Accounting standards

A “practice privilege” requirement introduced in Illinois -- which would have required out-of-state CPAs to register with a state agency -- appears on the verge of meeting a fate close to a similar proposal in California. That fate being, in this case, compromise. Both the Illinois CPA Society and the American Institute of CPAs had objected to the new registration requirement -- with the society requesting a delay to the law’s Oct. 1 effective date and the institute voicing its concerns over the “onerous” stipulation in a Sept. 28 letter to Illinois Gov. Rod Blagojevich. Contained in a broader piece of legislation that made changes to the regulation and licensing of CPAs in the state, the Illinois Department of Financial and Professional Regulation would have required CPAs from other states to apply for temporary practice privilege or obtain full licensure as a CPA in the state of Illinois, regardless of whether the CPA or client ever entered the state. According to the AICPA, thousands of CPAs from across the country could have been impacted. On Sept. 29, the Illinois regulation department filed an emergency amendment, which read that out-of-state accountants would not have to follow the new requirement, “So long as the individual CPA is temporarily practicing in this state incidental to practice in another state and does not solicit Illinois clients nor have a physical presence in Illinois.” After much debate, a requirement that would have required out-of-state CPAs doing business in California to register with the state’s Board of Accountancy never made it out of committee this past June. Several taxpayer groups said that not requiring the registration could make it easier for accounting firms to market improper tax shelters without proper oversight. Proponents of the bill, including the state Board of Accountancy and the California CPA Society, said that their intention was merely to eliminate unnecessary red tape for neighboring accountants to provide basic services across state lines.

The Internal Revenue Service has launched its much-anticipated Income Verification Express Service or IVES, a program offering immediate electronic delivery of client tax and income information to financial lenders such as mortgage companies.

Lawmakers have passed a provision as part of the sweeping Financial Services Regulatory Relief Act of 2006, that exempts CPAs from the Gramm-Leach-Bliley Act’s requirement that they send clients an annual privacy notice.

Just one week after the Treasury Department released a report on its strategy for closing the $300 billion tax gap, the ranking minority member of the Senate Finance Committee labeled the plan “incomplete” and not credible.Sen. Max Baucus, D-Mont., said he would continue to hold up the nomination of Eric Solomon as the assistant Treasury secretary for tax policy.

Several more 2007 Toyota models have been certified by the Internal Revenue Service to qualify for the hybrid tax credit enacted by the Energy Policy Act of 2005.

The threat by Sen. Max Baucus, D-Mont., to hold back the appointment of Eric Solomon as assistant secretary for tax policy at the Department of the Treasury is misplaced, according to observers.Baucus, the ranking member of the Senate Finance Committee, said that he would place a hold on President George W. Bush's nominee for the Treasury's top tax position unless the department details how it will close the tax gap.

The Securities and Exchange Commission and the Department of Justice formally supported the constitutionality of the Public Company Accounting Oversight Board with the filing of a 46-page legal brief just before Labor Day.The brief outlined the government's arguments in support of the PCAOB's constitutionality, and was submitted in the U.S. District Court for the District of Columbia in a case brought by the Free Enterprise Fund in February.

Should governments provide more information on their economic conditions? How should changes in the fair value of government investments be measured? Is the Statement 34 reporting model working well enough?Such questions being crucial to financial reporting by government entities, the Governmental Accounting Standards Board has put out a call for proposals for research projects. Offering up to $5,000 per project, the board is seeking input on several questions relating to three general issues:

-- The Financial Accounting Standards Board has released a standard that, in essence, would shuttle obligations of pension and defined benefit plans to the balance sheets instead of often being submerged in footnotes.

Three former executives at a Bermuda-based reinsurer are facing fraudulent accounting charges from the Securities and Exchange Commission.

The fugitive former chief executive of voicemail software manufacturer Comverse Technology Inc. was tracked down in Namibia, Africa, this week after spending the past two months on the lamb. Jacob ''Kobi'' Alexander, 54, was charged in August with conspiracy related to backdating stock options by the Securities and Exchange Commission. Two other defendants, former Comverse finance chief David Kreinberg and former senior general counsel William Sorin, surrendered in August and were each released on $1 million bonds. Before he disappeared, Alexander allegedly transferred $57 million to Israel, prompting speculation that he may have fled there. The SEC complaint accuses the trio of men of profiting from stock options by backdating prices to a low point in the stock's value. From 1991 through 2005, Alexander reportedly exercised options and sold stocks worth approximately $150 million, making $138 million profit -- about $6 million by backdating options -- according to the complaint. Kreinberg and Sorin each also earned about $1 million on backdated options. In addition, the SEC alleges that the company awarded thousands of stock options to fictional employees, then secretly transferred the awards to an internal account. The scheme allowed Alexander to award those options to employees and himself without board of directors approval.

The Securities and Exchange Commission has awarded a trio of contracts -- totaling $54 million -- to transform the financial statements in its Edgar database to interactive information. The SEC hopes that the spending will propel the agency’s 1980s-vintage public company disclosure system from a form-based electronic filing cabinet to a real-time search tool with interactive capabilities. The investment is a likely precursor to widespread adoption of interactive data filing by companies that report their financial information to the SEC, which has been part of a voluntary pilot program loudly praised by SEC Chairman Christopher Cox. Financial organizations such as the Federal Deposit Insurance Corp., the Federal Reserve and the Comptroller of the Currency all already require banks to use the Extensible Business Reporting Language format. XBRL is a technology that tags financial information through disparate applications and carries it through the business reporting chain. The SEC hasn’t required companies to file their information in an interactive format largely because the XBRL labels haven’t all been completed, and because the commission’s own database can’t utilize the capabilities of the programming language. XBRL US Inc. received one of the contracts, for $5.5 million, to complete the writing of XBRL “taxonomies,” so that every item in a company’s financial statement, such as net income or gross sales, can be assigned a unique computer-readable label. The company, originally formed as a volunteer committee of the American Institute of CPAs, also announced that it will operate independently in the future -- as a nonprofit, member-supported entity of XBRL International Inc. XBRL US will have responsibility for the development of the computer standard in America and is expected to complete the SEC work within a year. The remaining contracts were awarded to: · Keane Federal Systems Inc., for $48 million, to modernize and maintain the database. The contract covers up to a six-year period -- an initial three-year contract term, plus three additional one-year terms. As part of the contract, Keane will partner with other technology firms, including BearingPoint, Microsoft, Rivet Software, EMC and Akamai. · Rivet Software and Wall Street on Demand, for $500,000, to create a new generation of interactive investor tools on the SEC’s Web site. The existing Edgar system is already one of the largest U.S. government presences on the Internet. Over 700,000 documents and data sets are filed on the system each year. However, the information Edgar stores is locked in essentially the same kinds of forms that the SEC has used for 72 years, since it first introduced Form A-1 for securities registration in 1934.

A federal appeals court ruling has essentially thrown the issue of whether shareholders should be able to nominate candidates in corporate board elections back to the Securities and Exchange Commission. A SEC has scheduled an Oct. 18 hearing on the issue, and Chairman Christopher Cox has said he wants the matter resolved before 2007 corporate meetings begin taking place. The Sept. 5 court ruling said that SEC staff improperly allowed American International Group Inc. to block a measure that would have made it easier for investors to nominate their own candidates for the board.

On the heels of the new risk assessment standards rolled out by the American Institute of CPAs, Thomson Tax & Accounting and the PPC brand are offering two new audit tools. PPC’s Smart e-Practice Aids focused on risk assessment, allows users to automatically generate customized audit programs based on risk assessments. Specifically, the aid will:

In 1967, when every automaker was launching its own version of a “muscle car,” Mercury unveiled the Cougar, a sort of hybrid vehicle positioned between luxury sport and high performance, complete with 351-cubic-inch V-8 and a menacing grill that resembled a set of growling chromed teeth. My brother and I were instantly captivated by the car and begged my parents to get one. My father said our two-year-old Comet would do just fine, thank you, but he did point to an ad in a magazine that offered large model replicas of the Cougar at what seemed an unbelievable price of $2.75. We immediately clipped out the order form, emptied our banks and impatiently waited for the next five weeks until our packages arrived. You can probably guess the rest. In lieu of the flashy model pictured in the magazine, what came was actually a drab, olive-green car constructed of soft plastic, with no interior seats and with what appeared to be oversized roofing nails for axels. As I recall, my brother cried and I was thisclose to doing so as well. For once, my father spared us a Carrie Nation-like lecture and simply said, “You boys will find out you usually get what you pay for in life.” I often recall this adventure when the thorny issue of exorbitant executive pay comes up, and specifically how it measures up to company performance and the million-dollar question -- literally -- of do you really get what you pay for? No matter how well a company does with regard to appreciation in share prices and market capitalization, I somehow cannot justify or rationalize an executive compensation plan that is one hundred times the amount earned by the president of the United States. Along those lines, I recently was sent a copy of “Pay Dirt,” a review of executive compensation practices by proxy researcher Glass Lewis & Co. The Glass Lewis pay-for-performance study examined a total of six indicators of shareholder wealth and business performance, including such areas as changes in stock price over a two-year period and two-year changes in book value per share, as well as analyzing the chief executive’s total compensation and the top five executives’ total compensation. The study determined that a large number of companies shell out enormous salaries and perks to executives whose performances fell somewhere between mediocre and poor. Glass Lewis’ research identified 98 executives who were awarded more than $20 million in annual compensation in 2005, with media titan Barry Diller, chairman and CEO of IAC/InterActive Corp., banking the highest comp package in 2005 -- an estimated $85.1 million, a figure that doesn’t include roughly $290 million in exercised stock options. According to Glass Lewis, companies with the worst pay-for-performance result include advertising and media concern Interpublic Group of Cos., investment conglomerate Morgan Stanley, software publisher Ariba Inc. and Vitesse Semiconductor Corp. By contrast, the best ones were search engine Google Inc., Caterpillar Inc. and upscale retailer Nordstrom Inc. And four of last year’s 25 highest-paid chief executives were from companies now under government investigation over past stock-option-granting practices. And in a textbook example of executive logrolling, Glass Lewis unearthed five directors who sit on the compensation committees of at least two companies that received “F” grades in its pay-for-performance ratings for 2005, while two CEOs at companies that received F grades in pay-for-performance ratings for 2005 also sit on the boards of other companies that received Fs. Now, realistically, the Glass Lewis report won’t abolish the practice of absurd compensation packages for residents of the executive suite, But hopefully it will prompt investors to take a closer look at companies in which they have placed their money and demonstrate to the CEOs that their salary is not an annuity, and that they must either step up or step down. And for those that can’t measure up, you can throw in two 1967 Mercury Cougar replicas as part of the severance package.

In testimony before lawmakers, Securities and Exchange Commission chairman Christopher Cox defended the Sarbanes-Oxley Act, but sided with critics of the sweeping reform act who maintain that parts of the mandate need to be changed— in particular Section 404.

Nearly one year after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was passed into law, a study by information and research services provider LexisNexis found that Chapter 7 bankruptcy filings were 71 percent lower than over the same period for 2004.

Despite corporations gaining more experience with complying with the mandates of Sarbanes-Oxley, concerns over the burdens of its implementation have grown over the past several years.

The Securities and Exchange Commission's top accountant has added his thoughts on how to properly account for stock options in the historical financial statements of public companies.

The Securities and Exchange Commission announced that it has filed and settled financial fraud charges against bank holding company Doral Financial Corp.