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Financial Reporting

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Few Audit Committees Are Implementing Key Practices, According to Report

As audit committees struggle implementing the requirements of Sarbanes-Oxley, fewer than one-third implement a majority of practices that lead to higher ratings of the financial audit process, according to the J.D. Power and Associates 2004 Audit Committee Best Practices Report(SM) released this week. The report is a comprehensive, independent study of audit performance in the wake of the Sarbanes-Oxley Act of 2002, which established new compliance and procedural requirements for corporate financial accountability of public companies.

PCAOB Adopts Temporary Rule Relating to Auditing Standard No. 2

The Public Company Accounting Oversight Board on Tuesday adopted a temporary transitional rule relating to PCAOB Auditing Standard No. 2, "An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements." Section 404 of the Sarbanes-Oxley Act of 2002 and the related implementing rules of the Securities and Exchange Commission require certain companies to include in their annual reports filed with the Commission a report on management’s assessment of the effectiveness of those companies’ internal control over financial reporting.

Increased Scrutiny of Internal Controls on the Rise

Awareness of the Sarbanes-Oxley Act of 2002 had surged in the not-for-profit industry over the past year. According to the second annual Grant Thornton Board Governance Survey for Not-for-Profit Organizations, 83 percent of survey respondents say they are “very” or “somewhat” familiar with the act, compared to 56 percent in the 2003.The survey, which includes responses from more than 700 not-for-profit entities, also found that these organizations are not only aware of the act, but many are also taking action because of it.

SOX 404 Trends for Next Year Beginning to Emerge

As public companies strive to meet compliance deadlines for Section 404 of the Sarbanes-Oxley Act, trends related to how companies will implement an efficient and effective process beyond the initial year of compliance are beginning to emerge, according to the results of a new survey released by Ernst & Young.

FASB Issues Rule to Conform To International Standard

The Financial Accounting Standards Board (FASB) has issued FASB Statement No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4.

U.S. Workers, Investors Largely Unaware of Sarbanes-Oxley Act

Eighty percent of U.S. workers and 76 percent of employed investors have never heard of the Sarbanes-Oxley Act of 2002, according to a Hudson survey measuring its impact in the workplace. As the first compliance deadline approaches in December, only nine percent of workers say they have been asked to do something differently in their jobs as a result of the Sarbanes-Oxley Act. Among working investors, defined as owning at least $5,000 in stocks, bonds and mutual funds, only seven percent indicated that Sarbanes-Oxley had increased their confidence as an investor.

SOX Compliance Costs Average $16M Per Company

Survey of corporate boards released this week by RHR International and Directorship reveals annual Sarbanes-Oxley compliance costs average $16 million--a jump of 77 percent from last year. Findings of the first annual Directorship/RHR International Board Survey also reveal that nearly half (47 percent) of companies surveyed do not have a CEO successor in place, although 61 percent expect that CEO leadership transition will go smoothly, according to the poll of almost 270 board directors at U.S. companies.

Federal Agencies Close Their Books in Record Time

Almost every federal agency met a greatly accelerated financial reporting deadline this week by closing out their books 45 days after the end of the fiscal year. "We are pleased that federal agencies are now able to issue financial and performance information in a time frame that is comparable to the private sector," OMB Controller Linda Springer said in a statement, Government Executive magazine reported.OMB has been working toward the Nov.

SEC Postpones Final Phase-In Period for Acceleration of Periodic Report Filing Dates

On Wednesday, the U.S. Securities and Exchange Commission issued a release adopting amendments to postpone, for one year, the final phase-in period for acceleration of periodic report deadlines that apply to larger companies known as "accelerated filers." The primary purpose of the postponement is to allow additional time and opportunity for accelerated filers and their auditors to focus their efforts on complying with new requirements regarding internal control over financial reporting that were mandated by Section 404 of the Sarbanes-Oxley Act of 2002.

Treasury, IRS Issue Guidance on New Requirements for Disclosing Reportable Transactions

The Treasury Department and the Internal Revenue Service this week issued interim guidance reflecting changes to the requirements for disclosure of reportable transactions by taxpayers and material advisors made by the newly enacted American Jobs Creation Act of 2004. The American Jobs Creation Act provides rules that require material advisors to file returns disclosing reportable transactions and to maintain investor lists. The Act also imposes new monetary penalties on material advisors who fail to comply with these obligations.

Fannie Mae Warns of Possible $9B Loss, KPMG Won't Sign Off

Mortgage giant Fannie Mae announced Tuesday that an unfavorable ruling on how it accounts for derivatives would mean a loss of $9 billion after taxes. The estimate is based on the derivatives' value as of Sept. 30, the Wall Street Journal reported.
Community News

SEC Contemplates Extension on Some Internal Control Reviews

Section 404. Just the words are enough to add to the collective stress level of corporate America, as executives scramble to clear the next hurdle brought about by sweeping reforms. Dow Jones Newswires reported last week that some smaller companies may get an extension on filing internal control documentation-showing they have effective controls in place and have had the controls attested to by an independent auditor.

SEC Debates Whether Whopping Fines Hurt More than Help

Do huge corporate fines deter fraudulent behavior or harm the very shareholders they are intended to benefit?The five Securities and Exchange Commissioners are becoming more divided on the question, as the two Republican commissioners are frequently voting against huge fines imposed upon publicly traded companies for shaky accounting procedures, mismanagement and fraud. The Wall Street Journal gave these examples: Republicans Paul Atkins and Cynthia Glassman earlier this month voted against a $37 million fine against Wachovia Corp.
Community News

Alliance for SOX 404 Compliance enables firms to secure second wave of SOX 404 work

While the deadline for SOX 404 compliance for most large-cap filers ends Dec. 31, 2004, there is still abundant consulting opportunities for small- and mid-sized CPA firms, and ample opportunity to make the most of the continuing demand for SOX 404 services.
Community News

SunTrust Fires Three, Restates Earnings Upward

SunTrust Banks Inc. has fired three finance executives and reassigned another for failing to treat accounting problems raised by the company's independent auditor, PricewaterhouseCoopers LLP with adequate seriousness, failing to correct errors, and not advising the auditors of the errors, according to a SunTrust statement.Bank officials made the moves after discovering “numerous errors” in the loan loss-allowance calculations for the first two quarters, reported, adding that the company would restate earnings upward by over $31.6 million for the first two quarters.
Community News

Deloitte Faces $2B Claim Over Audits of Insurance Company

Deloitte & Touche LLP is facing a $2 billion legal claim related to its audits of a North Carolina insurance company that specialized in reinsurance for aviation risk.Two Japanese insurers, who were forced into bankruptcy, claim they relied on Fortress to minimize their risk. They charge that its unconventional coverage and fraudulent accounting resulted in $3.5 billion in total losses for them and another insurer, who also went bankrupt, the Wall Street Journal reported.Deloitte denies liability.
Community News

SEC Looking At 'Best Execution' Obligations

The Securities and Exchange Commission has an investigation that could uncover another instance of brokerage firms considering their bottom line ahead of their investors, the New York Times reported.The SEC is looking into more than 10 brokerage firms, including Morgan Stanley, Merrill Lynch, Ameritrade, Charles Schwab and E*Trade Financial, suspecting the firms failed to get the best prices for their customers on Nasdaq-listed securities when the markets open for the day.

McDonough Predicts Some Won't Meet Reporting Deadline

Companies need to be prepared for how they will tell investors about internal control weaknesses uncovered by ongoing reviews mandated by Sarbanes-Oxley, said William McDonough, chairman of the Public Company Accounting Oversight Board (PCAOB) reported on a speech McDonough gave last week to the Securities Industry Association. The PCAOB was created by the Sarbanes-Oxley Act of 2002, passed to reform corporate governance in the wake of numerous accounting scandals.
Community News

Companies Scrambling to Meet Dec. 31 Internal Controls Deadline

With time running out for company's to prove that their internal controls are sound, financial staffers and outside accounting firms are maxed out as the year-end deadline looms, the Washington Post reported.The new rule, brought about by the Sarbanes-Oxley Act of 2002, has thousands of public companies and their external auditors scrambling to certify the strength of internal controls.Controls are the backbone of a company's financial systems, the Post reported.

Time Warner Prepares for Settlement with $500M Reserve

A government investigation into accounting practices at America Online has prompted Time Warner to set aside $500 million to cover the costs of potential fines.The New York Times reported that the step led to a 7.8 percent drop in profits in the third quarter.The Securities and Exchange Commission and the Justice Department are looking into the accounting for a $400 million payment that AOL received from Bertelsmann, the German media company that once owned half of AOL Europe.


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