Accounting standards

The Public Company Accounting Oversight Board released a report on the issues it has identified from inspections of U.S. firms that audit 100 or fewer public companies.

Because of the thousands upon thousands of press releases that I have seen, very few impress or take me by surprise. But the one at www.healthsouth.com/who_we_are/press_releases.asp did just that. In the release, HealthSouth Corporation announced that it has received a $440 million tax recovery from the IRS “for overstatements of taxable income attributable to financial fraud perpetrated by members of prior management.” This recovery includes a $296 million tax refund for the tax years 1996 through 1999, and $144 million of associated interest income.

1987: A TOUGH ENTRANCEIt was not, perhaps, the best of times for the accounting profession: Scandals, including the implosion that summer of the brazenly fraudulent ZZZZ Best, had tarnished auditors' reputations, malpractice insurance rates were soaring, college students were staying away in droves, and the Federal Trade Commission claimed that the American Institute of CPAs' rules on professional activities violated restraint-of-trade rules.

Investors harmed by financial shenanigans at mortgage lender Fannie Mae will collectively receive a whopping payout of $356 million, thanks to the Securities and Exchange Commission.

As tax prep suites have evolved to meet the needs of the particular market segment targeted by each product, practitioners now have a variety of products from which to choose - each of which will do the job."The desktop market is becoming extremely competitive, with each producer giving as much new functionality and offering it as cheaply as they can," said John Vora, chief executive of Parsippany, N.J.-based TaxSimple.

Securities and Exchange Commission chair Christopher Cox said that data tags have been developed for the entire system of U.S. generally accepted accounting principles, advancing the use of the Extensible Business Reporting Language for automating financial reporting.XBRL will allow investors and analysts to download financial information filed with the SEC into Excel spreadsheets and other software, so they can more easily compare the information across companies and industries. Preparers can also automate the process of closing a company's books and submitting statements to the SEC.

Internal accountants and other corporate employees who report financial wrongdoing at their companies may not be able to count on Sarbanes-Oxley Act "whistleblower" provisions to protect them from retaliation.Although those provisions were inserted into the law by Congress to encourage corporate insiders to step forward and report accounting or securities fraud, a new analysis by researchers at the University of Nebraska College of Law found gaping holes in the SOX whistleblower protections.

The European Union has rebuffed the International Accounting Standards Board's proposed standards for small to midsized businesses, labeling the package "too complicated" for the nature of SMBs."The feedback we have received from member states, the European Parliament and stakeholders is that the current IASB draft is not simple enough to be applicable for the bulk of SMBs in the EU," said EU Commissioner for Internal Markets Charlie McCreevy. "Therefore, at this stage, I do not intend to propose that the IASB draft be endorsed for application in the EU."

The Internal Revenue Service position on Circular 230 monetary penalties has generated concern and comments from the American Institute of CPAs, while the American Bar Association Tax Section intends to submit its own comments on the matter.The penalties were announced in Notice 2007-39 earlier this year to implement Section 822 of the American Jobs Creation Act of 2004, which expanded the sanctions that the IRS can impose for certain prohibited conduct to include monetary penalties.

Concerned that companies are investing much in internal controls but then risking it all by not monitoring those controls, COSO, the Committee of Sponsoring Organizations of the Treadway Commission, has issued a discussion document that may eventually become a full set of guidelines on monitoring.COSO chairman Larry Rittenberg said he has been pondering this project ever since the Sarbanes-Oxley Act of 2002's Section 404 went into effect.

Life insurance agents and companies have always tried to find ways of making costs paid by business owners tax deductible.The situation became ridiculous a few years ago with outrageous claims about how Sections 419A(f)(5) and (6) of the Internal Revenue Code exempted employers from any tax-deduction limitations. Finally, the Internal Revenue Service put a stop to such egregious misrepresentations in 2002 by issuing regulations and naming such plans as "potentially abusive tax shelters" (or "listed transactions") that needed to be registered and disclosed to the IRS.

Gerrit Zalm, the former deputy prime minister and finance minister of the Netherlands, has been selected as the new chairman of the trustees of the International Accounting Standards Committee Foundation, which oversees the International Accounting Standards Board, in a sign of the growing influence of the European Union on the standards-setting process.

Nortel Networks has agreed to pay $35 million to settle accounting fraud charges with the Securities and Exchange Commission.

The Public Company Accounting Oversight Board has approved amendments that would reduce the frequency of inspections of accounting firms that do not regularly issue audit reports.

The risk assessment standards, FIN 48, valuation standards, convergence, the rewriting and codification of auditing and accounting standards, ethics interpretations, and other changes impacting the accounting and auditing regulatory landscape are being driven by a number of factors. But when push comes to shove on implementation, the burden squarely falls on the companies that these rules apply to, and on CPA firms’ A&A practice group and A&A practitioners.

The Treasury Department convened an initial meeting of its Advisory Committee on the Auditing Profession as the department aims to improve the competitiveness of the U.S. capital markets.

The European Union is putting the brakes on a push to converge accounting standards by delaying until the end of 2011 the need for companies to use international standards.

Barry Melancon has been leading the American Institute of CPAs since 1995. As president and CEO of the AICPA, he has been keeping busy on a number of fronts this past year. The Institute has been working with Congress on patent reform to keep tax strategy patents from taking hold. Another priority has been CPA mobility, so CPAs face fewer regulatory barriers when practicing across different states. Melancon has also been closely involved with the effort to move toward Extensible Business Reporting Language for financial statements, spearheading an initiative to assign data tags to generally accepted accounting principles. He was recently named co-vice chair of the Center for Audit Quality and to a position on the Treasury Department's new Advisory Committee on the Audit Profession. Melancon is also a member of the AICPA's delegation to the International Federation of Accountants. His accounting career began in 1979 at Bergeron & Co. in Louisiana. Before joining the AICPA, he served for eight years as executive director of the Society of Louisiana CPAs.

The American Institute of CPAs has begun a two- to three-year project to revise its auditing standards in an effort to achieve greater clarity.

Securities and Exchange Commission Chairman Christopher Cox said that regulators in different countries should avoid revising International Financial Reporting Standards to meet the needs of local markets.