however, to the gain resulting from depreciation taken for partial business use of the residence after May 6, 1997.

No matter what else may happen in 2005, the markets for personal financial planning are set to explode. It's not just the Bush administration's announced plans to overhaul both Social Security and the income tax systems. Nor is it just that an economic upswing and low interest rates are pushing the stock markets back up to pre-2000 levels.There are certain fundamental changes taking place in the software industry, and in the markets for financial planning software in particular. Three trends are notable at the beginning of this year: * The software is going online. In addition to traditional application software provider eMoneyAdvisor, MoneyTree and EISI have both moved strongly into Web-based services. Other software vendors must carefully weave between the obvious advantages of an online service and the wishes of subscribers, who may not want to move so quickly onto the Internet. But the trend has an air of inevitability about it.

Just weeks after a report by New York State Comptroller Alan Hevesi charged three former officials of the Roslyn N.Y. School District with plundering more than $11 million over an eight-year period, a new investigation is examining the district budget, as well as the former supervisor for construction and repair projects. The probe by prosecutors for Nassau County, as well as Hevesi's office, centers on Thomas Galinski, who resigned last year after questions arose surrounding trips to Las Vegas and Atlantic City that were billed to the district. At issue is a $23.9 million bond issue approved five years ago to expand the district's middle school. However, district residents have labeled the work substandard, as evidenced by such things as leaking roofs. The former superintendent, Frank A. Tassone, assistant superintendent Pamela Gluckin and clerk Debra Rigano, who were alleged to have siphoned the money from district coffers, are currently awaiting indictment by the Nassau County Grand Jury. In addition, the state probe has implicated an additional 26 people involved in the audit scam. Meanwhile, the accounting firm that audited the district, Miller Lily & Pearce, which audited over 50 additional school districts and whose affiliate sold financial software to some 250 districts across New York state, recently shut its doors.