Highlights

Under the rules, registered firms are not independent of their audit clients if they have contingent-fee arrangements with them or provide tax services to persons in a financial reporting oversight role at the client or to their immediate relatives. The rules further implement the Sarbanes-Oxley Act’s requirement that auditors’ nonaudit services be preapproved by the audit committee. Specifically, a registered firm seeking approval to provide tax services must give the client’s audit committee a written description of the services it is proposing, discuss with the committee the effects providing such services might have on the firm’s independence and document the substance of that discussion. One rule, focused on ethics, codifies the principle that individual accountants or other persons associated with a registered firm can be held responsible when their actions contribute to a firm’s violation of relevant laws, rules or professional standards.

More information on the rules and their effective dates is available at www.sec.gov/rules/pcaob/2006/34-53677.pdf and www.pcaobus.org/News_and_Events/News/2006/04-21.aspx.

The AICPA’s 360 Degrees of Financial Literacy program offers baby boomers strategies for meeting the near-term expenses over which many of them expressed concern in a recent Institute-sponsored survey ( www.aicpa.org/download/news/2006/Baby_Boomers_Worried.pdf; see News Digest, page 20). More than half (51%) of respondents said they worry more about rising energy costs, uninsured medical expenses and credit-card debt than about longer-term issues such as saving for retirement, accumulating an emergency fund and caring for aging parents.

Carl George, CPA, chair of the AICPA’s National CPA Financial Literacy Commission and CEO of Clifton Gunderson LLP, said, “Consumers are juggling today’s real financial pressures and trying to save enough for their retirement.” They can cope with the strain of these urgent but competing priorities, he said, by remaining focused on their savings goals and planning for contingencies. To that end, the Institute’s financial literacy program advises consumers to establish a steady savings plan, create an emergency fund, join a carpool, adopt energy conservation measures and consult a CPA or other personal financial planning specialist. More information on these recommendations and the program’s free tools and resources is available at www.360financialliteracy.org.

The Governmental Accounting Standards Board (GASB) issued a preliminary views document intended to improve state and local governments’ accounting for and financial reporting of derivatives. Because the number and value of government derivative contracts have increased substantially, GASB says the public needs more information on the risks inherent in these transactions and their potential impact on a government’s financial position. It therefore is proposing that governments report in their financial statements the fair value of derivatives, as well as the change in that fair value. If a derivative is effectively reducing the risk it was created to address, however, the changes in its fair value would be deferred and reported in the balance sheet. Governments also would have to disclose additional information about their derivatives in the notes to their financial statements. The proposal and a plain-English summary of its provisions can be downloaded at www.gasb.org. Comments are due July 28, 2006.

The AICPA submitted comments on regulations the IRS and the Treasury Department proposed regarding corporate estimated tax payments. The proposal is designed to reflect the significant changes to the tax law since 1984 and to prevent taxpayers from using inaccurate calculations to compute their estimated tax liability. In its comments, the AICPA’s Estimated Tax Task Force expressed concern, however, that “the rules are too mechanical, and as a result, distort annualized taxable income and create traps for the unwary.” Taxpayers who don’t fully understand the proposed rules, the Institute said, could easily miscalculate taxable income for the annualization period and incur unwarranted penalties.

The task force also said that because the proposed rules would inappropriately discriminate between taxpayers in similar circumstances, the IRS and the Treasury Department should modify the regulations to reduce the administrative burden associated with them, eliminate potential pitfalls and treat all affected taxpayers equitably. The comment letter can be downloaded at http://tax.aicpa.org/NR/rdonlyres/9FB69F8A-9C5B-4E71-8164-
CFD4D204D150/0/AICPA_Coments_on_Corporate_Estimated_Tax.doc.