PCAOB’s ‘audit failure’ rate is highly suspect
In an opinion piece for CFO, Mark Peecher, a professor of accountancy at the University of Illinois, and Ira Solomon, dean of the A.B. Freeman School of Business at Tulane University, wrote they are troubled to see regulators make alarming assertions about audit quality that are incomplete and potentially misleading.
They cited a recent Wall Street Journal article in which the chief auditor of the Public Company Accounting Oversight Board (PCAOB) was quoted as saying the rate of audit failures has been in the range of 35 to 40 percent.
“How can such a statement not strike at the heart of investor confidence? We believe any inferences about overall audit quality from this alleged failure rate are highly suspect,” Peecher and Solomon wrote. “Because the PCAOB selectively screens audits for inspection, this supposed rate of failure might reflect only that the PCAOB is good at screening. Investors lack a defect rate based on a representative sample by which to generalize.
“In addition, and perhaps more important, investors would be better served if the PCAOB stopped conflating audit deficiencies with audit failures,” they continued. “Deficiencies occur when an auditor does not comply with PCAOB standards, including documentation standards. On the other hand, an audit failure is much more serious. The traditional definition of an audit failure is the joint occurrence of an unqualified (clean) audit opinion and materially misleading financial statements.”
Study: SEC employees book higher stock returns
A recent university study found that US Securities and Exchange Commission (SEC) employees have a penchant for selling stocks ahead of enforcement actions made by the agency, Matthew Rocco of FoxBusiness.com wrote today.
Based on the study’s findings, SEC staffers book higher-than-usual gains by selling a stock before it plunges.
“A hedge portfolio that were to go long on workers’ stock buys and short on their sells would earn ‘positive and economically significant abnormal returns’ of about 4 percent annually for all securities and 8.5 percent in US stocks,” Rocco wrote.
The study, conducted by Emory University accounting professor Shivaram Rajgopal and Georgia State University accounting doctorate student Roger M. White, concluded that “at least some of these SEC employee trading profits are information-based, as they tend to divest in the run-up to SEC enforcement actions.”
According to Rocco, SEC spokesman John Nester refuted the study, saying “each of the transactions was individually reviewed and approved in advance by the ethics office.”
Camp ramps up tax reform sales
Bernie Becker of The Hill wrote yesterday that House Ways and Means Committee Chairman Dave Camp (R-MI) – facing deep skepticism from GOP leaders on both sides of the Capitol – made the rounds on television interviews a day after releasing the most complete tax overhaul in years, exhorting fellow lawmakers that voters didn’t send them to the Capitol to “warm a chair.”
“Look, it's February. We're supposed to do nothing until the election? I think most people sent us here to work for two years. That's what the term is. We need to work those entire two years,” Camp told Bloomberg Television, according to the article.
Today, committee aides are scheduled to brief members of the US Chamber of Commerce, the powerful business lobby that said it has concerns about Camp’s draft.
“But even as Camp ramps up the sell job, his own GOP allies on Ways and Means continued to downplay the chances for progress this year, and even the impact of the draft,” Becker wrote.
Let’s have real tax reform – get rid of IRS, income tax altogether
This proposal from Peter Morici, economist and professor at the University of Maryland’s Smith School of Business, includes scraping personal and corporate income taxes in favor of a consumption tax.
“In 2013, the Treasury collected $1.6 trillion from corporate and personal income taxes. This could be replaced by a 12 percent sales tax on all private purchases and other payments – be they computer equipment, college tuition, or lunch at the corner takeout,” Morici wrote for Fox News.
“Businesses and institutions would then pay to the Treasury the taxes they collected less sales taxes paid on purchases of materials and equipment, rent, and the like. This subtraction would avoid the double taxation of materials and equipment businesses purchase and create a value-added tax often proposed by advocates of reform.
“It would end forever all the headaches associated with valuing inventories, calculating depreciation on capital equipment, and other work that cost billions in accounting and legal fees.”
SEC urged to scale back ‘crowdfunding’ rules
Startups and entrepreneurs are pushing the SEC to scale back provisions in rules the agency floated last October intended to make it easier for these firms to sell small stakes in their companies to lots of ordinary investors online, Andrew Ackerman of the Wall Street Journal wrote yesterday.
A big concern among startups is a proposed SEC requirement that companies seeking to raise more than $500,000 release audited financial information, according to the article.
“Smaller firms say the upfront expense of paying an outside auditor to review their finances is too costly for a young business and would drive entrepreneurs away from equity crowdfunding,” Ackerman wrote. “Since startups would have to pay for the audit before closing an offering, firms say the requirement would drain them of already-scarce funds. The SEC estimates companies may have to pay nearly $29,000 for an auditor to review their annual statements.”
[Click here to read AccountingWEB’s article on the SEC’s proposed crowdfunding rules.]
Is paying your taxes with a credit card the worst idea ever?
No, it is not the worst idea ever, according to the February 27 Thrifty. Simple. Living. blog on the Huffington Post.
“With high interest rates and countless fees being tacked on to our debt, it seems like credit cards are used more as a torture device than a helpful crutch through difficult financial situations,” the blog stated. “Even so, if used properly, credit cards can actually be useful. You just need to know how to play the game. Use the perks and rewards of a credit card for your own financial advantage.”
The blog provides a few instances when using a credit card to pay your taxes can be beneficial.