Audit

An online filing error has revealed that the Public Company Accounting Oversight Board authorized a probe into a 2003 audit performed by Big Four accounting firm Deloitte & Touche LLP.

The Public Company Accounting Oversight Board will host a forum in early August, "Auditing in the Small Business Environment," in Orlando, Fla., designed for registered accounting firms and public companies working in the small business community.

The International Auditing and Assurance Standards Board, a unit of the International Federation of Accountants, has released ISRE 2410, a standard to assist auditors in reviewing interim financial statements.

Big Four firm PricewaterhouseCoopers has named Rob Ward to head its global assurance practice -- the company's largest line of service. Ward had previously served as deputy global assurance leader and will succeed Gerald Ward (no relation), who is retiring after more than 30 years of service.Ward, 51, will oversee 5,000 partners and approximately 55,000 employees for the business line, which had revenues of $8.7 billion for the 2004 fiscal year. Before joining the Global Assurance Group, he had been the national managing partner of PwC Australia."Rob Ward will lead PwC's assurance business at a dynamic time for our firm and the profession," said Samuel A. DiPiazza, chief executive of PwC, in a statement. He added, "The breadth and depth of his experience with major clients make him uniquely qualified to lead during this period of growth and change."A graduate of the University of New South Wales and a chartered accountant, Ward joined PricewaterhouseCoopers in 1974. He has been extensively involved in the development of global audit methodology and the application of computer technology. Additionally, he served as president of the Institute of Chartered Accountants in Australia, national executive of the Institute of Chartered Accountants in Australia, and chairman of the Australian Accounting Research Foundation. In January 2005, Ward was awarded and admitted as a Member of the Order of Australia for his contribution to the accounting profession and the community.

American Express Financial Advisors Inc. will pay New Jersey $5 million and implement company-wide reforms to address allegations that it failed to reasonably supervise its financial advisors. The settlement follows revelations that a financial advisor in AEFA's Voorhees, N.J., office stole more than $400,000 from at least 22 clients. The New Jersey Bureau of Securities discovered the theft, and expanded its investigation with the uncovering of widespread problems involving AEFA's failure to supervise financial advisors within its franchise offices. "In investigating and prosecuting this individual, we identified a larger issue of inadequate supervision of the company's financial advisors," said New Jersey Attorney General Peter C. Harvey. "To its credit, American Express has worked cooperatively with our office to address deficiencies in its oversight of financial advisors." Harvey vowed to continue his scrutiny of financial advisory services. "We are taking a hard look at the industry," he added. "Where we find firms failing in this area and the failures are significant, we will be imposing major penalties and demanding significant reforms."

Financial Executives International, a 15,000-member trade group for chief financial officers and other senior financial personnel has elected its new slate of officers. Robert Walker, former CFO of Agilent Technologies, will serve as chairman, while Richard Schrader, executive vice president and CFO of Parsons Brinckerhoff Inc., in New York, will become vice chairman. Additional officers include: Alexis Dow, elected auditor, metro, regional government in Portland, Ore., and Joseph DiLorenzo, co-founder and manager, M/D Group LLC, in Humarock, Mass., who will serve as vice presidents at large. Gerald Urich, corporate assistant controller, The Hershey Co., Hershey, Pa., will serve as treasurer. Jeffrey Curtiss, senior vice president and CFO, Service Corp. International, Houston, will become secretary.Mary Jo Green, immediate past FEI chairman, and senior vice president and treasurer, Sony Corp. of America, New York, and second past FEI chairman H. Stephen Grace, Jr., president of H.S. Grace & Co., Houston, will continue in their capacities as directors-at-large. Joan Netzel, first vice president, audit relationship manager for SunTrust Banks Inc., Atlanta, will remain as chairman of the Board of Trustees for Financial Executives Research Foundation -- FEI's research affiliate. The FEI officers slate began officially July 1.

President Bush formally nominated Rep. Christopher Cox, R-Calif., to become the next chairman of the Securities and Exchange Commission, succeeding William Donaldson, who stepped down June 30 after nearly two-and-a-half years at the helm of the regulator. In the interim, the president appointed SEC commissioner Cynthia Glassman to serve as acting SEC chair until Cox is confirmed. A confirmation hearing for Cox -- which requires Senate approval -- could occur in July. Meanwhile, Senate Minority leader Harry Reid, D-Nev., has recommended that Bush nominate Annette Nazareth, currently the commission's market regulation division director, for the commissioner post that will be vacated when Harvey Goldschmid leaves in the fall for a teaching post at Columbia Law School.

Extensible Business Reporting Language, or XBRL, the technology that tags financial information through disparate applications and carries it through the business reporting chain, can lower costs and provide enhanced analytical capabilities for users, preparers and consumers of financial statements. "It usually takes two years for data to go from the corporate reporting chain to actual economic policy-making," said Mike Willis, a partner at Big Four firm PricewaterhouseCoopers and founding chairman of XBRL International. "Paper in the reporting process doesn't cut it; it's too manual and too expensive." Willis, one of the nation's leading authorities and proponents of XBRL, led a session titled, "Business Reporting in XBRL -- Tagging for U.S. GAAP" at the AICPA Information Technology Conference, here. Currently, XBRL International has 350 member organizations in 24 countries. In the United States, XBRL reporting programs are underway at the Securities and Exchange Commission and the Federal Deposit Insurance Corp. However, it has been slower to gain traction domestically. "Information labels are inconsistent from one application to another, such as ERP to Excel," said Willis. "Information goes in one direction -- there's no shared context." As an example, Willis said that large companies that have stakeholders in other countries have to publish annual reports or financial statements in other languages. In XBRL, the information is tagged and flowed into indigenous spreadsheets so that users don't have to be fluent in English to find the desired categories. "Accountants by nature tend to be reactive," Willis said. "But they need to be proactive with XBRL, or their relevancy in external reporting will dwindle."

The Securities and Exchange Commisson has settled with KPMG Canada and two of its partners for the audit firm's lack of independence related to its audit of Southwestern Water Exploration Co., a now-bankrupt Colorado-based concern.KPMG Canada provided bookkeeping services to Southwestern and then audited its own work, issuing what were supposed to be independent audit reports on Southwestern's financials for the years 1999-2002.The SEC's order censures KPMG Canada without the firm admitting or denying guilt. KPMG Canada also agreed to adopt new auditor independence policies and procedures and pay $73,682 -- its fees for the audit of Southwestern, plus interest.In addition, two KPMG Canada partners -- Gary Bentham, the audit engagement partner, and John Gordon, the concurring and SEC reviewing partner -- are prohibited from auditing SEC issuers for two years and nine months, respectively.

The chief financial officer of advertising giant Interpublic Group, which is the subject of a newly widened probe by the Securities and Exchange Commission, has stepped down. Robert Thompson had been CFO of the company for just a year; his successor, who will not be named until late July, will be Interpublic's fourth CFO in two years. In a statement, Interpublic chairman and chief executive Michael Roth said, "Bob and I have independently come to the conclusion that the next steps in our company's progress will require new financial leadership." The SEC, which had been investigating the company's accounting due to restatements made in 2002, recently expanded its probe to include its accounting for the many acquisitions that it made from 1996 through 2001, as well as for other issues. Interpublic has yet to file statements for 2004, citing material weaknesses in internal controls and the time required to complete its Sarbanes-Oxley Section 404 report. It also suggested that it might have improperly consolidated the results of some of the companies it acquired, and might have to restate prior results.

In a divisive 3-2 vote, the Securities and Exchange Commission amended and re-approved a proposed rule requiring the directors of mutual funds to be independent that had been ruled against by a federal court a little more than a week ago. Ruling in a suit brought by the U.S. Chamber of Commerce, the court said that the commission had not taken into account any alternatives and did not consider the costs of the rule, which would require that at least 75 percent of a fund's directors be independent. To address the court's concerns, the amended rule added details about compliance costs and other matters. "We've done the right thing," SEC Chairman William Donaldson said in a statement, adding that the SEC had laid out in detail what implementation would costs funds, and that it had concluded that simply disclosing whether or not directors were independent would not be adequate. Yesterday's vote was seen by some as a rush to get the rule implemented, since Donaldson is due to step down today, thus changing the balance of opinion at the commission. The Chamber of Commerce promised to sue again.

As one of the first companies to comply with the impending rule requiring the treatment of employee stock options as an expense, IBM might reasonably have expected a pat on the back. Instead, its reward is an investigation by the Securities and Exchange Commission. The company announced on Monday that it was cooperating with an informal SEC investigation into its financial reports for the first quarter ended March 31, in which IBM had expensed stock options, even though at the time the rule was not due to go into effect until June 15. (Implementation has since been delayed by another six months.) IBM said that it had been informed by the SEC that the investigation was not an indication that the company had violated any laws, and an IBM spokesperson said that they had no reason to believe that the financial statements or their treatment of stock options was inaccurate.According to published reports, the focus of the SEC's investigation was the way that IBM disclosed its expensing method, with some suggesting it might have been misleading. The company took a charge of 10 cents a share for options, while analysts had expected 14 cents.

Gathering here for their annual world meeting, 250 leaders from the member firms of Deloitte Touche Tohmatsu said that they expected the firms' aggregate revenues to hit $18 billion, with growth of more than 10 percent for fiscal year 2005.At the meeting, held earlier this month, Deloitte CEO William G. Parrett noted that this was the member firms' twelfth year of aggregate growth, adding, "The growth has been the direct result of the increased demand for services: Simply, it is a case of increased service hours across member firm markets."The firms said that audit and enterprise risk services had seen the strongest growth, at 15 percent, followed by financial advisory services and consulting growth, at 9 percent each. Parrett took the consulting growth as a sign that keeping its capabilities in that area "was the right strategic decision for Deloitte." Growth was particularly strong in the Asia Pacific/Japan region, at 15 percent, led by expansive growth in China. The Americas and Europe/Middle East/Afria regions saw 10 percent growth each. The firm leaders also considered a number of strategic scenarios during the meeting, including key competitor moves, major legal developments that could impair current business models and heighten risk, and new regulatory developments.

In a deal motivated in part by stricter regulation, Citigroup announced Friday that it will swap its asset management business for the broker/dealer business of Baltimore-based Legg Mason. Citi will get $1.5 billion in common and preferred Legg Mason shares as part of the $3.7 billion deal, which lets the company ditch the less-profitable business of creating its own asset management products, while avoiding the conflict of interest of having its sales force promote both in-house and external funds. Under a separate arrangement, Citi will continue to be able to offer its clients its asset management products. Legg Mason will gain approximately $437 billion of assets under management. The deal, which had been under discussion for some time, is expected to close toward the end of the year. Separately, Legg Mason announced that it was paying $800 million for 80 percent of hedge fund company Permal Group, with an option to buy the rest. Permal is one of the largest fund-of-funds operators in the industry, with around $20 billion under management.

Big Four firm KPMG, which is sweating out a possible indictment from the Department of Justice over its sale of tax shelters, is working to limit its liability from civil suits by negotiating with class-action firm Milberg Weiss Bershad & Schulman.According to The New York Times, Milberg Weiss is working with the firm to reach a "prepackaged settlement" with clients of the shelters who claim that they were hurt by purchasing the products.According to documents filed in federal district court in Hot Springs, Ark., KPMG had recently began talks with Milberg Weiss; under the reported settlement terms, KPMG would pay $195 million.A representative from Milberg Weiss told WebCPA that the firm could not comment. Currently, the firm faces a class-action suit filed by Bernstein Litowitz Berger & Grossmann, and the class includes purchasers of a KPMG shelter from January 1998 to Oct. 31, 2000.Other defendants in the class action are Presidio, an investment advisory firm started by former KPMG partners; Deutsche Bank; and Sidley Austin Brown & Wood, a law firm that issued favorable opinion letters on the shelters.

President Bush's Advisory Panel on Federal Tax Reform will likely hold a July meeting to review the information and comments gathered during the ten days of public hearings that the panel has convened since its inception in January. According to Tax Analysts, the reform panel groups have been reviewing materials in preparation for their final recommendations, which is scheduled to be presented to Treasury Secretary John Snow Sept. 30. Prior to that, however, the panel's final recommendations will probably be presented in a September public hearing.

Big Four firm PricewaterhouseCoopers and McLean, Va.-based Brabeion, a provider of IT security risk and compliance tools, have entered into a pact whereupon Brabeion will be PwC's third-party provider of security content as part of Brabeion's Enterprise Security Architecture System. Terms were not disclosed. PwC originally developed ESAS to help large organizations manage and implement enterprise-wide security policies. Brabeion purchased the ESAS solution from PwC in April 2005.

The Multistate Tax Commission, a consortium of 47 state governments that works to hone the administration of tax laws applicable to multistate enterprises, has named Joe Huddleston Esq. as its executive director. Huddleston begins begin Aug. 1, and succeeds interim ED Rene Y. Blocker. Huddleston was most recently vice president of tax solutions for Liquid Engines Inc., a tax software firm focused on state income tax planning models and methodologies for multi-state and multinational companies. Prior to that, he was a state and local tax partner at national CPA firm Grant Thornton, serving middle-market and Fortune 500 companies He also served as commissioner of the Tennessee Department of Revenue from 1987 to 1995. "I look forward to working with state tax organizations as we address the challenges that will define the next several years," said Huddleston in a statement. "The MTC has made enormous strides in recent years, and I very much intend to help write the next chapter of the continuing success story at the commission."

H.B. 492, a bill requiring personal finance education for high school students in Texas, has been signed into law by Gov. Rick Perry. The bill, which had the support of the Texas Society of CPAs, was first introduced in the Texas House of Representatives. Prior to its passage, TSCPA chairman Ed Polansky had testified in favor of the legislation in March. Polansky said that the TSCPA would help school districts comply with the bill by continuing to make available the multi-lesson curriculum guide that was developed by the American Institute of CPAs. Texas now becomes the eighth state to require personal finance education for high school graduation, joining Alabama, Georgia, Idaho, Illinois, Kentucky, New York and Utah.

The Professional Oversight Board of Accountancy, the auditing regulator for the United Kingdom, said that it had discovered some procedural deficiencies in a round of audit inspections of 27 British corporations conducted by Big Four firms. Overall, the report stated that it didn't find any "systemic weakness" in the auditing firms' procedures, but noted that in at least two instances, the POBA had concluded that "there was sufficient doubt as to whether" the company being audited "had applied the correct accounting treatment or made appropriate disclosures." "The quality of audits is under threat from a number of risks which are not addressed by all firms in all audits," said POBA Chairman Sir John Bourn. "We found that each of the Big Four firms of auditors have the necessary infrastructure in place, and the commitment, to complete good quality audits. However, where the firms do not follow their own procedures they expose themselves to the risk that future audit opinions may not be appropriate." However, the report did not specifically identify any of the firms in the report -- KPMG, PwC, Ernst & Young and Deloitte. The POBA was established last year. A copy of the report can be obtained at www.frc.org.uk/poba/publications/.