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Bramwell's Lunch Beat: Preparers Are Lukewarm on Auditor Disclosure Proposal

Jan 8th 2014
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JPMorgan’s $2.6 billion Madoff reckoning
Federal prosecutors on January 7 announced a $1.7 billion settlement with JPMorgan Chase, which was accused of ignoring red flags about Bernie Madoff’s crimes and allegedly turning a blind eye to his massive Ponzi scheme while acting as his banker, Aaron Smith of reported.

Additionally, JPMorgan Chase agreed to pay $350 million to the Office of the Comptroller of the Currency and another $543 million to Irving Picard, a court-appointed trustee seeking to recover lost assets for Madoff, the article stated.

The funds will compensate victims of the Ponzi scheme, according to US Attorney Preet Bharara.

Preparers oppose PCAOB’s plan for more auditor disclosures
After reviewing comment letters regarding a proposal made last August by the Public Company Accounting Oversight Board (PCAOB) that would enhance the auditor’s reporting model – including requiring new information in the auditor’s report – the Journal of Accountancyfound that financial statement preparers don’t want their responsibilities usurped by auditors.

“Letters posted on the PCAOB’s website from more than sixty companies that prepare financial statements overwhelmingly express opposition to the board’s proposed requirement for auditors to include descriptions of ‘critical audit matters’ in their reports,” Journal of Accountancy Senior Editor Ken Tysiac wrote.

The proposal would represent the first substantial change in the auditor’s report since the 1940s. The PCAOB proposed the changes to accommodate investors’ desire for information beyond the pass/fail opinion auditors provide on financial statements, the article stated

[AccountingWEB’s coverage on the proposed changes to the auditor’s report can be found here and here.]

IRS: Identity theft prosecutions double in 2013
The IRS reported on January 7 that it launched 1,492 criminal investigations into identity theft last year, a 66 percent increase from the year before, while prosecutions and indictments more than doubled, according to an Associated Pressarticle.

In all, the IRS said it has flagged 14.6 million suspicious tax returns since 2011, blocking more than $50 billion in fraudulent refunds.

House Financial Services chairman to seek Volcker Rule change
In a January 7 article in the New York Times, Floyd Norris wrote that Congressman Jeb Hensarling (R-TX), chairman of the House Financial Services Committee, will likely propose a bill that could open up a huge loophole in the Volcker Rule.

“The proposed change could allow banks to create and own securities with many types of investments that are barred under the Volcker Rule, which is intended to prohibit speculative trading by banks while letting them both make markets for customers and hedge other investments,” the article stated.

Last month, Salt Lake City-based Zions Bank announced that it expected to take a big loss, estimated at $387 million after taxes, due to the Volcker Rule. The bank said it would have to post the loss because it would no longer be able to use an accounting rule that allowed it to keep losses on those securities off its earnings statement, although they were disclosed in footnotes, Norris reported.

“That accounting treatment depended on the bank being able to say it expected to retain the securities until they matured, something it would not be able to do if the Volcker Rule would require the sale of the securities, even if the sales could be delayed for several years,” he wrote.

Norris continued: “The proposed legislation, notable for its brevity, provides that nothing in the Volcker Rule ‘shall be construed to require the divestiture of any collateralized debt obligations backed by trust-preferred securities issued before December 10, 2013’”

Taxing Bitcoin: IRS review has big implications for investors in virtual currency
Forbes contributor Howard Gleckman wrote on January 7: “Bitcoin is usually described as virtual currency. That’s useful shorthand, but is it really money? And should it be taxed as if it is? Or is it a capital asset? How about a commodity? And then there is the matter of using this quasi-cash to avoid taxes and regulation altogether.

“The IRS says it is studying the matter but has yet to issue any guidance,” Gleckman continued. “Until it does, it is anyone’s guess how Bitcoin should be taxed. Most users/investors will simply pick what is most beneficial to them when they file their 2013 returns.”

Dover officials deal with new pension accounting standards
On June 25, 2012, the Governmental Accounting Standards Board (GASB) approved new pension standards for state and local governments. The standards are intended to improve the accounting and financial reporting of public employee pensions, and for the first time, governments will have to report unfunded pension liabilities on their balance sheets.

Facing a shortfall of more than $7 million over the next five years, city officials in Dover, Delaware, are facing several challenges – including implementation of the new pension standards – as they prepare next year’s budget, Chris Flood of the Delaware State Newsreported on January 7.

City Controller Donna Mitchell said while she understands the practicality of the changes made by the new pension standards – most notably bringing government agencies more in line with private industry and having more responsible handling of government funds – it doesn’t mean they aren’t frustrating.

“We constantly have to explain something new and then it changes again,” Mitchell told Flood in the article. “It’s tough to be proactive.”

Judge accuses Spanish princess of money laundering and tax fraud
Princess Cristina now holds the dubious distinction of being the first close relative of a Spanish monarch in modern history to face the prospect of a criminal trial.

The New York Timesreported on January 7 that the princess, younger daughter of King Juan Carlos of Spain, was formally accused of money laundering and tax fraud by a magistrate on Tuesday and was summoned to appear in court on March 8.

“The accusations arise from a long-running corruption investigation that has also ensnared the princess’s husband, Iñaki Urdangarin, a businessman and former Olympic handball player who is fighting charges of fraud, tax evasion, and embezzlement,” wrote Doreen Carvajal. “Both the princess and Mr. Urdangarin, who has been accused of embezzling 6 million euros, about $8.2 million, in government money though a foundation he set up to organize sports conferences, have publicly denied the charges.”


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