Accounting standards

The Public Company Accounting Oversight Board will meet Thursday, Nov. 30, to consider adoption of its budget for the 2007 fiscal year.As outlined under the Sarbanes-Oxley Act, the board -- which sets its fiscal year according to the calendar -- must set a budget for the upcoming year no later than one month before the end of the current fiscal year. Once approved by the board, the budget will be submitted to the Securities and Exchange Commission for approval.

After years of sounding the fiscal imbalance bell, Comptroller General David Walker, the head of the Government Accountability Office, has committed a to-do list to paper for the 110th Congress.In a letter dated Nov. 17, Walker outlines a number of areas his federal watchdog agency, says the newly-elected politicians should consider in getting a “jump-start” on legislative planning.

The Securities and Exchange Commission is closing in on an early Christmas present for corporate critics of the Sarbanes-Oxley Act - a new plan that would reduce the compliance problems associated with the legislation's prickly Section 404 auditing requirements.But the expected reforms - which are scheduled for public consideration at an SEC meeting in mid-December - are not likely to quiet the chorus of criticism from Congress and the wider business community that blames SOX for making American capital markets uncompetitive, driving stock listings overseas and creating massive new costs for small companies.

In an effort to improve consistency in the application of standards relating to audits of the fair value of options granted to employees, the Public Company Accounting Oversight Board staff has issued a set of guidelines.Presented in a question-and-answer format, the guidelines point out risk factors that auditors should be aware of in their consideration of the process for developing a fair value estimate, significant assumptions used in option-pricing models, and the role of specialists in fair value measurement.

Business tax reform needs a bipartisan, national consensus, but is absolutely necessary for the country to remain competitive in a global economy, according to Senate Finance Committee chair Chuck Grassley, R-Iowa."I think the consensus is there that the business tax system is in desperate need of reform," he told a recent hearing on the business tax system. "But we need to start building consensus on how to do it."

The use of private annuities to shelter gain on appreciated property has come to an abrupt halt, if the Internal Revenue Service has its way.Whether the IRS can withstand pressure to withdraw or substantially amend new proposed regs before they are made final, or whether the final regs can withstand judicial challenge, remains to be seen. For now, however, effective for annuity transactions after Oct. 18, 2006 (subject to a relatively brief six-month "estate planning" exception), the division between "old rule" and "new rule" is dramatic.

The Financial Accounting Standards Board has voted to propose changes to a derivatives rule issued earlier this year affecting the financial statements of asset-backed and mortgage-backed securities investors.The proposal would affect FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments, and allow companies not to account for embedded derivatives that are associated with prepayment risks. Community banks, insurance companies and others may be exempted from having to recognize interest-rate-driven gains and losses on their income statements. Many of those groups had said that without such an exemption, their earnings might be more volatile.

The Securities and Exchange Commission announced that thousands of individual investors who made financial claims in the wake of the $11 billion WorldCom accounting fraud will soon receive up to $150 million from a commission fund set up to help compensate investors for their losses.The SEC's ability to return penalty money directly to fraud victims is a new authority granted under the Sarbanes-Oxley Act. The entire $750 million penalty that the SEC obtained from WorldCom was paid into a "Fair Fund" when the reorganized telecommunications company emerged from bankruptcy protection in April 2004. All of that money is earmarked for return to injured investors.

The Committee of Sponsoring Organizations of the Treadway Commission issued a request for proposals to develop guidance to help organizations monitor the quality of their internal control systems.The end product is meant to serve as a tool for effectively monitoring internal controls, as well as complying with the Sarbanes-Oxley Act.

Speaking to a group of financial executives, a Securities and Exchange Commission accountant said research from his office has revealed that most restatements are due to basic accounting mistakes.Speaking at the annual conference of Financial Executives International, SEC deputy chief accountants Scott Taub said that about 55 percent of recent company restatements were due to the misapplication of basic accounting rules or to problems with the actual data used in the original calculation.

While he didn't call for any new regulations, or outright suggest the overturning of any existing rules, in a speech this week Treasury Secretary Henry Paulson urged federal regulators to take a more hands-off approach when it comes to dealing with the markets.Speaking on the competitiveness of the capital markets at the Economic Club of New York, Paulson told the audience that U.S. accounting and securities regulators should consider adopting flexible accounting rules that outline principles, but don’t set strict rules.

Vice president of taxation for the American Institute of CPAs Tom Ochsenschlager listed the top 10 provisions in recent tax legislation in his keynote speech at the New York State Society of CPAs’ Annual Tax/Plenary Conference on Nov. 16.Provisions folded into the Tax Increase Prevention and Reconciliation Act Ochsenschlager outlined included:

The Securities and Exchange Commission announced that 1st Global Capital Corp., a Dallas-based broker-dealer, will pay a $100,000 penalty and consent to findings that it made unsuitable recommendations and sales of Section 529 College Savings Plans.According to the order, between 2001 and 2004 1st Global recommended and sold investments in 529 plan units without understanding and evaluating the comparative costs for its customers.

Beard Miller Co. LLP will sell its Financial Outsourcing Solutions practice to McKonly & Asbury LLP in a deal effective Jan. 1.

The former chief executive of Fannie Mae has ended his pay dispute with the home mortgage giant after two years of legal wrangling.Franklin Raines will receive $2.6 million under a deal disclosed in a filing with the Securities and Exchange Commission. Raines was forced into early retirement in December 2004 -- with a $19 million severance package in hand -- alongside former Fannie finance chief J. Timothy Howard, shortly after regulators announced that the government-sponsored company had violated accounting rules.

The Securities and Exchange Commission has entered an order sanctioning the City of San Diego for committing securities fraud by failing to disclose information about its pension and retiree health care obligations.

Among all the joint tech and accounting initiatives out there XBRL seems to be the one gaining a steady amount of steam towards making real news and producing real returns for a wide audience. What remains to be seen is who’s actually able to realize real returns out of the technology.

A report was recently released at an international conference in Paris. The 20-page report is entitled “Global Capital Markets and the Global Economy: A Vision from the CEOs of the International Audit Networks,” and its authors are the heads of PricewaterhouseCoopers, Grant Thornton International, Deloitte, KPMG International, BDO International, and Ernst & Young.The report is intended to promote “a robust dialogue about how global financial reporting and public company auditing procedures must adapt to better serve capital markets around the world.”

A committee within the International Federation of Accountants has drafted new guidance to assist companies and their professional accountants in developing and implementing a code of conduct.The proposed new good practice guidance, from the Professional Accountants in Business Committee, “Defining and Developing an Effective Code of Conduct,” provides practical guidance on design and development, as well as highlighting the roles accountants in business take in driving and supporting organizational ethics.

In search of a happy medium for the smaller public companies that have loudly complained about the cost of audits of their internal controls, Securities and Exchange Commission Chairman Christopher Cox said a new auditing standard is on the way.In an interview with the New York Times, Cox said that he has been in regular contact with the chairman of the Public Company Accounting Oversight Board to develop and propose the auditing standard. Right now, Cox said that the timetable would be for the SEC to hopefully approve the standard by the spring.