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Bramwell’s Lunch Beat: Revamped Audit Report Would Keep Lawyers Busy

Apr 3rd 2014
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EU approves rules to shake up company bookkeeping
The European Union (EU) this morning approved some of the world's toughest rules for accountants, designed to stop any listed company from using the same accountantcy firm for more than 20 years, a reform the United States has shied away from as a step too far, Huw Jones of Reutersreported on Thursday.

European lawmakers want to end what they see as cozy relationships spanning several decades between clients and the Big Four accounting firms – KPMG, PwC, Deloitte, and EY – that check the books of nearly all the top companies around the world.

The law will also mean banks can no longer be allowed to insist that a company receiving a loan must hire one of the Big Four to handle its accounts. And it sets curbs on nonaccounting services, such as tax advice, that can be offered to a company whose books the accountant already checks, the article stated.

The Big Four had heavily lobbied EU lawmakers but failed to derail the bill. PwC said it was concerned some of the changes will reduce competition and shareholder choice by taking away the ability of a company's audit committee to keep an auditor, Jones wrote.

Revamped audit report seen launching ‘wave of litigation’
To avoid “a wave of litigation against issuers and auditors” that could result from the proposal by the Public Company Accounting Oversight Board (PCAOB) to revamp audit reports, the PCAOB should provide legal protection for auditors, a lawyer who represents the insurance industry contended during a meeting yesterday, David M. Katz of CFOreported.

“I anticipate that the community of attorneys specializing in the representation of shareholders seeking class-action targets would be thrilled to see this proposal adopted,” said Richard Murray, a former head of legal affairs at Deloitte & Touche and now a lawyer whose clients include an association of the world’s biggest insurance company chief executives, according to the article.

Murray’s remarks were presented at the first of two days of hearings on the PCAOB’s August proposal to expand the auditor’s report on corporate financial statements. [Today’s hearing is underway and can be viewed here.]

While the proposed standard would retain the pass-fail model, the PCAOB recommended that the auditor’s report detail “critical audit matters as determined by the auditor.” Such matters would be the ones “the auditor addressed during the audit of the financial statements that involved the most difficult, subjective, or complex auditor judgments or posed the most difficulty to the auditor in obtaining sufficient appropriate audit evidence or forming an opinion on the financial statements.” If the auditor found no critical matter, he or she would have to state that in the report, Katz wrote.

Agreement on audit reports proves elusive at PCAOB hearing
Michael Rapoport of the Wall Street Journalwrote that although most of the people who spoke at yesterday’s PCAOB hearing agreed there are benefits to giving more information to investors in the audit report, there were mixed opinions on how that should be accomplished.

“I'm struggling with how to land the plane,” said Kevin Reilly, Ernst & Young LLP's Americas vice chair for professional practice and risk management, one of 20 panelists at Wednesday's hearing, according to the article.

On one hand, investor advocates like Lynn Turner, a former US Securities and Exchange Commission (SEC) chief accountant, argued that the audit report – currently a boilerplate document that provides little specific information to investors – should be enhanced to tell a company's shareholders about the auditors' assessments of the company's risks, the judgments it makes, and the quality of its accounting practices.

On the other hand, Wallace Cooney, chief accounting officer of education and media company Graham Holdings Co., said he has reservations about the PCAOB's proposal to give investors more information in the audit report. Even the current audit report “should mean a lot to investors,” he said – a positive opinion from an auditor means that a company has had to satisfy the auditor's tough questions, Rapoport wrote.

[Click here to read AccountingWEB’s article from last August on the PCAOB’s proposed changes to the auditor’s report.]

Camp: Congressional retirement caused by looming loss of influence
In his first print interview since announcing his retirement on Monday, Representative Dave Camp (R-MI) told the Detroit News that he is not running for re-election because he is losing his powerful tax-writing committee chairmanship and his influence within the House would be unclear.

“The main reason is I’m term-limited in my chairmanship of Ways and Means,” Camp said, according to the article. “So that really has caused me to take a look at what role I have after that. I just made the decision after 12 terms it was time to make a change.”

GOP rules limit chairmanships to six years, but also count time served as a ranking member when Democrats controlled the House. It meant Camp would have to step down next year, though he’s chaired the tax-writing body since 2011 – something Camp feels is premature, the article stated.

House Speaker John Boehner (R-OH) can make exceptions to the rule, and he has. Most notably, Boehner kept Representative Paul Ryan (R-WI) on as chairman of the Budget Committee last year. Ryan now is a contender to succeed Camp as Ways and Means chairman.

Camp wouldn’t comment on his conversations with Boehner on whether to bend the rules, but said, according to the article: “It’s not going to be changed. It is what it is. I am term-limited as chairman, and that was a factor in my decision.”

Even the IRS chief says tax code is too complex
During a briefing with reporters at the National Press Club on Wednesday, IRS Commissioner John Koskinen said the agency is eager “to do whatever we can” to help simplify the tax code, Gregory Korte of the USA Todayreported.

The IRS commissioner rarely discusses tax policy, which is the purview of his bosses at the US Treasury Department. But Koskinen said the IRS needs to be involved in tax reform discussion “to make sure the simplification really is simple.”

Ways and Means Committee Chairman Dave Camp released his proposal to revamp the tax code in late February, and Koskinen stated he's worried that the country could miss out on the best opportunity to reform the code since the last major overhaul in 1986.

The two issues most in need of an overhaul, he said, are the taxation of American companies doing business abroad and the alternative minimum tax, which Koskinen finds “impenetrable,” Korte wrote.

Koskinen said it's a mistake to try to deal with tax expenditures – as the multitudes of credits, deductions, and exemptions are sometimes called – one by one. He likened that approach to fighting a “guerrilla war” with special interests.

“The advantage of doing it all at once is that the lobbyists can't all get in the door at the same time,” he said, according to the article.

More countries agree to help US crack down on tax dodgers
John D. McKinnon of the Wall Street Journalreported yesterday the US Treasury Department added 19 nations – including Australia, Brazil, South Africa, and South Korea, as well as several tax havens, such as the British Virgin Islands – to its list of countries that have reached agreements with the United States on carrying out a far-reaching law aimed at preventing offshore tax dodging by American citizens.

The Treasury and the IRS said the 19 nations had achieved agreements in substance with the United States on implementation of the Foreign Account Tax Compliance Act (FATCA). At least for 2014, those countries will be treated as having formal agreements.

The announcement, which brings the total number of countries with effective agreements to 45, gives foreign financial institutions in the affected countries more certainty about their responsibilities under the FATCA regime, McKinnon wrote. In general, the law requires foreign financial institutions to provide information to the United States about Americans’ overseas accounts.

Without an intergovernmental agreement of some kind, foreign financial institutions face potentially stiff penalties in their dealings with US financial institutions, the article stated. The number of countries with agreements is expected to grow in coming weeks, ahead of July 1 when important aspects of the FATCA law go into effect.

SEC Chair White testifies for FY 2015 budget, details enforcement initiatives
SEC Chair Mary Jo White gave testimony before a subcommittee of the House Committee on Appropriations on Tuesday in support of President Obama's fiscal year (FY) 2015 budget request for the SEC to receive $1.7 billion, Bruce Carton of Compliance Weekreported.

White warned that the SEC needs a meaningful increase over its FY 2014 budget of $1.35 billion, which was a 2 percent increase over the agency’s FY 2013 budget of $1.321 billion.

Among other things, White noted that an increased SEC budget is needed to properly regulate a current hot issue: “today's high-tech, high-speed markets” that have come under great scrutiny following a 60 Minutes report and the release of Michael Lewis' new book on the topic, Flash Boys, Carton wrote. She also said that the requested budget level would allow the SEC to properly bolster examination coverage for investment advisers and strengthen its enforcement program.

White explained that the FY 2015 budget request of $1.7 billion would also allow the SEC to hire an additional 639 staff and enhance its IT, according to the article.

Save your tax refund, win the lottery
A new lottery created by nonprofit Doorways to Dreams Fund aims to encourage people to save rather than spend. For every $50 of your tax refund you tuck away in savings, you receive a chance to win $100 during one of 100 weekly drawings, along with a chance to win a $25,000 grand prize, Blake Ellis of CNNMoney wrote yesterday.

To enter the Save Your Refund lottery, you need to request that at least $50 of your refund be put into a basic savings account, an IRA, prepaid card, savings bond, or CD using Form 8888 when you file your taxes.

In order to be eligible to win the grand prize, you also need to submit a photo that illustrates your savings goal – like a picture of a tropical island where you hope to take a vacation or a new car, the article stated. This photo is the key to winning the big money –  while the weekly prizes are selected randomly, the grand-prize winner is chosen by a panel of judges based on the photo, Ellis added.

Save Your Refund launched last year, with more than 750 participants saving almost $1 million.

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