Audit

Thomas C. Newkirk, associate director in the Securities and Exchange Commission's Division of Enforcement, will depart the commission in November after 19 years of service to become a partner in the Washington office of the law firm of Jenner & Block LLP.

Member response to the American Institute of CPAs' recently formed audit quality centers has been favorable, an institute vice president told Council members here, noting that the Employee Benefit Plan Audit Quality Center has attracted nearly 700 firms since its launch in March. As of last week, some 690 firms have joined the voluntary center, with five to 10 additional firms enrolling daily, Susan Coffey, AICPA vice president of audit quality and professional ethics, told Council members in an update Monday. The Governmental Audit Quality Center, which launched on Sept. 27, has just begun recruiting members. Coffey noted that some 6,300 firms practice in that environment, which includes the audits of state and local governments and nonprofits, as well as certain for-profit entities that receive government funds. In addition, Coffey noted that 950 firms (auditing 96 percent of all SEC registrants) have joined the Center for Public Company Audit Firms. That center, a revamped version of what used to be the AICPA's SEC Practice Section, launched in January of this year.

In two separate votes at a meeting today, one split and one unanimous, the Securities and Exchange Commission decided to require the registration of most hedge funds, and to propose new rules for companies seeking an initial public offering. Chairman William Donaldson and two Democratic commissioners voted against the two Republican commissioners to push through the tough new rules for hedge funds, which had previously been only lightly regulated. Traditionally investment vehicles for the extraordinarily wealthy, hedge funds have grown enormously over the past few years, both in terms of their assets under management and the types of investors involved. Of particular concern to many are the number of banks and pension plans that have turned to hedge funds as stock market returns have diminished from their dot-com highs. SEC registration would impose new record-keeping and information-sharing burdens on the industry, and require them to allow SEC inspections. Industry groups have complained that the new rules would hit funds with unfairly heavy costs for registration and compliance personnel, among other things. The other, unanimous decision by the commissioners was to propose changes for IPO-seeking companies that would, in some cases, eliminate the 70-year-old "quiet period" before the offering when they must remain incommunicado. "Well-known, seasoned issuers" would be allowed to distribute much more information than they currently can, in the form of media interviews, press releases and even possibly advertising. The proposal will now be sent out for public comment, with opinions required with 75 days of the proposal's publication in the Federal Register.

The Public Company Accounting Oversight Board approved a hefty $152.8 million operating budget for itself during 2005 -- an increase that will allow the PCAOB to expand its staff by 50 percent over the coming year. Most of the 150 new staff positions envisioned by the budget plan will be earmarked for an expansion of the PCAOB's team of auditors responsible for conducting inspections of the 1,389 accounting firms that have registered with the board to audit U.S. corporations. Under the new budget plan, the organization will engage in "an aggressive recruiting effort to hire experienced auditors," and by the end of 2005 the total inspection staff is expected to rise by 90 billets to 220, PCAOB chief financial officer Thomas Hohman said in the meeting at which the budget was approved. But even with a 70 percent boost in manpower, the board's inspection staff could be stretched thin next year. "We would like more [experienced auditors on the team], but we recognize this is a very tight employment market," Hohman said in outlining the budget plan to the five-member board. To achieve these recruiting goals, the board must be in a position to offer "outstanding" career advancement opportunities, as well as salary and benefits that are competitive with the private sector, human resources director Sara Bridwell said. Those sentiments were echoed by PCAOB Chairman William McDonough, who expressed appreciation for Congress' decision to allow the board to set staff salary levels high enough to recruit top prospects. Concluding that the PCAOB would not be able to fulfill its Sarbanes/Oxley Act requirements without such compensation flexibility, McDonough said, "I wholeheartedly support the aggressive recruiting effort we have embarked upon." The PCAOB's entire 2005 budget -- which must still be approved by the Securities and Exchange Commission -- will be funded by accounting support fees and other assessments paid by the U.S. and foreign audit firms that the board regulates. Personnel expenses (including training and recruitment costs, as well as salaries and benefits) will account for the lion's share of next year's budget ($98,900,000), with the rest going for information technology-related expenses, consulting fees and the cost of opening new regional offices in Chicago, Denver, and Costa Mesa, Calif., during 2005. At the meeting, the PCAOB also proposed new rules outlining the procedures under which accountants facing disciplinary actions before the board may seek authority to subpoena documents or witnesses for their defense. Under the proposal, parties subject to disciplinary proceedings before the board will have no "entitlement" to subpoena rights, but will be allowed to request a subpoena from the hearing officer assigned to their case. The hearing officer would have discretion to approve the request if he determines that there is a reasonable basis for the subpoena, and that the evidence subpoenaed would be relevant to the board's decision in the case. The SEC, however, would also have to approve the subpoena before it could be issued.

Nominations are open for CPA Wealth Provider's Second Annual Financial Planning Awards in the following three categories:

The Certified Financial Planner Board of Standards has turned over the setting and promotion of financial planning standards abroad to a newly established nonprofit standards-setting body, so that it can focus its efforts on promoting and setting planning standards in the U.S.

Cynthia Cooper, the former WorldCom vice president of internal audit who exposed the $11 billion fraud at the telecommunications company, is among three CPAs who will be inducted this month into the 2004 American Institute of CPAs Business & Industry Hall of Fame.

The Securities and Exchange Commission sanctioned KPMG LLP, two former partners and a current partner and senior manager for improper professional conduct in connection with audit failures involving licensing and advertising revenue in the past audits of Gemstar-TV Guide International Inc.

Social Security and Supplemental Security Income recipients will see a 2.7 percent bump in their benefits starting in 2005 under a cost of living adjustment announced Tuesday.

The Public Company Accounting Oversight Board will provide its full inspection reports to states that agree to honor Sarbanes-Oxley confidentiality provisions, the board's chairman told state regulators this week.

The Securities and Exchange Commission has named former Andersen partner Julie A. Erhardt to serve as deputy chief accountant.

Big Four firm PricewaterhouseCoopers named former Andersen and BearingPoint executive Edgardo Pappacena to global strategy leader Ñ a newly created post where he will be charged with facilitating the development and execution of business, political and regulatory strategies for the firm.Prior to coming aboard at PwC, Pappacena served as a managing director and global leader of the strategic transformation practice at consulting giant BearingPoint. He also spent 24 years at Arthur Andersen, most recently as global managing partner of the firm's business consulting group."Edgardo brings a unique combination of both global client service and operating skills to this new role, and we expect that he will enhance the firm's ability to navigate our rapidly changing environment and aggressively strengthen our competitive advantage and position in the market," said Samuel DiPiazza, global chief executive at PwC.

Sen. Mike Enzi, R-Wyo., the sole accountant in the Senate, is spearheading a bipartisan effort to block the proposal by the Financial Accounting Standards Board to require the expensing of stock options, claiming that it would harm the small business owner.Last week, FASB said that it would delay the implementation of its options expensing proposal by six months. However, Enzi's effort wants to derail the proposal entirely.In a statement, Enzi said, "FASB is right to slow down its stock option proposal, but a delay should occur because FASB is working to test the accuracy of the evaluation formulas, not because it wants to give companies more time to prepare for implementing a flawed proposal. The development of entrepreneurial companies and the small business community should not have to absorb the shock of a proposal that has not been thoroughly tested and could cause irreversible harm."Enzi has also voiced concerns that FASB's plans for estimating the value of options are inaccurate.Enzi earlier had offered up S. 1890 -- a bill requiring options expensing only for larger companies -- but that measure has met with a cold reception from colleagues such as Senate Banking Committee chair Richard Shelby, R-Ala., and Sen. Peter Fitzgerald, R-Ill.Meanwhile, in July, the House passed H.R. 3574, a diluted options expensing measure that requires companies to expense options given to the top five executives. Supporters of FASB's expensing plan are fearful that Enzi and like-minded allies will avail themselves of FASB's six-month delay to gather enough support to kill the proposal.

The Financial Accounting Foundation, overseer of the Financial Accounting Standards Board, named former Paine Webber/UBS managing director Donald M. Young to the board of the accounting standard-setter.Young's three-year term is effective Jan. 1, 2005. He will compete the term of Gary S. Schieneman, who resigned.In addition to a five-year stint at Paine Webber/UBS, Young's resume includes two years as managing director at Prudential Securities, as well as serving as a director and senior vice president at Lehman Bros.He also held a number of marketing and finance posts at Burroughs Corp., now called Unisys Corp.

When it comes to measuring the non-financial aspects of corporate performance, most board members and executives say that companies fall short, according to a Deloitte Touche Tohmatsu survey.

Taxware, a provider of tax calculation and compliance solutions and a subsidiary of First Data Corp, has launched TaxSolver 4.2, tax return generation software with Sarbanes Oxley compliance functionality.

Members of the Financial Accounting Standards Board voted Wednesday to give public companies another six months to implement the board's proposed standard for expensing employee stock options.

Business Transitions LLC, a provider of online buy/sell forums for CPA and financial services practices, has added a new service to its financial services practice succession planning Web sites aimed at sole practitioners.

The Governmental Accounting Standards Board has released a proposed bulletin that seeks to clarify accounting requirements for employers' contributions to pension and other post-employment benefit plans.

KPMG LLP has named Bruce Pfau vice chair of human resources.