Accounting standards

We have been writing on the Conceptual Framework in response to the Financial Accounting Standards Board's announced intent to strengthen it. We've discussed the objective of financial reporting, the political situation and its problems, the overarching importance of cash flows, and the nature of relevance and reliability.

Securities and Exchange Commission chief accountant Donald Nicolaisen is scheduled to testify this week before a House subcommittee about the commission's decision that Fannie Mae violated accounting rules.

Fannie Mae has reportedly recruited former Securities and Exchange Commission chair Richard C. Breeden to help it deal with a potential $9 billion restatement, while its former chief executive has relinquished two board seats.

The American Institute of CPAs named Ben Neuhausen, national director of accounting at BDO Seidman, as chairman-elect of its Accounting Standards Executive Committee.Neuhausen will succeed KPMG's Mark Bilstein in that post following the conclusion of the next AcSEC meeting.As an AcSEC member, Neuhausen chaired the AICPA task force on real estate time-share transactions. He also has served as a member of FASB's Interpretation 46 Resource Group and its Liabilities and Equities Resource Group. From 1979 to 1981, he was a Financial Accounting Standards Board fellow.Prior to joining BDO in 2002, Neuhausen was a partner in the Professional Standards Group at Andersen.The institute's AcSEC unit provides accounting guidance and serves as the organization's voice on financial reporting matters. It includes members from academia, business and industry, and public practice.

A critic from Washington-based think tank the American Enterprise Institute has called on Congress to terminate the Public Company Accounting Oversight Board within five years and fold the oversight body into the Securities and Exchange Commission.

The American Institute of CPAs' Auditing Standards Board is poised to issue an exposure draft of five proposed statements and amendments to statements relating to auditors' risk assessment.

Penthouse International Inc., one of its former officers and a shareholder are facing civil charges by the Securities and Exchange Commission related to allegations that the former Penthouse magazine publisher violated federal securities laws and improperly booked $1 million in revenue.

Jonathan B. Orlick, former general counsel of Gemstar-TV Guide International Inc., was barred from serving as an officer or director of a public company for 10 years and agreed to pay more than $305,000 to settle charges brought against him by the Securities and Exchange Commission for his alleged role in helping the firm overstate revenue by more than $248 million over a three-year period.

Taxpayers who misreported their income to snare unjustified Earned Income Tax Credits are draining $2 billion a year from the U.S. Treasury, auditors at the Government Accountability Office recently told Congress.

Thanks to the help of the Financial Accounting Standards Board, more American jobs may stay in America in the near future.

Last month, the Financial Accounting Standards Board issued its long-awaited final statement on share-based compensation or "stock comp." But many wonder if that's the last that we'll hear of it.

Maybe 2004 should have been called the year of the restatement -- amended filings for financial restatements by public companies due to accounting errors rose 28 percent in 2004, to a record 414, up from 323 the previous year, according to a report by Huron Consulting Group.

The Sarbanes-Oxley Act, along with the Securities and Exchange Commission's accelerated reporting guidelines, appear to be improving the accuracy of companies' earnings forecasts, according to a report by management consultancy firm Parson Consulting.

The Treasury Department and the Internal Revenue Service issued interim guidance on two new penalty provisions enacted as part of the American Jobs Creation Act of 2004.

The Public Company Accounting Oversight Board's plan to place new restrictions on the ability of accountants to offer tax services to their audit clients doesn't go far enough to restore investor confidence in financial reporting, critics of the accounting profession warned. In comments to the board expressing concern over new tax service restrictions proposed late last year, several tax experts urged the PCAOB to place auditors on an even shorter leash. In order to "help restore investor confidence in the independence of auditors and the integrity of their audits," the PCAOB should adopt a rule which prohibits audit firms from providing any tax services "which are unrelated to the audit," New York City tax attorney Robert Chira told the board. "I believe the board has clear and ample legal authority to prohibit such non-audit related tax services," he said in comments on the PCOAB proposal. "I further believe the board should exercise leadership in this area to persuade the Securities and Exchange Commission to the position that an audit firm should perform audits and not commingle that function with the performance of unrelated tax services." Harvard Law Professor Bernard Wolfman called for an even more far-reaching set of limitations on the sale of tax services by accountants. Arguing that the rule that the PCAOB proposed does not go far enough to ensure the independence of auditors, Wolfman maintained that "the auditor of a public company should not be permitted to render tax services to any company, whether the company is an audit client of the auditor or not." The only exception under Wolfman's plan would be for routine compliance work and tax return preparation. In contrast, the new rule proposed by the PCAOB in December would allow accountants to continue providing general tax services to audit clients, but prohibit them from marketing tax strategies that involve "an aggressive interpretation of applicable tax laws and regulations," or result in a tax avoidance maneuver that is a "listed or confidential" transaction under Treasury regulations. The proposal also calls for outlawing the use of contingent fees for tax services to audit clients, and would bar audit firms from providing any tax services to corporate officers who are "in a reporting oversight role of an audit client." The PCAOB wrestled with the idea of a far more restrictive policy toward tax services by auditors, but ultimately concluded that such an approach would be unnecessarily burdensome for accountants and their clients. In defending the PCAOB's decision to stop short of an all-out prohibition against the sale of tax services to audit clients, board member Daniel L. Goelzer said that "auditors have traditionally performed these kinds of services for their audit clients, and this kind of assistance is particularly important to small and medium-sized businesses that lack the resources to maintain extensive in-house tax expertise."

Nine vendors face criminal and civil charges for allegedly helping U.S. Foodservice Inc., a subsidiary of Dutch grocer Royal Ahold NV, inflate earnings by more than $800 million.

In an effort to aid smaller publicly traded businesses with internal controls compliance, the Committee of Sponsoring Organizations said that it would offer online guidance for internal controls assessment by the summer. In conjunction with COSO as well as the Advisory Committee of the Securities and Exchange Commission and the Public Company Accounting Oversight Board, Big Four firm PricewaterhouseCoopers will produce the guidance materials, which will be available for a fee. PwC partner Miles Everson will spearhead the effort. Under Sarbanes-Oxley's Section 404, SEC issuers are required to conduct annual evaluations of their internal controls. This year, public companies under $200 million will be required to meet the internal controls mandates. Companies over $200 million were mandated to assess their internal controls last year. COSO chairman Larry Rittenberg pointed out that approximately 5,000 of the SEC's roughly 9,000 registrants have annual sales of less than $200 million. "These organizations need guidance that will help them understand the breadth, depth, and value of COSO's Control Framework as they go through the process of evaluating controls," he said. "This new project will provide that guidance." COSO, which was established 20 years to improve the financial reporting process, is comprised of the American Institute of CPAs, Financial Executives International, the Institute of Internal Auditors, the Institute of Management Accountants and the American Accounting Association.

Larry E. Rittenberg, Ph.D., CPA, CIA has been named the new chairman of the Committee of Sponsoring Organizations of the Treadway Commission. In that role, Rittenberg will lead COSO's efforts investing in conceptual frameworks designed to enhance understanding and management of risk and control. Under his leadership, the organization will provide guidance for cost-effective small business application of COSO's Internal Control -- Integrated Framework. Rittenberg -- who is currently one of COSO's five board members -- succeeds John J. Flaherty, CIA, CPA. He currently teaches and conducts research at the University of Wisconsin in Madison, focusing on auditing and corporate governance. He is co-author of Auditing: Concepts for a Changing Environment, and The Outsourcing Dilemma: What Works Best for Internal Auditing. Established in 1985 to sponsor the National Commission of Fraudulent Financial Reporting, COSO is a voluntary private sector organization dedicated to improving financial reporting quality.

Nearly a decade has passed since IBM purchased Lotus Development Corp. and attracted widespread attention to the potentially large write-offs that were possible on financial statements for purchased in-process research and development.

GOP lawmakers okayed a move to give the House Financial Services Committee oversight of accounting standard-setting and electronic trading, an area that includes the Financial Accounting Standards Board, according to the Congressional Record.