Accounting standards

The proposed regulations on preparer penalties, released on June 17, are the latest iteration of rules that tax practitioners should consider carefully when recommending and executing tax strategies. Not heeding them can result in stiff penalties or, worse, the loss of the right to continue to practice tax law and serious damage to a firm’s reputation in the client community.The simple reality is that those responsible for recommending prospective tax strategies are almost always drawn back into the matter by the signing return preparer once the transaction is completed. They are asked about tax benefit matters what was intended and whether things turn out as expected. That after-the-fact advice is enough to subject the practitioner to the label “return preparer” for purposes of the preparer penalties.

In a significant step toward more solid and relevant accounting standards around the world, the International Accounting Standards Board and the Financial Accounting Standards Board have rolled out two joint discussion documents that may indicate where the boards are going in their project to improve and converge their conceptual frameworks.One document, The Objective of Financial Reporting and Qualitative Characteristics and Constraints of Decision-Useful Financial Reporting Information, is a proposal for the first two chapters of the framework. The other is a preliminary views document that suggests directions the board might take on defining the reporting entity.

In this third installment in our Mythbusters series (with credit to the Discovery Channel show, MythBusters), we turn to the oft-repeated but seldom-scrutinized notion that reporting values in financial statements creates volatility.This idea has been in the spotlight because of the recent financial crisis, with one myth-monger after another blaming the Financial Accounting Standards Board and anyone but themselves for financial institutions’ crashing stock prices. They say that mark-to-market accounting made it look like these entities were going into the tank. How much better it would be, they said, if the collateralized debt obligations were just carried at their cost so things wouldn’t look so bad. And if they didn’t look so bad, we’d all be better off.

Energy company El Paso Corp., its subsidiaries and five former employees settled fraud charges with the Securities and Exchange Commission for improperly inflating proven oil and gas reserves and providing misleading financial statements.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson expressed their support for the convergence of International Financial Reporting Standards with U.S. generally accepted accounting principles.

The Securities and Exchange Commission has charged Sycamore Networks and three of its former executives with stock options backdating charges.

As the final event in its year-long, 10-city dialogue tour on financial reporting issues, the Center for Audit Quality will stage its final town hall session July 22 at the National Press Club.

The Securities and Exchange Commission convened a roundtable of experts to discuss the controversial topic of fair value measurements in accounting.

In preparation for the eventual transition to International Financial Reporting Standards, Big Four firm PricewaterhouseCoopers has launched a suite of educational products and services to help accounting students learn IFRS fundamentals.

The Securities and Exchange Commission’s Advisory Committee on Improvements to Financial Reporting released a draft of its final report.

U.S. corporations and accountants concerned over rising audit costs due to Sarbanes-Oxley requirements may soon have more to worry about — including another spike in audit charges as a result of the Public Company Accounting Oversight Board’s proposed new standard for engagement quality review.The stricter standard, which was initially proposed back in February and would apply to audits of public companies performed under PCAOB standards, is risk-based and designed to ease identification and speed correction of audit deficiencies prior to issuing the auditor’s report.

The Public Company Accounting Oversight Board issued the latest inspection report of Big Four firm Deloitte & Touche, noting problems with nine audits performed by the firm last year.With two unidentified clients, the PCAOB said that Deloitte failed to identify a departure from generally accepted accounting principles that it should have addressed before issuing its audit report. In both cases, the clients incorrectly concluded that interest rate swaps qualified for hedge accounting using the short-cut method in Statement of Financial Accounting Standards No. 133.

Last month, a survey released by Big Four Firm Deloitte revealed that U.S. companies require just a tad more preparation and training before International Financial Reporting Standards can be adopted. My guess — as a more-than-casual observer of the profession — is that that finding, which polled chief financial officers and other senior-level financial professionals, probably surprised no one.With convergence of U.S. GAAP with IFRS an inevitability, the profession needs to get proactive, as opposed to its traditional reactive pose, in bracing for the eventual by-product of that union — a single set of global accounting standards.

The state of e-services today can be compared to where e-filing was about five years ago.“If you look back five years, what we were saying about e-filing would sound a lot like what we’re saying about e-services today,” said Roger Harris, president of Padgett Business Services and former chair of the Internal Revenue Service Advisory Council. “As practitioners and the IRS worked together, a lot of problems were solved. And today e-filing is the normal way of doing business. It will be the same with e-services.”

Financial guarantee insurance companies stand behind trillions of dollars in financial obligations — including many of the mortgages that have recently fallen into default.So the Securities and Exchange Commission had good reason to call for new disclosures and clarifications of existing accounting and financial reporting standards.

Continuing a theme, this column is another “Mythbuster” that demonstrates the fallacy behind a couple of longstanding arguments against using values in financial statement reporting.In our prior column, we exploded the myth that an asset’s purchase price is a reliable estimate of its original value. We did this by showing that an asset’s market value is not a single point, but a distribution of amounts observed in a number of actual transactions. Because any particular transaction is a nonrandom sample of only one observation out of a large population, it cannot be relied upon to reflect the asset’s fair value.

Never before has the issue of executive compensation garnered as much of the public’s interest as it has in recent years, due in large part to several highly publicized corporate scandals.The backlash from incidents involving top executives at global organizations, and recent changes in Securities and Exchange Commission proxy and accounting rules, have prompted interesting new trends related to how executives and board members within large public companies are being compensated and to what degree.

The Securities and Exchange Commission has charged Microtune and two of the Plano, Texas-based technology company's former senior officers with stock options backdating.

The Governmental Accounting Standards Board has issued a new standard aimed at improving how state and local governments report information about derivative instruments in their financial statements.

Rules and guidance issued last year by the Securities and Exchange Commission and the Public Company Accounting Oversight Board have made it easier for companies to cut the time they spend on Sarbanes-Oxley compliance.