AccountingWEB Weekly News Wrap-Up - Issue 146
1. Department of Justice v. Arthur Andersen LLP
2. Accounting Firms Face Liability Insurance Crisis
3. IRS Report Card: Grades Are Improving
4. Deloitte Grabs Andersen Tax Practice, Other Offices Sold
5. Accounting Firms Face Penalties Under Tax Shelter Bill
6. IASB Proposes Sweeping Improvements in Standards
7. Congress Hears Five Ways GAAP Falls Short
8. SEC Chairman Harvey Pitt Connects at Investor Summit
9. Standard & Poor's Sets Standard For Core Earnings
10.Business Roundtable Addresses Audits, Whistle-Blowing
Scandalmongers have been swarming around a story that we first reported last week about an introductory meeting earlier this year between new KPMG CEO Gene O'Kelly and SEC Chairman Harvey Pitt. The question of whether the two leaders discussed an SEC investigation into KPMG's work on Xerox has prompted outcries about Mr. Pitt's poor judgment and has led many to call for his resignation. Mr. O'Kelly has confirmed that the Xerox investigation wasn't discussed directly, but that's not likely to end the controversy. In this world of scandal, mistrust, and perceptions of impropriety, this private meeting was likely a bad idea. But as Harvey Pitt leads the charge in steering meaningful reform for the accounting profession and America's business, it is my opinion that those who are looking for a scandal should back down, recognize that their concerns have been addressed, and acknowledge that Mr. Pitt has learned from this episode. He will be a better SEC Chairman because of it.
The U.S. Department of Justice and Big Five firm Andersen continued their courtroom tactics this week. Andersen has been charged with one count of obstruction of justice stemming from the firm's destruction of documents relating to its Enron audit. These stories recap the week's events:
Duncan Notes Sealed, Andersen Lawyer Takes the Fifth
Duncan Takes the Stand; Judge Makes Potentially Reversible Decision
Testimony Continues for Andersen's Duncan
Prosecution Admonishes Attorney Hardin's Tactics
Duncan Provides Controversial Testimony
As other major accounting firms begin acquiring pieces of Andersen's U.S. practice, the insurers of those firms, fearing increased exposure, are reportedly refusing to provide liability coverage.
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Three years ago, the watchdog Federal Performance Project gave the Internal Revenue Service a passing, but not stellar grade of a "C" average. This week the Project announced that the IRS' grade has improved slightly, but no honor roll status yet!
Nearly 2,000 professionals, including nearly 200 partners, all members of Andersen's U.S. tax practice, reportedly will join Big Five rival Deloitte & Touche immediately. In addition, members of the Big Five are picking up several other Andersen offices around the country.
Senators Max Baucus and Charles Grassley, senior members of the Senate Finance Committee, have introduced tough new tax legislation known as the "Tax Shelter Transparency Act" that would impose penalties on promoters of tax shelters, mainly law and accounting firms.
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On May 15, the International Accounting Standards Board 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.
At a May 14 hearing of a House Financial Services subcommittee on the issue of "Corporate Accounting Practices: Is There a Credibility GAAP?," lawmakers were briefed on a number of topics, including five areas in which generally accepted accounting principles fall short.
Securities and Exchange Commission Chairman Harvey Pitt defended his integrity and scored points with investors at the Commission's first Webcast Investor Summit.
Standard & Poor's stepped into a standard-setting vacuum on May 14 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. equity indices, including the S&P 500.
The Business Roundtable, an elite association of 150 chief executive officers of leading corporations, has released guidelines to increase trust in U.S. companies post-Enron. In a press release dated May 14, the CEOs encouraged all U.S. public companies to adhere to these guidelines, which address controversial topics including revolving-door and whistle-blowing policies.
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1. New Rules for Goodwill: A business is incorporated under Section 165. Do the new goodwill rules apply to allow a deduction in the receiving company for the goodwill arising on an incorporation of a pre-existing business post-April 2002? If not, what is the specific reference for this?
2. Interest on Underfunded Post Retirement Benefits: A Government contractor, who maintains a qualified, defined benefit plan for postretirement medical benefits using accrual accounting, opted to change to the "pay-as-you-go" method. Five accounting periods have passed and the contractor wishes to revert back to the accrual method for funding its benefit plan trust funds. The contractor's actuary has established a repayment plan that also includes interest lost from the underfunded amounts of the prior accounting periods. It this correct, or is the interest already computed in the actuary tables?
3. Long Term Nursing Care for Officers of a C Corporation: Husband and wife own 100% of a C corporation. Can the corporation deduct as a business expense a single premium ($106,000.00) for long term care coverage for the two officer shareholders? They have 12 employees who would be excluded. The Kennedy-Kassenbaum bill does allow a deduction for LTC, but it must include employees. An insurance agent is telling them there can be 100% deductible premium for officers' only coverage by classifying it as "Key Man" coverage. Also, what is the definition for a Key Man or Key Employee?
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Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.