As CPA Canada’s Collaboration Accord Fails to Collaborate, Who Gets the Profession’s Credibility in the Divorce?
We should have written about this months ago but didn’t get around to it, there’s some new news so let’s get to the backstory and what’s happening next with the various CPA bodies of Canada. TL;DR: CPA Ontario and CPA Quebec want to break up with CPA Canada. It’s relevant to us as down here […]
Head Regulator Said He’ll Break Out the World’s Smallest Violin For Auditors Crying About Tougher Regulation
Financial Times has reported that Financial Reporting Council head Sir Jon Thompson — who last year told firms complaining about audit fines to get gud (paraphrased) — has no sympathy for audit partners across the pond who can afford Ferraris but can’t afford the staff and training necessary to perform acceptable audit work. Auditors who think […]
Audit Firms Are Making More Money Than Ever But Their Auditing Still Sucks, Says Guy
For today’s episode of “What Can We Rag on Big 4 Firms For” we’re going to dive into this article I came across this morning in Fair Observer, an independent outlet which I’ve never heard of but hey, any article that bashes Big 4 firms is OK in my book. Let’s be real, visiting Going […]
Let’s Give Up on the PCAOB But Not on Regulating Auditors
Ed. note: Paul Gillis Ph.D, CPA is a Professor of Accounting at the Guanghua School of Management, Peking University in Beijing, China and co-director of its IMBA program. He is a former member of the PCAOB Standing Advisory Group, he also writes the China Accounting Blog and you can follow him on Twitter. He's not pointy-headed, […]
How Regulators Are Like the Food Stamps of Professional Services
The other night I was listening to Episode #2 of the Thrivecast (which I highly recommend) with Jason Blumer and Greg Kyte. At one point in the podcast they were talking about innovation in the accounting profession and Jason made a comment that struck me: "The PCAOB is new and they have a slew of regulations. Cool. I got a new […]
Study: Competing Forensic Accounting Bodies Pretty Much Hate Each Other; Regulation Needed
The continued prevalence of fraudulent activity in business will undoubtedly lead many of you to a career in forensic accounting and/or fraud examination. Because of the nature of their work, you might be under the impression that the organizations in this little corner of the sandbox would be above reproach and bickering over petty differences […]
Scoring Sarbanes-Oxley
As we pointed out in this morning's roundup, the New York Times' Room for Debate is discussing the success/failure of Sarbanes-Oxley. Sunday marks SarbOx's 10th birthday so naturally people in the accounting and compliance world are getting all nostalgic about it and yeah, okay, nostalgia can be fun sometimes. The Times had four contributors in […]
Deloitte Suggests Banks Quit Their Bitchin’ and Turn Their Dodd-Frank Frown Upside Down
You've got the 2,300-ish page law all wrong. It is not 2,300-ish pages of annoying encumbrances; it is 2,300-ish pages of OPPORTUNITY: Under Wall Street reform […] the largest banks are required to undergo “stress testing” to see how they would perform under potential duress. Deloitte argues there’s a business upside as well, encouraging […]
How Much Harder Is REG Going to Be in 2011?
Well we’ve reached the end of our 2011 wrap up series so here are FAR, AUD and BEC if you missed them.
Let’s skip the pleasantries and get right into what you’re dying to know, how bad is Regulation going to be next year?
Things they are a-changin’…but not much – The good news is that REG is hardly changing at all. After all, you can’t test international standards of federal taxation as globalization hasn’t completely taken over so don’t expect to see much different content-wise come 2011. You will see the new simulation problems and notice there are no longer written communications. But beyond the cosmetic changes, the actual content that makes up Regulation will be quite similar to what’s already being tested. Of course, that is true across the board as a good 90 – 95% of what is being tested will still be tested next year if my gut feeling is still any good. You guys have to remember – next time you are freaking out about new exam material – that CPA exam questions are difficult to develop and the AICPA Board of Examiners isn’t about to trash all their useful questions just to start testing you on the international stuff.
Tax year overlap – One thing to keep in mind when taking REG – in the first two windows of the year you can be tested on both current and former tax year numbers. This means if you take it in January of 2011 you may see 2010 tax numbers or you may see 2009 or a mix of both. Chances are the newer numbers will not make their way to the exam (hey, the AICPA BoE is super busy getting those IFRS questions in working order!) but just something to be aware of. That doesn’t mean you have to memorize tons of different tax tables but it would be wise to stay up on tax changes in the year ahead as many tax rates are still in the air at the point many review courses are rushing to go to print.
Who said anything about ethics? – Ethics and professional responsibility are moved out of REG and put back into AUD except for those pertaining to tax practice and will still be tested about the same as 2010: 15-20% versus 15-19% in 2011. Business law will carry less weight, making up 17-21% of all questions. Federal tax procedures get a boost from 8-12% in 2010 to 11-15% in 2011. Great news for those of you who really do not like taxes, federal taxation of entities gets a downgrade from 22-28% to 18-24%. Individual tax stays about the same, going from 12-18% to 13-19%. Don’t expect much of a break, it is Regulation after all.
Other than that, REG won’t see much of a change. Business structure (partnerships, et al.) has been moved out of BEC (rightfully so) and will only be tested in REG but you already know most of that stuff if you have passed either section in 2010.
If you can, I advise holding off on Regulation until the last two windows of the year so you have a better chance of getting only one year of tax numbers (the AICPA will generally test the previous year’s tax numbers) but if you are looking for a good one to hold off on taking until next year ahead of the CBT-e changes, REG would definitely be it.
Good luck and we’ll see you on Friday!
Oh and in case you didn’t get the memo, if you have a CPA exam question for us (for example, which part can I procrastinate on until the very end of 2011?, Is farting allowed at Prometric?, How can I tell my girlfriend to leave me the hell alone and let me study? etc etc), do get in touch.
Accounting News Roundup: Will an International Audit Regulator Become a Reality?; GMAC Shopping for a CFO Candidate; FASB Sued for Antitrust Violations | 05.06.10
Audit chief welcomes debate on international regulator [Accountancy Age]
The idea of an international audit regulator is being kicked around in the EU with about as much seriousness as returning to the moon. That is, it’s absolutely something to be discussed but at this point nobody’s firing up the boosters just yet. IFRS has been proved to be, putting it lightly, a challenge but ever since the Lehman Brothers/E&Y fiasco, reform of the auditing business doesn’t seem far behind.
And while the idea is being entertained, the hurdles to an international regulator sound a little familiar:
Ian Powell, senior partner at PwC UK, said the establishment of an international regulator is “worthy of debate” but believes global consensus among nations may prove difficult.
“Most countries think their regulation is good and it is their system which should be applied – that is going to make it difficult to convince them to give up their system,” he said.
“If you talk to virtually any regulator in any country they do want to see more globalisation of regulation, but the big problem is there are certain political issues that are different in different countries.”
GMAC Said to Consider Ex-Citigroup Banker Yastine as Next CFO [Bloomberg Businessweek]
GMAC is hot on the trail for a new CFO after their last one bolted in March shortly after his TARP testimony. The ward of the state is said to be considering Barbara Yastine, who formerly was the CFO at both Credit Suisse’s and Citigroup’s investment banking groups.
FASB Defendant in Suit Alleging Antitrust Violations and Patent Misappropriation [Silicon Economics, Inc. Press Release]
Silicon Economics, Inc. is suing the FASB, alleging “antitrust violations and with willfully attempting to misappropriate patented technology,” according to the San Jose-based company’s press release.
The lawsuit concerns Silicon Economics’ EarningsPower Accounting™ (EPA™) – a patented method developed by the company to improve the accuracy, validity, and usefulness of financial statements. Silicon Economics recommended the merits of EPA to FASB in response to FASB’s request for public comment on the objectives of financial accounting (No. 1260-001, July 6, 2006). FASB claims that its website terms and conditions gave it ownership of Silicon Economics’ technology, even though such terms were not part of FASB’s invitation for public comment or otherwise disclosed to Silicon Economics.
Non-Profit Organizations Feeling the Pain of Sarbanes-Oxley Compliance
You’ve already seen me rail on SOX and I’m not the only one.
Skeptical CPA, Accounting Onion, Business Insider’s John Carney, Re: The Auditors (and Francine here on Going Concern). Need I point you to more?
I am not classically trained in recognizing Service threats but this certainly feels like one.
The Internal Revenue Service today reminded tax-exempt organizations to make sure they file their annual information form on time. In 2010 the tax-exempt status of any non-profit that has not filed the required form in the last three years will be revoked.
The Pension Protection Act of 2006 requires that non-profit organizations that do not file a required information form for three consecutive years automatically lose their Federal tax-exempt status. This requirement has been in effect since the beginning of 2007.
The costs of compliance begin to add up and suddenly it starts to reek of 404(b); compliance for the sake of compliance does not equal nor even assist transparency.
I spoke to Chris Leach, a former not-for-profit auditor who has served on several NFP boards, who gave some insight into the problem with the 990. Let me tick off just a few “concerns”:
• Some of the smaller non-profits don’t have anyone on their board qualified to do the 990. It’s not a 1040 and problems are numerous.
• NFP board members are exposed to liability, being forced to “sign off” on 990s. That should sound familiar to any auditor who has been at the job for longer than ten years or so.
• Increased regulatory pressure has been proven to distort true financial condition, not necessarily make it any more transparent.
Any of this sound eerily familiar?
Many boards do not have members equipped to adequately review and sign Form 990, so they are still exposing themselves to liability as a result of improperly filed forms. “Bad publicity is the largest implication in my view, especially for organizations facing financial stress, and even more so in this economic environment,” Chris told me. “Beyond that, from a board member’s perspective, the biggest problem would be misstatements on the Form 990, which could potentially lead to personal liability for the board.”
Chris is slightly more reasonable than yours truly, saying “Just the simple day-to-day administration of tax issues puts pressure on smaller not-for-profit organizations. [However], when a not-for-profit organization isn’t a worthy steward of its donors’ trust, donors feel betrayed, so they want more transparency.”
Fair enough. Bring on the transparency (and the headaches?)!
UK Code Requires ‘Independent Non-Executives’ for Big 4
In a development that will destroy the secret society of Big 4 management in the UK, a “radical” governance code has been implemented that will require the Big 4 to appoint outside “independent non-executives” that will oversee “public interest matters; and/or be members of other relevant governance structures within the firm.”
According to the code, these new independent non-executives will make us all feel way better about what audit firms by “enhanc[ing] shareholder confidence in the public interest aspects of the firm’s decision making, stakeholder dialogue and management of reputational risks including those in the firm’s businesses that are not otherwise effectively addressed by regulation.”
But that’s not all! According to the introduction, “It should also benefit capital markets by enhancing choice and helping to reduce the risk of a firm exiting the market for large audits because it has lost public trust.” In other words, everyone still is freaking out about who the next Andersen will be. Apparently this “should” help your concerns by encouraging companies to consider other audit firms.
What a coinky-dink, Grant Thornton was just asking for help on this last week! Not really sure if this what they had in mind for but hey, beggars can’t be choosers, right?
The Financial Times claims that “Accountants broadly welcomed the move, although some in the firms’ international networks were unhappy about the possibility the UK code might pave the way for ‘creeping regulation’ worldwide.” In other words, people in the U.S. don’t like it one bit.
Plus, the FT didn’t quote any accountants that “welcomed the move”. The exception, of course, is the chair of the group, Norman Murray, who said that the new code was “‘as user-friendly as possible but seen to have some teeth.'” Not sure what that means but it sounds like he’s a believer.
Another member of the board, John Griffith-Jones, co-head of KPMG Europe, was less enthused. All he could manage was that he hoped that the move would put the “‘Enron query to bed.'”
Something tells us your hopes will be dashed, JGJ. Enron is the story that never ends. Especially in the MSM. Plus it’s on the stage now. Those tunes will be in your nightmares.
Auditors required to adopt UK code [FT]
audit firm governance code.pdf
The Big “Regulation” Joke
Editor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
In an uncharacteristic move by one of our favorite accounting professors, Prof Albrecht went off on regulation over at The Summa yesterday and personally, JDA was stoked.
The Economic and Regulatory Shadow is recommended in its entirety but here’s a juicy tidbit for you to suck on:
It is frustrating to be an accounting professor and to live in the United States of America. A mind set that triumphs the interests of corporations and auditors over those of investors is entrenched in the regulatory shadow. Consequently, any policies that might favor populist policies have little chance of success.
The federal government’s financial and economic regulatory apparatus is comprised of the Treasury Department (Treasury), the Federal Reserve (Fed), and the Securities and Exchange Commission (SEC). The top positions are political appointees, but the bulk of the work is performed by career and long-term personnel. It is a lot like the situation at the State Department (State), Department of Defense (DoD), and the National Security Agency (NSA).
Know what’s really funny about Professor Albrecht’s timing? The Fed is facing this same regulatory dilemma, even if major financial bloggers missed the point over the weekend. Sure, they care about the spectre of an audit but mostly right now they don’t want the President being the one who puts regional Fed presidents in their positions. I don’t blame them for tripping on that.
So? Our dear Professor has gone out on one hell of a limb here, nearly unheard of when it comes to accounting professionals. The glossy marketing materials CPAs outnumber those who keep it real like Francine, Dennis, Skeptical CPA, and now Professor Albrecht but we’re making progress (he did always get the IFRS thing so this isn’t really all that surprising of a position).
I’m constantly thrilled to see outrage. Maybe that’s because I’m a shit-disturber but I think it is about time the industry get worked into a lather over perceived imbalances in the very regulatory system that we have to tip-toe around. All that tedious stuff you little CPAs do each and every day? It means nothing without the backbone of a regulatory system and as Professor Albrecht so astutely points out, we are sort of lacking in that department these days.
And? WTF are we supposed to do about that? Heads down and keep ticking and tying, kids, there’s not much else to do at this point.