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Bramwell’s Lunch Beat: AICPA About to Roll Out SSARS No. 21

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Oct 21st 2014
Staff Writer and Editor AccountingWEB
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Accounting group pushes back against retirement age scrutiny
Michael Rapoport of the Wall Street Journalreported that the American Institute of CPAs (AICPA) on Monday pushed back against federal regulators who are again scrutinizing big accounting firms’ policies of requiring mandatory retirement ages for their partners.

The rebuke comes after the Equal Employment Opportunity Commission (EEOC) investigated PricewaterhouseCoopers (PwC) LLP over its policy that requires its partners to retire by age 60, with a view toward whether the policy constitutes age discrimination. The EEOC decided last year not to bring a case against PwC and closed its investigation, according to a person familiar with the situation. Another firm, Deloitte LLP, said publicly last month that it was under EEOC investigation over its required partner-retirement age of 62, Rapoport wrote.

In a letter to the EEOC on Monday, the AICPA said the retirement rules are justified and urged the commission to refrain from filing any lawsuits against the accounting firms over the matter.

“Accounting firms and their partners have adopted these policies for sound business reasons,” AICPA CEO and President Barry Melancon said in the letter, adding that it was the group’s understanding that the EEOC’s staff “is currently investigating and considering litigation against accounting firms” regarding their partner-retirement rules, but that the investigations were “unwarranted and unnecessary.”

An EEOC spokeswoman said the agency has received the AICPA letter and was reviewing it, but declined to comment further, according to the article.

AICPA modernizes nonaudit standards for accountants in public practice
The AICPA will introduce later this week Statement on Standards for Accounting and Review Services (SSARS) No. 21, one of the most significant revisions in nonaudit standards in the past 35 years.

SSARS No. 21 represents the AICPA Accounting and Review Services Committee’s (ARSC) efforts to clarify and revise the standards for members in public practice who perform reviews, compilations, and engagements to prepare financial statements. Approved by the ARSC in August, SSARS No. 21 creates a bright line between accounting (preparation) services and reporting (compilation or review) services and is a better fit for the current electronic and cloud-based practice environment, according to the AICPA.

SSARS No. 21 will officially be issued on Oct. 23. The newly revised standards are effective for engagements on financial statements for periods ending on or after Dec. 15, 2015. Early implementation will be permitted.

SSARS No. 21 comprises four sections:

  • Section 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services
  • Section 70, Preparation of Financial Statements
  • Section 80, Compilation Engagements
  • Section 90, Review of Financial Statements

These sections will be codified in AICPA Professional Standards with the prefix “AR-C” to distinguish them from the extant AR sections, according to the AICPA.

The basic standard for accountants who have prepared and submitted financial statements to their clients was issued as SSARS No. 1 in 1978, said Michael Brand, chair of ARSC and a partner with Athens, Alabama-based accounting firm Johnson, Feigley, Newton & Brand LLP.

“Back then, accountants prepared paper financial statements, bound them with their firm’s covers, and mailed them or handed them to their clients. It made sense, for many years, that because these were submitted by the CPA, the CPA should, at a minimum, issue a compilation report on those financial statements,” Brand explained in an AICPA release. “However, in today’s electronic environment, especially cloud applications where the client and CPA are working on the accounting together and sometimes in real time, it’s impossible to segregate who prepared the financial statements, let alone whether the CPA submitted  financial statements. Section 80 of SSARS No. 21 totally eliminates the need for such arbitrary and irrelevant decisions by making the compilation literature apply when the accountant is engaged to perform a compilation service.”

In addition, to help firms that are asked by their smaller clients to prepare financial statements when that client does not need a compilation or review report, SSARS No. 21 includes a new preparation standard. Section 70 of SSARS No. 21 does not require an accountant’s name or report to be associated with the preparation of the financial statements, but it also does not prohibit a CPA from doing so, according to AICPA Senior Technical Manager Michael Glynn.

“Therefore, to ensure that users are not misled by thinking that an accountant is providing any assurance on the financial statements, the standard requires a legend on each page of the financial statements indicating, at a minimum, that ‘no assurance is provided’ on the financial statements,” Glynn said.

After tax inversion rules change, AbbVie and Shire agree to terminate their deal
A week after AbbVie said it was reconsidering what had been the biggest agreed deal of the year – as well as the biggest-ever inversion – the two companies said late Monday that they would terminate the deal, David Gelles of New York Times DealBookreported. North Chicago, Illinois-based AbbVie will now pay Shire a $1.635 billion break-up fee.

AbbVie’s proposed $54 billion acquisition of Shire was structured as an inversion and would have allowed AbbVie to reincorporate in Britain, lowering its tax bill. To fund the deal, AbbVie had planned to use billions in overseas cash that would not have been taxed if the company had completed the inversion. But among other changes, recent US Treasury Department rules meant that AbbVie would have had to pay taxes on that cash, eliminating many of the financial benefits of the deal.

In announcing the termination of the deal, AbbVie lashed out at the Obama administration for changing the rules so abruptly. The Treasury’s notice last month “re-interpreted longstanding tax principles in a uniquely selective manner designed specifically to destroy the financial benefits of these types of transactions,” AbbVie said in a statement, according to the article. This was a change in tune for AbbVie, which previously said that its deal for Shire was not motivated by tax considerations and was mostly about the strategic fit, Gelles noted.

The United Kingdom Takeover Panel has given its consent to the termination of the deal, freeing AbbVie from the formality of holding a special meeting at which its shareholders would have had the chance to vote on the deal. Under British takeover rules, AbbVie cannot make another offer for Shire for a year.

Paulson’s hedge fund urges Botox-maker Allergan to consider buying Shire
In a separate article for DealBook, Gelles wrote on Monday that if AbbVie no longer wants to buy Shire, perhaps Allergan does. That is the proposal being pushed by Paulson & Co., the hedge fund that has stakes in two of those big drug makers, according to people briefed on the matter.

A representative from Paulson called Allergan last week and urged its chief executive, David E.I. Pyott, to consider making a bid for Shire. Paulson has good reason to want Allergan to buy Shire. Last week, AbbVie walked away from its agreed deal to buy Shire after the Treasury Department changed the rules affecting tax inversions. That sent Shire shares tumbling, leading to substantial paper losses for Paulson, which owns about 4.5 percent of Shire and about 2 percent of Allergan.

And Allergan is in the market for a deal, as it continues to try to fend off a hostile bid from Valeant Pharmaceuticals and the hedge fund Pershing Square Capital Management, Gelles wrote. Allergan had considered an all-cash acquisition of Salix Pharmaceuticals, but those talks fell apart. It has also had talks about selling itself to Actavis for a slightly higher price than what Valeant and Pershing Square are offering.

Although Allergan considered making a bid for Shire earlier this year, there were no signs that it was considering a new deal, despite urgings from Paulson. If Allergan does attempt a deal to scuttle the Valeant bid, the more likely development would be a deal with Actavis, according to the article.

US solar consolidation seen before tax credit expires
Acquisitions in the solar industry will accelerate as manufacturers and developers prepare for the expiration of a tax credit that’s helping drive an installation boom in the United States, Christopher Martin of Bloombergwrote on Monday.

With renewable-energy executives gathering in Las Vegas for the Solar Power International conference, which began on Monday, some will be shopping their companies around and others will be evaluating potential purchases, said Michael Horwitz, who leads energy technology investment banking at Robert W. Baird & Co. in San Francisco.

The federal investment tax credit (ITC), which reimburses 30 percent of development costs for solar projects, underpins the industry’s financing models. When that drops to 10 percent at the end of 2016, some companies will struggle to remain competitive, Martin wrote. Horwitz expects a wave of consolidation that will result in about six to 12 large solar conglomerates that will be able to beat utility prices for power.

“We’re going to see a lot of M&A activity going into next year,” Horwitz said in an interview, according to the article. “The growth in front of that ITC loss is going to be dramatic.”

US solar development will almost double by 2016 to 9.6 gigawatts, up from about 5.1 gigawatts this year, according to Bloomberg New Energy Finance. After the ITC is reduced, the London-based research company expects new construction to drop to about 4 gigawatts in 2017 and take six years to recover, Martin wrote.

IRS behind on identification cards
According to a new Treasury Inspector General for Tax Administration (TIGTA) report, the IRS will fall short of its goal of getting all staff identification cards to allow them into federal offices, Bernie Becker of The Hillwrote on Monday.

TIGTA said the IRS won’t fully implement electronic card access to its facilities until at least 2018 – three years after the Treasury Department’s deadline. IRS officials have chalked the delays up to a funding crunch, an issue they have blamed for falling behind on other priorities. Either way, TIGTA said the delay could be costly for the IRS.

As long as the program isn’t implemented, “IRS facilities, networks, and information systems are at an increased risk of unauthorized access,” Treasury Inspector General J. Russell George said, according to the article.

The IRS has given so-called personal identity verification cards to roughly 85 percent of its eligible staffers and contractors. That comes after the agency has already spent $110 million to implement the program, with another $19 million budgeted for fiscal 2014, Becker wrote. But staffers and contractors only have to use those cards to get inside roughly one in five – 130 out of 625 – IRS facilities, TIGTA found.

The IRS has decided not to require card access at 134 facilities, insisting those buildings might be closed in the future or don’t require that level of security. The IRS won’t finish upgrading the other 361 facilities until at least 2018, and will do so only if the funding is available, according to the article.

Former FASB chairman Robert Herz appointed to SASB’s Board of Directors
The Sustainability Accounting Standards Board (SASB), a 501(c)3 not-for-profit organization that develops sustainability accounting standards for publicly listed US corporations, announced on Tuesday that former Financial Accounting Standards Board (FASB) chairman Robert Herz has been elected to the SASB Board of Directors.

Herz, whose three-year term begins on Jan. 1, 2015, will play an instrumental role in determining the structure and process for the finalization of SASB standards, working closely with SASB staff and the standards council to extend the rigorous processes already in place.

“Today’s investors are looking for a more complete picture than traditional financial statements can provide. The financial accounting world recognizes that sustainability accounting is essential to corporate success and investor decision-making,” Michael Bloomberg, former New York City mayor and current chair of the SASB board, said in a written statement. “The appointment of Robert Herz, a leader in the accounting profession and financial reporting, is a great addition to SASB’s board who will provide valuable expertise in shaping sustainability standards that benefit the financial community.”

Herz served as FASB chairman from 2002 to 2010. Prior to joining the FASB, he was a senior partner at PwC and was a member of the firm’s global and US boards. Herz also served as one of the original members of the International Accounting Standards Board.

In addition, Herz has served as chair of the AICPA’s Securities and Exchange Commission Regulations Committee and the Transnational Auditors Committee of the International Federation of Accountants; and a member of the FASB Emerging Issues Task Force, the American Accounting Association's Financial Accounting Standards Committee, and the International Capital Markets Advisory Committee of the New York Stock Exchange. He currently serves as a director of the Standing Advisory Group of the Public Company Accounting Oversight Board and the Accounting Standards Oversight Council of Canada, as a trustee of the Kessler Foundation, and as an executive in residence at Columbia Business School.

“SASB standards will enhance the ability of investors to better understand, compare, and benchmark the impact of material sustainability information on companies across various industries,” Herz said. “Joining the SASB board enables me to continue to further contribute to the evolution of corporate reporting.”

Herz has long recognized the importance of nonfinancial drivers of corporate value through, for example, the book he co-authored, The Value Reporting Revolution: Moving Beyond the Earnings Game.

“In determining our process for the finalization of SASB standards, we're assessing various approaches based on timeliness, quality of outcomes, credibility, and transparency,” said SASB CEO and Founder Jean Rogers, PhD. “The expertise of Bob Herz will serve us well in finalizing this process and fulfilling our goal of issuing standards that yield material, decision-useful information in a cost-effective manner.”

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