Accounting standards

The Internal Revenue Service needs to improve oversight of its process for interpreting tax laws through its published guidance program, according to a new audit publicly released today by the Treasury Inspector General for Tax Administration. The audit, "The Public Guidance Program Needs Additional Controls to Minimize Risks and Increase Public Awareness," examined the process by which the IRS Office of Chief Counsel develops tax guidance, including a pilot guidance program to request and evaluate public submissions before considering changes to existing regulations. The chairman and ranking member of the Senate Finance Committee requested the review after news articles questioned whether the pilot program was putting special interest before the public's interests when developing tax guidance. "We believe the pilot program does not present an increased risk of influence by special interest groups in the selection of guidance projects," TIGTA Inspector General J. Russell George said. "The pilot program did not directly create tax guidance or circumvent existing internal controls." "Although Counsel considers ideas from a wide variety of sources when selecting guidance projects for its annual business plan, it does not track all open projects on the business plan, which could lead to an increased risk of untimely actions, less management oversight, and less public awareness," George added. The audit makes seven recommendations to IRS, including expanding written procedures for developing and monitoring the guidance business plan, issuing more frequent updates to and establishing a reasonable expectation in the Priority Guidance Plan, and improving recordkeeping.

The Center for Audit Quality has weighed in on the Securities and Exchange Commission's proposal to delay certain internal control reporting requirements for smaller companies, in a letter suggesting that the commission use the postponement to better assess the costs and benefits of implementing new standards and guidance. The SEC has proposed pushing back by one year the Sarbanes-Oxley Section 404 deadline for non-accelerated filers to provide auditors' attestation reports on internal controls over financial reporting in annual reports, to fiscal years ending on or after Dec. 15, 2009. While stating that, "The benefits of complete 404 reporting ... should be available to investors in smaller companies," the comment letter from CAQ executive director Cindy Fornelli acknowledged the potential benefits of the delay in allowing the integration of forthcoming guidance from the Public Company Accounting Oversight Board and the Committee of Sponsoring Organizations into auditor assessments. The letter also urged the SEC to broaden its effort to evaluate the cost effectiveness of new regulations and guidance, particularly the PCAOB's Auditing Standard No. 5, by including input not only from reporting companies, but from investors, audit committee members, auditors and others. An affiliate of the American Institute of CPAs, the CAQ is dedicated to fostering investor and market confidence in the audit process.

The Internal Revenue Service has issued guidance for the proper pooling treatment of automobiles, light-duty trucks, and crossover vehicles that have the characteristics of trucks and cars under the dollar-value, last-in, first-out inventory method. To address the distinctions between cars and light-duty trucks, and in response to an Industry Issue Resolution Program request submitted by Miller Chevalier Chartered and the National Auto Dealership Association, the Treasury Department and the Internal Revenue Service issued Revenue Procedure 2008-23. Light-duty trucks are trucks with a gross vehicle weight of 14,000 pounds or less. Effective for tax years ending on or after Dec. 31, 2007, the revenue procedure provides a safe harbor pooling method, the Vehicle-Pool Method, for resellers of cars and light-duty trucks. The Vehicle-Pool Method allows a reseller to establish a new vehicle pool for inventories of new vehicles including new cars, new light-duty trucks, and new crossover vehicles including SUVs, minivans and other similar vehicles and a used vehicle pool for inventories of used vehicles. Revenue Procedure 2008-23 also provides the procedures for a reseller subject to the LIFO pooling requirements to obtain automatic consent to change to the Vehicle-Pool Method.

The American Institute of CPAs has ramped up its mobility efforts to allow CPAs to practice in other states, with mobility bills enacted now in 12 states and legislation pending in 22 other states.

The Securities and Exchange Commission has issued a report warning public pension funds that they risk violating the anti-fraud provisions of the federal securities laws if they do not have adequate compliance policies in place to prevent wrongdoing.

The Internal Revenue Service has issued final regulations for tax deductions on domestic film productions, while revising the definition of the types of films that qualify for the deduction.

The Securities and Exchange Commission's Office of the Chief Accountant chose six professional accounting fellows for two-year terms beginning in 2008.

Senior financial supervisors from five countries - France, Germany, Switzerland, the United Kingdom and the United States - have issued a report assessing various risk management practices that banks and other financial services organizations have used that contributed to the recent turmoil in the world markets.

The real value of bank holdings has been generating controversy in the accounting profession as banks find themselves under increasing pressure to be more upfront about the true value of their assets, assuming they can be accurately valued, even with ballpark estimates.

The Securities and Exchange Commission has filed financial fraud charges against Bally Total Fitness Holding Corp., saying the health club chain's financial statements from at least 1997 to 2003 contained more than two dozen accounting improprieties.

Two audit partners at Deloitte & Touche have agreed to be barred from practicing before the Securities and Exchange Commission to resolve a case involving auto parts maker Delphi.

The Financial Accounting Foundation's board of trustees has voted to approve sweeping changes in the oversight, structure and operations of the Financial Accounting Foundation and its two standards-setting boards, the Financial Accounting Standards Board and the Governmental Accounting Standards Board.

The Public Company Accounting Oversight Board has proposed an auditing standard on engagement quality review and a conforming amendment to the board's interim quality control standards that will supersede the board's interim concurring partner review requirement.

Four former executives of re-insurer General Re and one former executive of insurer American International Group were convicted by a jury of fraud and conspiracy for manipulating financial statements.

I sat in on part of a meeting of the Financial Accounting Foundation and heard that many in Europe are taken aback at the swift pace of convergence in the U.S. with international accounting standards, but they are still waiting for us to set a deadline.

The International Accounting Standards Board said its Fair Value Measurement project team has begun a standard-by-standard review of existing fair value measurements in International Financial Reporting Standards to assess whether each standard's use of a fair value measurement basis was intended to be an exit price.

In November, we devoted a column to the issues surrounding the new return preparer penalty standards under Internal Revenue Code Sec. 6694 enacted as part of the Small Business and Work Opportunity Act of 2007. Those changes focused on the expansion of coverage of Code Section 6694 to tax returns beyond income tax returns; an increase in the penalties imposed, including penalties based on 50 percent of fees derived from return preparation; and an increase in the disclosure standard required to avoid penalties to more likely than not (greater than 50 percent) from a realistic possibility of prevailing on the merits (greater than one third).

In January, the Mortgage Bankers Association, supported by five of the nation's largest lending institutions, asked the Financial Accounting Standards Board to relax certain accounting rules concerning how restructured -- that is, failed -- loans are written down.

The Financial Accounting Standards Board has issued a proposed FASB Staff Position on the endowments of nonprofit organizations that could have large implications for how they recognize their assets and use donor-restricted funds.

The Public Company Accounting Oversight Board has voted to adopt Auditing Standard No. 6, Evaluating Consistency of Financial Statements, and an accompanying set of amendments to its interim auditing standards.