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Bramwell’s Lunch Beat: Bad Grade for Audits

Jan 27th 2014
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One way or another: The SEC versus the Chinese Big Four firms
On her blog, re: The Auditors, Francine McKenna provided a comprehensive look at the media coverage surrounding US Securities and Exchange Commission (SEC) Administrative Law Judge Cameron Elliot’s decision last week to ban the Chinese affiliates of the Big Four firms from auditing US-listed companies for six months. She also provided her take on the decision’s multinational impact.

One in three audits fail, PCAOB chief auditor says
The chief auditor for the Public Company Accounting Oversight Board (PCAOB) said on January 23 that more than one in three audits inspected by the US government’s audit watchdog were so deficient the auditors shouldn’t have signed off, Emily Chasan of the Wall Street Journalreported.

During a New York State Society of CPAs conference last Thursday, Martin Baumann said the rate of failure for audits has been in the range of “around 35 to 40 percent,” according to the article. In those cases, the PCAOB found that auditors did not have sufficient evidence to support their opinions.

“The board is working on creating audit quality indicators so that firms could potentially measure their performance against a common standard in the future, Mr. Baumann said,” Chasan wrote. “It expects to issue a concept release on the indicators in the first quarter.”

Taxpayer advocate: Avoid health-care tax surprises
In an interview with Carole Feldman of the Associated Press, National Taxpayer Advocate Nina Olson emphasized if a taxpayer bought health insurance through one of the health exchanges, he or she might be eligible for a refundable tax credit. Taxpayers had the option of estimating their 2014 income to see if they qualified for the credit and then having it applied in advance to the cost of the premiums.

Olson’s advice to those taxpayers: keep the exchanges advised if there are changes in your circumstances that could affect the subsidy, according to the January 26 article.

“It could increase if you have another child and you want to be able to get the benefit of that,” Olson told Feldman. “It could decrease if you have a significant pay increase, if your spouse gets a job, if a child is no longer covered on your plan.”

Olson also said there needs to be more outreach and education about the Affordable Care Act. She called on the IRS to make its website more informative by offering more examples “so taxpayers can recognize themselves if you direct them to a page.”

There’s a war over R&D tax credits. And companies keep winning.
New rules that are being finalized by the US Treasury Department would lift restrictions on the types of activities that qualify for tax breaks for business research and development, Jia Lynn Yang of the Washington Postreported on January 24.

The new rules are the result of a decades-long legal battle waged by Dow Chemical and others to broaden the standards used to decide what kind of research deserves federal subsidies, the article stated. The research tax credit and related breaks save firms more than $12 billion a year.

Though the credit was among dozens of temporary tax breaks that expired on December 31, 2013, lawmakers are laying plans to revive it and extend it retroactively – as they have done routinely in the past.

“Away from the political spotlight, however, the research credit is deeply controversial,” Yang wrote. “Some studies indicate that it rewards business activity that likely would have occurred anyway; others have found it a useful incentive. Meanwhile, companies claiming the credit automatically raise red flags at the IRS – and have a good chance of being audited.”

Is the SEC going easy on General Electric?
On January 24, KPMG LLP agreed to pay $8.2 million to settle US Securities and Exchange Commission (SEC) charges that it violated auditor independence rules by providing bookkeeping and other prohibited services to three audit clients. The clients were not named by the SEC, which Bloomberg columnist Jonathan Weil found odd.

A separate report issued by the SEC on Friday looked into KPMG’s practice of lending tax professionals from its own staff to certain audit clients. The SEC didn’t name any of the clients in this report either, but Weil believes “it’s a safe bet” that one of the companies was General Electric Co. (GE).

“KPMG has been GE’s auditor for more than 100 years,” he wrote on January 24. “GE is a systemically important financial institution, because of its GE Capital finance arm. The company paid KPMG almost $100 million in fees for 2012. It has paid the firm more than $1.3 billion since 2000. Former SEC Chairman Mary Schapiro, who left the agency in December 2012, joined GE's board last year. And you never know what a fresh pair of eyes might find on GE's books if the SEC ever ordered it to get a new accounting firm.”

[Click here to read AccountingWEB’s article on the KPMG settlement.]

Will Colorado flood victims pay property tax? Bill says no
In the coming weeks, Colorado lawmakers will discuss legislation that aims to provide a measure of help for hundreds of residents whose properties were destroyed by the massive flooding across northern Colorado last fall.

Democratic Representative Jonathan Singer, who is sponsoring the bill, said it is offensive “that we expect people to pay taxes on property that doesn’t exist,” according to an article by Colorado Associated Press correspondent Ivan Moreno, which was published by the Colorado Springs Gazette on January 26. Instead, Singer’s legislation would have the state pay the victims’ property tax bills.

“As the proposal stands, owners of the destroyed properties would still get a tax bill from county assessors so local governments don't miss out on revenue they rely on to provide services to residents,” the article stated. “After the property owners pay the bill, they could them claim a tax credit from the state.”


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