Audit & Accounting

The Big GAAP vs. Little GAAP debate rages on. An American Institute of CPAs' task force charged with examining private company financial reporting standards wants to begin a process to implement changes in generally accepted accounting principles for private issuer companies. "Fundamental changes should be made in the current GAAP standards-setting process to ensure that the financial reporting needs of private company constituents are met," read the report issued by the institute's task force. The task force, established last year and headed by former AICPA chairman James Castellano, made its determinations based on the input of some 3,700 business owners, public practitioners, financial managers, lenders, investors and sureties. The research was conducted by Omaha, Neb.-based MSR Group, an independent market research firm. "This group did not approach its research with a preconceived notion that issues or problems with GAAP financial reporting for private companies existed," Castellano said. "We wanted to understand if what many of us had been hearing was simply the opinion of a vocal minority or the true expression of concerns by stakeholders of private company financial reporting." Public issuers are required to prepare financials in accordance with GAAP, and privately held companies -- which comprise an overwhelming majority of the roughly 5 million companies in the U.S. -- have traditionally used GAAP as well, thus fueling the protracted public-versus-private-standards debate. The AICPA board -- subject to input from Council -- along with accounting standard-setter the Financial Accounting Standards Board and its overseer, the Financial Accounting Foundation, have agreed to collaborate on possible courses of action. However, FASB and the FAF neither endorsed nor rejected the task force's conclusions. The AICPA, the FAF and FASB agreed that any proposal would need to be fully exposed for public comment and debate. A complete copy of the task force report can be found at: http://www.aicpa.org/members/div/acctstd/pvtco_fincl_reprt/index.htm.

National consumer electronics retailer Best Buy has hired Big Four firm Deloitte & Touche its new auditor, according to a federal filing. Best Buy had previously reported that it would jettison its independent accountant, Ernst & Young, following the audit of its financials for the year ended Feb. 26. Best Buy's new fiscal year began Feb. 27.

The European Union has reiterated its call for more "home-grown" representation in drafting international accounting standards. The E.U. has demanded more that the current five seats it has on the International Accounting Standards Board, claiming that as of Jan. 1, it was the first to use the international accounting rules ahead of the U.S. At the start of the new year, all publicly traded companies within the 25-nation E.U. were require to use international rules. Last week, former Federal Reserve Chairman Paul Volcker, who serves as chair of the IASB overseer committee, said that Europe was "sufficiently represented on the board," and instead of boosting European representation, more consideration should be given to countries such as India, China and Japan. Both the U.S. and the E.U. have five seats on the IASB. In a speech before a gathering of accounting professionals, Volcker said that representation on the IASB shouldn't be based on "national, political or sectoral interests."

The board at financial and credit card services conglomerate American Express Co. engaged Big Four firm Ernst & Young as the auditor for its American Express Financial Advisors unit. The company, headquartered here, said that the board's decision was fueled by the planned spin-off of AEFA to shareholders, which the company announced earlier this month. Minneapolis-based AEFA came under fire recently when the New Hampshire Bureau of Securities Regulation filed a petition for relief in the amount of $17.5 million against it, after an audit revealed a disproportionate amount of American Express funds in clients' financial plans. An investigation revealed management's support of advisors that promoted the firms' poorer-performing funds, as opposed to those of competitors, and backed it up by offering more lucrative incentives for Amex products. PricewaterhouseCoopers will remain the independent accountant for American Express Co. for fiscal 2005.

The Securities and Exchange Commission will convene March 3 to consider approval of the 2005 budget for the Public Company Accounting Oversight Board. The oversight body has proposed a 2005 budget of $137.1 million, a figure roughly 10 percent below its initial 2005 request of $152.5 million. The regulator trimmed its initial budget request after it fell behind on its anticipated hiring volume for the coming year. The board said that the $15 million reduction reflected the subsequent reductions in salary, benefits and payroll tax expenses. In addition to okaying the accounting oversight board's 2005 budget, the commission is also expected to discuss issues related to mutual fund redemption fees and credit rating agencies.

The Securities and Exchange Commission has named Joseph A. Hall to the post of managing executive for policy and Martha B. Peterson as counselor to commission chair William Donaldson. Hall will assist Donaldson with enforcement policies, as well as procedures governing both the markets and SEC issuers. He also will serve as Donaldson's main liaison to other SEC commissioners and departments. Hall succeeds Patrick Von Bargen, who recently announced that he would be leaving the regulator for a post in the private sector. Hall joined the SEC in 2003 as senior policy fellow in the Office of the General Counsel, and later served as counsel to Donaldson. Prior to coming aboard at the commission, he was a partner with the firm of Davis Polk & Wardwell in New York. In her new post as Donaldson's counsel, Peterson will advise him on rulemaking and other initiatives. She originally joined the commission in 1987, serving in the Office of the General Counsel and later as counsel to then-chair David Ruder. In a statement, Donaldson said, "Joe and Martha each bring a wealth of experience and knowledge to their positions. I look forward to continuing to work with them to further the best interests of America's investors."

Embattled brand Krispy Kreme, which is currently the subject of a formal probe by the Securities and Exchange Commission, said that it would cooperate with prosecutors who want to interview former executives of the doughnut and coffee retailer, based here. In published reports, the chain said that the executive inquiry, which is being conducted by the U.S. Attorney for the Southern District of New York, is related to the ongoing SEC probe and vowed to cooperate with investigators. The names of the executives to be questioned were not identified. Krispy Kreme, which went public roughly five years ago, has been under investigation for its franchisee buyback procedures, as well as its earnings forecasts. It also faces a number of class-action lawsuits by shareholders. The company's stock, which once closed in on the $50 level, now trades at just over $5. Last month the chain ousted chief executive Scott Livengood and handed the reins over to Stephen F. Cooper, a turnaround specialist, who promptly announced a 25 percent reduction in the number of corporate employees.

The U.S. Supreme Court agreed to hear arguments on the appeal of the obstruction of justice conviction of former Big Five firm Arthur Andersen. The arguments are scheduled for April 27. In 2002, Andersen was convicted in a Houston courtroom of obstruction of justice charges related to its now-famous shredding of documents for audit client Enron, the Houston-based energy trader. The 5th U.S. Circuit Court of Appeals subsequently upheld the obstruction conviction. The issue before the Supreme Court will be whether the instructions to the jury at the Andersen trial were too vague and broad to determine correctly whether the audit firm obstructed justice. Enron -- once ranked as the country's seventh largest company -- collapsed into bankruptcy in December 2001. Andersen is asking that the high court either acquit the company or grant a new trial with new jury instructions.

Big Four firm Ernst & Young revealed that it plans to set up at least two more offices, and possibly as many as four, in China in 2005, according to firm partner Conway Lee. Lee told China Daily that, "Cities such as Tianjin, Chongqing and Shenyang would be clear next steps in our expansion plan." He added that establishing a presence in those locations will extend the company's reach in the huge market in China, where it currently has nine offices and 4,000 employees. In 2004, E&Y opened locations in Dalian in Northeast China's Liaoning Province, and Wuhan, the capital of Central China's Hubei Province. After 2005, Lee said that the company would grow its China network by two to three offices each year.

The Securities and Exchange Commission said that it would hold its previously announced roundtable on the internal controls requirements of Sarbanes-Oxley on April 13 -- affording both companies and auditors the opportunities to air their grievances on the difficulties and costs of the federal mandate. Since the 2002 passage of the sweeping corporate reform act --Section 404 of which requires a company's executives to attest to the adequacy of its internal controls -- the guidelines have been the subject of frequent complaints from firms and auditors citing the prohibitive costs in both money and time. The SEC is currently mulling a delay for internal controls compliance for both smaller and foreign-based companies, both of whom are required to be in compliance by July 15. After receiving a delay last year, larger companies -- those with a market cap of $700 million and higher -- began complying with the internal controls requirements in November.