Regulatory actions and programs

Financial Executives International, a 15,000-member body of chief financial officers, controllers and other c-level financial executives, has thrown its support behind the Senate's efforts to modify Sarbanes-Oxley's Section 404. In a letter to Sens. Chris Dodd, D-Conn., and Richard Shelby, R-Ala., the chairman and ranking Republican, respectively, of the Senate Banking Committee, FEI president and chief executive Michael Cangemi lauded their leadership in "allowing the SEC and the PCAOB to resolve the challenges of improving Section 404." Cangemi told Dodd and Shelby that FEI's position is that "Section 404 needs to be made more efficient. However, we remain encouraged that the forthcoming SEC and PCAOB guidance will achieve a greater balance in the implementation of the annual compliance process of Section 404." FEI's letter comes on the heels of an overwhelming 62-35 defeat in the Senate of an amendment put forth by Sen. Jim DeMint, R-S.C., which would have made 404 compliance optional for companies below a certain market cap. Shortly thereafter, the chamber voted unanimously 97-0 to approve an amendment from Dodd, suggesting that the SEC and the PCAOB forge ahead with their previously announced plans to develop guidance for smaller filers to make SOX more manageable.

Thomson Tax & Accounting has released "PPC's Guide to Audits of Nonpublic Companies," which helps integrate the requirements of the newly released risk assessment standards that go into effect for financial statement audits beginning on or after Dec. 15, 2006. The new tome fuses two existing products -- "PPC's Guide to Audits of Small Businesses" and "PPC's Guide to Risk-Based Audits" - into a single guide for all nonpublic, non-industry-specific audit engagements. The manual includes checklists, forms and audit programs to help firms transition their audit approach to reflect the new standards. The guide is available in a variety of formats including TTA's proprietary Checkpoint platform. The risk-assessment guide also contains in-depth coverage of new requirements for communicating internal control deficiencies under SAS No. 112 and communicating with those charged with governance under SAS No. 114.

When I was 15, my father caught me sneaking a cigarette in our backyard. It was dusk and I thought I had successfully camouflaged myself behind our hedges to avoid detection. Following a fleet introduction between my backside and his size 12 Bostonian loafer, he informed me that not only was I grounded for two weeks, but my TV viewing privileges were revoked as well. When I protested that it should be one or the other, he introduced me to the concept of bargaining leverage in a negotiation and, as a rule, teenagers, caught smoking in a house where it was prohibited were not imbued with a whole lot of it. Since my younger brother was with me, he was on the receiving end of the punishment as well, even though he had not violated the no-smoking policy at Chez Carlino. My father called it guilt by association. As a result, I read roughly four books in that span and, in retrospect, undoubtedly came out better for it. I was reminded of my tobacco-induced quarantine last week when I attended a financial reporting conference keynoted by former Maryland Senator Paul Sarbanes, one-half of the now-famous hyphenate that drastically reshaped the corporate landscape. The senator told attendees that when he assumed the chairmanship of the Senate Banking Committee, he was more concerned with drafting money-laundering legislation in the wake of 9-11 than reforming the financial reporting process. But then the floodgates of scandal began to creak and, eventually, burst open with billion-dollar restatements and bankruptcies headlined by the poster children for corporate greed and fraud, Enron and WorldCom. Hence we were introduced to Sarbanes-Oxley, which no doubt gave as big a jolt to corporate America as my father's right foot did to my ability to sit down. Unfortunately, like my younger brother who endured being homebound for a fortnight for a peccadillo he didn't commit, many public companies that had adhered to ethical and legal financial reporting standards were also bound to its time-consuming and often expensive compliance. In the nearly five years that SOX has been law, there have been myriad opinions of whether the legislation has accomplished what it intended to - coupled with occasion movements toward full or partial rollbacks. But if there was any doubt as to whether lawmakers were solidly behind the bill or portions of it, I offer up last week's overwhelming defeat of an amendment put forth by Sen. Jim DeMint of South Carolina, who proposed that filers with a market cap of less than $700 million would be able to opt the act's 404 requirement. The measure was routed out of the chamber by a 62-35 margin. By contrast, lawmakers also voted 97-0 to approve an amendment from Sarbanes' successor at the SBC, Sen. Christopher Dodd, D-Conn., suggesting the SEC and the PCAOB forge ahead with their previously announced plans to develop guidance for smaller filers to make SOX more manageable. A long time ago I learned about bargaining power and when you don't have it. Unfortunately those companies that conducted business in an above-board fashion, were lumped in with those that didn't. And now as a result of compliance requirements, their costs have risen. I guarantee my brother can vouch for their pain.

In an effort to ease the implementation of the new risk-assessment standards from the American Institute of CPAs, tax and accounting products provider CCH has released ProSystem fx Knowledge Tools -- a product collaboration between CCH and audit process and services concern AuditWatch. The new offering, which is predicated on the guidelines of the knowledge-based audit, is available as an integrated module for ProSystem fx Engagement, or as a stand-alone application. The Knowledge Tools' KBA methodology uses a set of integrated procedures, from the pre-engagement stage through evaluating, concluding and reporting. The results from each audit stage are fed into a communication "hub," which enables audit team members to view summaries of the significant matters, risks and findings uncovered during the audit. The KBA documents contain steps and procedures required by generally accepted auditing standards. In addition Knowledge Tool users have access to: * Practice points - additional information in completing the associated section of the audit program, checklist, or workpaper; * Audit alerts - information such as upcoming changes to audit pronouncements; * Examples - example workpapers and explanations regarding how a section could be completed; * Optional workpapers - workpapers that can be brought in to complete the documentation for a specific step; and, * References - links to books, such as industry guides, and original pronouncements. CCH said it would offer training in the new methodology, as well as training on the Knowledge Tools software. For more information, go to

In working toward finalizing a reporting system and rules, the Public Company Accounting Oversight Board today pushed back the 2007 deadlines for the first round of annual reports to be filed and registration fee payments by accounting firms. Last May, the audit watchdog proposed that the first annual reports would need to be filed by June 30, 2007, with the first annual fee payment due by July 31, 2007. However, since the board had not finalized its rules and forms for either, it said it would push back both to as-yet-undetermined deadlines. The board said that once the rules become final, it would give registrants enough lead time to comply.

Norwalk, Conn. -- The Financial Accounting Foundation, overseer to both the Financial Accounting Standards Board and the Governmental Accounting Standards Board, appointed Girard Miller and Jan I. Sylvis to five-year terms on GASB. Their terms begin July 1. Miller and Sylvis will succeed outgoing GASB board members Cynthia Green and Edward Mazur, respectively. Miller previously served as president of Janus Funds and chief operating officer of asset manager Janus Capital Group. Sylvis currently is the chief of accounts for Tennessee's Department of Finance & Administration, where she serves as state controller.

Former Senator Paul Sarbanes, D-Md., who, as the head of the Senate Banking Committee, co-authored the sweeping Sarbanes-Oxley reform act said he supports developing additional guidance for smaller filers but, not surprisingly, dismisses exempting those companies from compliance with the legislation's rigid Section 404. "Stop and think about that for a moment," said Sarbanes in a speech before attendees at a conference on financial reporting and governance presented by Pace University's Lubin School of Business, here. "That would mean that you would be exempting 80 percent of public companies from compliance."

Distilling the nation's complex tax code is the key to reducing the $290 billion tax gap, the American Institute of CPAs told lawmakers. In a hearing before the House Small Business Committee, James Brennan, chair of the AICPA's IRS Practice and Procedures Committee, said simplification should be the foundation to begin stripping away the mammoth deficit.

If XBRL is going to evolve to the financial reporting standard of the future, the accounting profession is going to have to step up its communication efforts on the tagging language, according to a survey of CFOs and controllers by global CPA firm Grant Thornton. According to the GT poll, roughly 85 percent of the survey participants indicated that the profession was not effectively communicating the benefits of using XBRL or Extensible Business Reporting Language for either internal or external financial reporting.

Maintaining that auditor concentration and litigation issues erect barriers to better pricing and service, Grant Thornton chief executive Ed Nusbaum called for the U.S. to undertake a comprehensive study on the domestic audit sector. More specifically, Nusbaum said the U.S. needs to produce a similar study to the one released this week in the U.K., "Financial Reporting Council's Market Participants' Group," which examined concentration and choice in the U.K. audit market. "In addition to the fear of one of the large accounting firms failing, there is no question that audit concentration, along with uncontrolled litigation exposure, is undermining the U.S. economic business model that served so well for so many years: More accounting firms means greater competition and increases quality and lowers costs to the end user," said Nusbaum. "We need a similar U.S. auditor concentration study with accompanying action steps to address the issue."

The Private Companies Practice Section of the American Institute of CPAs has developed an online toolkit to help members understand and implement Statement on Auditing Standards No. 112, "Communication of Internal Control Related Matters Identified in an Audit." SAS 112 is effective for audits performed on or after Dec. 15, 2006. The product -- accessible to PCPS member firms -- is available at www.pcps.org. It includes talking points, a newsletter template and a client communication letter, among other resources. For interested parties, a free FAQ sheet and SAS 112 Web forum archive are available on the Web site.

On the heels of its financial reporting roundtable last month, the Securities and Exchange Commission said it may allow U.S. filers to choose what standards they want to use to report their financials.

Jim Metzler, vice president of small firm interests for the American Institute of CPAs, has received the U.S. Small Business Administration’s New York District Office 2007 Financial Services Champion of the Year Award.

The President’s Identity Theft Task Force rolled out a strategic plan this week, outlining a number of recommendations for increased federal prevention of identity theft.

In anticlimactic news, former HealthSouth chief executive Richard Scrushy will pay $81 million to settle civil charges brought by the Securities and Exchange Commission.While SEC spokespeople have said that the amount of the deal is among the most expensive for an executive settlement, a federal judge ruled that the judgments in three other civil cases brought against Scrushy could count as a $71.5 million credit toward the disgorgement to the SEC.

The leaders of the Senate Finance and the House Ways and Means Committees have reached agreement on a tax package aimed at providing nearly $5 billion in tax relief for small businesses.

As expected, KPMG flung some mud of its own back at home mortgage giant Fannie Mae last week, accusing the government-subsidized company of breach of contract and fraudulent misrepresentation -- claiming that the problems leading to Fannie Mae’s $6.3 billion restatement were largely of the mortgage lender’s own making.

KPMG says that a lack of controls and ineffective oversight are to blame for the problems that have haunted San Diego’s financial statements.

As an aspiring writer, my mother was once approached by a huckster-in-training in her Brooklyn neighborhood of Sheepshead Bay, who assured the-then impressionable 10-year old he could get her an “almost new” typewriter for the grand total of two cents.

During conference calls with auditors this week, Securities and Exchange Commission staff said that accountants should be on the lookout for improper selling strategies designed to take advantage of FAS 159, “Fair Value Option.”