Auditor independence should be left to the accounting profession
Steven Mintz, a professor in the Orfalea College of Business at Cal Poly San Luis Obispo, wrote an opinion piece for the Pacific Coast Business Times today about audit independence.
Next month, the European Parliament is expected to vote on legislation that would cap nonaudit services provided by a company’s auditor at 70 percent of the audit fee. Mintz believes that the capping of nonaudit fees will not accomplish its goal.
“It is an attempt by the government to interfere in the marketplace for professional services,” he wrote. “Nonaudit fee controls are fraught with danger for the public interest. The possibility exists that the firms will cut down on staff providing the nonaudit services by sending in less experienced and/or a smaller numbers of staff, thereby compromising audit quality. And auditors may simply recover from the nonaudit fee controls by charging clients, for whom audits are not performed, higher fees when nonaudit services that are currently banned (i.e., information system design and installation) are performed for that client.”
Mintz added that the accounting profession has ethical standards in place to control for a possible loss of independence, including “assessing whether the client has assumed responsibilities for the services, adequately overseeing performance, evaluating the client’s adequacy and results, and accepting responsibility for the results.”
IRS watchdog warns of ‘largest scam of its kind’ with agency impersonators
Treasury Inspector General for Tax Administration (TIGTA) J. Russell George warned taxpayers yesterday that a sophisticated nationwide phone scheme in which fraudsters claiming to represent the IRS are demanding immediate payments with a pre-paid debit card or wire transfer has become “the largest scam of its kind that we have ever seen,” Josh Hicks of the Washington Post reported.
George announced that “thousands of victims” have already paid more than $1 million to fraudsters and that his agency has received more than 20,000 reports of contact.
TIGTA officials said the perpetrators often know the last four digits of the victims’ Social Security numbers and threaten arrest, deportation, and removal of driver’s licenses – something the IRS is not authorized to do. The callers also have used roughly the same script to bilk money from taxpayers, suggesting they may be connected, according to the article.
[Click here to read an AccountingWEB article from last November about this same phone scam.]
Caterpillar said to be focus of Senate overseas tax probe
The Senate Permanent Subcommittee on Investigations is examining construction and mining equipment manufacturer Caterpillar Inc. and whether it improperly avoided US taxes by moving profits outside the country, said three people familiar with the inquiry, Richard Rubin and Jesse Drucker of Bloomberg reported yesterday.
The article stated that in 2009, Daniel Schlicksup, an employee who had worked on tax strategy, alleged in a lawsuit in federal court that Caterpillar used a “Swiss structure” to shift profits to offshore companies and avoid more than $2 billion in US taxes. He also alleged that Caterpillar used a “Bermuda structure” involving shell companies to return profits to the US without paying required taxes.
According to Schlicksup’s complaint, which was settled in 2012, the Swiss structure involved “many shell corporations with no business operations,” in which the management of profitable businesses was technically shifted to Switzerland while actually remaining in the United States, Rubin and Drucker wrote. Caterpillar is based in Peoria, Illinois.
A Caterpillar spokesman declined to comment. The subcommittee will hold a hearing on this matter in April, according to the article.
IBM’s big hope for fraud
IBM announced yesterday the creation of a fraud and financial crimes prevention business that combines big data analytics, business know-how, and data visualization to help public and private organizations prevent, identify, and investigate fraudulent activities, Quentin Hardy of the New York Times wrote.
IBM said it had more than 500 fraud experts in the new organization and would draw on 290 fraud-related patents, as well as several large corporate acquisitions it has made in the last several years.
“Finding needles in haystacks is what we do,” said Steven A. Mills, IBM’s head of software and systems, according to the article. “We have a rich set of technologies, acquisitions, and an understanding of technical domains.”
The company is initially focusing on areas like banking, insurance, and health care.
Republicans to Holder: Spill Lerner details
Bernie Becker of The Hill wrote today that in a letter sent to Attorney General Eric Holder on Thursday, House Oversight Committee Chairman Darrell Issa (R-CA) and Representative Jim Jordan (R-OH) urged the Justice Department to give them details about an interview with former IRS official Lois Lerner.
The Republicans accused the Justice Department of standing in the way of their investigation into the improper scrutiny that the IRS gave to conservative groups. In their letter, Issa and Jordan asked for details about when and where the Lerner interview took place and who was involved. They also asked whether Lerner took the Fifth in that interview, but did not request a transcript, Becker wrote.
“For over eight months, the committee has sought to carry out its oversight obligations in concert with the Department of Justice's law-enforcement duties,” Issa and Jordan wrote to Holder, according to the article. “At every stage, the department has refused to fully cooperate with the committee.”
A mystery: Who are the Dewey secret seven?
There are seven former employees of Dewey & LeBoeuf who pleaded guilty to taking part in a four-year plan to manipulate the financial statements of the once prominent law firm, but whose identities and plea agreements are being kept under wraps by New York prosecutors, Matthew Goldstein of the New York Times wrote on March 19.
He noted that when the Manhattan district attorney, Cyrus R. Vance Jr., announced this month the filing of a 106-count indictment against three former top executives at the law firm and a low-level employee, the disclosure that he had also secured pleas and potential cooperation from seven people in the nearly two-year investigation was a surprise.
“It’s not the typical process,” said Alafair S. Burke, a criminal law professor at the Hofstra University School of Law and a writer of crime novels, according to the article.
Burke said she could understand the prosecutors wanting to keep secret the names of people who had pleaded guilty if there was a fear of witness-tampering or witness intimidation, Goldstein wrote. But that seems unlikely in what is essentially a white-collar accounting fraud case, she said.
Fiscal reality check: Will Congress pay for the tax extenders and the doc fix?
Howard Gleckman, Resident Fellow at the Urban Institute and editor of TaxVox, the Tax Policy Center blog, wrote this yesterday: “After it returns from Spring Break next week, Congress may face two big fiscal reality checks. It will have to decide whether to temporarily extend scores of expiring tax provisions and what to do about permanently adjusting the formula Medicare uses to pay physicians (the ‘doc fix’). Combined, these two measures would add about $65 billion to the deficit next year alone. The question is: Will Congress pay for them, either with offsetting spending cuts or tax increases?
“If you don’t want to bother to read the rest of this blog, I’ll save you the trouble. The answer is ‘no.’
“But, like a good murder mystery, the fun isn’t figuring out whodunit, but in the sorting through the clues. So bear with me while I take a quick forensic look at the fiscal corpse.”
- PwC competing against shaving, toys and delicious food for Guinness World Record Award (Going Concern)
- Currency risks could grow in emerging markets (CFO Journal)
- California second only to New York in high taxes, study says (Los Angeles Times)
- Sen. Wyden’s problem (The Hill)
- FASB, IASB differ on accounting model for leasing (Compliance Week)
- White: SEC disclosure reform moving forward, despite hurdles (Compliance Week)
- NY: Nearly 8,900 licenses suspended for back taxes (Associated Press/Wall Street Journal)
- Lending Club and PayPal offer small business lending programs (Bloomberg Businessweek)
- Shadow banking deals prompt SEC plan to cap broker leverage (Bloomberg)
- Avoid those rose-colored dividends (CFO)
- Senate Finance plans tax extenders vote for week of March 31 (Don’t Mess With Taxes)
- Want your new hires to trust you? Give them a signing bonus (Business News Daily)