CPA Journal, The

An assessment of the path of accounting standards setting over the previous 75 years should enhance CPAs' ability to deal responsibly with the challenges of the next decades. This commentary on the evolution of U.S. GAAP is presented in 2 parts, with the first covering the years from 1930 to 1973. The focus is deliberately on incidents that represented important changes in practice or in the way in which accounting principles and standards were set. In 1934, Congress completed approval of 2 m...

Inbox: Letter to the Editor

Personal Viewpoint

Swimming Against the Tide: The Hidden Costs of Offshoring

Advances in technology have meant that many of the services once performed as personal professional services, including tax preparation, can now be electronically exported via the Internet to lower-cost workers in emerging-market countries. As someone who has engaged in tax-preparation services, the author knows that there is simply no substitute for face-to-face contact with the client. Important, tax-saving information can be transmitted between the client and tax preparer during a live int...

Food for Thought

The accounting profession faces a number of issues that it needs to contemplate, discuss, and analyze. Answers to serious issues are often elusive, but the consideration of solutions always works for the collective benefit. For example, when a public company has its financial statements restated, perhaps an independent third party should assign both the auditors and the audit committee's financial expert.

Publisher's Column

Transparency As a Means to Serving the Public

AICPA Chairman Robert L. Bunting discussed current AICPA initiatives to reform the peer review and quality assurance systems for all CPA firms, not just those registered with the Public Company Accounting Oversight Board (PCAOB). The NYSSCPA supports these plans because they foster greater transparency in the accounting profession. Transparency is critical because it gives the public greater confidence in the integrity of audits and the accountability of auditors. As part of his mission, Chai...

Accounting & Auditing: Accounting

Compensation Plans and the New Stock Option Accounting Rules

Its exposure draft to require the expensing of stock option grants is one of the most controversial standards ever proposed by FASB. Supporters of the standard argue that stock option grants are indeed a form of compensation and should be recognized as an expense on the body of the income statement. Opponents of the proposed standard argue that its implementation will hurt the competitiveness of American industry, especially of technology companies that rely on stock options to attract and re...

Taxation: Federal Taxation

Per Diem Nonmeal Expenses Subject to 50% Limitation

In Boyd [122 TC No. 18 (2004)], the Tax Court ruled that the IRC section 274(n) 50% limitation on deducting food and beverages applies to nonmeal expenses when the per diem method is used, even though the taxpayer proved the average amount spent on the nonmeal expenses. This ruling affects most employers who use the per diem method to avoid the strict standards for proving actual expenses under IRC section 274(d). The Tax Court ruling is discussed.

New Ruling On Treatment of Environmental Cleanup Costs

In a surprising decision, Revenue Ruling 2004-18 has "clarified" Revenue Ruling 94-38 and Revenue Ruling 98-25 by specifying that previously deductible environmental cleanup costs must be capitalized as indirect costs of inventory in accordance with IRC section 263A. This new classification of cleanup costs will have negative consequences for taxpayers, and the decision requires greater scrutiny. The crux of the issue is whether environmental cleanup costs are properly allocable to inventory....

The Working Families Tax Relief Act of 2004

On October 4, 2004, President Bush signed the Working Families Tax Relief Act of 2004, which extends various personal income tax reductions for middle-class taxpayers that had been scheduled to expire. The act also extends several business-related provisions that had been scheduled to expire at the end of 2004 and 2005. Included in the tax law is legislation that affects child tax credit, standard deduction and tax brackets, alternative minimum tax, teacher expenses, uniform definition of a q...

Technology: What To Bookmark

Website of the Month: Accountantsworld Tax Center

Since AccountantsWorld (www. accountantsworld.com) was reviewed in March 2001, it has been expanded and reorganized. The taxation section now offers so many tax materials that it merits its own review. The tax center can be accessed from the homepage from the top menu bar. Accountants World's tax center is easy to navigate, and the standardized indexes appear on all of the main pages. Accountants World's tax center also offers numerous resources and links for tax compliance and tax research t...

Editorial: A Message From The Editor-In-Chief

Advocacy and Independence

On the one hand, CPAs have for a long time demonstrated their value as tax preparers and advisors, and, on the other hand, the advocacy relationship at the heart of tax services runs counter to the independence expectations for auditors. Before the securities acts, the proprietary theory of accounting guided financial accounting. In this new environment, the meaning of independence also changed because accountants no longer could point to a proprietary interest for which they were the agent. ...

Book Review

Corporate Fraud Handbook: Prevention and Detection

Corporate Fraud Handbook: Prevention and Detection, by Joseph T. Wells, is reviewed.

Accounting & Auditing: Auditing

Foundations in Auditing and Digital Evidence

The foundations of auditing are competence, independence, and due professional care. All three affect the quality and the value of an audit. In today's environment, where audit evidence is increasingly digital in nature, the exercise of competence and due professional care have taken on a new and different character. Competence relates to an auditor's technical ability to discover a material misstatement in the financial statements and is a function of education, training, and experience. In...

Audit Firm Rotation and Audit Quality

The ultimate question about mandatory audit firm rotation is whether such a policy enhances audit quality, and if so, at what cost. Three related conditions affect issues of audit quality and audit firm rotation: 1. closeness to client management, 2. lack of attention to detail due to staleness and redundancy, and 3. eagerness to please the client. Even if one accepts the existence of a potential personal closeness to management as a problem, auditor rotation may not solve the problem. Audito...

Finance: Personal Financial Planning

Housing As a Portfolio Asset: A Life-Cycle Analysis

Some argue that a home is frequently someone's most important investment because it provides healthy returns via leverage, appreciation, tax deductibility of interest, and an absence of capital gains upon sale. Others, however, contend that homes are a consumption item and may not turn out to be a good investment. For the 34-year period ending in 2002, the authors computed the annual returns and return standard deviation for the Standard & Poor's 500 Index benchmark and found annual retur...

Finance: Business Valuation

Deferred Compensation and the Valuation of Professional Practices

Business appraisers adjust cash-basis financial statements to an accrual basis in order to evaluate economic income and economic assets. In evaluating an asset-based approach, they also adjust balance sheets to fair market value. Adjustments typically include the addition of accounts receivable and accounts payable. Professional practices often exhibit a large difference between accounts receivable and accounts payable, which generally leads to a fair market value balance sheet with a relativ...

Emerging Issues

Sarbanes-Oxley Creates a New Beginning for Accountants

The accounting profession has never experienced direct external oversight by a government-sponsored organization. The Public Company Accounting Oversight Board (PCAOB) finds itself with an unprecedented task in a profession under fire. Not only will the accounting firms have to work hard to bring their operations up to accepted standards, but they may also have to totally change their approach to auditing financial statements. The Sarbanes-Oxley Act directly addresses many of the problems tha...

Perspectives: Ethics Education

Teaching Cpas About Serving the Public Interest

Accounting students should be well grounded in ethics; however, society's attitude must also change. Perhaps a sound basic foundation in ethics, which teaches methods of measuring the consequences of decisions in ethical terms, can help. Unfortunately, the attitude toward teaching "ethics" in most curricula consists primarily of learning rules. Acting ethically then becomes merely not violating particular rules. An auditing course may go further, listing the AICPA rules of professional conduc...

Responsibilities & Leadership: Future Of The Profession

High School Students' Perceptions of Accounting

A significant decline in accounting graduates has forced CPA firms to work harder to increase the number of students going into accounting programs. Growing this target pool begins when they are high school students. The authors surveyed high school students to measure their impressions of, and interest in, accounting careers. Understanding students' perceptions of accounting is an important first step in the effort to attract the best to the accounting profession. Salary has been suggested a...

Technology: E-Filing

Federal Electronic Filing of Tax Returns and E-Services

It is estimated that by 2007 as many as 80% of all returns will be filed electronically. In pursuit of this goal, the IRS is marketing its electronic products and services to tax preparers and companies. The IRS website, www.irs.gov, contains a wealth of information on these programs. The first step to electronic filing is to register with the IRS by filing Form 8633, Application to Participate in the IRS E-file Program. Preparers can file Form 8633 online. Individuals, not companies, registe...

Management: Forensic Accounting

Litigation Support in Antitrust Situations

Accountants are uniquely qualified to provide advice and assistance in antitrust litigation. In antitrust disputes, accountants are called upon to identify and analyze relevant historical accounting case data. Forensic accountants are the ones best able to sort out the relevant accounting issues in the dispute and explain them to a judge and jury. In antitrust disputes, accountants may be called upon to determine whether there is liability under the antitrust laws. The primary issue that fore...