Audit & Accounting

Before the end of the year, President Bush intends to select panelists to comprise a bipartisan tax reform commission, which would be charged with reporting any and all recommendations related to reforming the tax code to the Treasury Dept. According to Tax Analysts, the panel's recommendations will be given to Treasury secretary John Snow who in turn, will refer them to the president. However, as previously reported, heading the "to-do" list on the president's second term agenda will be the overhaul of the Social Security system and non-defense spending cuts rather than tax code reform. Most Capitol Hill observers believe that any tax reform would most likely be incremental and not be addressed until 2006.

The Office of Federal Housing Enterprise Oversight, the regulator for troubled mortgage financing concern Fannie Mae, said it would examine the lavish severance packages the company plans to pay ousted chief executive Franklin D. Raines and former chief financial officer J. Timothy Howard. According to an SEC filing, Raines is entitled to receive monthly pension payments of $114,393 for life, or roughly $1.4 million a year. He is also owed $8.7 million in deferred compensation. Raines also holds vested options for 1.6 million shares of stock, plus options for another 368,800 shares. In total, Raines would be due more than $19 million. Howard, also 55, would be eligible for $36,071 in monthly pension payments and deferred compensation of $4 million. He holds vested options for 481,600 shares. Howard is also eligible for $84,000 in salary from Dec. 20, 2004 through January 2005. Both Raines and Howard were ousted last week by the Fannie Mae board. The SEC has ordered the company to restate its financials for the three-year period from 2001-2004. That would reduce earnings by roughly $9 billion.

With a planned overhaul of Social Security and pressing budget issues occupying center stage during the onset of the second Bush administration term, the president's planned reform of the tax code would most likely be pushed back at least one year. According to the Washington Post, the president plans to name a panel to examine the current tax policy but reportedly will assign the Treasury Department to monitor the panel's progress. The report said that Treasury Secretary John Snow would most likely recommend incremental changes to the tax code, rather than more dramatic reforms such as supplanting it with a "flat tax" or national sales tax. A White House spokeswoman, however, maintained that overhauling the tax code remains a priority.

Douglas Hill, managing general partner of embattled brokerage house Edward D. Jones & Co., intends to leave the company roughly one week after the firm agreed to pay $75 million to settle charges of improper disclosure of revenue-sharing payments. Hill, 60, will retire as managing general partner Dec. 31, but would remain as managing partner through 2005. In addition, Hill is expected to pay $3 million of the agreed-upon fine, while the firm's general partners are expected to shoulder an aggregate of $44 million. Last week, the brokerage firm reached a settlement with the SEC, the New York Stock Exchange and the National Association of Securities Dealers as a result of arrangements that Edward Jones entered into with seven fund groups. The firm had not disclosed the fact that it received millions from the fund families each year for selling their respective products.

Big Four firm Ernst & Young will pay some $125 million to settle ongoing claims stemming from the firm's audit of failed thrift, Superior Bank FSB of Illinois. By virtue of a signed consent order with the Office of Thrift Supervision, E&Y will pay the Federal Deposit Insurance Corp. $85 million as receiver for Hinsdale, Ill.-based Superior, and an additional $40 million in restitution. In the settlement, Ernst & Young didn't admit or deny that its audits failed to comply with any professional accounting standards. The FDIC filed suit against Ernst & Young shortly after Superior Bank was declared insolvent three years ago. The FDIC contended that the audit firm had delayed alerting regulators about improper accounting practices at the banking concern because it was wary that the negative publicity would hinder E&Y's efforts to sell its consulting arm. The suit was dismissed in 2003, but the FDIC subsequently appealed. Ernst & Young said it has since implemented changes to its audit methodology for savings and loan association clients.

The International Public Sector Accounting Standards Board of the International Federation of Accountants has issued IPAS 21, 'Impairment of Non-Cash-Generating Assets', a guideline which prescribes the basis to help a government entity determine whether a non-cash-generating asset is impaired and whether a loss should be recognized. This new standard applies to governments and other public sector entities preparing general purpose financial statements under the accrual basis of accounting and requires that an asset not be carried at an amount in excess of its recoverable service amount. The entity would subsequently have to determine whether there is any indication that a non-cash generating asset may be impaired. IPAS 21 includes: Definitions of cash-generating assets and impairment. Guidance on identifying an asset that may be impaired. Guidance on measuring an asset's recoverable service amount. Guidance on measuring an impairment loss. Requirements for the recognition and reversal of an impairment loss. The standard may be downloaded from the IFAC Web site at www.ifac.org. The IFAC is a global accounting organization comprised of 163 professional accounting bodies in 119 countries.

Two top executives and auditor KPMG are out this week at Fannie Mae, following the Securities and Exchange Commission's decision that the mortgage giant violated accounting rules, leaving it faced with a massive restatement.

The Internal Revenue Service is allowing limited exceptions from coverage of the new deferred compensation rules for certain stock appreciation rights, or SARs, that "do not present potential for abuse or intentional circumvention of the purposes" of Section 409A.

H&R Block Financial Advisors, the investment arm of the tax prep giant, agreed to pay a $500,000 fine and to return $325,000 in clients' mutual fund trading profits to settle charges brought against it by the National Association of Securities Dealers related to the market-timing of mutual fund shares by two of its former financial advisors.

The Global Alliance, an association of top-ranked CPA firms formed last month, has expanded its ranks with the addition of West Coast firm Armanino McKenna LLP to the group.