|
 
|
||||
|
|||||
          Search Software Personal Help
|
More and more, there is evidence that the independent audit has become
a commodity. The result is fierce competition on the basis of price among
public accountants to provide audit services. On top of this, there is
evidence that the independent audit is becoming less relevant to users.
The result is users are placing a lower and lower value upon audits. Will
the value of audit and other assurance services--as they are presently
known--continue to decline as market forces put pressure on the pricing
structure? The AICPA Special Committee on Assurance Services under the leadership
of Robert Elliott, CPA, of KPMG Peat Marwick LLP, was formed in the fall
of 1994 to explore the future of assurance services and ways to make them
more useful and relevant. The work of his committee may determine the direction
of public accounting for years to come. Elliott is committed to issuing
a final report by the fall of 1996. The committee has completed a year of talking to users to ascertain
not only what assurance services they find useful, but also those they
are willing to pay for. The committee is poised to convert the knowledge
gained into specific assurance services that will move the accounting profession
into the 21st century. The CPA Journal is holding a symposium in New York City on January
5, 1996, on the future of assurance services. The purpose of the symposium
is to learn of the work of the special committee to date and give various
groups likely to be affected by its recommendations--large accounting firms,
local accounting firms, regulators, the SEC, members of boards of directors,
educators, and financial management--a chance to react and contribute to
the work of the committee. The symposium will be moderated by Doyle Williams of the University
of Arkansas. Scheduled to participate as panelists are Robert Elliott,
CPA, chair of the special committee; David Costello, president of the National
Association of State Boards of Accountancy; Gary Holstrum, professor at
the University of South Florida and a representative of the American Accounting
Association; Robert Mednick, CPA, of Arthur Andersen LLP and chairman elect
of the AICPA; John J. Perrell III, CPA, vice president, financial standards
of American Express, and a member of the International Accounting Standards
Committee on behalf of the Institute of Management Accountants; Edward
Rockman of Alpern Rosenthal & Company, member of the AICPA Auditing
Standards Board and past chair of the PCPS Technical Issues Committee;
Michael Sutton, CPA, chief accountant of the SEC; and Kathryn Wriston,
member of various boards of directors and audit committees of public companies.
The symposium is by invitation; however those interested in attending
should contact The CPA Journal offices at 530 Fifth Avenue, New
York, NY 10036-5101. * An AICPA private companies practice task force has recommended that
the Financial Accounting Foundation, the parent organization to the FASB,
establish a Private Companies Standards Committee (PCSC) to make determinations
"whether a proposed standard requiring the accounting recognition
of an event or transaction should be applicable to the financial statements
of private companies." The committee would also decide what disclosures
would be appropriate for private companies. The task force recommended that the committee be made up of a select
group of private company financial statement users--banks and bonding companies‹and
representatives of the management of private companies and the accounting
profession. * AICPA president Barry Melancon was the principal speaker at the New
York Annual Dinner of the Association of Chartered Accountants in the United
States held on October 11, 1995. Melancon spoke of a changing profession,
driven by technology, that must respond to a variety of new challenges.
There will be a whole new array of services that the profession must be
ready to perform. And there will be major questions related to the regulation
of the profession--what is the proper structure of regulation, who should
regulate, and what activities should be regulated. Melancon gave recognition to the importance of international aspects
of accounting and the need for sensible reciprocity arrangements as part
of the regulatory solution. ACAUS President Mark Merryweather warmly welcomed all those present
including guests from the Canadian Institute of Chartered Accountants,
the Institute of Chartered Accountants in England and Wales, and the Institute
of Chartered Accountants in Ireland. As part of the festivities, special recognition was given to chartered
accountant Albert J. Meyer, who was instrumental in bringing the Ponzi
scheme of New Era Philanthropy to a sudden collapse. * By Joseph M. Morris with Mark A. Blackton, James
M. Brendel, James R. Krendl, E. Christopher Lane, Robert J. Puls, and Jeffrey
D. Rudolph Published by John Wiley and Sons, Inc., 382 pages Review by Alexander A.H. Bohtling, CPA, retired from Deloitte
& Touche LLP Mergers and acquisitions present many problems for both parties involved.
As the author of this book points out, determining whether to purchase
another business or to merge is a most important decision for both managements
to make. It requires considerable and careful analysis of various areas.
Choosing the right candidate and going through the acquisition process
is a treacherous journey. The book consists of ten chapters, the first chapter giving reasons
for companies to be involved in buyouts and mergers. The advantages and
disadvantages are clearly outlined. Then, in chapter 2, matters to review
relating to the proposed purchase of corporate assets and assumption of
liabilities are outlined, supplemented by a checklist (48 pages) used by
a Big-Six accounting firm. This is followed in the next chapter by an analysis
of problems encountered in preacquisition and integration. Chapter 4 covers
the types of accounting for business acquisitions‹the purchase and the
pooling methods. The following chapters cover accounting methods and procedures for business
combinations; income tax accounting; accounting for leveraged acquisitions;
Federal income taxation of acquisitions, acquisition audits including those
by independent CPAs; and SEC and other regulatory requirements, as explained
by a partner of another Big-Six accounting firm. The author of the book, Joseph M. Morris, is vice president‹Corporate
Controller of Scientific Software‹Intercomp Inc., in Denver, Colorado.
Previously, he was with the SEC and before that Coopers & Lybrand L.L.P.
In your reviewer's opinion, this book provides very useful material
for firms contemplating mergers or acquisitions, managerial accountants
in private industry, and independent CPAs. * By Troy A. Waugh, CPA, Waugh & Co. One of the most exciting plays in sports is the "strip away."
A quarterback throws a perfect pass into the arms of his wide receiver;
just to have the ball stripped away by the free safety. One of the masters
of this maneuver is Deion Sanders, the new $30 million player for the Dallas
Cowboys. You too can win big if you are willing to play in this high stakes game.
Stripping clients away from competitors is a game that only the best and
most aggressive accounting firm sellers can play. The strip away is not
for the gentle or faint of heart. And, so long as you play within the rules,
there are no ethical constraints. A 1993 Novak Marketing nationwide study showed that only 25% of CPA
firm clients are intensely loyal to their firm. The other 75% were ambivalent
or actively looking for another service provider. To the novice, a relationship between a good prospect and your competitor
seems like an impregnable fortress. But if your target prospect is worth
having, it is worth spending significant effort to obtain. If you are interested
in playing the "strip away" once in a while, here are some tips:
1. Don't accept the "I'm happy with ABC CPAs" answer.
It's lazy to do things the old way. Be skeptical of entrenched relationships.
The status quo is never as permanent as it might seem. 2. Assume the prospect will switch if you can help them find a
good reason. Think about all of your business relationships: Wouldn't
you change if someone gave you a good reason? Without this mindset, other
tactics are not very helpful. 3. Find a small low-cost, low-risk service that is not being provided
by the present accountant. 4. Be alert for communicating new benefits. If your firm
joins a national affiliation, develops a special expertise, creates a unique
service, or makes any change for the better, communicate "in person."
5. Look for changes. If the controller leaves; if your
competitor retires, quits, or leaves town; or if the business reorganizes
management, you may have an opening to build a relationship on an equal
footing with your competitor. Can any of your services help a client with
changes they are experiencing? 6. Keep track of company policy. Some clients have a policy
of formal rotation or of reviewing all supplier arrangements periodically.
Know when that opportunity is to come up; ask for a chance then. The "strip-away" game works because the incumbent CPA firm
is not meeting the expectations of the client. You will want to protect
your game by developing gripping relationships with your clients while
occasionally taking a swat at a loose ball or two. * The AICPA's Personal Financial Planning Division has released two new
publications: 1995 Personal Financial Planning Practice Handbook
and Guide to Registering as an Investment Adviser. The 500-page handbook, which will be revised annually, covers topics
such as the personal financial planning process, practice development,
engagement management, marketing and selling planning services, and professional
standards. The book also contains checklists and forms, a sample business
plan, and examples of correspondence. The handbook comes with a disk with most of the forms, checklists, and
letters contained in the handbook. The second publication from the Division, Guide to Registering as
an Investment Adviser, consists of five parts: Background; Registration
Under the Act: The Basics; CPA Financial Planners and Registration: The
Accountant's Exception; State Regulation and Registration; and Registering
as an Investment Adviser. The new publications are available from the AICPA by calling the order
department at (800) 862-4272. * Title Members Nonmembers 1995 Personal Financial $60 $66 Planning Handbook Guide to Registering as an $28 $32 Investment Adviser Support for workload-compression relief continues to grow on a bipartisan
basis. As we go to print there are 57 sponsors in the House of Representatives
for the Small Business Tax Flexibility Act of 1995, H.R. 1661. One highly encouraging development is the inclusion of the bill in the
House version of the budget bill. The remarks of Chairman Archer of the
Ways and Means Committee demonstrates the point. When asked to describe
the type of provision that would make it into a miscellaneous tax bill
if one is passed this year, Archer stated the bill would only include provisions
that improve the tax system such as fiscal-year reform. * Source: Title XIV of the House version of the Concurrent Resolution
on the Budget for Fiscal Year 1996 and general news accounts. IRC Sec. 274 requires expenses related to travel, entertainment, gifts,
or certain listed property (cars, computers, cellular phones, etc.) to
be substantiated by adequate records before they may be deducted. In 1962,
the IRS established a $25 threshold for substantiation. In other words,
substantiation was not necessary for expenses less than $25. Effective
October 1, 1995, the IRS has increased the threshold to $75. * Source: IRS Notice 95-50, 1995-42 I.R.B. __ (Oct 16, 1995). The IRS has been hit with substantial budget cuts for the current fiscal
year. The President originally requested $8.1 billion for the beleaguered
agency but only received $7.35 billion in the budget bill currently poised
for veto. IRS sought ways to cope with the budgetary setback. The first
victim was the Taxpayer Compliance Measurement Program, or TCMP. The IRS
had planned 153,000 intensive TCMP audits over the course of the next year
or so, a plan that met with considerable Congressional criticism. In the meantime, IRS officials are being quoted emphasizing they will
accelerate and increase their reliance upon financial status auditing.
This auditing approach, with its up-front emphasis on finding unreported
income, caused considerable controversy with CPAs earlier this year at
the Spring AICPA Tax Division meeting. CPAs are concerned that the pronounced
early emphasis on unreported income in financial status audits places them
in the position of recommending that clients seek out legal advice during
the examination. * By Deanna O. Burgess, PhD, CPA, Florida Gulf Coast University/South
Florida at Fort Myers The AICPA Special Committee on Assurance Services under the leadership
of Robert Elliott is in the throes of developing recommendations for its
final report to be issued in 1996. A CPA Journal symposium on the
work of the committee is scheduled for January 5, 1996. (See the first
article in News & Views for details.) Florida Gulf Coast University
and the Chamber of Southwest Florida are sponsoring a two-day program,
Perspectives on Assurance Services Symposium, in Naples, Florida for April
18 and 19, 1996. By that time, the committee will have begun to answer
some of the perplexing questions facing the profession and formulate approaches
that will take the audit and other assurance services into the next century.
Just how different will the profession become? Accountants may provide
assurance services ranging from customized financial statements to assistance
with distinguishing among physicians for treatment. Will users approach
CPAs for services unrelated to financial statements or income taxes? Chester
Sadowski, vice presidentcontroller of U.S. Home Corporation, predicts
"CPAs will face a real marketing struggle; users will need convincing
that CPAs should be selected over competing non-CPAs." And what about
the appearance of objectivity and independence? Lee Berton questions whether
assurance services will overwhelm the audit. He quips, "Let's not
set up vendor stands next to the audit." The Naples Florida program will include the following presenters: James
G. Hooton, managing partner, audit & business advisory servicesArthur
Andersen Worldwide; Harold L. Monk, Jr.Davis Monk & Company; Lee
BertonThe Wall Street Journal; Lee J. Seidlermanaging
director emeritus, Bear Stearns & Co.; Melvyn I. Weiss, attorneyMilberg
Weiss Bershad Hynes Lerach; Robert SackDarden Graduate School at the
University of Virginia; Gary HolstrumUniversity of South Florida;
and Chester P. SadowskiU.S. Home Corporation. For more information
contact, The Chamber of SW Florida, 1520 Royal Palm Square, #210, Fort
Myers FL 33919. [(941) 278-4001] * A recent news account reported that the SEC had received over 1,500
comment letters on its proposal to permit abbreviated financial statements
in annual reports of qualifying public companies. Most of the comments
were negative and, as a result, the SEC Chairman Arthur Levitt indicated
the project has been put on hold. In announcing the decision not to proceed
with the proposal, he stated that the SEC would continue to explore other
approaches to easing the financial disclosure overload that face typical
investors. Chief Accountant Michael Sutton reported at a recent meeting
of the Financial Accounting Standards Advisory Council that the proposal
was strongly opposed by investors. Dennis Beresford, chair of the FASB,
indicated that the Board's concerns with the proposal were set forth in
a letter to the SEC. According to Beresford, the Board felt the presentation
of a complete and full set of financial statements without all the note
disclosures would lead to confusion as to what the partial presentation
was and how it should be used. Ray J. Groves, former chair of Ernst & Young LLP, takes a different
point of view. Groves, during his leadership years at Ernst & Young
and the AICPA, was an activist for reducing standards overload and simplifying
and streamlining generally accepted accounting principles. In his letter
to the SEC dated October 9, 1995, Groves commended the staff of the SEC
for taking a leadership position in improving investor communication. Among
other things Groves said: "The cost of printing this new financial information is not the
principal issue. Rather, it is communicating the essential information
to investors in a format that they will 1) find, 2) take the time to read,
and 3) understand. That is not the case today. Thus those who use cost
to either favor or reject the commission's proposal for AFS are not focusing
on the principal issue of improving investor communications." A comment letter from a state CPA society SEC committee objected to
the proposal on the general grounds that it was a quick fix. What is needed,
in its view, is a review and reengineering of all the material now part
of filings with the SEC to reduce duplication and make the presentation
more logical. * By David Langer, David Langer & Co. Based on the cost of living adjustment of 2.6%, down from 2.8% from
last year, the changes in Social Security values and qualified pension
plan limits are shown below for 1996 with a comparison to 1995. *Social
Security Values: The Financial Accounting Standards Board has had a busy fall period.
In October it released the final, long-awaited statement, Accounting
for Stock-Based Compensation, carrying the SFAS No. 123 identification.
Although the FASB retreated from what it thought is the right answer‹recognition
of the fair value of stock options granted as an expense‹the requirement
to determine what that fair value is remains as part of the standard. It
will be a simple matter for analysts and others to make the adjustment.
Rather unusually, the final statement retraces the events that led to the
ultimate reversal in the Board's position with the conclusion that the
desired result "was not attainable because the deliberate, logical
consideration of issues...was no longer present." The statement contains
a dissent by Board members Neel Foster and James Leisenring, who expressed
their feelings that the Board should not have retreated in its expense
recognition position. Also in October, the Board approved the issuance of two exposure drafts
of proposed standards: * Consolidated Financial Statements. The Board is proposing
standards to replace ARB No. 51 and SFAS No. 94, which would basically
require that an entity, both business or nonprofit organization, consolidate
all subsidiaries it controls unless control is temporary. The idea of control
goes to the ability of the parent organization to use or direct the use
of the assets of the controlled entity as if they were its own. Comment
period deadline is January 15, 1996. * Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. The proposed statement deals with
the accounting for a number of transactions, principally affecting financial
institutions, involving the transfer of assets. In initially considering
the issues, the question to be decided is whether a sale should be recognized.
Under the model used as a basis for the proposed accounting, the issue
is whether an asset and liability should be recognized or derecognized.
At the time of derecognition, gain or loss would be recognized. The comment
period for the proposal ends on January 22, 1996. * 1996 1995 % Change Taxable Wage Bases OASDI 62,700 61,200 2.5% Medicare No Limit No Limit None Tax Rates OASDI 6.2% 6.2% None Medicare 1.45% 1.45% None Total 7.65 7.65 None Maximum Tax (employer/employee each)* OASDI 3,887 3,794 2.5% Medicare No Limit No Limit None Total No Limit No Limit None Earnings Without Benefit Loss Beneficiaries under 65** 8,280 8,160 1.5% Beneficiaries 65-69*** 11,520 11,280 2.1% Benefits upon Retirement During Year at Age 65 Primary Insurance Amount 14,976 14,388 4.1% Maximum Family Benefits 26,209 25,180 4.1% * Self-employed rate is two times the rate shown; approximately half
is deductible ** $1 withheld for every $2 in earnings above the limit *** $1 withheld for every $3 in earnings above the limit Qualified Plan Limits: 1996 The values below have been rounded down, where applicable, as required
by the Retirement Protection Act, (DBP=defined benefit plan, DCP=defined
contribution plan). Maximum DBP benefit $120,000, no change Maximum DCP contribution $30,000, no change Maximum DBP and DCP compensation $150,000, no change Maximum IRC Sec. 401(k) salary deduction $9,500, up from $9,240 Highly compensated Employee (DBP & DCP) $100,000 (the "$75,000"
limit), no change Excess benefit excise tax threshold $155,000, up from $150,000 "Non-CPA Firms' Ascendancy to the Accounting Today Ratings
Causes Stir" in the June 1995 issue of The CPA Journal deals
with the same issues I discussed in my letter to Accounting Today.
While my letter specifically addressed the fallacious issue of equating
nonlicensed tax preparers to CPAs, it also addressed how a local CPA firm
should deal with the encroachment by those who do not have to abide by
an enforceable code of professional ethics, do not have stringent education
requirements, do not have to pass a rigorous two day examination, and are
not monitored by state and professional organizations. There are great differences between the consumer-oriented tax preparer
of the ilk of H&R Block and a CPA. CPAs are subject to enforceable
ethical standards by their state education departments, the AICPA, and
their state societies. CPAs are mandated by state societies and the AICPA
to have continuing professional education. None of these are required to
own an H&R Block franchise. I respect H&R Block and its contribution to tax preparation, but
do not view it in the same category as a full-service accounting firm.
* Stuart Kessler, CPA Goldstein Golub Kessler & Co., PC I read with interest the August 1995 feature article entitled "Tax
Consequences of Discharge of Indebtedness," written by Alan B. Campbell,
PhD, CPA, CMA. Mr. Campbell did an excellent job summarizing a highly technical
and complex area. However, I believe the article was unclear on the timing
of tax attribute reduction. The article addresses the reduction of tax attributes in two areas,
one dealing with "qualified real property business indebtedness"
and another listed under "other." In the "other" section,
the author's tax attribute discussion correctly states the pecking order
in which tax attributes are to be reduced. However, the article fails to
state that the reduction of tax attributes is to occur on the first day
of the taxable year of discharge--see IRC Sec. 108(b)(4)(A). This timing
difference can create a significant tax planning opportunity in a Title
11 bankruptcy case. Under certain circumstances, net operating loss carryforwards
can be utilized in the year of debt discharge. In an S corporation scenario,
an S corporation shareholder may be able to utilize current year or suspended
losses generated by the entity in the year of discharge with the related
debt relief going untaxed in the subsequent year. Mr. Campbell makes mention
of the timing issue, but only under the reduction of basis section of the
article. Clarification of the aforementioned may be warranted given the significant
planning opportunities available. * Charles A. Barragato, CPA Long Island University DECEMBER 1995 / THE CPA JOURNAL
The
CPA Journal is broadly recognized as an outstanding, technical-refereed
publication aimed at public practitioners, management, educators, and
other accounting professionals. It is edited by CPAs for CPAs. Our goal
is to provide CPAs and other accounting professionals with the information
and news to enable them to be successful accountants, managers, and
executives in today's practice environments.
©2009 The New York State Society of CPAs. Legal Notices |
||||
Visit the new cpajournal.com.