Accounting standards

Reuben E. Price & Co. Public Accountancy Corp., a small firm based in San Francisco, has been censured by the Public Company Accounting Oversight Board for failing to take action after one of the firm's clients issued an annual report that appeared to be, but was not, audited.

The Public Company Accounting Oversight Board announced that the Securities and Exchange Commission has approved the board's recommended ethics and independence rules for auditor independence, tax services and contingent fees.

The International Federation of Accountants has released its 2006 handbook of standards.

The Securities and Exchange Commission announced that the former chief financial officer of discount retailer Dollar General Corp. will pay $1.2 million to settle charges that he engaged in accounting fraud and insider trading.

Tyco International Ltd. will pay $50 million to settle allegations by the Securities and Exchange Commission that the company inflated its earnings by more than $1 billion between 1996 and 2002.

Investors around the globe are demanding that businesses embrace tougher corporate governance standards, according to a survey from research and consulting firm Institutional Shareholder Services.

The U.S. Chamber of Commerce said that the Securities and Exchange Commission is overstepping its bounds in seeking to punish corporate wrongdoing.In a report, the Chamber of Commerce, which lobbies for 3 million U.S. companies and 830 business associations and has been one of the commission's most vocal critics, recommended that the agency appoint an advisory committee to study its enforcement practices.

In the latest turf battle to come to light between the two groups, the American Institute of CPAs and the National Association of State Boards of Accountancy skirmished over NASBA's interest in the details of public company audit inspection reports.In a recent alert sent out from the AICPA Center for Public Company Audit Firms, director Lillian Ceynowa wrote that member firms were not required to comply with inquiries from some state boards requesting the identities of individuals and companies referred to in Public Company Accounting Oversight Board inspection reports.

In a move to simplify accounting for servicing assets and liabilities, the Financial Accounting Standards Board has issued a standard that makes it easier for mortgage bankers and other servicers of financial assets to report on the value of derivatives to offset risks associated with securitizations and other types of servicing.The new standard, SFAS 156, "Accounting for Servicing Financial Assets," amends SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" - itself a replacement of FASB Statement No. 125. It allows servicers to choose between fair value and amortization measurements to report the value of derivatives, as well as the assets or liabilities related to them.

Sarbanes-Oxley may be helping to protect investors, but it is also hitting small public companies with a big accounting burden.The Securities and Exchange Commission established an advisory committee in April of 2005 to see how the weight of SOX could be eased for small filers. The subsequent report, issued as an exposure draft for public comment, offers several recommendations that may relieve some, though by no means all, of the burden.

This is our third installment on the recent CFA Institute monograph, A Comprehensive Business Reporting Model: Financial Reporting for Investors. The work, authored by a committee of experienced analysts, updates the 1993 commentary called Financial Reporting in the 1990s and Beyond. Like its predecessor, this report speaks forthrightly about the highly limited usefulness of current generally accepted accounting principles financial statements. (It's available without cost at http://cfapubs.org/.)The report's centerpiece is 12 principles that serve as a manifesto for replacing the status quo. We covered other principles in two earlier columns, and we now tackle a couple more.

After 16 years, the executive director of the Securities and Exchange Commission will step down to pursue opportunities in the private sector.Jim McConnell, 58, who joined the SEC in 1984 as a management analyst, plans to retire in early June and said that he will spend the next two months assisting with transition efforts at the agency.

Freddie Mac, the second-largest mortgage provider in the country, announced that chief financial officer Martin Baumann has resigned.The company is still recovering from an accounting scandal, and recently announced that it would delay filing its 2005 financials by two months. Freddie Mac's president and chief operating officer, Eugene McQuade, will assume Baumann's responsibilities while the company looks for a permanent successor.

Six weeks after a public disagreement over how the issuance of subpoenas to two business columnists was handled, the Securities and Exchange Commission has released guidelines describing exactly when and how journalist subpoenas will be issued in the future.

Securities and Exchange Commission Chairman Christopher Cox announced that Wall Street fund lawyer Andrew "Buddy" Donohue will join the agency as the next director of the Division of Investment Management.

The chairman of an advisory panel to the Securities and Exchange Commission said that the group's pending proposal to roll back some of the internal controls provision of the Sarbanes-Oxley Act has not been dismissed even before it is officially proposed.

The country's largest jewelry retailer, Zale Corp., announced that its accounting, executive pay and severance agreements are under official investigation by the Securities and Exchange Commission.

The just-released Winter 2005-2006 issue of the Statistics of Income Bulletin discloses that adjusted gross income rose in 2004 for the second year in a row, increasing by 8.9 percent to $6.8 trillion. The largest component of AGI, salaries and wages, increased 6.0 percent to $4,977.9 billion, while net capital gains rose 53.2 percent to $442.1 billion. Taxable income increased 10.6 percent to $4.6 trillion.

Eighty-four percent of senior finance executives polled by global CPA and business advisory firm Grant Thornton said that rules that allow companies in bankruptcy to turn over their pension obligations to the federal Pension Benefits Guaranty Corp. should be tightened.

For the third time, a federal court has sent rules governing the mutual fund industry back to the Securities and Exchange Commission for further reflection on the costs of the changes.