Financial Reporting

A&A

The Facts About FASB's Funding Controversy

As part of post-Enron accounting reforms, lawmakers are considering government funding for the Financial Accounting Standards Board (FASB), the organization that sets U.S. accounting standards. This article explains the facts about FASB's funding and asks your input. To help you sort through the issues, below is a summary of the two main concerns, including explanations of FASB's current funding. The explanations incorporate insights provided by spokespersons for the American Institute of CPAs (AICPA) and Financial Accounting Foundation (FAF), the board that oversees FASB.
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Europe Reforms Audits, Urges U.S. Cooperation

On May 16, 2002, the European Union (EU) issued long-awaited guidelines on auditor independence in an effort to avoid an Enron-type incident. Among other things, the guidelines recommend that accounting firms rotate audit partners after seven years with the same client and partners wait two years before joining a company they have audited. The recommendations are not binding. Each country is free to adopt stricter requirements. AccountingWEB's sister site in the U.K.
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Practice Management

Business Roundtable Addresses Audits, Whistle-Blowing

The Business Roundtable, an elite association of 150 chief executive officers (CEOs) of leading corporations, has released guidelines to increase trust in U.S. companies post Enron. In a press release dated May 14, 2002, the CEOs encouraged all U.S.
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IASB Proposes Sweeping Improvements in Standards

On May 15, 2002, the International Accounting Standards Board (IASB) released an exposure draft on "Improvements to International Accounting Standards." The draft introduces a series of wide-ranging improvements to 12 of the 34 standards IASB inherited from its predecessor, the International Accounting Standards Committee (IASC).
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A&A

Standard & Poor's Sets Standard For Core Earnings

Standard & Poor's stepped into a standard-setting vacuum on May 14, 2002 and introduced a new set of definitions for measures of corporate earnings commonly used by the financial community. The newly-defined measure of core earnings will soon take on added importance, as the firm plans to incorporate this measure into its COMPUSTAT database for the U.S. and in its U.S.
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SEC Chairman Harvey Pitt Connects at Investor Summit

Securities and Exchange Commission (SEC) Chairman Harvey Pitt defended his integrity and scored points with investors at the Commission's first Webcast Investor Summit on May 10, 2002. Most questions asked at the summit were well-focused on the issues of the times, including Web-based financial reporting. Some were answered by Commissioners Cynthia Glassman and Isaac Hunt or Chief Accountant Robert Herdman.
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SEC's EDGAR Goes Global to Meet Investors' Needs

Starting November 4, 2002, the Securities and Exchange Commission will take its EDGAR (Electronic Data Gathering Analysis and Retrieval) system global by requiring non-US as well as US issuers of securities to file certain documents electronically.
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SEC Hears of Alternatives to Faster Filings

The deadline for comment letters on its proposed rules for faster filings and Web postings doesn't come due until May 23, 2002, but already the Securities and Exchange Commission (SEC) is hearing of alternatives that might be better for both companies and investors. One particularly interesting suggestion came from Jack Ciesielski, owner of R.G.
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Education & Careers

Baruch College Basks in Golden Era of Accounting Reform

On May 2, 2002, Baruch College continued its long tradition of accounting reform advocacy by hosting a financial reporting conference that was packed with business executives, as well as students and teachers. The event ended with a standing-room-only question-and-answer session with Paul Volcker, chairman of Andersen's oversight board. Mr.
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SEC Proposes New Rules On 'Critical' Accounting

In its first webcast meeting, the Securities & Exchange Commission (SEC) approved the issuance for comment of rule proposals on disclosures about "critical" accounting estimates.The SEC first suggested the "critical" accounting proposal in a release on cautionary advice issued in December 2001, but reviews of corporate disclosures indicate uneven compliance.
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A&A

FASB Releases Flurry of Publications, Awaits Reform Bill

On May 1, 2002, as leaders of the House Energy Committee put the final touches on a radical reform bill to be titled the "Financial Accounting Standards Board Act," the standards board itself rushed to post a flurry of publications to its Web site. The Reform BillAlthough the reform bill is still subject to change, Reuters obtained a copy of the discussion draft of the proposed legislation.
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A&A

FASB To Set 'Squeak-Through' Standards Over Protests

In a controversial move greeted with considerable skepticism by accounting firms and their clients, the Financial Accounting Standards Board (FASB) has changed the voting requirement for setting accounting standards. Standards may now be set by a simple majority vote of 4 out of 7 board members. Previously, the minimum requirement was a 5-2 supermajority vote.
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House Passes Accounting Reform Bill After Lively Debate

On April 24, 2002, after several hours of lively debate, the House of Representatives passed H.R. 3763, the Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002 (CARTA). The bill, which was sponsored by Rep. Michael G. Oxley and passed by a vote of 334 to 90, is the one most supported by the accounting profession. But many lawmakers feel more stringent measures are needed.
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SEC Pioneers Analytical Software to Spot Future Enrons

Faced with a limited budget and committed to more frequent reviews of filings by large registrants, the Securities and Exchange Commission (SEC) is developing new analytical software to help identify the reports most likely to contain accounting irregularities or other potential problems.
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A&A

FASB Changes Chairmen Amidst Turmoil and Criticism

The Financial Accounting Foundation (FAF), the organization that oversees the Financial Accounting Standards Board (FASB), announced a change in the head of the FASB. Chairman Ed Jenkins will retire on June 30, 2002, and PricewaterhouseCoopers Partner Robert H. Herz will become the fifth chairman in FASB's 29-year history. Mr. Herz's appointment puts an end to speculation that FAF might appoint a chairman from outside the Big Five.
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A&A

Senate Bill of Rights To Address Audits, FASB, Options

On April 22, 2002, as the Financial Accounting Standards Board (FASB) prepared for a new chairman and the House of Representatives prepared for a vote on its leading accounting reform bill, Senator Carl Levin unveiled the Shareholders' Bill of Rights. Tougher and more comprehensive than the House bill, this new Senate bill will address audit reforms, accounting standard-setting, executive stock options, and more.Senator Levin is chairman of the Senate Permanent Subcommittee on Investigations.
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Judge Rules 'Seriously Botched' Audit Is Not Fraud

Despite a public clamor for tighter regulation of auditors, a U.S. Court of Appeals ruled on April 19, 2002 that a "seriously botched" audit that led to a plunge in stock prices is not grounds for a securities fraud lawsuit. Violations of GAAPThe case sets important precedent as an interpretation of the Private Securities Litigation Reform Act (PSLRA), a law passed by Congress in 1995 over President Clinton's veto.
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AIMR Wants Analysts to Report Risks with Ratings

The Association of Investment Management and Research (AIMR) is calling for a new uniform reporting system that will help analysts focus more attention on risk assessments and less on buy/sell ratings. Misdirected CriticismAnalysts have been criticized in recent months for perceived conflicts of interest and for failing to predict the demise of dot-com and telecommunications companies.
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Educators Provide Free Software for Analyzing Footnotes

To help bewildered investors sort through the footnotes in a year when companies are disclosing more information than ever before, Hal Varian and Marti Hearst, two faculty members at the University of California at Berkeley, have introduced a free software program called "FootPrint." FootPrint allows investors to extract key information from the footnotes of an electronic SEC filing for use in a summary-level analysis on a separate document.
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Tax

Congress Probes Taxes and Accounting for Stock Options

On April 18, 2002, the Senate Finance Committee heard testimony on the tax and accounting treatment of executive stock option compensation. Chairman Max Baucus said the objective of the hearing was to fully explore the issues that surfaced in the wake of Enron, even though some may fall under the jurisdiction of other committees.A key issue is whether the treatment of stock options is best handled as an accounting question or through the tax code. Senator Carl Levin argued that Congress has the responsibility for adopting a tax code.
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Voice of the Editor

What would you do if one of your clients won the lottery? We asked several accountants to weigh in with their advice for the lucky Powerball winner, and the tips we received are useful for anyone who receives a windfall, whether it's a lottery win, an inheritance, a big bonus on the job, or a killing in the stock market.
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Gail Perry, CPA
Publisher/Editor-in-Chief, AccountingWEB
editor@accountingweb.com
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