Accounting standards

As part of its broader effort toward convergence with international reporting standards, the Financial Accounting Standards Board has issued Statement No. 154, "Accounting Changes and Error Corrections."

The U.S. Department of Labor and the Securities and Exchange Commission have published tips to assist fiduciaries of employee benefit plans in reviewing conflicts of interest of pension consultants.

A day after Securities and Exchange Commission Chairman William Donaldson announced that he would step down from his post at the end of the month, President Bush announced his nomination of Republican Congressman Christopher Cox of California as the next head of the SEC.

Securities and Exchange Commission Chairman William H. Donaldson announced that he would step down at the end of the month.

Following the completion of an internal review, insurer American International Group Inc. finally filed its repeatedly delayed 2004 annual report.

The Securities and Exchange Commission, which has been after public companies to tighten their internal controls as mandated by Sarbanes-Oxley, needs to do some tightening itself, according to the Government Accountability Office.

The Standing Advisory Group of the Public Company Accounting Oversight Board will meet next month to discuss topics related to the implementation of PCAOB Auditing Standard No. 2, which deals with internal control audits.

The Public Company Accounting Oversight Board released guidance related to attest engagements regarding Extensible Business Reporting Language data furnished under the Securities and Exchange Commission XBRL Voluntary Financial Reporting Program on the Edgar System.

The chairman of a House appropriations subcommittee with oversight of the Securities and Exchange Commission, has called on the Government Accountability Office to investigate reported SEC budget shortfalls.

While Section 404 of Sarbanes-Oxley says management is responsible for establishing and reporting on a company's system of internal controls, more than half of 329 companies reporting control deficiency disclosures did so because their external auditors identified and reported those weaknesses, according to a report by the Financial Executives Research Foundation.

The Public Company Accounting Oversight Board revoked the registration of a New York public accounting firm and disciplined three of its partners for concealing information from the board and submitting false information in connection with a PCAOB inspection.

A bipartisan coalition of members of the U.S. Senate Finance Committee, including chairman Charles Grassley, R-Iowa; ranking member Max Baucus, D-Mont.; Ron Wyden, D-Ore.; and Jon Kyl, R-Ariz., have introduced legislation to repeal the alternative minimum tax.

Reiterating the Financial Accounting Standards Board's 2005 goal of simplification, FASB Chairman Robert Herz told attendees at the American Institute of CPAs Spring Meeting of Council that the regulatory climate has reopened such issues as differential standards and the codification of generally accepted accounting principles, thus intensifying the need to hone standards and reduce the number of accounting guidance outlets.

The American Institute of CPAs lauded the introduction of legislation this week that would amend the privacy provision of the Gramm-Leach-Bliley Act applicable to CPAs.

In response to requests from tax practitioners and professional organizations for clarification, the Internal Revenue Service and the Treasury Department issued revisions to the new Circular 230 standards -- rules related to written tax advice issued last December.

In response to concerns raised at a Securities and Exchange Commission roundtable last month on implementing internal control reporting provisions, the Public Company Accounting Oversight Board has published additional guidance for auditors on how to implement its standard related to the audits of internal controls over financial reporting. The guidance on Auditing Standard No. 2 is expected to lower the costs associated with internal control audits, the board's chairman and chief auditor said Monday. PCAOB Auditing Standard No. 2, which refers to the auditor's attestation as an audit of internal control over financial reporting, is the standard that auditors must use to satisfy their obligations under Section 404 of the Sarbanes-Oxley Act. The main purpose of the guidance is to "clarify Auditing Standard No. 2 and to show that if it is applied correctly, the way we meant it to be applied, in addition to being very important, it should be cost-beneficial," PCAOB Chairman William McDonough told reporters during a conference call. "We're working on improving the methodology, and the improvement in methodology will result in lower costs," McDonough said. PCAOB chief auditor Douglas Carmichael noted that if companies are successful in integrating their financial statement and internal control audits, "they'll have some reduction in cost in each audit." "Fees should come down for a variety of reasons," said Carmichael. "The integration of the audits, and the learning curve -- companies will get better at doing this. With our new FAQs, we're giving specific advice on things that can be done to make audits more effective and more efficient. That way, companies can spend less time in areas that are truly low-risk." The guidance includes a board policy statement on the implementation of the standard, which McDonough said passed last Friday in a unanimous vote, and a series of staff questions and answers that he said gives "more technical guidance to issuers and especially auditors." The Board Policy Statement and the FAQ both focus primarily on the scope of the internal control audit and how much testing of a company's internal control over financial reporting is required, which the PCAOB said are the issues that primarily drive cost. According to the policy statement, auditors should: * Integrate audits of internal control with financial statement audits, so evidence gathered and tests conducted in the context of either audit contribute to completion of both audits; * Exercise judgment to tailor audit plans to the risks facing individual clients, instead of using standardized "checklists" that may not reflect an allocation of audit work weighted toward high-risk areas; * Use a top-down approach that begins with company-level controls, to identify for further testing only those accounts and processes that are, in fact, relevant to internal control over financial reporting, and use the risk assessment required by the standard to eliminate from further consideration those accounts that have only a remote likelihood of containing a material misstatement; * Take advantage of the flexibility that the standard allows to use the work of others; and, * Engage in direct and timely communication with audit clients when those clients seek auditors' views on accounting or internal control issues before those clients make their own decisions on such issues, implement internal control processes under consideration, or finalize financial reports. "Auditors didn't seem to be engaging in as full a dialogue with client as is legal and makes sense," McDonough said. "The concentration on retaining independence may have led people to exaggerate how little communication they can have. This is easily managed by the issuer asking for a view on something they already think rather than asking the [auditor], 'What should I do?'" The board's Standing Advisory Group will meet on June 8 and 9 to discuss implementation of the standard. "We'll have the opportunity to consult with them to see if any additional administrative clarification is necessary or if it's necessary to reopen [AS2]. It's not likely, but not impossible," McDonough said. "Some fine-tuning may be needed in the future, but that doesn't appear to be the case now. But we need clarification to applied so we get more cost benefit out of it." He added, "If we have to reopen [the standard], then we get into rulemaking and that would take about six months. What we can do administratively is much more beneficial."

As if to continue the angst and agony of waiting, the Securities and Exchange Commission recently postponed the compliance date for the application of the Financial Accounting Standards Board's Statement 123(R), "Share-Based Payments."The SEC ruling allows companies to implement the statement, which requires them to expense stock option compensation, at the beginning of their next fiscal year instead of in their first interim or annual period that begins after June 30, 2005, or, for small companies, after Dec. 15, 2005.

The two regulatory "missionaries" responsible for bringing religion to the accounting profession - the Public Company Accounting Oversight Board and the Securities and Exchange Commission - told House lawmakers that their tandem efforts are paying off.Oversight of auditors by the three-year old PCAOB "has already changed the environment of registered public accounting firms," and the board's regulatory presence has "triggered a profound shift in the overall character of public company auditing," PCAOB Chairman William J. McDonough said in remarks before the House Financial Services Committee.

The demand for capital in the Republic of China, whose 9.5 percent growth has spurred its government to rein in that rapid rate for fear that its economy could overheat, is also spinning off steps to spruce up the country's accounting procedures.The country's rising capital market needs mean that accounting methodologies should be tailored to suit the needs of that market, asserted Liu Zhongli, president of the Chinese Institute of Certified Public Accountants, during a recent speech in Brussels.

A district court judge here gave the okay in late April to a settlement in which Arthur Andersen agreed to pay $65 million to resolve a class-action lawsuit brought by WorldCom investors who alleged that the audit firm failed to protect them by not uncovering the $11 billion fraud at the telecommunications company.Andersen also agreed to pay investors 20 percent of any remaining capital that it intends to distribute to its partners, and also to pay the difference between the $65 million and any larger settlement in any other lawsuit it may settle in the future, according to Sean Coffey, an attorney for lead plaintiff the New York State Common Retirement Fund.