Bramwell’s Lunch Beat: No Apology From John Koskinen Over Lost IRS Emails

Chicago firm in takeover talks with top Philly accounting firm
It was exactly three weeks ago today that Big Four firm KPMG LLP announced that it had acquired Rothstein Kass, a top midtier accounting firm. Now, two other top midtier firms are reportedly laying the groundwork for a possible merger.

According to an article by Joseph N. DiStefano of the Philadelphia Inquirer on Thursday, Philadelphia-based firm ParenteBeard, which employs nearly 1,000 CPAs and staff at offices across Pennsylvania, in the New York area, Baltimore, and Dallas, has been in merger talks with Chicago-based firm Baker Tilly Virchow Krause LLP, which employs 1,500 people.

The proposal would result in ParenteBeard being merged into the larger firm under the Chicago firm’s name and leadership.

“We are currently involved in ongoing discussions with Baker Tilly, and we look forward to providing more detailed information as we advance the discussion and planning process, but we are not in a position to share additional information at this time,” ParenteBeard Chairman and CEO Robert Ciaruffoli said in an email, according to the article.

Baker Tilly spokesman David Pendery confirmed to DiStefano that the two firms are “involved in ongoing discussions.” Both firms are affiliated with Baker Tilly International, a London-based network of more than 100 accounting firms worldwide that competes with the Big Four firms and other multinational networks.

Baker Tilly was ranked as the nation’s 16th-largest firm by INSIDE Public Accounting in 2013; ParenteBeard was ranked 22nd.

IRS head won’t apologize for lost Lerner emails
During a hearing of the House Ways and Means Committee on Friday morning, IRS Commissioner John Koskinen refused to apologize for the agency losing emails related to its targeting of conservative groups, saying it's still attempting to recover the data and it's too soon to know how many emails are missing, Gregory Korte of the USA Today reported.

“I don't think an apology is owed,” Koskinen told lawmakers, according to the article. “Every email has been preserved that we have.”

The IRS chief testified about efforts the agency has made to recover emails that were lost when ex-IRS official Lois Lerner’s computer hard drive crashed in 2011, Korte wrote.

Ways and Means Chairman Dave Camp (R-MI) pressed Koskinen on why he didn’t notify Congress about the missing emails when he first found out about it in February.

“You can blame it on a technical glitch, but it is not a technical glitch to mislead the American people,” he told Koskinen, according to the article. “You say that you have ‘lost’ the emails, but what you have lost is all credibility.”

Koskinen replied that there’s been no attempt at keeping the lost emails a secret, adding, “My position has been, when we provide information, we provide it completely.”

[Click here to read Koskinen’s opening remarks this morning before the Ways and Means Committee.]

IRS wins Supreme Court case over taxpayer summons
Brent Kendall of the Wall Street Journal reported that the US Supreme Court on Thursday ruled taxpayers aren't automatically entitled to court hearings to question the motives behind a summons issued by the IRS.

The Supreme Court decision agreed with IRS arguments that a lower court ruling made it too easy for taxpayers to obtain court hearings to examine IRS motivations for seeking detailed taxpayer information.

At issue were IRS summonses for documents and testimony issued to several people connected to a partnership called Dynamo Holdings, Kendall wrote. The individuals affiliated with the partnership alleged the IRS used the summonses as retaliation because Dynamo had refused an IRS request to allow more time for a government investigation into past Dynamo tax returns. They also alleged the IRS was trying to use the summonses to gain an unfair advantage in litigation with Dynamo.

The IRS said it was entitled to enforce the summonses and said the challengers hadn't presented any evidence that supported their allegations.

[For additional reading, Bloomberg View columnist Noah Feldman wrote that the Supreme Court’s decision made the IRS “just a little bit stronger.”

EU closes tax loophole for multinational firms
The European Union (EU) on Friday moved to close a loophole that has allowed multinational companies to reduce their tax bills by exploiting differences in national tax rules, ending months of negotiations and potentially boosting EU states' tax revenues, Annika Breidthardt and Ingrid Melander of Reuters reported.

“The aim is to close a loophole that currently allows corporate groups to exploit mismatches between national tax rules so as to avoid paying taxes on some types of profits distributed within the group,” finance ministers said in a statement, according to the article.

The change in the so-called parent-subsidiary directive addresses “hybrid loan arrangements,” a combination of equity and debt often used as a tax-planning tool.

Breidthardt and Melander wrote that some member states classify profits from such tools as a tax-deductible debt; others do not. That has prompted some multinational companies to open subsidiaries in other member states so they pay little or no tax.

Earlier this month, the European Commission increased pressure on Ireland, the Netherlands, and Luxembourg over their corporate tax practices, saying it would investigate deals they cut with Apple, Starbucks, and Fiat, respectively.

Member states will have until the end of 2015 to turn the change into national law.

[Reuters also reported on Friday that the EU has warned Ireland it could expand its tax probe beyond Apple.]

CAQ provides auditor reporting field-testing findings to PCAOB
The Center for Audit Quality (CAQ) on Friday released key findings from a collaborative effort by members of the public company auditing profession to field test certain aspects of the Public Company Accounting Oversight Board’s (PCAOB) auditor’s reporting model proposal.

“The CAQ continues to support the PCAOB’s efforts to update the auditor's reporting model,” CAQ Executive Director Cindy Fornelli said in a written statement. “We hope observations from the profession’s field-testing initiative can provide valuable insights to the PCAOB as it contemplates next steps in this important effort.”

Public company accounting firms of various sizes participated in the field-testing initiative, which has gathered firsthand observations about the effects of the proposal and perspectives on the time and effort that may be involved in implementation. Field testing of the proposal as it relates to critical audit matters (CAMs) included 51 companies representing diverse industries and market capitalizations. Testing of the proposed other information (OI) standard included 15 companies, as well as additional input from five audit partners.

The following are key observations on CAMs, based on the findings of the field test:

  • Determination: Explicitly including materiality relative to the financial statements as a factor to be considered in the determination of CAMs may help to narrow the population of potential CAMs. Field testing revealed that the number of CAMs identified varied significantly from engagement to engagement, with the number of potential CAMs per issuer ranging from one to 45, while the number of actual CAMs per issuer ranged from zero to eight.
  • Communication: Focusing the source for CAMs to only those matters communicated to the audit committee may be more effective and efficient. Audit engagement teams considered the population of matters included from all sources identified in the proposal and indicated that 98 percent of the CAMs identified during the course of field testing were previously communicated to the audit committee.
  • Description: Additional clarification regarding how an auditor would effectively communicate those factors that were most important to the determination that a matter was a CAM in the auditor’s report may be helpful to promote consistent application of the final standard.
  • Documentation: Further consideration by the PCAOB of the requirement for documentation of matters considered to be a potential CAM that were determined not to be a CAM would help to promote consistent application.

The following are key observations on OI:

  • The scope of responsibility (i.e., procedures to be performed) of the auditor was not clear to the audit engagement teams.
  • Several of the accounting firms participating in the OI field testing expressed concern about the ambiguity of the information that may be included in the scope of OI.

The testing was conducted in a retrospective environment, as opposed to a “live” audit environment, which made it difficult to assess the audit effort that would be required under the proposal, according to the CAQ.

“Changes to the auditor’s reporting model will have significant impacts on issuers, investors, auditors, and the markets,” Fornelli said. “The CAQ believes that certain enhancements would make the PCAOB proposal more practical and better aligned with the board’s stated objectives. We thank the board for its consideration and encourage the PCAOB and others to conduct additional testing and examination of the proposals. Additionally, we applaud the PCAOB for its deliberative and thoughtful approach to such an important project.”

Quick Links:

  • The IRS reminds you to kindly remove that annoying Circular 230 disclaimer from your emails (Going Concern)
  • It will soon be a little cheaper to take the CPA exam in California (Going Concern)
  • Cincinnati’s biggest, oldest local accounting firms merging (Cincinnati Business Courier)
  • Study quantifies simple errors in XBRL filings (Compliance Week)
  • International forum aims for cohesion in corporate reporting (Journal of Accountancy)
  • Audit firm EY appealing HK court ruling that says China law does not protect papers (Reuters)
  • Auditor says CNPC accounting error understated 2012 profit (Bloomberg)
  • Wisconsin’s Walker accused of illegal campaign overlap (Bloomberg)
  • IRS to survey 10,000 employers in September on costs, resources used in tax compliance (Bloomberg BNA)
  • Medtronic’s tax inversion: Not as easy as it seems (Wall Street Journal)
  • Will Congress keep the Internet tax free? (Forbes)
  • California can’t mimic no income tax Texas without substantial spending reforms (Forbes)
  • The unexpected ceasefire in Washington’s tax wars (New York Times)
  • IRS will now accept ‘I was clueless’ defense for offshore tax evaders (Newsweek)
  • US taxes have changed a lot since 1929 (TaxVox)
  • The Corker-Murphy gas tax hike: A good idea spoiled (TaxVox)
  • Starbucks tuition payment plan just what employees ordered, but look out for possible added tax topping (Don’t Mess With Taxes)

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