Audit

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.

A sampling of tax returns filed by fishermen in 2004 revealed that thousands of workers had overpaid an average of $530, after failing to take advantage of the averaging provision in calculating their income tax liability. According to the report from the Treasury Inspector General for Tax Administration, more than 4,600 taxpayers -- about 90 percent of the fishermen who could have benefited from the averaging provision -- didn't take advantage of the provision included the American Jobs Creation Act of 2004. TIGTA said that the overpaid taxes for the individual returns filed during the 2004 tax year totaled more than $2.4 million; and a startling 90 percent of the fishermen’s returns were prepared by paid tax preparers. The 2004 law allows fishermen to elect to compute their tax liabilities by averaging all, or a portion, of their taxable fishing income from the prior three years. The measure was designed to help fishermen recover from low-income years by keeping more of their income in successful years and offsetting potentially high tax burdens in isolated years. At the time of its enactment, the Joint Committee on Taxation estimated the provision could save fishermen up to $61 million in taxes over the next decade -- between $3 million and $10 million annually. During a prior audit, TIGTA noted that less than one half of taxpayers who could benefit from a similar provision for farmers, had actually taken advantage of the measure. The inspector general recommended to a variety of federal offices that a better and broader effort be made to educate both fishermen and tax preparers about the averaging provision. The full report is available at www.treas.gov/tigta/auditreports/2006reports/200630158fr.pdf.

The Internal Revenue Service has issued details on the process for military reservists called to active duty to receive payments from individual retirement accounts, 401(k) plans and 403(b) tax-sheltered annuities, without penalities.

A Boston-based investment fund has received the go-ahead from a state court in Virginia to move ahead with a $51 million lawsuit against accounting firm Goodman & Co. LLP.

Two major players in the accounting scandals at energy giant Enron Corp. and telecom powerhouse WorldCom Corp. moved a step closer to punishment for their crimes.

PricewaterhouseCoopers announced the launch of a United States-based valuation practice offering a full range of valuation services. The Big Four firm has organized its valuation services into two teams. Offerings from the Transaction Services Accounting and Valuation Advisory practice are aimed at helping companies meet financial reporting and tax valuation requirements, especially those related to mergers and acquisitions. The practice will be lead by New York partner John Glynn, a former professional accounting fellow at the Securities and Exchange Commission and PwC's representative to the Appraisal Issues Task Force. Meanwhile, Chicago-based partner Mark Haller will head the firm's Business Analytics team that will offer applied valuation analysis and advisory services to help companies make business decisions. Haller is already the leader of PwC's Economics and Strategy practice. Both teams will operate with a goal of providing quantitative support to help clients makes decisions on issues such as new market entry and competitive threats, dispute resolution, changing and emerging business models, internal investment choices, product pricing, product rationalization and extension, and customer value assessment. The service was specifically created with non-audit clients in mind. PwC said that with the U.S. launch, it is capable of delivering valuation services worldwide through a team of more than 1,550 valuation professionals.

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:

California’s Franchise Tax Board is in the process of notifying more than 200 corporate taxpayers that their information was made public Sept. 19 when an employee accidentally e-mailed a list of companies under audit. The e-mail distribution list included two writers for BNA, a publisher of print and electronic news, which promptly reported that the listing of taxpayers under audit for tax years 2003 and earlier had been released. The list included the name of the taxpayers, their identification numbers, and the name of the auditor assigned to each case. The tax board is responsible for collecting state personal income taxes, as well as bank and corporate taxes for the entire state. Under California’s Revenue and Taxation Code, the board must notify taxpayers that their information had been disclosed, and the responsible employee can be charged with a misdemeanor. An FTB spokeswoman told BNA that the employee intended to send the message to himself, but accidentally sent the message to a broader distribution list. In a follow-up email sent the same day, he asked recipients to permanently delete the e-mail from their computers. According to BNA, the list includes several well-known corporations in a variety of industries, including entertainment, energy, electronics, and banking. Notes in the file appear to show that several of the taxpayers are being audited for possible participation in abusive tax shelters.

The Public Company Accounting Oversight Board has announced two upcoming meetings -- one for its Standing Advisory Group in Washington, another a Philadelphia forum on auditing in the small business environment. The advisory group, which is comprised of 31 individuals who advise the board on auditing and professional practice standards, will meet on Oct. 5 at the Army and Navy Club in Washington. The group will discuss the board’s proposed standards-setting activities for 2007 and ways of measuring the success of the PCAOB. A panel discussion on the attributes of auditing in a smaller-firm environment and the attributes of auditing smaller issuers will also be held. The meeting is open to the public and will be Web cast on the board’s Web site, www.pcaobus.org, where an agenda is available. Separately, on Oct. 16, the board will host one of its regular forums for small business auditors. The program will be hosted by board member Kayla J. Gillan along with staff from the offices of inspections, enforcement and standards-setting, and will focus on educating smaller registered accounting firms about the board’s work. The forum will be held at the Rittenhouse Hotel and be open to auditors from smaller registered public accounting firms, who can earn continuing professional education credits. The board plans to hold two more forums in New York City and Chicago. Information on how to pre-register for the event, which is a requirement, is available by calling (202) 207-9061.

With their sentencing dates approaching, former Enron chief executive Jeffrey Skilling and former chief financial officer Andrew Fastow are taking divergent routes in the image they portray to the court. Skilling, 52, was ticketed for public intoxication earlier this month in Dallas, according to a report in the Houston Chronicle. The paper said that Skilling, who was not drinking at the time of the arrest, received a $385 ticket on Sept. 9 at about 1:45 a.m. and was briefly detained in a city jail. Public intoxication is a misdemeanor and punishable by a fine of up to $500.