Audit & Accounting

A recent report identified two trends among companies that report material weaknesses -- skyrocketing audit fees and disappearing chief financial officers.

Marking its 11th consecutive year of aggregate revenue growth, Big Four firm Deloitte Touche Tohmatsu reported global revenue of $16.4 billion, up 8.6 percent over last year.

Thanks to some fast footwork by regulators at the Securities and Exchange Commission and the Public Company Accounting Oversight Board, accounting firms and many of their smaller audit clients gained an additional 45 days of breathing room to comply with complex new Sarbanes-Oxley Act internal control reporting rules.

The American Jobs Creation Act of 2004 will alter the rules for the contribution of used motor vehicles, boats and planes after Dec. 31, 2004, the Internal Revenue Service warned.

Audit, tax and professional services provider Jefferson Wells, headquartered here, said that it has opened its initial office in Boston, bringing its total number of units to 37. The concern said that David Welch has been named managing partner of the Boston location. Welch's resume includes stints with Spencer Brook Partners and Big Four firm PricewaterhouseCoopers. Welch said that the newest branch would fuel the company's "significant expansion of our East Coast client base." In addition to Boston, Jefferson Wells' 2004 openings include London, Salt Lake City, Las Vegas, Portland, Ore., Grand Rapid, Mich., and San Francisco.

The Public Company Accounting Oversight Board is poised to vote Tuesday Nov. 30 on implementing Auditing Standard No. 2 and the required audits of internal control over financial reporting. In March, the oversight body adopted AS No. 2, which is titled "An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements." The standard addresses both the work that is required to audit internal control over financial reporting and the relationship of that audit to the audit of the financial statements. The requirement pertains to companies with more than $75 million in market capitalization. It is in effect for fiscal years ending on or after Nov. 15, 2004.

The Internal Revenue Service has issued proposed regulations for determining when a transfer of consideration to a partnership by a partner and a transfer of consideration from that partnership to a different partner constitute a disguised sale of a partnership interest. In response to a recommendation of the Joint Committee on Taxation in its "Report of Investigation of Enron Corporation and Related Entities Regarding Federal Tax and Compensation Issues, and Policy Recommendations" (February 2003), the regulations generally would extend the existing disclosure requirement for disguised sales of property from two years to seven years. The same disclosure requirement would be incorporated for disguised sales of partnership interests. "These proposed rules benefit both the taxpaying community and the Internal Revenue Service," said IRS chief counsel Don Korb. "The rules provide taxpayers and tax practitioners with guidance on how to structure partnership contributions and distributions without getting caught up in the disguised sale rules. They also provide for a longer disclosure period that will facilitate the examination of questionable transactions involving partnerships." The proposed regulations provide, generally, that where a transfer of consideration to partner A by a partnership would not have happened "but for" the transfer of consideration to the partnership by partner B, the transfers are treated as a sale of all or a portion of partner A's interest in the partnership to partner B for all purposes under the Internal Revenue Code. Where the transfers to and from the partnership do not occur on the same date, the transfers are treated as a sale only if the later transfer is not dependent on the entrepreneurial risks of partnership operations. The proposed regulations provide that these determinations are made based on all of the facts and circumstances.

Despite Internal Revenue Service assertions that it had halted the decline in the government's efforts to police corporate tax non-compliance, the pace of corporate audits is running well below the record-low levels registered in 2003, according to an analysis of IRS data.

As part of its multi-pronged educational effort on financial literacy, the American Institute of CPAs has launched a consumer Web portal that offers information and articles organized by a series of life stages, such as college, entrepreneurship, marriage, parenthood, home ownership and retirement.

The American Jobs Creation Act of 2004 limits the deduction allowed for entertainment, amusement and recreation provided to certain specified individuals to amounts treated as income to the recipient for federal income tax purposes.