Highlights

The AICPA Auditing Standards Board issued three exposure drafts. A proposed Statement on Quality Control Standards (SQCS), A Firm’s System of Quality Control, will replace all existing SQCSs and provide guidance for a CPA firm’s responsibilities for its system of quality control over its accounting and auditing practice ( www.aicpa.org/download/members/div/auditstd/ed_sqcs.pdf). The ED, which should be read in conjunction with the AICPA Code of Professional Conduct, describes elements of quality control and other matters essential to the effective design, implementation and maintenance of the system. It also explains how the proposed guidance differs from existing SQCSs and international standards on quality control. Comments are due September 30, 2006.

Comments on two other EDs are due September 15, 2006. One, a proposed Statement on Standards for Attestation Engagements (SSAE), SSAE Hierarchy, identifies the body of attest literature, clarifies the authority of attest publications issued by the AICPA and others, and provides additional guidance on related matters ( www.aicpa.org/download/members/div/auditstd/finaledssaehierarchy.pdf). Another, a proposed Statement on Auditing Standards (SAS), Omnibus—2006, includes proposed revisions to SAS nos. 102, Defining Professional Requirements in Statements on Auditing Standards; 105, Amendment to Statement on Auditing Standards No. 95; 109, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement; 110, Performing Procedures in Response to Assessed Risks and Evaluating the Evidence Obtained; 99, Consideration of Fraud in a Financial Statement Audit; and 103, Audit Documentation (www.aicpa.org/download/members/div/).

Conrad W. Hewitt, CPA, became the SEC’s chief accountant in August. He was a chief financial regulator for the State of California and, earlier, a longtime managing partner of Ernst & Young. Hewitt’s priorities include leading the SEC’s work on implementing the Sarbanes-Oxley Act’s internal control provisions and promoting convergence of U.S. GAAP and international financial reporting standards.

The SEC issued a concept release to elicit public comments on the guidance it is developing to help managers of public companies, both domestic and foreign, assess their internal controls over financial reporting ( www.sec.gov/rules/concept/2006/34-54122.pdf ). In particular, the guidance will address how to identify risks to the accuracy of financial statement accounts and disclosure and the related internal controls that address those risks; the objectives of the evaluation procedures and methods or approaches management uses to gather evidence supporting its assessment; factors management should consider to determine the nature, timing and extent of its evaluation procedures; and documentation requirements, overall objectives of documentation and factors that may influence documentation requirements. Comments are due September 18, 2006.

The IRS sought recommendations from the public on how to make it easier and less expensive for Americans to satisfy their federal tax obligations. The service’s Office of Taxpayer Burden Reduction encouraged tax practitioners, business owners and others to submit proposals on form 13285A ( www.irs.gov/pub/irs-pdf/ ).

FASB issued Interpretation no. 48, Accounting for Uncertainty in Income Taxes, which prescribes a consistent recognition threshold and measurement attribute for application in a financial statement to a position taken or expected to be taken on a tax return ( www.fasb.org/st/summary/finsum48.shtml ). The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. It is effective for fiscal years beginning after December 15, 2006. FASB encourages earlier application by enterprises that have not issued any financial statements in the period in which they adopt the interpretation.

The board also issued a staff position (FSP) that will require companies to recalculate their leveraged leases if there is an actual or projected change in the timing of cash flows related to income taxes generated by the leveraged lease ( www.fasb.org/fasb_staff_positions/fsp_fas13-2.pdf ). The guidance in this FSP amends FASB Statement no. 13, Accounting for Leases, and is applicable to fiscal years beginning after December 15, 2006.

The Alternative Investments Task Force of the Auditing Standards Board issued a practice aid for auditors, Alternative Investments—Audit Considerations ( www.aicpa.org/members/div/ ). Certain not-for-profit organizations, health care entities, pension plans and mutual funds have greatly increased their investments in such assets, whose market value is not readily determinable. GAAP generally requires entities to carry alternative investments on their books at fair value. The complexity of accounting for such investments increases the risk of misstatement in financial statements. The practice aid provides auditors with guidance on general auditing considerations; addressing financial statement existence and valuation assertions; management representations; disclosure of certain significant risks and uncertainties; and reporting.