|
 
|
||||
|
|||||
          Search Software Personal Help
|
The GAO recently issued its report on its examination of the IRS's fiscal
year 1994 financial statements. The report includes comments on the financial
statements, material weaknesses in internal control, and tax return processing.
The GAO has been trying since 1992 and is still unable to render an
opinion on the IRS's financial statements. It combines its reasons into
two categories--revenue and administrative expense. The GAO was unable
to either verify or reconcile revenue to detailed records, could not substantiate
the type of revenue recorded, and could not verify the IRS's estimate (yes,
estimate!) of its accounts receivable. The main problems on the administrative
expense side were the inability to reconcile to Treasury accounts and the
lack of documentation of nonpayroll expenses. The report lists a number of matters the GAO considers material weaknesses.
They include matters related to the contingent liability of the IRS for
claims for refunds, the processing of refunds (where the GAO sees the possibility
of taxpayers receiving multiple refunds), and problems with taxpayers'
claims for the earned income credit. In the report, the IRS acknowledges 11 material weaknesses, two of which
go back prior to the 1992 report. The GAO disagrees that there are only
11 but doesn't specify how many there are. Apparently they are too numerous
to count. In the area of processing of returns, the report lists two main problems.
The first relates to the policy of the IRS to adjust taxpayer accounts
after the statute of limitation has expired. The second is the observation
that the IRS spends too much time resolving issues that never should have
occurred. (Most of our readers are probably saying to themselves, "Tell
me about it!") This problem is caused by the fact the IRS does not
make needed changes to the master file, which in turn generates erroneous
notices to taxpayers or delays refunds, as well as causing delays in responding
to correspondence or processing amended returns. The report does indicate that the IRS did make some improvement during
the year. However, the impression cannot be avoided that if the IRS were
in the private sector, it would probably be out of business by now. * The Public Oversight Board of the AICPA's SEC Practice Section recently
issued a short, brochure-like report, "Allies in Protecting Shareholder
Interests," which seeks to rally directors, management, and auditors
to work to implement the spirit of the recommendations contained in an
earlier report sponsored by the POB, Strengthening the Professionalism
of the Independent Auditor. The main thrust of the earlier report was
to put forward the notion for the public company that the independent auditor's
client is the board of directors and not management and that the auditor
should deliver forthright, candid, oral reports on the quality of a company's
financial reporting, not just the acceptability. The current report explains in greater detail how such a relationship
can be achieved. The report has separate sections for each member of the
financial reporting team. * Responsibilities of Management. To bring to the attention
of both the independent auditor and audit committee the accounting implications
of significant new transactions and policies while they are being contemplated.
* Responsibilities of the Independent Auditor. "The
auditor should express his or her views about the appropriateness, not
just the acceptability, of the accounting principles and financial disclosure
practices used or proposed to be adopted by the company and about the degree
of aggressiveness or conservatism of its accounting principles and underlying
estimates and the relevance and reliability of the resulting information
for investment, credit, and similar decisions." * Responsibilities of Boards of Directors and Audit Committees.
They have a responsibility to be "aware of the implications of alternative
accounting principles for reporting significant transactions and events
as well as the aggressiveness or conservatism of significant estimates."
The report is proposing that such awareness, when coupled with their fiduciary
relationship to shareholders and others for reliable financial reports,
should lead to improved financial reporting. The report closes with specific steps an audit committee should follow
in accomplishing the objectives of the report. One of the criticisms of the earlier report was that its recommendations
lacked specificity and direction. It can only be assumed that this latest
report is designed to bring more "how-to" guidance to the process.
* By Robert Schwabach, Osborne McGraw-Hill, 496 pages, three
disks, $39.95 Review by Harold C. Gellis, CPA, York College With the advent of enhanced computer technology and software, individual
investors finally have the world at their command. The Business Week
Guide to Global Investments Using Electronic Tools, by Robert Schwabach,
teaches investors about the challenges of international investing. The book shows how computer technology and software can be used to invest
internationally, as well as profitably manage an international investment
portfolio. It teaches the reader how to analyze available opportunities
and diversify funds so they can reap the benefits and avoid the pitfalls
of the international market. The Business Week Guide to Global Investments Using Electronic Tools
consists of four sections. The first section deals with the hardware equipment
needed to go online. It also describes many of the major information sources
and the software and data services that can be used to analyze both domestic
and foreign issues. The second section examines closed-end funds, specifically their investment
objectives and historical earning records. Markets covered include Europe,
Asia, and South America. International bond funds are also examined. The third section takes a closer look at many of the major sources of
online information mentioned in the first section of the book. Included
are CompuServe, Prodigy, America Online, Dow Jones News, Genie, Delphi,
and small bulletin boards. Finally, the fourth section discusses programs for analyzing stocks,
bonds, commodities, and indexes. To help with this analysis, the publisher
has included three outstanding investment programs: Telescan, MetaStock,
and Windows on Wall Street. The Business Week Guide to Global Investments Using Electronic Tools
helps the reader evaluate the strengths and features of each of the major
online services. It shows how to use a particular service to scan online
more than 400 foreign stocks that are traded daily on major U.S. exchanges.
The book also demonstrates how to access, download, and evaluate international
financial data, and find the best performing sector and country funds quickly
and easily. * AICPA president Barry Melancon, CPA, in September 1995 announced a restructuring
of the staff of the AICPA to make it flatter and better coordinated. In
an announcement to state society executive directors, Melancon stated,
"no AICPA function will operate independently any longer." The
AICPA has been restructured into four operating groups: technical services
(which would include accounting, auditing, tax, personal financial planning,
and consulting); marketing, organization, & product development; operations
& information technology; and public affairs. Those four groups, along
with the chief financial officer, the general counsel/secretary, and internal
audit/quality control will report directly to Melancon. At the time the restructuring was announced, Melancon indicated Edward
W. Niemiec would assume the position of senior vice president, operations
& information technology; John E. Hunnicutt, senior vice president,
public affairs; Richard I. Miller, general counsel/secretary; and Gennero
Cicalese, director internal audit/quality control. Open positions at the time of the announcement were the senior vice
president, technical services; senior vice president, marketing, organization
& product development; and chief financial officer. As a result of the reorganization, a number of vice presidents were
given the exit date of October 6. Perhaps most notable among them is Thomas
Kelley, formerly group vice president, technical services. Others now seeking
employment elsewhere or perhaps a well deserved hammock on a hillside facing
the sun, are Rick Elam, Joseph Moraglia, and Joseph Cote. A number of other
vice presidents will remain, some of whom will be moved into new areas
of responsibility. The restructuring and reengineering of the AICPA took place under the
advice of consultants. According to AICPA chairman Robert Israeloff, the
restructuring was contemplated at the time the candidates for replacing
former president Phil Chenok were being considered. The objective is to
give new president Melancon an organization that can be more in tune with
its "clients" and their specific needs. It is very clear that
Melancon wants the AICPA to become more responsive to its members and become
more user friendly. With this sweep of his new broom, it will now be his
organization. It will be easier for him to move and direct according to
his vision. A strong emphasis can be seen in the restructuring on marketing, public
affairs, and product development. The technical aspects, now under one
senior vice president, seem to have assumed a lesser standing. Both Melancon
and Israeloff, however, state that the restructuring does not in anyway
de-emphasize the technical activities of the AICPA. Israeloff says that,
in the past, the various technical departments were not always together
in responding to issues or developments. In any event, the editors of The CPA Journal wish Barry Melancon
every success in making the AICPA more responsive to the needs of its clients.
We also express our appreciation to those who are leaving the AICPA for
their long years of devoted and productive service and wish them success
as they move into new careers or other phases of their lives. * In a letter to the editor appearing in The New York Times on
September 25, 1995, professor Lawrence A. Cunningham of Yeshiva University
puts the role of the independent auditor into perspective. He likens the
role of the auditor to that of the police force. Believing that auditors
should uncover all fraudulent practices, according to Cunningham, is "like
believing that a vigilant constabulary is all that is necessary to rid
society of crime or to assure that all crime is detected and punished."
In essence, Cunningham is saying the auditor is the deterrent to fraudulent
financial presentations and not the guarantor that all fraud will be exposed.
Well said, professor Cunningham. * On January 4, the House of Representatives passed a rule imposing on
itself the requirement for a 60% majority to pass an income tax rate increase.
In addition, the new rule forbids retroactive income tax rate increases.
Several members of Congress, a half dozen voters, and the League of Women
Voters took the rule to court, arguing that‹unless the Constitution provides
otherwise‹general principles of majoritarian democratic parliamentary procedures
require no more than a simple majority. The new rule passed its first test in the District Court for the District
of Columbia, which, repeating the judicial doctrines laid down by the Circuit
Court for the District of Columbia, dismissed the case. The Appellate Court,
over the past decade, has held that the constitutional principle of separation
of powers precludes the courts from interfering in the rules Congress uses
to conduct its legislative activities. For the second round, the parties Source: Skaggs v. Carle, __ F. Supp. __ (D.D.C. 1995) The Future of Assurance Services A discussion of the work to date, and future direction, of the AICPA
Special Committee on Assurance Services. Panelists scheduled to participate
are‹ January 5, 1995 New York City Robert Elliott, CPA, chair of committee David Costello, president, National Association of State
Boards of Accountancy Gary Holstrum, American Accounting Association Robert Mednick, CPA, chairman-elect, AICPA John J. Perrell III, CPA, Institute of Management Accountants
Ed Rockman, member, Auditing Standards Board Michael Sutton, CPA, Chief Accountant SEC Kathryn Wriston, member of various boards of directors
Moderated by Doyle Williams, University of Arkansas Phone Frank Pagani for information (212) 719-8374 NOVEMBER 1995 / THE CPA JOURNAL The U.S. District Court for the Western District of Pennsylvania was
recently faced with an interesting issue. Mr. and Mrs. Morris Weinbaum
had sold their two corporations, a foreign sales corporation (FSC) and
an S corporation, to a non-U.S. corporation. Later the buyer tried to amend
both corporations' returns. The FSC's amended return stated that its income
had been overreported and this resulted in the S corporation having underreported
income. This resulted in a refund of tax for the FSC, ultimately benefiting
the buyer and an increase in tax to the sellers via flowthrough from the
S corporation. The Weinbaum's notified both the buyer and the IRS that they did not
consent to the filing of the amended returns and the stage was set. The
government agreed that the Weinbaum's consent was necessary and refused
the refund. The buyer sued in district court to contest the refund denial.
The issue turned on who is the taxpayer, with the buyer arguing that
the S corporation had the requirement to file the return and was therefore
the taxpayer. The government countered that it was the Weinbaum's who had
to pay the tax so they were the taxpayers. The court held, "In the absence of any authority to the contrary,
the court feels a common sense approach to resolving this matter is appropriate.
As any redetermination of [the S corporation's] tax liability directly
affects the tax liability of Morris Weinbaum, the court finds that only
Morris Weinbaum has standing to amend the return [of the S corporation]
for the tax year 1989." Common sense for a change! Refreshing, isn't
it? * Source: Alon International, Inc. v. U.S., __ F. Supp. __ (W.D.
Pa. 1989). Edited by Marc L. Rosenberg and Paul R. Nadolny
John Wiley & Sons, 360 pages, $95 Review by Michael Goldstein For an accounting firm to grow and prosper in today's market, effective
management of its organization is one of the most important ingredients.
Messrs. Rosenberg and Nadolny, with the help of 14 other authors, have
written and edited a concise 24-chapter handbook covering management and
administration in many different practice areas. The first three chapters of the handbook are about professional administrators
of CPA firms. The author covers, in detail, the concept of firm administrators--what
are they, how they function, and how to recruit them. These are subjects
still very new to many CPA firms and worth reading in their own right.
The remainder of the handbook covers diverse subjects such as‹ * strategic planning, * managing multioffice firms, * various human-resource topics, * TQM, * telecommunications and computers, * financial considerations, * marketing, and * office relocation and remodeling, Generally, the material for each topic is very helpful and practical
(although some is better than others), including the many forms and checklists
throughout. Most topics are presented in a very useable fashion, testifying
to each of the authors' experience in the real world of that particular
discipline. While this single volume is very readable, it is not necessary to read
it cover to cover; it better serves as a reference on any of the topics.
The publisher has indicated that this handbook will be updated on a
periodic basis with supplements to reflect important changes and emerging
issues. * Alan Schmelkin, director of operations of the New York State Society
of Certified Public Accountants, reported that enhancements to Luca OnlineTM
continue to be made. The latest is the connection to SprintNet, which will
allow Luca users outside the 212 area code to use local Sprint access numbers
when dialing Luca and reduce their long-distance charges. Allegro Systems,
developer of Luca, continues to work on other enhancements, including a
search engine and full downloading capability. In the meantime, users of
Luca are taking advantage of its forum and messaging capability. The NYSSCPA's
committees are making extensive use for communication among the members
and for responding to technical questions. Latest Update on Current Affairs, the news section on Luca under
the direction of editor Anthony Mancuso, continues to provide the latest
developments in the many facets of the accounting profession--accounting,
auditing, tax, and regulation. Bringing CPA Journal readers who are not also members of the
NYSSCPA online has been delayed awaiting implementation of some of the
enhancements to the Luca system, principally the search engine. It is now
expected that Luca disks will be made available to those readers early
in 1996. Luca will be worth waiting for. Because it is a dedicated system,
not dependent upon or directly connected to the Internet, users will not
face the slow response time and waiting that is commonplace during peak
periods of usage on the Internet. * By Troy A. Waugh, CPA, Waugh & Co. Willie Sutton had the right idea. Asked why he robbed banks, the infamous
bandit replied, "Because that's where the money is." Willie sure
had prospecting down cold. Prospecting for leads isn't quite as easy as
finding money in a bank. But Sutton's wry logic still applies: If you're
seeking to fill your sales hopper full of good prospects, it makes sense
to exhibit at an industry trade show. Certainly, the planning and implementing of a trade-show effort can
be expensive and time consuming. Here are a few pointers to help you make
your trade-show a winner. Focus on the Result Do you want to end up with new clients as a result of your trade-show
activity? Realistically, the trade-show encounter is only the first step
in about nine marketing interactions that you should plan for the new prospect.
When you understand this critical point, you will feel better about the
immediate results of your trade show if you return home with an ample supply
of leads. Before choosing to exhibit, you should evaluate the trade show's potential
for generating good leads. Ask the show promoter for a list of last year's
exhibitors and call two or three of them to find out the "rest of
the story." Rarely, will your attendance at the show result in immediate business.
According to Kathryn Clark, writing in Personal Selling Power magazine,
"two-thirds of all sales from trade shows aren't achieved until 11
to 24 months after a show." So set a realistic expectation for lead
generation. If you accomplish your target number, count the show a success.
Predetermine and Qualify Your Leads Before you attend the show, decide what type of lead you will seek.
Then set your show's marketing strategy to focus on these leads. For example,
when you attend a trade show for your primary industry niche, the attendees
at the show may be your predetermined targets. Other times, at a general
business exhibit, the exhibitors themselves may be your targets. Every time you meet someone at the trade show, attempt to qualify them
as a potential prospect for your firm. Ask them planned questions that
will enable you to follow up appropriately after the show. Find out who
they are using now for their accounting work. Ask them pertinent questions
about the relationship such as: Has your accountant helped you to be more
profitable? Has your accountant helped you deal with new technology? Has
your accountant helped you streamline your operations? * I have been reading with interest the articles in two recent issues
of The CPA Journal about the "flat tax," or at least the
version offered by Representative Richard Armey of Texas. It is one of
the most idiotic proposals of which I have ever heard. I should be cheering for it as I would be a huge winner of his proposed
flat tax. I have arrived at that blissful stage in life where I am no longer
a wage earner but survive (and rather nicely) on interest, dividend, and
rental income. I pay substantial taxes on that income, all of which would
be exempt from taxes under this proposal. As I say, I probably should be cheering. But let us be honest with ourselves.
Why in the world should I pay zero taxes on substantial annual income while
some hardworking person earning $20,000 per year in wages would pay $1,190
(17% of 20,000 less $13,000 personal allowance)? That would be an outrage
against human decency and violate the basic fibers of our Judeo-Christian
moral system. I should also be cheering because the elimination of all deductions
would eliminate the unfairness of my (as a renter of my living quarters)
not receiving any deduction for housing while owners of residences receive
substantial tax deductions for real estate taxes and mortgage interest.
Of course, that alone will kill the proposal since the home-building/real
estate lobby (one of the biggest funders of political campaigns) will never
let that happen. Your readers should also understand that this proposal would also greatly
increase their local real estate taxes in future years. By making all investment
income nontaxable, the advantage of tax-exempt municipal bonds would disappear.
The interest that municipalities pay on their bonds would have to increase
to attract the investors that are needed to finance schools, parks, fire
stations, transit systems, etc. This added interest expense would be added
to the local property tax bills. The proposal would also have a devastating impact on charitable organizations
if the tax deduction for charitable gifts was eliminated. Be honest! Does
anyone really believe that charitable giving will continue at its current
level when there is no longer a tax advantage for it. Of course not. Churches,
private schools and colleges, social welfare organizations, etc., will
all suffer revenue losses at the very time when the same Congressional
leadership is slashing Federal programs and claiming that private charities
will pick up the slack. This is indeed a dreadful concept brought to us by people with simplistic
solutions to complex situations that will cause more problems than they
solve and which benefit only a small slice of people--namely people like
me. Well, no thank you, Mr. Armey. I've got too much self respect to fall
for your simple-minded flat tax. * Paul E. Haney, CPA Health Care Financial Consultant NOVEMBER 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.