The Internal Revenue Service's new rules for qualified retirement plans went into effect on March 28, but the ripple effect from the rules has yet to play out.

With limited exceptions, the tax on married couples filing jointly usually has been lower than the combined tax on married couples filing separate returns.

The embattled Roslyn School Board has filed an $11.2 million lawsuit against 10 current and former members in the aftermath to the massive accounting fraud at the Long Island school district. According to Newsday, the board members are being sued personally, and those members who served between 1998 and 2004 are accused of contributing to the alleged embezzlement of school funds. The board also voted to remove board member Patricia Schissel for failing to attend the previous five meetings. She is also named in the suit. The school district garnered national headlines following a report released by New York State Comptroller Alan Hevesi that charged three former officials of the Roslyn N.Y. School District with plundering more than $11 million over an eight-year period. Former superintendent Frank A. Tassone, assistant superintendent Pamela Gluckin and clerk Debra Rigano, all of whom who were alleged to have siphoned the money from district coffers, are currently awaiting indictment by the Nassau County Grand Jury. In addition, Hevesi's state probe has implicated an additional 26 people in the audit scam. The accounting firm that audited the district, Miller Lily & Pearce, which also audited over 50 additional school districts and whose affiliate sold financial software to some 250 districts across New York state, has closed down.

American accounting contains an awkward contradiction. Though 99.7 percent of the country's 4.9 million corporations are privately held, a good deal of the country's generally accepted accounting principles are primarily relevant to the financial conditions of public companies traded on equities markets.

Congress is considering new legislation that could streamline accounting procedures for tens of thousands of U.S. companies by liberalizing the rules for the use of the cash accounting method by small business taxpayers.

The General Accountability Office and the Internal Revenue Service have added their own muscle to a Public Company Accounting Oversight Board proposal that would restrict the ability of accountants to provide tax services to audit clients.

If you're a CPA, you've got a headache. In fact, you've probably got several headaches.

The Public Company Accounting Oversight Board voted to send out for comment a measure that outlines audit procedures to ferret out whether Securities and Exchange Commission issuers have fixed previously identified internal controls weaknesses. Although Sections 404 and 302 of the Sarbanes-Oxley Act mandate that both issuers and auditors must complete an annual assessment of internal controls, the standard from the oversight body would establish a voluntary, stand-alone engagement performed only at the request of the client company at any time of the calendar or fiscal year. The public comment period will be 45 days. The rule would subsequently become final pending a vote by the SEC. Although he defined the new standard as "narrower in scope" than the PCAOB's Auditing Standard No. 2, PCAOB chairman William McDonough said, "Our proposal for a new, voluntary, auditor's engagement to attest to management's corrections of individual material weaknesses will offer companies an opportunity to provide the investing public added assurance that previously disclosed weaknesses have been corrected." While board member Daniel Goelzer said that he thinks the new proposal is important, he described it as a "narrowly drawn tool" that he hopes "will be used sparingly."

The Financial Accounting Standards Board has released FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, or the costs of taking plants out of service. Under FASB's new guidance, companies would have to immediately recognize on their balance sheets the costs of work that would be needed to close a factory -- such as asbestos clean-up -- even if it's uncertain when, if or how the work would be done. Interpretation 47 is effective no later than the end of fiscal years ending after Dec. 15, 2005 (Dec. 31, 2005, for calendar-year enterprises). Copies of Interpretation 47 are scheduled to be available in April 2005, through the FASB Order Department at (800) 748-0659 or by placing an order on the FASB Web site at www.fasb.org.

The Securities and Exchange Commission named Scott Friestad to the post of associate director of the commission's Division of Enforcement. In that role, Friestad, 42, will serve as a senior official in the division and assist in planning and directing the commission's investigations and other enforcement efforts. He will report to division director Stephen Cutler. Friestad joined the regulator in 1995 as a staff attorney, and his efforts have contributed to SEC enforcement actions involving Regulation FD, public company accounting and disclosure, the Foreign Corrupt Practices Act, insider trading, and broker/dealer regulation. Friestad has also served as a special assistant in the U.S. Attorney's Office for the Southern District of New York, and was a litigator at the New York law firm of Dewey Ballantine.

While 404 may be the three most dreaded numbers that publicly traded companies in the U.S. can imagine, investors and analysts outside the country remained uniformed about the Sarbanes-Oxley rule on internal controls, and are concerned about the impact of negative disclosures. According to a PricewaterhouseCoopers survey of investors and analysts in North America, Europe and Asia who cover U.S.-listed companies, just 60 percent of analysts and investors in Europe, and a scant 40 percent in Japan, admit to some knowledge of SOX 404. Section 404 of SOX requires that the annual reports of all Securities and Exchange Commission-registered companies include a statement by management and the external auditors on the effectiveness of the company's internal controls over financial reporting. Big Four firm PwC polled 55 analysts, 45 investors and 5 credit rating agency analysts between January and February 2005. Some 39 percent of respondents were from the U.S., Mexico and Canada, 38 percent from Europe, and 23 percent from the Asia-Pacific region. Other findings include: o Only about one in four respondents claimed to have a good grasp of how Section 404 will affect mergers and acquisitions. o Nine out of 10 analysts and investors in Asia, where awareness is lowest, said that they would be very likely to sell or mark down shares in a company that was the subject of a negative disclosure, compared to seven in 10 respondents in Europe and the U.S.

Not surprisingly, opponents of expensing stock options have issued responses to the March 29 release of options expensing guidance by the Securities and Exchange Commission. With the release of SAB No. 107, the regulator reaffirmed its support of December's rule by the Financial Accounting Standards Board, which mandates treating employee stock options as an expense. "While the SEC has provided clarity on some issues surrounding the FASB rule, its decision not to further delay implementation is a significant blow to companies that provide broad-based stock option plans, especially those in the high-tech industry," said William T. Archey, president and chief executive of the high-tech trade group AeA. Archey urged Congress to pass H.R. 913, the Broad-Based Stock Option Plan Transparency Act, a measure that would delay implementation long enough to conduct studies on the impact of stock options. Meanwhile, Rick White, president of the International Employee Stock Options Coalition said, "The coalition's mission has been to preserve broad-based employee stock options from draconian accounting rules, because stock options represent a vital economic tool for our nation." The recently issued SEC guidelines however, offer some leeway to companies, with several models from which to choose when estimating the fair value of employee options. The options expensing rule is slated to take effect this summer.

The American Institute of CPAs released an exposure draft of proposed business valuation standards that would be applicable to institute members performing valuation standards in tax, mergers and acquisitions, litigation, and financial reporting. Once the standards become finalized, members would be required to comply with them when performing valuation engagements that reach a conclusion of value or an indication of value. Roughly 25,000 institute members currently provide business valuation and forensic and litigation services. For further information, go to www.aicpa.org/bvfls.

Big Four firm Ernst & Young has filed suit against embattled outpatient care provider Health South, charging it with hiding massive accounting fraud from the audit firm and subsequently exposing it to litigation and damaging its reputation. According to the Associated Press, the suit, filed March 18, charged that testimony in the ongoing fraud trial of former HealthSouth CEO Richard Scrushy demonstrated that company executives faked financial documents to hide the fraud from its auditors. Ernst & Young served as HealthSouth's auditor from 1996 to 2002 -- the period, prosecutors charged, when earnings were inflated by about $2.7 billion. Ernst & Young is seeking reimbursement of any litigation costs the auditor must pay in lawsuits related to the HealthSouth fraud, as well as unspecified damages for lost business.

As expected, the Securities and Exchange Commission issued guidelines employee stock option expensing. The guidance, Staff Accounting Bulletin No. 107, "Share-Based Payment," supports the option-expensing rule released in December by the Financial Accounting Standards Board. The guidelines offer companies several models from which to choose when estimating the fair value of employee options. The rule, which requires SEC issuers to treat employee stock options as a business expense, will take effect in July. Currently, publicly held companies can either treat options as an expense, or record the costs in footnotes. "The views expressed by the staff are guidance and do not alter any conclusions reached by FASB in Statement 123R. We will continue to monitor implementation of Statement 123R and will consider the need for additional guidance as necessary," SEC chief accountant Don Nicolaisen said in a statement.

The President's Advisory Panel on Federal Tax Reform has compiled the witness list for the sixth meeting of the group, scheduled for March 31, here. On the first panel, titled "Overview of International Tax Systems," the speakers will be Willard Taylor, a partner at Sullivan & Cromwell LLP; Mihir Desai, an associate professor at the Rock Center for Entrepreneurship of Harvard Business School; Jeffrey Owens, director of the OECD Center on Tax Policy and Administration; Larry Langdon, a partner at Mayer, Brown, Rowe & Maw LLP and former commissioner of the Internal Revenue Service's Large and Mid-Size Business Division. The second panel, "How Taxes Affect Business Decisions," will hear testimony from Paul Otellini, president and chief operating officer of Intel Corp.; and Robert Grady, managing director of The Carlyle Group. The final panel, "Impact of Taxes on Savings, Investment, and Economic Growth," will hear from Michael Boskin, the Tully M. Friedman Professor of Economics and senior fellow at Stanford University and the Hoover Institute; Alan Auerbach, the Robert D. Burch Professor of Economics and Law at the University of California, Berkeley. Also, renowned economist Milton Friedman will speak to the reform panel on "Perspectives on Tax Reform."

The Public Company Accounting Oversight Board said that it would convene on March 31 to mull over an auditing standard affecting companies that correct weaknesses in their internal controls. The board said that the group would consider a new standard that would permit auditors to report on a company's claim that it has rectified a previously reported material weakness in its internal controls under Sarbanes-Oxley Section 404. The meeting, which is open to the public, will be webcast through the PCAOB's Web site, at www.pcaobus.org.

Accounting errors tucked away in footnotes may be less likely to draw the attention of auditors, says a new report authored by accounting professors from Cornell University and Bentley College. According to The Wall Street Journal, the report said that auditors are more likely to demand that clients correct errors and misstatements when the numbers in question for such things as stock options appear in the books, as opposed to footnotes. The study said that "information location influences reliability." As part of the research project, auditors were questioned as to how they how they would handle a client's underestimation of employee stock options with the client objecting to making an adjustment. One group was told that the client included the cost of stock options on its income statement; others were told that the cost was shown only in a footnote -- with the error being of identical size. The percentage of auditors demanding a correction when the mistake was on the books was far greater than when the error was recorded in a footnote.

The Governmental Accounting Standards Board has released Accounting and Financial Reporting for Pollution Remediation Obligations, a preliminary views document highlighting the board's position on reporting standards for pollution remediation obligations. The obligations address the current or future effects of existing pollution by participating in site assessments and clean-ups. The GASB PV proposed that, once any one of five specified obligating events occurs, governments would be required to estimate the components of expected clean-up costs using an "expected cash flow" measurement, and subsequently to determine whether they should be accrued as a liability or, in some instances, capitalized when goods and services are acquired. GASB said that the deadline for the comment period is June 24, 2005. That will be followed by a public hearing in San Antonio, on June 29.

-- Has Sarbanes-Oxley ushered in the golden age of auditing? According to disclosures by 23 of the 30 companies that comprise the Dow Jones Industrial Average, audit fees rose roughly 40 percent, to $533 million, according to figures from The Wall Street Journal. That number represents nearly twice the percentage rise in audit fees received in 2003 versus 2002. Audit fees generated about 65 percent of the total of $821 million that SEC issuers paid to their audit forms, a stark contrast to four years earlier when audits accounted for just 30 percent of the total monies paid out to the accounting firms. However, the 2002 passage of SOX prohibited a total of nine services to audit clients. The 2004 report stated that most of the 23 companies paid more for audits than for consulting or other services -- with IBM and Johnson & Johnson being two notable exceptions. For example, IBM shelled out more than $21 million for the audit and $55 million in other fees to its independent accountant, Big Four firm PricewaterhouseCoopers. Big Four firm KPMG was the beneficiary of the highest audit largesse, receiving more than $102 million from General Electric Co. of which nearly $80 million of that went to audit services.