Regulatory actions and programs

Almost nine full years have passed since the $250,000/$500,000 exclusion of gain on the sale of a principal residence first became available. Little did many of us imagine how much would change in nine years.While the basic sale-of-a-principal-residence provision has remained the same, except for some minor congressional tinkering, the world in which it lives has not. The real estate "boom," capital gains rate reduction, subsequent rulings and other developments have all played a part in making this a particularly dynamic area of tax planning. A review of recent trends and developments over the past year is especially illuminating.

In four months flat, the Financial Accounting Standards Board has cranked out a proposal for a new standard on accounting for post-retirement benefit plans, including pensions.Not only has the board been quick to write the proposal, but it may be quick to implement it as well. If approved soon, it will be effective for fiscal years ending after Dec. 15, 2006.

On March 31, the Financial Accounting Standards Board issued an anticipated exposure draft that proposed significant changes in accounting for defined-benefit pension and health plans. As we explained a couple of columns back, it will recognize net plan assets and/or liabilities, accompanied by accumulated comprehensive income for deferred gains and losses that are currently off-balance sheet.Because of the large amounts and the generally bad news that this new accounting will declare more openly, FASB will be inundated with many negative comments from defenders of the status quo of bad accounting.

As of late December, the Public Company Accoun- ting Oversight Board had published on its Web site the results of some 173 inspections of audit firms.The purpose of this article is to attempt to identify the more prevalent audit performance deficiencies cited in the inspection reports.

PricewaterhouseCoopers announced that it will create a new audit firm in Japan after an alliance with a partner was ordered to halt auditing services for two months.

Excess inventory retailer Overstock.com Inc. announced that the Securities and Exchange Commission has issued the company a subpoena requesting information on accounting policies, targets and projections.

Responding to continuing complaints from corporate America about the excessive cost of complying with Sarbanes-Oxley Act internal control audit reporting requirements, top officials from the Securities and Exchange Commission and the Public Company Accounting Oversight Board told accountants and private sector financial execs that relief is on the way.

Morgan Stanley & Co. will pay $15 million to settle a civil lawsuit from the Securities and Exchange Commission. The SEC said that the company failed to produce tens of thousands of e-mails it requested as part of a probe.

In one of the largest fines ever handed down to an individual charged with accounting fraud, a federal judge has ordered the former chairman and chief executive of Gemstar-TV Guide International Inc. to pay $22 million in penalties, interest and restitution.

Citing the disproportionate costs of Sarbanes-Oxley on small filers, GOP Senators Olympia Snowe of Maine and Mike Enzi of Wyoming are urging the Securities and Exchange Commission to adopt "clear and practical" rules for small businesses with regards to SOX compliance.

The Public Company Accounting Oversight Board is soliciting nominations for members of its Standing Advisory Group.

The Public Company Accounting Oversight Board announced that its next round of inspections would focus on the costs of internal control audits mandated under the Sarbanes-Oxley Act.

Another federal regulator has publicly floated the idea of the government requiring the release of tax information from public companies.

The Securities and Exchange Commission and the Public Company Accounting Oversight Board announced the panelists for a May 10 roundtable on Year Two experiences with the internal controls provisions of the Sarbanes-Oxley Act.

Passage of a forthcoming European Union directive that would tighten auditing standards - but which does permit, under specified conditions, the European profession to supply customers with some other services - could lie behind a survey that reveals that the principles-based approach to auditor independence is now widely used throughout Europe.The survey was conducted by the European Federation of Accountants on the regulation of auditor independence, and follows the implementation of a 2002 EU "recommendation" on auditor independence.

The Internal Revenue Service has shifted its enforcement priorities from tax shelters to high-impact tax cheats -- including attorneys and CPAs.

If too many cooks spoil the pot, what do a bunch of auditors from various firms do to an engagement?Don't answer that.

When criticism of the Internal Revenue Service's revision of its more-than-30-year-old preparer disclosure rules first surfaced, it came as an attack from consumer groups outraged that rules were being eased to permit the marketing of taxpayer information.However, contrary to press reports, the IRS said that the proposed rules actually tighten existing requirements regarding the customer consent that a return preparer must obtain to disclose the customer's tax return information to third parties. In fact, explained IRS Commissioner Mark Everson, "For over 30 years, under the law, return preparers have been able to disclose tax return information with the consent of taxpayers."

Code Section 7216 governs the disclosure and use of tax return information by tax return preparers. Late last year, in Notice 2005-93, the Internal Revenue Service issued a proposed revenue procedure purportedly to update the disclosure rules to account for changes in return filing, particularly to account for the growing use of electronic filing and electronic signatures and the foreign outsourcing of tax preparation work.The proposals have set off some apparently unexpected protests from several consumer protection groups, basically concerned that the proposals make it too easy for taxpayers to unknowingly grant permission for disclosure of their tax information.

Government isn't an enterprise. Though it raises and spends money, owns things, has pension funds, works with budgets, and reports to stakeholders, it is fundamentally different from a business. And so its accounting must take a different form and serve a different purpose.Oddly enough, many accounting professionals in the private sector don't even know there's a difference, or if they do, they don't know why.