Accounting standards

The Public Company Accounting Oversight Board will host a forum in early August, "Auditing in the Small Business Environment," in Orlando, Fla., designed for registered accounting firms and public companies working in the small business community.

The International Auditing and Assurance Standards Board, a unit of the International Federation of Accountants, has released ISRE 2410, a standard to assist auditors in reviewing interim financial statements.

Former Securities and Exchange Commission Chairman Arthur Levitt has been named as a special advisor to insurer and financial services provider American International Group Inc.

Barely a week after a federal jury found HealthSouth founder Richard Scrushy not guilty of participating in a massive accounting fraud, the Securities and Exchange Commission is preparing civil charges against the former chief executive.Scrushy was the first CEO charged under the Sarbanes-Oxley Act and had faced 36 counts of fraud, false corporate reporting and making false statements to regulators after prosecutors said that he led a $2.7 billion earnings overstatement at the medical services company beginning in 1996.After a five-month trial and nearly another month of jury deliberations, he was acquitted on all counts.According to a report from The Washington Post, the SEC will file the formal paperwork on Thursday to retry Scrushy and seek $786 million in penalties and disgorgement. The HealthSouth founder would also not be allowed to serve as an officer or director at any public company if found guilty. Scrushy remains a member of HealthSouth's board of directors.In bringing a civil claim, the SEC most show "a preponderance of the evidence" that Scrushy was involved in and had knowledge of the fraud, a lower burden than the "reasonable doubt" standard required for a criminal conviction.Two other former executives, including HealthSouth's first finance chief, Aaron Beam, and former vice president Will Hicks, who both pleaded guilty and testified against Scrushy, are set for sentencing this summer. Another pair of indicted executives are awaiting trial in Alabama.

Senators Connie Mack and John Breaux, chairman and vice-chairman of the President's Advisory Panel on Federal Tax Reform, respectively, announced that the panel's 10th meeting will be held on Wednesday, July 20. The meeting will be held at the Renaissance Hotel here. The panel has held nine meetings in which witnesses testified about problems with the current tax system and various options for reform. At this meeting, panel members will discuss issues associated with reform, but there will not be any testimony presented. The President's Advisory Panel on Federal Tax Reform was established by President Bush in January and charged with recommending reforms to the tax code that would make the U.S. tax system simpler, fairer and more growth-oriented. The panel's final recommendations are due by Sept. 30, 2005.

The International Auditing and Assurance Standards Board, a unit of the International Federation of Accountants, is soliciting comments on a pair of exposure drafts designed to sharpen auditor reporting.Proposed International Standard on Auditing 701, The Independent Auditor's Report on Other Historical Financial Information, addresses auditors' reports for a variety of engagements, including reporting on a single financial statement, or a specific element of a financial statement.It also gives guidance on helping determine the acceptability of the financial reporting framework, and also examines relevant matters that an auditor must consider in forming an opinion on the financials.ISA 800, The Independent Auditor's Report on Summary Audited Financial Statements, recognizes that criteria for preparing and presenting summary financial statements may not exist. It also contains new standards and guidance on the criteria used and procedures performed in an engagement to report on summary financial statements.Comments on the exposure drafts are requested by Oct. 31, 2005. The exposure drafts may be viewed by going to www.ifac.org/EDs. Comments may be submitted by e-mail to EDComments@ifac.org.

President Bush formally nominated Rep. Christopher Cox, R-Calif., to become the next chairman of the Securities and Exchange Commission, succeeding William Donaldson, who stepped down June 30 after nearly two-and-a-half years at the helm of the regulator. In the interim, the president appointed SEC commissioner Cynthia Glassman to serve as acting SEC chair until Cox is confirmed. A confirmation hearing for Cox -- which requires Senate approval -- could occur in July. Meanwhile, Senate Minority leader Harry Reid, D-Nev., has recommended that Bush nominate Annette Nazareth, currently the commission's market regulation division director, for the commissioner post that will be vacated when Harvey Goldschmid leaves in the fall for a teaching post at Columbia Law School.

In yet another step toward global accounting standards convergence, the Financial Accounting Standards Board and the International Accounting Standards Board each published exposure drafts containing joint proposals for accounting for business combinations.The proposals include a draft standard that the two boards developed in their first major joint project, which could be used for both domestic and cross-border financial reporting. The proposed standard would replace the existing requirements of the IASB's IFRS 3 and FASB's Statement No. 141.The drafts retain the fundamental requirement of IFRS 3 and Statement 141 to account for all business combinations using a single method -- where one party is always identified as acquiring the other. The principal changes being proposed include a requirement to measure the business acquired at fair value, and to recognize the goodwill attributable to any non-controlling or minority interests.The exposure drafts are available on FASB's Web site at www.fasb.org, and on the IASB's Web site at www.iasb.org. The comment period ends Oct. 28, 2005. Both boards said that they would hold public roundtable meetings to gather additional input on the proposals.

Extensible Business Reporting Language, or XBRL, the technology that tags financial information through disparate applications and carries it through the business reporting chain, can lower costs and provide enhanced analytical capabilities for users, preparers and consumers of financial statements. "It usually takes two years for data to go from the corporate reporting chain to actual economic policy-making," said Mike Willis, a partner at Big Four firm PricewaterhouseCoopers and founding chairman of XBRL International. "Paper in the reporting process doesn't cut it; it's too manual and too expensive." Willis, one of the nation's leading authorities and proponents of XBRL, led a session titled, "Business Reporting in XBRL -- Tagging for U.S. GAAP" at the AICPA Information Technology Conference, here. Currently, XBRL International has 350 member organizations in 24 countries. In the United States, XBRL reporting programs are underway at the Securities and Exchange Commission and the Federal Deposit Insurance Corp. However, it has been slower to gain traction domestically. "Information labels are inconsistent from one application to another, such as ERP to Excel," said Willis. "Information goes in one direction -- there's no shared context." As an example, Willis said that large companies that have stakeholders in other countries have to publish annual reports or financial statements in other languages. In XBRL, the information is tagged and flowed into indigenous spreadsheets so that users don't have to be fluent in English to find the desired categories. "Accountants by nature tend to be reactive," Willis said. "But they need to be proactive with XBRL, or their relevancy in external reporting will dwindle."

The Securities and Exchange Commisson has settled with KPMG Canada and two of its partners for the audit firm's lack of independence related to its audit of Southwestern Water Exploration Co., a now-bankrupt Colorado-based concern.KPMG Canada provided bookkeeping services to Southwestern and then audited its own work, issuing what were supposed to be independent audit reports on Southwestern's financials for the years 1999-2002.The SEC's order censures KPMG Canada without the firm admitting or denying guilt. KPMG Canada also agreed to adopt new auditor independence policies and procedures and pay $73,682 -- its fees for the audit of Southwestern, plus interest.In addition, two KPMG Canada partners -- Gary Bentham, the audit engagement partner, and John Gordon, the concurring and SEC reviewing partner -- are prohibited from auditing SEC issuers for two years and nine months, respectively.

The chief financial officer of advertising giant Interpublic Group, which is the subject of a newly widened probe by the Securities and Exchange Commission, has stepped down. Robert Thompson had been CFO of the company for just a year; his successor, who will not be named until late July, will be Interpublic's fourth CFO in two years. In a statement, Interpublic chairman and chief executive Michael Roth said, "Bob and I have independently come to the conclusion that the next steps in our company's progress will require new financial leadership." The SEC, which had been investigating the company's accounting due to restatements made in 2002, recently expanded its probe to include its accounting for the many acquisitions that it made from 1996 through 2001, as well as for other issues. Interpublic has yet to file statements for 2004, citing material weaknesses in internal controls and the time required to complete its Sarbanes-Oxley Section 404 report. It also suggested that it might have improperly consolidated the results of some of the companies it acquired, and might have to restate prior results.

In a divisive 3-2 vote, the Securities and Exchange Commission amended and re-approved a proposed rule requiring the directors of mutual funds to be independent that had been ruled against by a federal court a little more than a week ago. Ruling in a suit brought by the U.S. Chamber of Commerce, the court said that the commission had not taken into account any alternatives and did not consider the costs of the rule, which would require that at least 75 percent of a fund's directors be independent. To address the court's concerns, the amended rule added details about compliance costs and other matters. "We've done the right thing," SEC Chairman William Donaldson said in a statement, adding that the SEC had laid out in detail what implementation would costs funds, and that it had concluded that simply disclosing whether or not directors were independent would not be adequate. Yesterday's vote was seen by some as a rush to get the rule implemented, since Donaldson is due to step down today, thus changing the balance of opinion at the commission. The Chamber of Commerce promised to sue again.

As one of the first companies to comply with the impending rule requiring the treatment of employee stock options as an expense, IBM might reasonably have expected a pat on the back. Instead, its reward is an investigation by the Securities and Exchange Commission. The company announced on Monday that it was cooperating with an informal SEC investigation into its financial reports for the first quarter ended March 31, in which IBM had expensed stock options, even though at the time the rule was not due to go into effect until June 15. (Implementation has since been delayed by another six months.) IBM said that it had been informed by the SEC that the investigation was not an indication that the company had violated any laws, and an IBM spokesperson said that they had no reason to believe that the financial statements or their treatment of stock options was inaccurate.According to published reports, the focus of the SEC's investigation was the way that IBM disclosed its expensing method, with some suggesting it might have been misleading. The company took a charge of 10 cents a share for options, while analysts had expected 14 cents.

Federal prosecutors have charged a California lawyer with taking illegal payoffs to act as a plaintiff in lawsuits brought by an unnamed New York law firm that has been identified in published reports as securities class-action giant Milberg Weiss. The indictment, handed down last week, alleges that Seymour Lazar acted as lead plaintiff in dozens of corporate class-action suits filed by Milberg Weiss in return for a share of the attorneys' fees, which is illegal -- though paying a bonus to lead plaintiffs is not. It said that Lazar had received at least $2.4 million in "secret and illegal kickbacks" from the firm, and that the firm had filed false and misleading court documents and hid the payments from the courts. In comments reported in the Washington Post, Lazar's lawyer characterized the payments as common fee-splitting practice, and said that the charges were an attempt to get Lazar to say negative things about Milberg Weiss. The law firm, through a spokeswoman, acknowledged that it was the firm in question, and in various reports said that it was cooperating with the government, and that the accusations were "baseless." The indictment is part of a three-year investigation into the practices of Milberg Weiss Bershad Hynes & Lerach, which split last year into two entities based separately in New York and San Diego.

Porter Keadle Moore is reaping benefits from presenting annual seminars on two hot topics: going private in the age of Sarbanes-Oxley, and the benefits from bankers' perspectives of S corporations. "Going Private, Staying Private" was put together in six weeks to address the large number of public company clients and prospects that had been inquiring about deregistering from the Securities and Exchange Commission to avoid the headaches of SOX compliance, according to the Atlanta-based firm's director of marketing, Laura Snyder. The half-day seminar drew 75 attendees, and was co-sponsored by PKM and a law firm. Topics included how to structure and execute such transactions; a valuation, funding and liquidity discussion with investment bankers; real-life anecdotes on community reaction; and tips on staying private. The second seminar, "New Rules Make S Corp a Better Bet for Banks," was the fourth annual forum on the topic of S corps. This year, the seminar drew some 90 attendees from across the country, and focused on the regulatory changes that make S corps a stronger structure for closely held businesses. The two-day event was co-sponsored by PKM, a law firm and a correspondent bank, and featured a panel of bank executives who discussed their conversion to S corporations, and outlined the new S corp basics, including regulatory changes, core financial benefits of S corp election, ways to structure a sale, shareholder issues and shareholder agreement, growing an S corp versus a C corp, employee stock ownership plans, compensation strategies, and raising capital. The goal is to draw between 65 and 150 clients, prospects and referral sources to each event, says Snyder. "Because we charge for these events and share the remaining expenses between the co-hosts, the cost for each seminar typically ranges from $750 to $6,500. In addition, we enhance our value to existing clients, and typically generate new business from one or two prospects that has ranged from $17,000 at one event to $64,000 at another." The invitation list is assembled from the client/prospect databases of the seminar hosts, and contains some 3,000 names. "Because a large portion of the target audience is registered with the SEC, the database information is available to the public," Snyder says. Snyder adds that these seminars "establish PKM as an expert on S corporation taxation and other hot accounting issues; disseminate details regarding tax law and accounting regulation changes to clients and prospects; demonstrate the cooperative working relationship between the seminar hosts; enhance the firm's partnership with seminar hosts, thus increasing referrals; generate new business; and provide an opportunity for CPE credit for bank attendees, firm presenters and firm attendees."

President Bush's Advisory Panel on Federal Tax Reform will likely hold a July meeting to review the information and comments gathered during the ten days of public hearings that the panel has convened since its inception in January. According to Tax Analysts, the reform panel groups have been reviewing materials in preparation for their final recommendations, which is scheduled to be presented to Treasury Secretary John Snow Sept. 30. Prior to that, however, the panel's final recommendations will probably be presented in a September public hearing.

The Multistate Tax Commission, a consortium of 47 state governments that works to hone the administration of tax laws applicable to multistate enterprises, has named Joe Huddleston Esq. as its executive director. Huddleston begins begin Aug. 1, and succeeds interim ED Rene Y. Blocker. Huddleston was most recently vice president of tax solutions for Liquid Engines Inc., a tax software firm focused on state income tax planning models and methodologies for multi-state and multinational companies. Prior to that, he was a state and local tax partner at national CPA firm Grant Thornton, serving middle-market and Fortune 500 companies He also served as commissioner of the Tennessee Department of Revenue from 1987 to 1995. "I look forward to working with state tax organizations as we address the challenges that will define the next several years," said Huddleston in a statement. "The MTC has made enormous strides in recent years, and I very much intend to help write the next chapter of the continuing success story at the commission."

Following a decision by a federal appellate court that overturned a Securities and Exchange Commission ruling that required at least 75 percent of mutual fund directors to be independent of the fund company, the commission said that it would vote on the matter June 29. The SEC adopted the rule roughly a year ago, when the $7 trillion mutual fund industry was embroiled in a series of late-trading scandals. The SEC mandate required that the fund board chairman and three quarters of fund directors have no direct ties to the manager of the respective fund. The court ruled that the regulator had the authority to adopt the rule; however, it maintained that the commission had not considered any alternatives and did not consider the costs of such a rule. Under that mandate, it was estimated that roughly 3,700 funds would have to seek new chairmen. Prior to next week's vote, the SEC would have to perform more extensive studies on the costs of compliance with the rule.

The Professional Oversight Board of Accountancy, the auditing regulator for the United Kingdom, said that it had discovered some procedural deficiencies in a round of audit inspections of 27 British corporations conducted by Big Four firms. Overall, the report stated that it didn't find any "systemic weakness" in the auditing firms' procedures, but noted that in at least two instances, the POBA had concluded that "there was sufficient doubt as to whether" the company being audited "had applied the correct accounting treatment or made appropriate disclosures." "The quality of audits is under threat from a number of risks which are not addressed by all firms in all audits," said POBA Chairman Sir John Bourn. "We found that each of the Big Four firms of auditors have the necessary infrastructure in place, and the commitment, to complete good quality audits. However, where the firms do not follow their own procedures they expose themselves to the risk that future audit opinions may not be appropriate." However, the report did not specifically identify any of the firms in the report -- KPMG, PwC, Ernst & Young and Deloitte. The POBA was established last year. A copy of the report can be obtained at www.frc.org.uk/poba/publications/.

In a 3-0 ruling, a federal appeals court overturned a Securities and Exchange Commission ruling that required at least 75 percent of mutual fund directors to be independent of the fund company. According to published reports, the appellate court ruled that the regulator had the authority to adopt the rule; however, it maintained that the commission had not considered any alternatives and did not consider the costs of such a rule. Under that mandate, it was estimated that roughly 3,700 funds would have to seek new chairmen. The rule was to go into effect next year. With the decision, the matter will again to back to the commission, but it is not expected to be reviewed until a permanent replacement for Chairman William Donaldson is appointed. Donaldson will step down June 30.