Regulatory actions and programs

Last month, the Financial Accounting Standards Board issued its long-awaited final statement on share-based compensation or "stock comp." But many wonder if that's the last that we'll hear of it.

Top-ranked Southeast regional firm Cherry, Bekaert & Holland has expanded its presence in the Tampa Bay market with the addition of Rex Meighen & Co. to its accounting and consulting group.

Maybe 2004 should have been called the year of the restatement -- amended filings for financial restatements by public companies due to accounting errors rose 28 percent in 2004, to a record 414, up from 323 the previous year, according to a report by Huron Consulting Group.

The Sarbanes-Oxley Act, along with the Securities and Exchange Commission's accelerated reporting guidelines, appear to be improving the accuracy of companies' earnings forecasts, according to a report by management consultancy firm Parson Consulting.

The Treasury Department and the Internal Revenue Service issued interim guidance on two new penalty provisions enacted as part of the American Jobs Creation Act of 2004.

The Public Company Accounting Oversight Board's plan to place new restrictions on the ability of accountants to offer tax services to their audit clients doesn't go far enough to restore investor confidence in financial reporting, critics of the accounting profession warned. In comments to the board expressing concern over new tax service restrictions proposed late last year, several tax experts urged the PCAOB to place auditors on an even shorter leash. In order to "help restore investor confidence in the independence of auditors and the integrity of their audits," the PCAOB should adopt a rule which prohibits audit firms from providing any tax services "which are unrelated to the audit," New York City tax attorney Robert Chira told the board. "I believe the board has clear and ample legal authority to prohibit such non-audit related tax services," he said in comments on the PCOAB proposal. "I further believe the board should exercise leadership in this area to persuade the Securities and Exchange Commission to the position that an audit firm should perform audits and not commingle that function with the performance of unrelated tax services." Harvard Law Professor Bernard Wolfman called for an even more far-reaching set of limitations on the sale of tax services by accountants. Arguing that the rule that the PCAOB proposed does not go far enough to ensure the independence of auditors, Wolfman maintained that "the auditor of a public company should not be permitted to render tax services to any company, whether the company is an audit client of the auditor or not." The only exception under Wolfman's plan would be for routine compliance work and tax return preparation. In contrast, the new rule proposed by the PCAOB in December would allow accountants to continue providing general tax services to audit clients, but prohibit them from marketing tax strategies that involve "an aggressive interpretation of applicable tax laws and regulations," or result in a tax avoidance maneuver that is a "listed or confidential" transaction under Treasury regulations. The proposal also calls for outlawing the use of contingent fees for tax services to audit clients, and would bar audit firms from providing any tax services to corporate officers who are "in a reporting oversight role of an audit client." The PCAOB wrestled with the idea of a far more restrictive policy toward tax services by auditors, but ultimately concluded that such an approach would be unnecessarily burdensome for accountants and their clients. In defending the PCAOB's decision to stop short of an all-out prohibition against the sale of tax services to audit clients, board member Daniel L. Goelzer said that "auditors have traditionally performed these kinds of services for their audit clients, and this kind of assistance is particularly important to small and medium-sized businesses that lack the resources to maintain extensive in-house tax expertise."

Nine vendors face criminal and civil charges for allegedly helping U.S. Foodservice Inc., a subsidiary of Dutch grocer Royal Ahold NV, inflate earnings by more than $800 million.

In an effort to aid smaller publicly traded businesses with internal controls compliance, the Committee of Sponsoring Organizations said that it would offer online guidance for internal controls assessment by the summer. In conjunction with COSO as well as the Advisory Committee of the Securities and Exchange Commission and the Public Company Accounting Oversight Board, Big Four firm PricewaterhouseCoopers will produce the guidance materials, which will be available for a fee. PwC partner Miles Everson will spearhead the effort. Under Sarbanes-Oxley's Section 404, SEC issuers are required to conduct annual evaluations of their internal controls. This year, public companies under $200 million will be required to meet the internal controls mandates. Companies over $200 million were mandated to assess their internal controls last year. COSO chairman Larry Rittenberg pointed out that approximately 5,000 of the SEC's roughly 9,000 registrants have annual sales of less than $200 million. "These organizations need guidance that will help them understand the breadth, depth, and value of COSO's Control Framework as they go through the process of evaluating controls," he said. "This new project will provide that guidance." COSO, which was established 20 years to improve the financial reporting process, is comprised of the American Institute of CPAs, Financial Executives International, the Institute of Internal Auditors, the Institute of Management Accountants and the American Accounting Association.

Larry E. Rittenberg, Ph.D., CPA, CIA has been named the new chairman of the Committee of Sponsoring Organizations of the Treadway Commission. In that role, Rittenberg will lead COSO's efforts investing in conceptual frameworks designed to enhance understanding and management of risk and control. Under his leadership, the organization will provide guidance for cost-effective small business application of COSO's Internal Control -- Integrated Framework. Rittenberg -- who is currently one of COSO's five board members -- succeeds John J. Flaherty, CIA, CPA. He currently teaches and conducts research at the University of Wisconsin in Madison, focusing on auditing and corporate governance. He is co-author of Auditing: Concepts for a Changing Environment, and The Outsourcing Dilemma: What Works Best for Internal Auditing. Established in 1985 to sponsor the National Commission of Fraudulent Financial Reporting, COSO is a voluntary private sector organization dedicated to improving financial reporting quality.

New York State Comptroller Alan G. Hevesi blasted an East Setauket, N.Y.-based CPA firm for failing to identify a multi-million-dollar fraud, failing to meet several professional standards and violating auditor independence standards in its audits of a Long Island school district.

AMEX AUDIT COMMITTEE APPROVES PWC: The audit committee of financial services conglomerate American Express Co. approved the appointment of Big Four firm PricewaterhouseCoopers as its auditor for 2005.PwC succeeds Ernst & Young as the company's independent accountant. Ernst was to remain as auditor for AmEx through Dec. 31.

The U.S. Supreme Court said that it would review the conviction of shuttered accounting firm Arthur Andersen for obstruction of justice for destroying documents related to its audits of bankrupt energy giant Enron Corp., according to published reports.

Nearly a decade has passed since IBM purchased Lotus Development Corp. and attracted widespread attention to the potentially large write-offs that were possible on financial statements for purchased in-process research and development.

GOP lawmakers okayed a move to give the House Financial Services Committee oversight of accounting standard-setting and electronic trading, an area that includes the Financial Accounting Standards Board, according to the Congressional Record.

In a move triggered by lawmaker's concerns over the marketing of abusive tax shelters by some accounting firms, the Public Company Accounting Oversight Board has proposed new rules restricting the ability of accountants to provide tax services to their audit clients.

What four words cause public accountants to cringe more than, "Where were the auditors?"

FASB hands down final options rule

Brussels - Europe is bracing for two major accounting reforms in the insurance industry, but most fear that the schedules could extend to at least 2007 and possibly to 2010.One of the reforms currently in the pipeline will consist of IFRS4 Phase II, or "Insurance Phase II." This will eventually replace the Phase I version - a measure currently in place that has not radically shaken up traditional regulations.

With the tax law becoming increasingly complex, it is no surprise that there often can be several well-intentioned interpretations of a particular provision. Also no surprise is the expectation of many clients that a fee for planning advice should almost always result in an exponential decrease in overall tax liability.

While 2004 brought convictions in such high-profile cases as Adelphia, Dynergy and others, with implementation of Sarbanes-Oxley requirements well underway and new federal sentencing guidelines in place, expect to see more corporate scandals unearthed in 2005, according to FirstGlobal Investigations.