Highlights

CPAs will no longer have to send initial or annual privacy notices to their clients. At the urging of the AICPA and others, Congress passed a provision introduced by Rep. Mark Kennedy (R-Minn.) and co-sponsored by Rep. Collin Peterson (D-Minn.) that amends the Gramm-Leach-Bliley Act. Sens. Mike Enzi (R-Wyo.) and Debbie Stabenow (D-Mich.) were the provision’s chief supporters in the Senate. The GLBA requires financial institutions—which it defines broadly to include tax preparers and some financial and investment advisers—to notify customers annually about how their personal information is safeguarded and how they may opt out of having their information shared with others. Because CPAs are subject to state laws and regulations prohibiting disclosure of private personal information without a client’s expressed consent, the law was seen as unnecessarily burdensome to them and potentially confusing to their clients.

“This is wonderful news and a win for both CPA practitioners and their clients,” AICPA President and CEO Barry C. Melancon said of the exemption.

The amendment specifically excluding CPAs from the notice requirement was part of the Financial Services Regulatory Relief Act of 2006 (S 2856), which President Bush signed on October 13. ( http://www.aicpa.org/download/news/2006/President_Signs_CPA_GLB_Privacy_Notification_Exemption.pdf)Kennedy and Peterson both had careers as CPAs before being elected to Congress.

The Public Company Accounting Oversight Board likely will give high priority to fair value measurements and fraud risk factors in its standard setting in 2007, said PCAOB Chief Auditor Thomas Ray. In his opening comments at the board’s annual Standing Advisory Group meeting in October, Ray listed revising PCAOB Auditing Standard no. 2 (AS2) first among the board’s four top priorities. But fair value and fraud also were significant topics of discussion. In response to questions about the PCAOB’s approach to dealing with fraud, Ray said the board considers the issue a high priority but will not immediately take on the broader topic of auditors’ responsibility for fraud, pending further study of findings from its inspections process.

Subject to further discussion by the board, Ray said the PCAOB’s standard-setting priorities for 2007 would be to

Continue existing projects, including the AS2 revision, principles of reporting, engagement quality review and risk assessment (including fraud risk assessment).

Develop projects that deal with related parties, confirmations and specialists. Marking a divergence from previous priority lists, Ray said the PCAOB intends to deal with related parties and confirmations as separate standard-setting projects rather than together as “fraud,” though both projects will include consideration of detecting and preventing fraud.

Several topics were removed from the PCAOB’s priority list, according to Ray, including communications with audit committees, quality control standards, codification of PCAOB standards and the authority of the board’s interim standards. The PCAOB will continue to monitor the related issues, with the exception of communications with audit committees, he said, noting that “auditors do not seem to be having trouble identifying matters that must be communicated to audit committees.”

The PCAOB issued staff guidance on auditing a company’s fair value estimate of stock options granted to employees pursuant to FASB Statement no. 123 (revised), Share-Based Payment, which applies to financial statements at the start of that company’s next fiscal year beginning on or after June 15, 2005. This series of questions and answers highlights risk factors auditors should be aware of—for example, the valuation model a company chooses and the assumptions used as inputs in the model. Frequent changes to the valuation model might indicate a risk of fraud, as might choosing an expected term that is not supported by the company’s historical experience. The questions and answers are available at http://www.pcaob.org/Standards/Staff_Questions_and_Answers/2006/Stock_Options.pdf.

The AICPA Consulting Services Executive Committee issued a second exposure draft of a proposed statement on standards for business valuation services. Valuation of a Business, Business Ownership Interest, Security or Intangible Asset was first issued as an exposure draft in 2005. The latest draft requests comments on an appendix interpreting and illustrating the scope of services covered by the statement, as well as on text discussing three issues in valuation engagements: the role and documentation of oral reports, reliance on third-party specialists and how to distinguish a valuation engagement from a calculation engagement.

The exposure draft may be viewed at http:/bvfls.aicpa.org/Resources/Second+Exposure+Draft+of+Proposed+Valuation+Standards.htm. Comments are due December 15, 2006. Comments may be sent to BVSTDS@aicpa.org or to Janice Fredericks, AICPA—Financial Planning, Harborside Financial Center, 201 Plaza Three, Jersey City, NJ 07311-3881.