n The Board of Trustees of the Financial Accounting Foundation (FAF) approved major changes to the oversight, structure and operations of the FAF and its two standard-setting boards, FASB and GASB. The package of changes includes shrinking the FASB board from seven members to five and giving the FASB and GASB chairmen the power to set the agendas and determine the priority of projects taken up by their respective boards.

The changes were recommended by the FAF Trustees’ Special Committee on Governance Review, which was established in July 2007 to examine the structure, effectiveness and efficiency of the governance processes of the FAF, FASB and GASB. "We took this action very much with an eye to convergence," Robert Denham, the FAF’s chairman, said during a press conference.

Specifically, the FAF trustees voted to:

  • Expand the number and breadth of investors, accounting, business, financial and government organizations and entities invited to nominate FAF trustees.

  • Increase the governance activities of FAF trustees, including their level of formal review and oversight of data and materials regularly provided by FASB, the Financial Accounting Standards Advisory Council, GASB and the Governmental Accounting Standards Advisory Council.

  • Change the term of FAF trustees from one three-year term with a possible second three-year term to one five-year term.

  • Change the size of the FAF board from 16 trustees to a flexible range of 14 to 18 trustees, with the size to be fixed by board resolution from time to time.

  • Reduce the FASB board from seven members to five, effective July 1, 2008, while retaining the board’s simple majority voting requirement.

  • Affirm the need for investor participation in FASB deliberations by broadening the bylaw requirement that FASB members possess investment experience.

  • Secure a stable and permanent funding source for GASB.

  • Retain the current size, term length and composition of the GASB board.

  • Vest the FASB and GASB chairmen with the authority to set their respective project plans, agendas and priorities of projects.

n The SEC released a proposal that would extend for another year the auditor attestation requirement for smaller public companies under section 404(b) of the Sarbanes-Oxley Act of 2002. Under the proposed extension, the section 404(b) requirements would apply to smaller public companies beginning with fiscal years ending on or after Dec. 15, 2009.

The Commission also announced that it has begun a cost/benefit study of the auditor attestation requirement for smaller public companies. The SEC’s Office of Economic Analysis will lead the study with assistance from the Office of the Chief Accountant and Division of Corporation Finance, according to an SEC news release.

For a "plain English" guide to help small businesses understand and comply with section 404(a) requirements, visit www.404.gov.

n The SEC Advisory Committee on Improvements to Financial Reporting (CIFiR) issued a progress report to the SEC and for public feedback. The report includes three types of findings—developed proposals, conceptual approaches and currently identified future considerations—in areas including complexity, standard setting, audit process and compliance, and delivery of financial information.

Developed proposals are recommendations that CIFiR believes could be implemented by the SEC, its staff or other bodies, as appropriate. Conceptual approaches represent CIFiR’s initial views but require additional vetting before being finalized into a developed proposal. Matters for future consideration are areas in which deliberations and research have not yet begun.

Among the committee’s developed proposals are:

  • FASB should move away from industry-specific guidance to activity-based guidance (for example, from banking as an industry to lending as an activity by any company) and strive to reduce the number of alternative ways available under GAAP to account for the same transaction.

  • GAAP should be based on a presumption that "formally promulgated alternative accounting policies should not exist." In any new projects, FASB should not provide additional optionality, unless, in rare circumstances, it can be justified. Any new projects should include the elimination of existing alternative accounting policies in relevant areas as a specific objective of those projects.

  • FASB, the SEC or the SEC staff should issue guidance on how to correct an error consistent with six principles, outlined by CIFiR, including that the determination of how to correct a material error should be based on the needs of current investors.

  • FASB should set explicit priorities based on consultation with an Agenda Advisory Group, which would include representatives of the SEC and the PCAOB, as well as representatives from the investor, preparer and auditor communities.

  • FASB should conduct post-adoption reviews of significant new standards, generally within one to two years of their effective dates, to ascertain the degree of diversity in practice in using judgment when applying those standards. If that diversity is too broad or otherwise inappropriate, FASB should amend the standard or issue interpretative guidance.

The committee is expected to make final recommendations to the SEC in August. Information about the committee and progress report is available at www.sec.gov/about/offices/oca/acifr.shtml.

n Cynthia Fornelli, executive director for the Center for Audit Quality, urged the Treasury Department’s Advisory Committee on the Auditing Profession to consider several initiatives aimed at addressing the supply of experienced auditors in the U.S. Among Fornelli’s recommendations was consideration of an increase in the number of H1-B visas, which allow foreign professionals in "specialty occupations" to be employed temporarily in the U.S., to expand the pool of auditors. She also voiced support for consideration of alternatives to traditional classroom instruction to satisfy the 150 semester-hour requirement in certain states for those working to become CPAs.

Fornelli suggested experiential learning, such as practicums or internships within firms, could also help satisfy the 150-hour requirement. She called on the committee to consider a regulatory process for audit firms to remediate independence breaches that would be immaterial to reasonable investors and to reconsider the definition of "audit client" and "affiliate" to clearly target relationships that could cause a conflict for auditors.

Written comments Fornelli and others submitted to the committee are available at http://www.treas.gov/offices/domestic-finance/acap/submissions-02042008.shtml.

n Seventeen international accounting firm networks have become the first full members of the Forum of Firms. These international networks, whose member firms perform transnational audits, have reported that they have implemented a globally coordinated quality assurance program, committed to the use of International Standards on Auditing (ISAs) and met other quality and ethics requirements, according to a Jan. 22 Forum of Firms announcement.

Full Members
Baker Tilly International
BDO International
Constantin Associates
Deloitte Touche Tohmatsu
Ernst & Young Global Limited
Grant Thornton International
HLB International
Horwath International Association
KPMG International
PKF International
PricewaterhouseCoopers International
RSM International Limited
Russell Bedford International
Talal Abu-Ghazaleh International
UHY International

Provisional Members
Moore Stephens International
Polaris International

The Forum of Firms’ stated goal is to promote consistent and high-quality standards of financial reporting and auditing practices worldwide. It conducts its business through its executive arm, the Transnational Auditors Committee, which is also a committee of the International Federation of Accountants.

The networks composing the group of first full members originally joined as provisional members. The Forum’s current provisional members are working toward becoming full members this year.

Membership in the Forum is open to networks and firms of all sizes that have transnational audit engagements or are interested in accepting such engagements and agree to meet membership requirements. For more information, visit www.ifac.org/Forum_of_Firms.

n The National Credit Union Administration (NCUA) is seeking comment on whether it should issue regulations to govern the merger of a federally insured credit union (FICU) into, or a FICU’s conversion to, a financial institution other than a mutual savings bank (MSB). The NCUA has no regulations governing these types of transactions.

The NCUA is also considering amendments to regulations regarding mergers, charter conversions and changes in account insurance to address the effects these transactions may have on member rights and ownership interests. Comments are due by March 31.

The Advance Notice of Proposed Rulemaking is available at www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/P-708ANPR.pdf.

n Domestic and foreign banks tightened lending standards and terms on a broad range of loans in the last three months of 2007, according to the Federal Reserve’s January 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices. The survey also reported weakening demand for bank loans by businesses and households.

About 40% of domestic banks and 85% of foreign banks—both a higher net fraction than in the October survey—increased the spreads of loan rates over the cost of funds. Tighter lending standards for commercial real estate were reported by 80% of domestic banks and 55% of foreign banks, both large increases from the previous survey. Between 75% and 85% of domestic and foreign banks expect a deterioration in the quality of the C&I (commercial and industrial) and commercial real estate portfolios. More than 85% of respondents said they would review residential mortgages for modification on a loan-by-loan basis as a "somewhat significant" part of an overall loss-mitigation strategy.

The survey is available at www.federal reserve.gov/boarddocs/SnLoanSurvey/200801/fullreport.pdf.

n The SEC is taking steps to expedite the distribution of more than $5 billion in SEC recoveries to injured investors. Richard J. D’Anna has been appointed to lead the newly created Office of Collections and Distributions. Most recently, he was senior vice president at 1st BridgeHouse Securities and a senior vice president and consultant at FITS Inc.

Lynn M. Powalski will become the office’s deputy director. Powalski has worked in the SEC’s Division of Enforcement since 2001, as both an assistant director and assistant chief litigation counsel for Collections and Distributions.

"The Commission’s strong commitment to recovering money from wrongdoers and returning it to investors is amply demonstrated by the more than $2 billion we distributed last year," said SEC Chairman Christopher Cox. "In 2008, we can do more. Dick and Lynn bring exactly the right skill sets to their new positions, and they will make an excellent team to lead the SEC’s efforts to get money back to defrauded investors as quickly and efficiently as possible."

n Beginning in 2009, employee benefit plans sponsored by charitable organizations and schools under IRC § 403(b) and covered under the Employee Retirement Income Security Act (ERISA) will be subject to the same reporting and audit requirements that currently exist for section 401(k) plans. Section 403(b) plans are also commonly known as "tax-shelter annuity plans."

Under new U.S. Department of Labor regulations issued in November 2007 amending the filing requirements for Form 5500, Annual Return/Report of Employee Benefit Plan, ERISA-covered 403(b) plans with 100 or more participants generally will be required to file audited financial statements beginning with their 2009 Form 5500 filing. Any 403(b) plans with fewer than 100 participants will be eligible to use abbreviated reporting forms without audited financial statements. The DOL estimates that approximately 7,000 403(b) plans will be subject to the new audit requirements and another 9,000 403(b) plans will be eligible for the waiver.

The DOL regulations were published in the Nov. 16, 2007, Federal Register and are available at www.dol.gov/ebsa/regs/fedreg/final/20071116.pdf. The AICPA’s Employee Benefit Plan Audit Quality Center (EBPAQC), www.aicpa.org/EBPAQC, and Expert Panel have formed a joint task force to develop resources to help members with these new audit requirements.


Year-end tax planning and what’s new for 2016

Practitioners need to consider several tax planning opportunities to review with their clients before the end of the year. This report offers strategies for individuals and businesses, as well as recent federal tax law changes affecting this year’s tax returns.


News quiz: Retirement planning, tax practice, and fraud risk

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Bolster your data defenses

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