Audit & Accounting

Member response to the American Institute of CPAs' recently formed audit quality centers has been favorable, an institute vice president told Council members here, noting that the Employee Benefit Plan Audit Quality Center has attracted nearly 700 firms since its launch in March. As of last week, some 690 firms have joined the voluntary center, with five to 10 additional firms enrolling daily, Susan Coffey, AICPA vice president of audit quality and professional ethics, told Council members in an update Monday. The Governmental Audit Quality Center, which launched on Sept. 27, has just begun recruiting members. Coffey noted that some 6,300 firms practice in that environment, which includes the audits of state and local governments and nonprofits, as well as certain for-profit entities that receive government funds. In addition, Coffey noted that 950 firms (auditing 96 percent of all SEC registrants) have joined the Center for Public Company Audit Firms. That center, a revamped version of what used to be the AICPA's SEC Practice Section, launched in January of this year.

In two separate votes at a meeting today, one split and one unanimous, the Securities and Exchange Commission decided to require the registration of most hedge funds, and to propose new rules for companies seeking an initial public offering. Chairman William Donaldson and two Democratic commissioners voted against the two Republican commissioners to push through the tough new rules for hedge funds, which had previously been only lightly regulated. Traditionally investment vehicles for the extraordinarily wealthy, hedge funds have grown enormously over the past few years, both in terms of their assets under management and the types of investors involved. Of particular concern to many are the number of banks and pension plans that have turned to hedge funds as stock market returns have diminished from their dot-com highs. SEC registration would impose new record-keeping and information-sharing burdens on the industry, and require them to allow SEC inspections. Industry groups have complained that the new rules would hit funds with unfairly heavy costs for registration and compliance personnel, among other things. The other, unanimous decision by the commissioners was to propose changes for IPO-seeking companies that would, in some cases, eliminate the 70-year-old "quiet period" before the offering when they must remain incommunicado. "Well-known, seasoned issuers" would be allowed to distribute much more information than they currently can, in the form of media interviews, press releases and even possibly advertising. The proposal will now be sent out for public comment, with opinions required with 75 days of the proposal's publication in the Federal Register.

The Public Company Accounting Oversight Board approved a hefty $152.8 million operating budget for itself during 2005 -- an increase that will allow the PCAOB to expand its staff by 50 percent over the coming year. Most of the 150 new staff positions envisioned by the budget plan will be earmarked for an expansion of the PCAOB's team of auditors responsible for conducting inspections of the 1,389 accounting firms that have registered with the board to audit U.S. corporations. Under the new budget plan, the organization will engage in "an aggressive recruiting effort to hire experienced auditors," and by the end of 2005 the total inspection staff is expected to rise by 90 billets to 220, PCAOB chief financial officer Thomas Hohman said in the meeting at which the budget was approved. But even with a 70 percent boost in manpower, the board's inspection staff could be stretched thin next year. "We would like more [experienced auditors on the team], but we recognize this is a very tight employment market," Hohman said in outlining the budget plan to the five-member board. To achieve these recruiting goals, the board must be in a position to offer "outstanding" career advancement opportunities, as well as salary and benefits that are competitive with the private sector, human resources director Sara Bridwell said. Those sentiments were echoed by PCAOB Chairman William McDonough, who expressed appreciation for Congress' decision to allow the board to set staff salary levels high enough to recruit top prospects. Concluding that the PCAOB would not be able to fulfill its Sarbanes/Oxley Act requirements without such compensation flexibility, McDonough said, "I wholeheartedly support the aggressive recruiting effort we have embarked upon." The PCAOB's entire 2005 budget -- which must still be approved by the Securities and Exchange Commission -- will be funded by accounting support fees and other assessments paid by the U.S. and foreign audit firms that the board regulates. Personnel expenses (including training and recruitment costs, as well as salaries and benefits) will account for the lion's share of next year's budget ($98,900,000), with the rest going for information technology-related expenses, consulting fees and the cost of opening new regional offices in Chicago, Denver, and Costa Mesa, Calif., during 2005. At the meeting, the PCAOB also proposed new rules outlining the procedures under which accountants facing disciplinary actions before the board may seek authority to subpoena documents or witnesses for their defense. Under the proposal, parties subject to disciplinary proceedings before the board will have no "entitlement" to subpoena rights, but will be allowed to request a subpoena from the hearing officer assigned to their case. The hearing officer would have discretion to approve the request if he determines that there is a reasonable basis for the subpoena, and that the evidence subpoenaed would be relevant to the board's decision in the case. The SEC, however, would also have to approve the subpoena before it could be issued.

One year since being given the green light by the American Institute of CPAs, its trio of specialty credentials - the Personal Financial Specialist, the Accredited in Business Valuation and the Certified Information Technology Professional - have made steady, if not spectacular, membership gains, while the committee charged with their progress has deployed a grass-roots strategy to improve their value proposition.

The American Jobs Creation Act of 2004, signed into law by President Bush last Friday, seems to have achieved its main goal of getting the European Union to lift $4 billion worth of sanctions on U.S. goods.

Nominations are open for CPA Wealth Provider's Second Annual Financial Planning Awards in the following three categories:

Telecommunications giant Qwest Communications International Inc. agreed to pay $250 million to settle fraud charges brought by the Securities and Exchange Commission.

The Certified Financial Planner Board of Standards has turned over the setting and promotion of financial planning standards abroad to a newly established nonprofit standards-setting body, so that it can focus its efforts on promoting and setting planning standards in the U.S.

Cynthia Cooper, the former WorldCom vice president of internal audit who exposed the $11 billion fraud at the telecommunications company, is among three CPAs who will be inducted this month into the 2004 American Institute of CPAs Business & Industry Hall of Fame.

The Securities and Exchange Commission sanctioned KPMG LLP, two former partners and a current partner and senior manager for improper professional conduct in connection with audit failures involving licensing and advertising revenue in the past audits of Gemstar-TV Guide International Inc.