Audit

Despite dire predictions by critics of the Sarbanes-Oxley Act that the accounting reform law would freeze smaller CPA firms out of the audit business, just the opposite appears to be happening, Public Company Accounting Oversight Board Chairman William J. McDonough told Congress.

The Government Accountability Office's quality assurance system has received a clean audit opinion from an international peer review team.

The New York State Society of CPAs has launched "CPAs on Boards," a state-wide program that links CPAs with nonprofit organizations looking for financial experts to add to their boards of directors.

Grant Thornton executives this week urged regulators, public company boards and executives, and auditors to move to protect capital markets and investors by taking steps to increase choice and competition for public companies and auditors.

Companies that limit Sarbanes-Oxley reviews to a small group of senior management have worse performance records compared with those that involve much of the organization in their review process, according to a report by research firm AberdeenGroup.

The Professional Ethics Executive Committee of the American Institute of CPAs has proposed in an exposure draft a new ethics interpretation of rules to determine whether financial interests held by a company's external auditor impair independence.

Big Four firm KPMG LLP has agreed to pay more than $22 million to settle charges brought against it by the Securities and Exchange Commission in connection with its audits of Xerox Corp. from 1997 through 2000.

The American College, based here, and the National Association of Insurance and Financial Advisors have partnered to create the Financial Services Specialist designation, a new financial planning credential.

Audits have gotten more complicated, and that means more auditors will be using more specialists. But what qualifications does a specialist need to be entrusted with a role in an audit?

Securities and Exchange Commission enforcement director Stephen M. Cutler, whose tenure included investigations of some of the largest financial reporting failures in the nation's history, is leaving the commission next month to return to the private sector, the agency said. The agency has not yet named a successor.

Amid an investigation into its disclosures and accounting practices, Raytheon Co. placed its chief financial officer on leave at the same time that it announced that it had submitted a settlement offer to the Securities and Exchange Commission and settled a shareholder lawsuit.

The Securities and Exchange Commission voted to delay the effective date of a Financial Accounting Standards Board rule that requires companies to treat employee stock options as expenses.

Customer relationship management software maker Siebel Systems Inc. has tapped board member and former Andersen Consulting chief George T. Shaheen as its chief executive officer.

Paisley Consulting, a provider of business accountability software, revealed two online services this week for their compliance and risk management software - the Standard Hosting Model and the ASP Pricing Model.

The cost of compliance associated with Section 404 of the Sarbanes-Oxley Act are expected to drop significantly for some companies, according to a report commissioned by the Big Four audit firms.

The Securities and Exchange Commission is reportedly expected to change the effective date for new stock option accounting rules that will require companies to include employee stock-option compensation as an expense on their earnings reports, giving most U.S. companies a six-month reprieve.

Maintaining the morale of employees charged with ensuring Sarbanes-Oxley compliance in their companies remains the largest challenge to 404 compliance, according to a just-released survey. Nearly half of the 200 executives participating in the 2005 Financial Executive Report, conducted by Oversight Systems, indicated that employee morale was the largest issue in SOX 404 compliance, while reducing internal and external costs ranked as the second-most-frequently cited challenge to ongoing compliance. "Obviously, complying with Section 404 of Sarbanes-Oxley has been extremely expensive," said Joseph V. Carcello, co-founder and director of research for the University of Tennessee's Corporate Governance Center and an advisor to Oversight Systems. "However, stronger controls lead to real benefits in the form of eliminating waste, eliminating abuse, and [producing] better information for improved decision-making." To reduce the burden on employees and compliance costs, 60 percent of financial executives surveyed said that they are implementing software that automates the manual processes required for compliance. Other survey findings included: o 49 percent said that SOX compliance resulted in reduced risk of fraud and errors; o 48 percent indicated that they now have more efficient financial operations; and, o 31 percent said that error rates have declined. The survey is available at www.oversightsystems.com/survey.html.

The Governmental Accounting Standards Board has released Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports that Contain Basic Financial Statements, a paper providing guidelines for presenting financial disclosure information. The methods include recognition in basic financial statements, disclosure notes to financial statements, and presenting supplementary information. GASB said that the definitions and criteria in Statement No. 3 should aid the board or the preparers of financial reports in determining the best methods to use to communicate information. The concept statement can be ordered through GASB's order department at (800) 748-0659, or via its Web site at www.gasb.org.

-- Tax audits by the Internal Revenue Service on companies in the financial sector are undertaken far less frequently than those in other sectors such as manufacturing, agriculture and mining, according to a report from Syracuse University's Transactional Records Access Clearinghouse. The financial services sector -- which includes banks, insurance companies and brokerage firms -- received less than one-fifth of the audit frequency of other sectors during the years 2002 to 2004. The TRAC study examined the audit rates of companies in a number of sectors, each of which had at least $250 million in assets. "The very low attention being given to the financial sector by the IRS is particularly surprising in light of the leading role this industry plays in the country's economy, including the level of income subject to federal corporate income taxes," the report stated. However, the IRS contended that the TRAC data was flawed due to the fact that an audit of a financial concern would be reported as a manufacturing sector audit if the branch conducting the examination did not have a financial industry specialist on staff.

The Securities and Exchange Commission has unveiled the panelists scheduled to participate in the April 13 roundtable on internal controls reporting. The day-long session will feature six separate panels, with topics, including: first-year efforts; reporting to the public; planning and design; documentation and testing of internal control over financial reporting; and the use of judgment in communications and conclusions. Among those scheduled to participate are: Colleen Cunningham, of Financial Executives International; Rebecca McEnally, of the CFA Centre for Financial Market Integrity; Comptroller General David Walker; Edward E. Nusbaum, of Grant Thornton; Lynn E. Turner, of Glass, Lewis & Co.; James S. Turley, of Ernst & Young; Samuel A. DiPiazza, of PricewaterhouseCoopers; and John A. Thain, of the New York Stock Exchange. "The panels are comprised of highly qualified individuals that offer significant expertise and first-hand experience on these matters," said SEC Chairman William Donaldson in a statement. "[The roundtable] is an important part of the commission's overall efforts to study the initial implementation of the internal control reporting provisions."