Audit

While Section 404 of Sarbanes-Oxley says management is responsible for establishing and reporting on a company's system of internal controls, more than half of 329 companies reporting control deficiency disclosures did so because their external auditors identified and reported those weaknesses, according to a report by the Financial Executives Research Foundation.

Expressing optimism that the bipartisan bickering over a litany of Capitol Hill issues would be suspended at least temporarily, Treasury Secretary John W. Snow said that a finding a solution for the wheezing 70-year-old Social Security program would be the test of lawmakers from both sides of the aisle to come together.

The Public Company Accounting Oversight Board revoked the registration of a New York public accounting firm and disciplined three of its partners for concealing information from the board and submitting false information in connection with a PCAOB inspection.

The president's panel studying tax overhaul options isn't expected to recommend major changes to the estate tax, according to published reports.

Legislators and the public should be aware that carry-over basis problems of estate tax repeal could be a nightmare, according to the American Association of Attorney-CPAs.

The federal government's current fiscal business model isn't sustainable and major changes need to be made, the Comptroller General told a group of New York CPAs here.

More than 14 percent of large public companies will receive failing grades on their internal controls, according to the latest Sarbanes-Oxley Section 404 internal control disclosure research by AuditAnalytics.com.

Responding to clients' need to manage massive amounts of electronic information, the forensic and dispute services practice of Deloitte & Touche LLP has launched AFTnet Services, a scaleable solution that links data collection, management, discovery and investigation.

Companies complying with Section 404 of Sarbanes-Oxley should, among other things, have internal experts develop the plan for documentation and testing; should maintain open and continuous communication between management and the internal and external auditors; and should include the external auditors in internal audit training sessions, according to a new report detailing 404 best practices.

The College for Financial Planning, based here, is offering advisor training for a financial planning designation that focuses on issues related to working with seniors -- a fast-growing age group that it says will represent 20 percent of the population within the next 25 years.

In response to concerns raised at a Securities and Exchange Commission roundtable last month on implementing internal control reporting provisions, the Public Company Accounting Oversight Board has published additional guidance for auditors on how to implement its standard related to the audits of internal controls over financial reporting. The guidance on Auditing Standard No. 2 is expected to lower the costs associated with internal control audits, the board's chairman and chief auditor said Monday. PCAOB Auditing Standard No. 2, which refers to the auditor's attestation as an audit of internal control over financial reporting, is the standard that auditors must use to satisfy their obligations under Section 404 of the Sarbanes-Oxley Act. The main purpose of the guidance is to "clarify Auditing Standard No. 2 and to show that if it is applied correctly, the way we meant it to be applied, in addition to being very important, it should be cost-beneficial," PCAOB Chairman William McDonough told reporters during a conference call. "We're working on improving the methodology, and the improvement in methodology will result in lower costs," McDonough said. PCAOB chief auditor Douglas Carmichael noted that if companies are successful in integrating their financial statement and internal control audits, "they'll have some reduction in cost in each audit." "Fees should come down for a variety of reasons," said Carmichael. "The integration of the audits, and the learning curve -- companies will get better at doing this. With our new FAQs, we're giving specific advice on things that can be done to make audits more effective and more efficient. That way, companies can spend less time in areas that are truly low-risk." The guidance includes a board policy statement on the implementation of the standard, which McDonough said passed last Friday in a unanimous vote, and a series of staff questions and answers that he said gives "more technical guidance to issuers and especially auditors." The Board Policy Statement and the FAQ both focus primarily on the scope of the internal control audit and how much testing of a company's internal control over financial reporting is required, which the PCAOB said are the issues that primarily drive cost. According to the policy statement, auditors should: * Integrate audits of internal control with financial statement audits, so evidence gathered and tests conducted in the context of either audit contribute to completion of both audits; * Exercise judgment to tailor audit plans to the risks facing individual clients, instead of using standardized "checklists" that may not reflect an allocation of audit work weighted toward high-risk areas; * Use a top-down approach that begins with company-level controls, to identify for further testing only those accounts and processes that are, in fact, relevant to internal control over financial reporting, and use the risk assessment required by the standard to eliminate from further consideration those accounts that have only a remote likelihood of containing a material misstatement; * Take advantage of the flexibility that the standard allows to use the work of others; and, * Engage in direct and timely communication with audit clients when those clients seek auditors' views on accounting or internal control issues before those clients make their own decisions on such issues, implement internal control processes under consideration, or finalize financial reports. "Auditors didn't seem to be engaging in as full a dialogue with client as is legal and makes sense," McDonough said. "The concentration on retaining independence may have led people to exaggerate how little communication they can have. This is easily managed by the issuer asking for a view on something they already think rather than asking the [auditor], 'What should I do?'" The board's Standing Advisory Group will meet on June 8 and 9 to discuss implementation of the standard. "We'll have the opportunity to consult with them to see if any additional administrative clarification is necessary or if it's necessary to reopen [AS2]. It's not likely, but not impossible," McDonough said. "Some fine-tuning may be needed in the future, but that doesn't appear to be the case now. But we need clarification to applied so we get more cost benefit out of it." He added, "If we have to reopen [the standard], then we get into rulemaking and that would take about six months. What we can do administratively is much more beneficial."

Cost accounting got you down?You're not alone. As much as 80 percent of Amercan management accountants agree that their current methods just aren't good enough for current business.

The demand for capital in the Republic of China, whose 9.5 percent growth has spurred its government to rein in that rapid rate for fear that its economy could overheat, is also spinning off steps to spruce up the country's accounting procedures.The country's rising capital market needs mean that accounting methodologies should be tailored to suit the needs of that market, asserted Liu Zhongli, president of the Chinese Institute of Certified Public Accountants, during a recent speech in Brussels.

A district court judge here gave the okay in late April to a settlement in which Arthur Andersen agreed to pay $65 million to resolve a class-action lawsuit brought by WorldCom investors who alleged that the audit firm failed to protect them by not uncovering the $11 billion fraud at the telecommunications company.Andersen also agreed to pay investors 20 percent of any remaining capital that it intends to distribute to its partners, and also to pay the difference between the $65 million and any larger settlement in any other lawsuit it may settle in the future, according to Sean Coffey, an attorney for lead plaintiff the New York State Common Retirement Fund.

The Resnick Group LLC, based here, has merged its practice with New York-based accounting and financial consulting firm Druckman Hill LLP.

The Securities and Exchange Commission named Linda C. Thomsen to head the agency's enforcement division succeeding Stephen Cutler, who is leaving the regulator this month for a post in the private sector.

In the midst of a massive restatement, troubled mortgage-finance concern Fannie Mae said it won't file its first-quarter financial report with the Securities and Exchange Commission on time.

MCI agreed to pay $100 million in cash to the state of Mississippi for back taxes the state claimed were owed by the company's predecessor, WorldCom.

A crackdown on abusive tax shelters that includes codifying the economic substance doctrine would create legal booby traps for small businesses and open the door for new abuses by unscrupulous tax shelter promoters, the American Institute of CPAs warned Congress.

The NASD has censured and fined Raymond James & Associates Inc. and Raymond James Financial Services Inc. $750,000 for violations relating to the firms' fee-based brokerage business.