Audit

The Securities and Exchange Commission will consider recommendations for changes to the Sarbanes-Oxley Act at an open meeting on Dec. 13.

Former Enron chief executive Jeffrey Skilling has asked a federal judge to throw out his May conviction on fraud and conspiracy charges.Skilling, 52, was found guilty on 19 counts of fraud, conspiracy, insider trading and lying to auditors in the investigation following Enron’s collapse. He faces 20 to 30 years in prison for the charges and will be sentenced on Oct. 23.

Improving the accounting and disclosures for mergers and acquisitions by non-profit organizations is the aim of two exposure drafts released by the Financial Accounting Standards Board.

In a recent report, the Government Accountability Office said that it still has concerns about restatements to federal agencies’ previously issued financial statements. According to the document, during the 2005 fiscal year, at least seven of the 24 agencies governed by the Chief Financial Officers Act had restated their previous year’s financial statements. When the GAO went to look at the agencies’ financial statements for 2003, the office found that nine of the 11 agencies that issues restatements in 2003 had received unqualified opinions and then did not consistently communicate those restatements. The GAO has made 11 recommendations to the Office of Management and Budget aimed at further improving the restatement guidance available to agencies’ management and auditors. Since then, the OMB has said it will take the recommendations under advisement. Among the issues highlighted by the GAO were:

RSM McGladrey Inc. announced that the 50 employees in its 2006 class of managing directors is its largest ever. Similarly, partner-owned CPA firm McGladrey & Pullen LLP has appointed a record 35 new partners. RSM McGladrey also said that it has seen a 59-percent revenue growth over 2005. The professional services firm is a wholly owned indirect subsidiary of H&R Block Inc. McGladrey & Pullen also saw strong revenue growth in 2006, with revenues up 20 percent from 2005. The two firms operate under an alternative practice structure.

KPMG International will combine its member firms in the United Kingdom and Germany in an effort to makes its services more consistent and risk-free. The combined firms will operate under the name KPMG Europe LLP and remain a member of KPMG International, which said in a statement that the hope is for other KPMG member firms in Europe to eventually merge into the new entity. Besides giving the combined firm a chance to pool its talent to better serve clients, the business said the KPMG Europe will be able to present a unified voice when it comes to international standards setting. The deal is the first announced by a Big Four firm after the introduction of the European Commission’s Eighth Directive legislation, which will allow cross-border mergers between accounting firms beginning in 2007. Both Germany and Britain are expected to incorporate the directive into national laws some time next year. The Big Four currently operate as networks of national partnerships in Europe because the law in most countries prevents them from being foreign-owned. With combined revenues of more than $2.5 billion in the current fiscal year, a statement from the firm said that KPMG Europe LLP will be the largest professional services firm on the continent. More than 17,000 partners and staff will work in the firm’s 44 offices across the U.K. and Germany. The firm’s head office will be located in Frankfurt and be chaired jointly by KPMG LLP U.K. chairman John Griffith-Jones and the chairman of KPMG Deutsche Treuhand-Gesellschaft AG’s managing board Dr. Rolf Nonnenmacher. Both the German and U.K. boards have already unanimously approved the proposal, but the merger must still be okayed by the firms’ partners in December.

Federal prosecutors will split the 18 defendants facing charges over the sale of questionable-legal tax shelters into two separate groups. Sixteen former KPMG executives are among the defendants in what’s being billed as the largest criminal tax case ever. The other two indictees include a lawyer and an outside investment adviser to the Big Four firm. Under a proposal submitted in Manhattan Federal District Court, prosecutors have asked to hold two separate trials -- one for a group of former senior partners and executives and another for a group of more junior employees. The proposal doesn’t provide a timeline for when the separate trials might start, or in what order. Lawyers for certain defendants have previously argued that their clients should be tried separately. According to the New York Times, the senior defendants would include former vice chairman Jeffrey Stein, who was the No. 2 executive at the firm; former vice chairman in charge of tax services John Lanning; former chief financial officer Richard Rosenthal; former associate in-house lawyer Steven Gremminger; former partner Robert Pfaff, who worked with co-defendant John Larson to set up Presidio Advisory Services; former senior tax partner David Greenberg; and a former lawyer at Sidley Austin Brown & Woo, Raymond J. Ruble. The junior defendants would include the head of KPMG’s personal financial planning division, Jeffrey Eischeid; former KPMG employee Larson, who set up an investment boutique that sold shelters; former Deutsche Bank employee David Amir Makov, who later worked at Presidio; and former partner Gregg Ritchie, among others.

It’s no secret that more and more people are turning to professionals for help in preparing their financial future. The problem becomes a question of who do you actually turn to for such advice. Manarin Investment Counsel based in Omaha, Nebraska, is an independent investment advisory firm offering professional financial planning and investment management services to small businesses, families, and individuals. Founded in 1983 by Roland Manarin, who immigrated to Omaha from northern Italy at the age of 10, it is an independent, fee-based investment advisor registered with the SEC. Manarin has some 30 years of experience working as a professional in investment management. He says that he educates the public in a variety of ways including a Wealth-Building Seminar Series, which he has presented since 1977 teaching investors to ignore conventional wisdom and practice true wealth-building strategies,a weekly radio talk show, "It’s Your Money," that he hosts, and a quarterly newsletter -- not to mention numerous lectures around the country. In 2004, he was named one of "America's Best Wealth Advisors" by Barron's and in 2005 was selected as a keynote speaker for the "Excellence in Financial Planning Conference." Manarin feels there is a basic question the vast majority of Americans face: Do you ‘go it alone’ when it comes to planning your financial future, investments, and savings plans; or do you get the help of an ‘expert’ to guide you through the process and ensure you get the most bang for your buck? “Increasingly, most of us choose to seek professional help. But to whom do you turn to and trust? There are five essential facts one needs to know before hiring a financial professional.”

The European Commission has rolled out a study arguing for a cap on the liabilities of auditing firms. Conducted by a London-based consulting firm, London Economics, the study says that a cap would reduce market concentration and help the Big Four firms -- which are the same across the pond as they are in the United States -- retain experienced staff. The major firms have all publicly lobbied for a cap, saying that legislating the change would shield them from the potentially ruinous lawsuits often filed in the wake of corporate scandals. According to the study, firms in the European Union currently face nearly a dozen claims ranging from costs between $220 million and $1 billion, in addition to another handful of claiming each totaling damages of more than $1billion. The study also noted that the commercial insurance taken out by the firm’s would cover less than 5 percent of some of the larger claims. The study also says that smaller accounting firms are unlikely to become a major alternative to the Big Four due to the high barriers to entry. The United Kingdom is in the process of introducing legislation that would allow auditors to ink proportionate liability agreements with corporate clients -- making them responsible for only their own errors. European Union internal market commissioner Charlie McCreevy has said he supports a fixed cap on liability claims, and the European Commission has promised to issue its own report on auditor liability before the end of the year. Caps already exist in five EU member states -- Germany, Austria, Belgium, Greece and Slovenia – however, opponents of the measure say that offering auditors the refuge of limited liability could lead to audit complacency.

A yearlong audit revealed that the AFL-CIO has some tightening to do over its own internal financial controls and record keeping. A spokesman from the Labor Department saidthatthe audit found problems beyond “mere technical bookkeeping errors” -- pointing specifically to the lack of travel policy for AFL-CIO officers, poor reporting of travel expenses for spouses, improper handling of credit card charges and missing loan documents -- according to published reports. The department released a 14-page letter that suggested improvements in financial procedures for the federation, which represents more than 50 unions and 9 million workers and is one of the largest shareholders in public companies, with more than $400 billion in assets. A spokeswoman for the federation said that the group plans to comply with the department's recommendations. In a letter to the federation's executive council, federation president John Sweeney did note that the audit raised no questions regarding the federation's expenditure of funds on behalf of workers. He also took a political shot at the White House, saying that the scope of the audit reveals that, "enforcing the nation's worker protection laws has taken a back seat to union oversight in the Bush administration." Less than a month ago, the federation sent a letter to the Big Four, specifically asking for more information about the role that the major accounting firms might have played in the handling of stock options grants the government is now investigating in a separate matter.

The Public Company Accounting Oversight Board announced that chief administrative officer Paul Schneider and public affairs director Christi Harlan will leave the board this month. Schneider joined the PCAOB in January 2003 as interim chief administrative officer, taking responsibility for a variety of start-up related activities. He was named chief administrative officer four months later. PCAOB Chairman Mark Olson said Schneider was instrumental in leading the selection of key personnel to head the board’s administrative offices, including information technology, finance, human resources and facilities management, as well as managing the budget and design aspects of the board’s benefit plans. Before joining the board, Schneider was the managing principal of Vector Recovery Group LLC, a turnaround management firm that provided restructuring and crisis management services. He has not announced his future plans. Harlan joined the board in April 2003, and said in a statement that she would be leaving to seek a new venture in public service. Harlan came to the PCAOB from the Securities and Exchange Commission, where she served as public affairs director from January 2002 until April 2003. Prior to her SEC service, Harlan was director of external affairs at the Federal Emergency Management Agency and communications director for the Senate Committee on Banking, Housing and Urban Affairs.

KPMG LLP has admitted 134 new partners in its 2006 class. A year ago, the Big Four firm admitted a record 166 new partners. Chairman and chief executive Timothy Flynn said in statement that the partners have each distinguished themselves by delivering KPMG’s promise of professionalism, reflected the firm’s focus on creating “an unmatched client experience, rooted in quality service and professional advice based on deep industry knowledge, regulatory knowledge and the highest standards of integrity.” Of the total new partners, 54 work in the audit practice, 36 in the advisory practice, 25 in tax and an additional 19 in national support services. With the addition of the new group, the firm’s U.S. partnership now totals 1,742 partners. KPMG LLP, the U.S. member firm of KPMG International, employs about 20,000 workers throughout 93 offices across the country. KPMG International’s member firms have 104,000 professionals, including 6,700 partners, in 144 countries.

A $39.5 million settlement between PricewaterhouseCoopers and investors in a mortgage loan fund is a done deal, now that the California Supreme Court has officially dismissed the original filing. The state’s highest court had agreed to hear the case back in March, just days before the plaintiffs reached a settlement after agreeing to mediation with the Big Four firm. That settlement has since received approval from both a federal bankruptcy court as well as the Alameda County Superior Court. Both sides requested a dismissal of the case in early September. The plaintiffs sued PwC in 2002, accusing the firm of abetting a fraudulent scheme carried out by then general partner, James Hillman, of two partnerships in which they had invested. Hillman and the director of the mortgage fund were sued in 2001 by the Securities and Exchange Commission. According to court filings, PwC audited the financial statements of the two partnerships in 1999, but ended its audit after telling Hillman he had given the firm falsified audit reports. The case itself had questioned whether PwC was required to inform investors of the fraudulent scheme. The money will go into a fund established under a global settlement agreement reached in federal court in 2002, and be distributed to plaintiffs.

When the Auditing Standards Board met back in August, its discussions were appropriate for a mid-to-late summer session - relatively quiet, with no pronouncements issued, no exposure drafts, just some pensive ponderings on progress soon to come.While topics included communication, clarity and auditor reports, and although it did not reach any decisions, the board felt that the roundtables could eventually lead to broad and substantive changes in the nature and form of information relating to audits.

FOREST OIL TAPS E&Y: Denver-based Forest Oil Corp. dismissed its auditor, Big Four firm KPMG, and hired Ernst & Young as its new independent accountant. In a filing, the oil and gas exploration concern said that the decision to jettison KPMG was approved by its executive committee. KPMG's reports on Forest Oil's two most recent fiscal years ended Dec. 31, 2004 and 2005, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.ENTRAVISION ENGAGES PWC: Spanish-language media concern Entravision Communications Corp. terminated McGladrey & Pullen as its independent accountant and named Big Four firm PricewaterhouseCoopers as its replacement.

Edward W. Trott, a member of the Financial Accounting Standards Board, said that he would step down from that position in June 2007, after eight years on the board of the standard-setter.Trott had accepted a second five-year term in July 2004, but at that time had advised the trustees of the Financial Accounting Foundation - the body responsible for the oversight, administration and finances of both FASB and its counterpart for state and local government, the Governmental Accounting Standards Board - that in 2006 he would re-evaluate his ability to complete that term. The foundation is also responsible for selecting the members of both the FASB and GASB boards. FASB's board is currently comprised of seven members.

In July, the Financial Accounting Standards Board announced that its agenda now includes a major project on lease accounting. As justification, the board cited encouragement from its own advisory councils and the Securities and Exchange Commission staff, all of which apparently concurred that "current lease standards fail to provide complete and transparent information."The announcement also stated that "lease arrangements have evolved considerably over the past 30 years and the standards are outdated." We're tempted to say, "Well, duh!" but we won't because of our great satisfaction that the board is preparing to throw out this example of WYWAP (Whatever You Want Accounting Principles) and POOP (Pitifully Old and Obsolete Principles).

Poor oversight and shaky internal controls on the use of government purchase cards to make relief transactions for victims of Hurricane Katrina led to widespread abuse and fraud, according to a report issued by the Government Accountability Office.

-- 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.

Alan Haft is the president of 5th Avenue Financial, a financial planning firm based in Boca Raton, Florida. He is a pretty savvy guy when it comes to financial planning and recently set forth what he considers the five biggest financial retirement planning mistakes that Baby Boomers make. At the outset, he says that most Baby Boomers, and even retirees, realize rather quickly that their so-called bulletproof retirement savings plan is actually riddled with bullet holes. To Haft, living longer could mean outliving nest eggs that were intended to secure that financial comfort zone. Haft is well known in helping the wealthy become even wealthier and the not-so-wealthy achieve financial security. “Most of what I’ve seen in the industry in terms of poor retirement planning,” he says, “involves improper guidance or self-guidance, and a lack of foresight.” Here are what he considers the five biggest mistakes in such planning: 1) It’s Too Late to Start Planning. Once you reach your 50s or 60s, many people think that the parade has passed them by. But Half points to the power of compounding, boosted by the tax-deferred growth offered by IRAs, 401(k) plans, and the like. So, building up that nest egg may not be too late. 2) Underestimating Life Expectancy. He says studies show that some 20 percent of workers expect their retirement to last 10 years or less but according to the 2000 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), half of the men reaching age 65 have an additional life expectancy of some 17 years while half of the women reaching that age are spun out 21 years. 3) Miscalculating Needs. Most financial planners say that you must plan on needing 60-85 percent of your pre-retirement income in your retirement years. According to that EBRI survey, only 53 percent of workers have tried to determine how much money they’ll need in retirement. 4) Looking at Inflation. Many investors, Haft says, particularly older ones, are uncomfortable with market volatility. They invest solely in Treasury bills, fixed-rate CDs, and savings accounts. He feels it is important to consider keeping some money in growth investments such as stocks and stock mutual funds. 5) Putting Other Financial Goals First. Haft points out that to many people, retirement probably isn’t the only financial goal--not when you may be saving for a child’s college education or for a down payment on a second home. But he cautions not to place them ahead of a financially secure retirement. Of course, easier said than done.