Diane Rubin Takes Reins of NASBA

Diane Rubin, partner in San Francisco-based CPA firm Novogradac, recently was appointed as chair of the National State Boards of Accountancy. Previous professional service by Ms. Rubin includes being a member of the Auditing Standards Board and committee membership on the Uniform Accounting Act and California Board of Professional Conduct. Among goals listed by Ms. Rubin are stronger ties amongst state boards and a greater appreciation of regulation of accountants and the roles that accountants and auditors play in fighting corruption.

In a related piece of news, the NASBA intends to issue shortly its final draft to the NASBA and AICPA shortly. Presumably, this will include the final position on the proposed pre-exam educational requirements to sit for the CPA exam. The exposure draft called for new courses or emphasis in presently existing courses) in communication, ethics and research; it will be interesting (and MORE than interesting for present accounting students and smaller universities) to see if the initial proposals have been maintained or, if instead, they have been modified.

PCAOB looks at Initial Implementation of Auditing Standard #2

Christine DiFabio of the Financial Executives Institute provides a nice summary of the PCAOB (Public Companies Accounting Oversight Board) report (also linked in the FEI link above) and its findings that compliance with Statement 2 on Internal Control has not gone as well as the PCAOB hoped. PCAOB did acknowledge that a tight time frame and shortages of trained personnel contributed to the shortfall. Specific efficiency issues mentioned in the report included a lack of integration between the internal control audit and financial audit; lack of efficient use of work done by other parties (such as internal auditors?), lack of a "top-down" approach, lack of adjusting tests of transactions based on riskiness of asset or transaction, trying to test transactions at different stages rather than "walking it through" from beginning to end. Among effectiveness concerns were insufficient testing of compensating internal controls if primary controls were insufficient and lack of sufficient training of internal controls related to note disclosure.

PCAOB is under some pressure for cost and aggravation; a Business Week article (see link at right) today indicated that some smaller companies were eschewing going public to avoid Sarbanes-Oxley compliance. At the same time; many of the observations made here by PCAOB (such as better use of other party work and integration of internal control and financial audits are good ideas on their face; whether or not an audited company is subject to Sarbanes-Oxley.

New Accounting Blogs Reviewed

Rick Tedford reviews several blogs in an article for the AICPA web publication "CPA2BIZ". Vanilla Accounting and Mauled Again are already linked at right and have been cited previously in some of last summer's "Best of Blogs" summaries. Of the three other blogs, BV Girl could be interesting but publication has been somewhat sparse in recent months and the Milt Brown blog (http://www.cpasense.blogspot.com/) could be good for Michigan accountants but seems to be primarily oriented to Michigan news, especially tax news. I am adding the Jeff Moore blog (Solo Accountant Reporter) to my links; his promising blog basically deals with the nuts and bolts of operating an accounting practice. While this is not one of the topics I addressed a couple weeks ago in my "Call Out for Accounting Blogs", Mr. Moore's blog is well-written and covers a valuable topic. Combining this blog with Vanilla Accounting and perhaps Tax Mama provides a good view of running a CPA practice in much the same way that combining AAO and Footnoted provides good coverage of analyzing corporate financials for insights on effectiveness and transparency of corporate management. I am taking Financial Accounting Blog off the links; posting has been VERY sparse.

An announcement: in about two weeks I plan to start the "Twelve Blogs of Christmas" where I highlight what I consider to be a particularly good blog post each day from December 13-24 (unlike the "Twelve Days of [post-] Christmas"). As might be expected, cited items will come from the accounting, personal finance and taxation links listed at right. My intent is not to use any blog more than once--but I will use multiple posts from the same blog (or blogs) if I consider it appropriate.

"Duke" Bedeviled, Headed for Jail

Rep. Randy Cunningham (R-CA) has resigned from Congress and pleaded guilty to bribery and tax evasion for illegally using influence on government contracts and hiding amounts received from the IRS. A truly ghastly performance and something the national GOP did not need in a multi-month cycle of bad news.

We Gather Together...

Happy Thanksgiving! May you have plenty to thank God for.

Business plan competitions: Good for competitive juices, not necessarily good for starting a business

Many universities, including some of the world's most prestigious, are setting up business-plan competition. Winning such a competition may sound like a way to be the next big enterpeneur--but read that fine print carefully. Although getting interest from a venture capitalist is nice, it is only a start. Frequently, it takes considerable additional work to get from interest to offer--and many would-be enterpeneurs are stunned that the process goes so slowly and the terms are so slanted toward the investor and so inflexible. To balance the power in getting financing, think car buyer in a showroom. First of all, try to line up more than one source; then plan to negotiate hard and to be willing to give up the deal to get better terms.

Valuing a Business

Prequel to post: A BIG thank you to Stone, Rudolph and Henry CPA firm of Nashville and Clarksville. They hosted upperclass students and faculty to a Clarksville office tour and barbecue this evening and were one of three "charter" participants (along with Brown and Brown of Clarksville and the Nashville branch of Crowe Chizek) in Austin Peay's first firm night for accounting students in many years. Obviously, thanks also to Brown and Brown and Crowe Chizek.

Post-barbecue, I was talking with one of the SRH professionals (I believe the name was Karen Plaster) and she said that she had recently attended a conference on business valuation. She went on to explain that business valuation differed from real estate valuation in that the attempt was to determine the overall value of the business, not just the value of the land and building. We then discussed how human capital would be valued; she said that it was difficult but procedures did exist for valuation.

The discussion was of interest to me in part because I am increasingly convinced that users (especially regulators and institutional investors) will want more disclosure of nonfinancial information, especially in the notes to financial statements. In part, I believe that greater disclosure may be expected in the future because the accounting model, which generally handles manufacturing and merchandising businesses reasonably well, strains to capture important information in knowledge-based service businesses. Some of the possible issues where I could see increased demand for disclosure include research and development efforts (and not just costs), human capital (skills and talents of present employees), environmental impact for the business, community participation by the business and commitment to diversity. For the most part, accountants have little or no training in most of these areas--proactivity here requires that accountants develop strategic relationships with human resource experts, environmental engineers and public administration experts.

Hit and miss blogging

Not surprisingly, posting will be somewhat erratic this week. And though early December probably will be better, full throttle blogging may not return until shortly after New Year's Day 2006.

Joint Tax Committee Names Temporary Chief of Staff

(Post #250) With two dissimilar reconciliation bills going through the House and Senate (Tax Analysts has a separate article today describing the House W&M decision to defer its bill), the Joint Committee on Taxation has appointed Thomas Barthold as acting chief staff. Senator Grassley, main man on the selection, said that Barthold had been on the committee for the last 18 years and therefore would provide a smooth transition.

Whimper. Sigh.

Congratulations to footnoted.org, Tax Prof and the Accounting Observer on recognition in the Wednesday Wall Street Journal Personal Section (Part D). Obviously, I will have to improve my writing.

The section lists blogs from a variety of business and entertainment areas, including real estate, advertising, health care, television and theatre. Based on my link section, I obviously believe that there are many blogs in the personal finance and tax areas which would have worthy of inclusion, but the omission of three blogs were particularly surprising to me: Consumerism Commentary (as the headquarters of the Carnival of Personal Finance), Free Money Finance and Roth CPA Updates.

Ford Motor Goes "No Haggle" With New Incentive Program

Seeking to keep up with GM's "Red Tag" promotion, Ford has established the "Keep It Simple" program through the New Year's holidays. Under the "Keep It Simple" plan, Ford will provide a single price on its stickers (which includes built-in rebates) and will show how the new price differs from previous manufacturers pricing. Some models--the Ford Fusion, GT and Mustang, the Mercury Milan and the Lincoln Zephyr, will be excluded from the promotion, but the hybrid Ford Escape and Mercury Mariner will be included in an incentive program for the first time.

Stay tuned. Often, later promotions are better than earlier.

GAO: SEC Follows Generally Acceptable Accounting Practices

With the exception of internal control shortcomings in computer security, tracking of penalties and better controls over reporting, the General Accountability Office said that the Security and Exchange Commission had satisfactory financial statements. The SEC had expedited the documents and had addressed cost overruns in building new offices in the "Boswash corridor".

Louisiana selects D & T as Hurricane Relief Auditor

Louisiana Administration Commissioner Jerry Luke LeBlanc announced that Deloitte and Touche had been chosen to assist in the oversight of Hurricanes Katrina and Rita funds. LeBlanc said that D&T would overss receipt and distribution of funds and assist the Legislative Auditor and Inspector General in fighting fraud, corruption and misconduct related to these funds. Among the reasons given for choosing Deloitte is the firm's experience with the September 11 tragedy in New York and earthquake relief in California.

Tax Committees Vote Out $55-60 Billion in Tax Cuts

In a pair of stories, the House Ways and Means Committee passed on effectively a party-line vote a $56.6 billion tax cut package while the Senate Finance Committee voted through a $59.6 billion package. Among significant differences between the two bills are dividend and capital gain tax reductions (House, not Senate), AMT relief (Senate, not House), savers credit, teachers expense deduction and sales tax deduction (not in House) and special incentives for charitable giving and hurricane rebuilding (in Senate).

Looks like the Joint Committee on Taxation will have its hands full; especially if it hopes to keep the package under $60 billion.

Virtue May Be More Than Its Own Reward

David Francis of ABC News reports on a correlation (not necessarily cause and effect) between regular worship attendance and financial well-being. A study published by the National Bureau of Economic Research indicates that doubling church attendance leads to 9% more income, 16% lower chances of being on welfare and 4% lesser chance of becoming divorced. Author Jonathan Gruber postulates several potential reasons for this result: better networking opportunities, either directly or through children, greater emotional stability (thus better work performance) as a result of faith and an additional safety net in case of layoff from work.

WHY the relationship between worship and wealth was found unquestionably will draw considerable debate; THAT the relationship exists is very interesting.

SOXing it to Corporate Costs?

Amy Borrus of Business Week writes an article about businesses who have found Sarbanes-Oxley to help with cost control. There is a bit of a "truth is stranger than fiction" or what Glenn Reynolds calls a "cats sleeping with dogs" feel about the story(94% of executives polled believed that Sarbanes-Oxley's costs exceed benefits); nevertheless, Gary Moran of Alvarez and Marsal Business Consulting has found companies, such as Cisco Systems and Genentech, to revise procedures and in the process, increase productivity. PCOAB head William Mc Donough also believes that corporate executives protest too much, stating that SOX often allows new initatives a fighting chance of being augmented. Specific examples of SOX creating improved business efficiency include Pitney-Bowes, where Accounts Receivable has been better coordinated; Genentech, where it helped implement an improved computer system; Cisco, where it streamlined the ordering process, making it easier for customers to place orders and Hub Group, a Illinois transportation business which uses Sarbanes-Oxley as a job training supplement.

Hoop it up

College basketball is one of my favorite things and having received degrees from three universities (Mississippi, Purdue and Missouri) in three different conferences as well as teaching at a seperate Division I university (Austin Peay) there is plenty to hold my interest. The Big Ten Wonk (www.bigtenwonk.blogspot.com) along with www.thefinalscore.net and its very good message board, do an excellent job of covering the Big Ten. There are other blogs and web sites available to fans of other conferences, especially the ACC.

Tie a Yellow Ribbon...

A word of thanks to those fighting overseas and supporting them here in America. May God bless you and may God comfort those who have lost loved ones in service to our country, whether in Afghanistan, Iraq or elsewhere, during the past year.

Co-signing a Note = Signing up for Trouble?

In a story probably as old as King Solomon's proverbs, ABC's Eileen Powell is asked about co-signing a note for a friend. She points out that the writer should ask the friend for information about the credit history and realize that their is a real risk of losing the friendship if the note is not repaid. Ms. Powell goes even further and says that even co-signing for relatives is a risky activity.

There probably are situations where co-signing might be justified, particularly by those who are both well-off and temperamentally able to handle the risk of not being repaid; the most significant of which would be co-signing a note for a child who has proven to be responsible to attend college. Nonetheless, both King Solomon and Ms. Powell are onto something here; co-signing should be done only under quite unusual circumstances.

Intuit Sends Forth a New Edition of QuickBooks

The 2006 edition of QuickBooks, including list pricing for various versions of the software, has recently been released. Dan Levin, General Manager of QuickBooks says that changes were designed to provide greater inventory support and increase ease of use and scalability. The Accountants version will now have a toggle feature allowing easy switching between their software and client information. Additionally, SQL database and audit trail features are included. Levin feels that the new software is more customer-centered (versus technology-centered) than the new Microsoft Small Business software and that Microsoft overestimated the uncommitted small business market.

I defer to Brian Tankersley (CPA Firm Technology blog) and others as far as the actual evaluation of the comparative accounting software but it does look like Intuit took the challenge of Microsoft's re-entry into the small business accounting software market seriously. It will be interesting to see what response, if any, Peachtree is planning to make to the Intuit and Microsoft releases.

FEI Reviews Recent Speeches by SEC Commissioners and Senior Staff

Edith Orenstein of the Financial Executives Institute has prepared an excellent synopsis of speeches by SEC Chairman Cox, Commissioners Atkins and Glassman and Chief Accountant Carol Staley on handling international accounting issues, need for high-quality disclosure, need for improved understandably of disclosures, value of the XBRL reporting initative, costs of Section 404 of Sarbanes-Oxley, importance of establishing an highly ethical corporate culture and the impact of Staff Accounting Bulletin 99 on materiality judgments. The summary is well worth the read and is linked in the title above.

House Passes Potential Modification of Tax Law for Pensions

The House Ways and Means Committee passed a $70 million bill related to tax provisions affecting pension and retirement plans. Among provisions are indefinite extension of certain IRA legislation passed in 2001, allow National Guardsmen to withdraw IRS contributions early without penalty if on active duty, exclude combat pay from gross income in determining whether taxpayer is eligible for IRA and allow direct deposit to IRAs. Additionally, it would allow up to $500 of "use it or lose it" medical flexible spending accounts to be carried forward and modify rules for defined benefit pensions.

Fannie May Need ACCT 201

Government-sponsored mortgage lender Fannie Mae, which recently replaced its CFO and COO, announced new accounting errors on top of the $11 billion previously reported. Recently-hired Robert Blakely, just off attempting to clean up MCI from its WorldCom days, walks in to an organization which has not met SEC filing deadlines for the past year and indicated that correcting previously-announced errors won't be fully corrected until the middle of 2006. The new errors appear to center around mortgage losses, mortgage insurance costs and tax credits associated with low-income housing. Additional problems faced by Fannie May are investigations by the SEC and the Office of Federal Housing Enterprise Oversight, complaints of an excessive mortgage portfolio and the potential of delisting by the New York Stock Exchange.

Fannie May, though legally independent of the Federal Government, was created by Congress and can be considered a cautionary tale that for all the imperfections of private capitalism, businesses owned by governments or primarily operated to accomplish governmental goals may have bigger problems in regard to effciency and effectiveness.

Ethics and Lean Accounting Addressed by IMA Publication

The November 2005 issue of Strategic Finance, an IMA monthly publication, addresses lean accounting and a recasting of IMA ethical standards as well as strategic thinking in multinational corporations and dealing with corporate restatements. Lean accounting, based on popularized theories such as just-in-time inventory and total quality management, seeks to minimize non-value-added (NVA) activities. One ramification of tightening the belt on NVA activities is pruning of accounting paperwork. The IMA Code of Ethics has been revised to take Sarbanes-Oxley and recently developed standards of the International Federation of Accountants into account.

UK Considers Limits on Auditor Liability

The UK government proposed legislation which would limit the legal liability of auditors to those directly attributable to the auditor's work. The proposed legislation would have to be approved annually by corporate shareholders before applying to a specific audit; moreover, shareholders would be able to question auditors during shareholder meetings and fraud or grossly negligent reporting in an audit would be subject to criminal sanctions. The European Union has shown little interest in this sort of legislation.

IRS: Where We Stand on Enforcement

IRS Commissioner Mark Everson released 2005 enforcement statistics today in the midst of claiming progress toward the three stated goals of his tenure--improved taxpayer service, greater modernization and augmented enforcement. Everson asserts that enforcement revenues from audits, collections and document matching, are up about 10% to a record $47.3 billion. Audit rates on high-income taxpayers and businesses increased over the previous year, with just over 1.5% of individual/family taxpayers with incomes over $100,000 being audited and small business corporation audits more than doubling. Additional highlights included passing the 50% mark on electronic filing and new highs for accuracy of toll-free telephone assistance (89%) and toll-free user satisfaction (95%).

Buried by Catalogs? Fight Back!

The holiday season at the end of the calendar year is a time when many retailers troll for new customers by mailing catalogs. If this either adds stress to what is already a stressful time or tempts you beyond your strength, there are ways to regain control. Sean Sheehan of the New American Dream, an environmentally-oriented consumer group, encourages people to opt off mailing lists. Abacus Alliance, Direct Marketing Association and Mail Preference Service each can get households removed from direct mailing lists. A less drastic suggestion was made by Linda Rothschild of organization business Cross It off Your List. Linda recommended separating potentially useful from extraneous catalogs, or, more boldly, cutting out specific pages (or even copying phone numbers and web addresses only) and pitching the rest of the catalog.

For many people, Christmas (and related Hanakkuk and Kwanzaa) have had the more spiritual aspects lost in an orgy of gift-giving and breathless activity. If you wish to get back to the basics of these special days, one step in the process may be to reduce the presence of catalogs.

Senators Consider Windfall Profits Tax to Buttress Home Heating Aid for Poor

Northeastern Senators are considering a windfall profits tax on oil with the proceeds (estimated at nearly $3 billion) to be used to augment funding for the Low Income Home Energy Assistance Program (LIHEAP). Jack Reed (D-RI) is offering the legislation, a proposal for a one-year tax designed to kick in when oil prices exceed $40 per barrel and half a dozen Democratic Senators plus Republicans Judd Gregg (NH) and Susan Collins (ME) are endorsing the proposal. While Finance Chair Charles Grassley (R-IA) has called on oil companies to voluntarily donate monies to LIHEAP, he does not believe in a windfall profits tax. Additionally, little or no enthusiasm for such a tax has been voiced by members of the House of Representatives.

I can understand frustration with the high fuel prices of early autumn (though they have moderated significantly in the last two or three weeks) and can also understand the concern that low income and elderly citizens may have difficulty affording higher heating costs. Having said this; I am skeptical of any tax claiming to only last for one year; it is amazing how many such taxes in the past have become permanent or semi-permanent.

Fraud Examiners Say SOX it to Fraud

Oversight Systems surveyed 208 fraud examiners and found that they believe that Sarbanes-Oxley has been effective in identifying fraud with almost two-thirds saying that requirements of SOX make it at least somewhat easier to catch fraud. Examiners surveyed were far less confident that SOX would change corporate culture and make management more honest; over 70% believed that interest in corporate integrity and fraud prevention either had already started to fade or would fade in the next five years. Strong discouragement of fraud from top management and visible fraud prosecution were seen as the most effective fraud deterrents, with internal controls and technological monitoring also getting some support. The three greatest fraud concerns were viewed as being conflicts of interest, fraudulent financial reports and billing schemes.

Given the criticism that SOX has taken from the financial press regarding cost and time required, results like this are needful for SOX to have a long-term future. The limited expectations of human nature are reasonable; Hubert Humphrey said long ago that you can't legislate morality.

A Trade-Off Between AMT Relief and Continuing Capital Gains/Dividends Breaks

House Ways and Means Chair William Thomas (R-CA) says that he cannot fit both a two-year extension of capital gains and dividend tax cuts and a one-year suspension of the alternative minimum tax into the $70 million reconciliation bill being considered by Congress. Although the AMT has broader support, Thomas says that deciding between the two is not obvious; the market likes and expects the gain/dividend cut extension and Thomas also wants a structural rather than temporary fix for the AMT. Furthermore, if both are included, the bill goes over $70 million and under House rules, it then becomes easier to defeat. On the Senate side, Charles Grassley (R-IA) has decided to take the AMT outside of reconciliation legislation, figuring that the AMT relief has broad enough support to survive on its own.

In my opinion, the suspension and eventual elimination of the AMT is more important than the financial tax breaks, especially the capital gain cuts. At the same time, I can see Thomas's preference for a long-term solution to the AMT.

Enterpeneur: Check Your Ego at the Front Door

Jonathan Hirshon, enterpeneur, consultant and venture capitalist, talked with Karen Klein of Business Week about traps for new businesses. Hirshon noted that passionate engineers may have great design skills but limited business savvy--unfortunately, many believe that they "know-it-all." He warns new business people not to commit too quickly to long-term deals and to look to professional managers instead of friends and family to operate the business. Other recommendations include making sure to protect ideas through intellectual property law, striving to get the first sale (or sales), even if at less than ideal terms, just to show potential investors that the product or idea is commercially viable and to being willing to give up some control to make sure that the company survives the dangerous early months and years.

Hirschon speaks with a large body of personal experience and potential entrepeneurs, particularly from technical backgrounds, owe it to themselves to listen and at least consider what he is saying.

Two Large CPA Firm Associations Merge

Global Alliance and Moore Stephens North America are merging with the combined association becoming one of the 10 biggest in the U. S. Mark Garten of Mahoney, Cohen will become the chair of the association. Steven Sacks, soon to be the executive director, believes that the present environment will provide opportunities to expand the base of audit clients.

Representative Michael Oxley Retires after 2005-06 Term

Congressman Oxley, Republican House member from Northwest Ohio, plans to retire after nearly one quarter century in Congress. Oxley is best known as co-sponsor of the Sarbanes-Oxley legislation which provided the basis for the Public Companies Accounting Oversight Board and requires greater auditor care and more clear taking of responsibility by management of corporate performance.

Reconciliation Legislation: Wait Until Next Year

Roy Blunt (MO) and other House Republican leaders have conceded that provisions extending certain tax incentives will have to wait for next year. A combination of hurricane-related tax relief, demands for increasing taxes on petroleum companies and lack of Democratic enthusiasm contributed to the sluggish performance. On the Senate side, Charles Grassley (R-IA) was somewhat more hopeful.

Junior Achievement for Real: Young Entrepeneurs Take Off

Entrepeneurship has made its way to campus, some 500 chapters of the Collegiate Enterpeneur Organization (not to mention similar groups like Students for Free Enterprise) indicate that starting a business is not limited to the middle-aged and well-heeled. New businesses for youth first flourished in the late 1990s with the dot-com boom and though that faded, it provided the infrastructure for youth enterpeneurship today. Among websites available to aid fledgling enterprisers are the SBA's www.mindyourownbiz.org and www.YoungEnterpeneurs.com, a self-help website based in Washington State. Iowa State, Maryland and Oregon State even have programs designed to facilitate business start-ups by undergraduates.