Highlights

BY STANLEY ZAROWIN

As initially announced in the July JofA Highlights, the AICPA and FASB issued a joint proposal to improve the standard-setting process for the constituents of private company financial reporting ( www.pcfr.org). The initiative seeks feedback from owners, preparers, auditors, lenders, investors and bonding agencies on proposed enhancements to the board’s standard-setting procedures. The responses will determine whether the board should consider expanding GAAP to include differences in accounting standards for private companies, as was advocated by various participants in a recent Institute survey. The AICPA and FASB also would sponsor and fund a joint committee to help the board ensure the views of private company constituents are incorporated into the standard-setting process. “The importance of nonissuers to our capital markets cannot be overstated,” said AICPA President and CEO Barry C. Melancon. “Only about 17,000 companies are registered with the SEC, but more than 20 million are privately held and play a critical role in job creation and entrepreneurialism.” Comments should be e-mailed to commentletters@pcfr.org by August 15, 2006.

The Auditing Standards Board (ASB) issued Statement on Auditing Standards (SAS) no. 112, Communicating Internal Control Related Matters Identified in an Audit, which replaces SAS no. 60, Communication of Internal Control Related Matters Noted in an Audit. The new SAS establishes standards and provides guidance on identifying and evaluating control deficiencies in an audit of financial statements to determine the significant deficiencies and material weaknesses that must be communicated to management and those charged with governance. The SAS is effective for periods ending on or after December 15, 2006. It was published in the July issue of the JofA (Official Releases, page 97), is summarized at www.aicpa.org/members/div/ and can be ordered (product no. 060707JA) at www.cpa2biz.com.

The ASB also issued Statement of Position (SOP) 06-1, Reporting Pursuant to the Global Investment Performance Standards, which replaces SOP 01-4, Reporting Pursuant to the Association for Investment Management Research Performance Presentation Standards, and was published in the June issue of the JofA. Venture capital and hedge funds, commodity pool operators and other investment management companies use the Global Investment Performance Standards (GIPS) to promote fair representation, full disclosure and greater comparability in calculating and presenting investment performance information. Compliance is voluntary but widely regarded as a competitive advantage.

SOP 06-1 provides guidance to practitioners examining and reporting on aspects of a firm’s compliance with GIPS—a verification engagement—and on the investment performance presentations of specified groups of portfolios—a performance examination. Auditors should conduct both types of engagements in accordance with AICPA attestation standards and with procedures specified in GIPS, which are available from the CFA Institute ( www.cfainstitute.org/centre/ips/), as are guidance statements and other interpretation and application aids. Order the SOP (product no. 014944JA) at www.cpa2biz.com.

The Government Accountability Office issued an exposure draft (ED) of proposed changes to generally accepted government auditing standards (GAGAS), commonly known as the Yellow Book ( www.gao.gov/govaud/ybk01.htm). Although the ED applies to many aspects of GAGAS, it emphasizes audit quality and ethics and extensively updates the performance audit standards. Comments should be e-mailed to yellowbook@gao.gov by August 15, 2006.

The staff of the Public Company Accounting Oversight Board Office of the Chief Auditor issued a series of questions and answers, Adjustments to Prior-Period Financial Statements Audited by a Predecessor Auditor ( www.pcaobus.org/standards/staff_questions_and_answers/2006/qa_adjustments.pdf). If such financial statements require adjustments, the Q&As say which auditor—the predecessor or the successor—may audit the adjustments.

The AICPA has joined the U.S. Treasury Department’s “Simplify” initiative to inform tax preparers and businesses of the benefits of using the Electronic Federal Tax Payment System ( www.simplifytaxprep.info). Free software at www.eftps.gov makes it possible to simultaneously submit many clients’ tax payments with a single mouse click.

As part of its ongoing program to lead innovation in management accounting, the AICPA is collaborating with the American Accounting Association (AAA) Management Accounting Section to research nonfinancial performance measures. AAA members will submit proposals on various aspects of the purposes of supplementing financial measures with nonfinancial ones; the selection, validation and reporting of such nonfinancial measures; and the effectiveness of reporting systems that integrate such measures with their purely financial counterparts. The Institute will fund up to $50,000 for one or more projects and select the winning proposal in September. The research is expected to be completed in July 2007, and results will be written up in a final report, a paper for publication in a major academic journal and an article for the JofA. Guidelines for submitting a proposal are at http://aaahq.org/MAS/news/announcements/aicpa_grant.pdf.

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