CPA Journal, The

Businesses Respond to Cybercrime and Security Trends

A recent survey report by the Computer Research Institute analyzed important computer security trends. Key findings include the following: 1. Web site defacement and similar incidents have increased dramatically, but are still insignificant compared to virus attacks and unauthorized use of systems. 2. State governments currently have the largest information-security investment per employee of all industry/government segments. 3. Despite many articles on the emerging role of cybersecurity insu...

Letter From the Publisher

Letter From the Editors

Personal Viewpoint

The Past and Future of Reasonable Assurance

The accounting profession has long contended that an audit conducted in accordance with generally accepted auditing standards provides "reasonable assurance" that the subject financial statements are free of material misstatements. Just as troubling is the lack of a definition of what constitutes "a high level of assurance." Some might characterize it as being somewhat greater than the "more likely than not" threshold required for tax opinions. Those members of the profession that oppose the ...

Publisher's Column

Interstate Compact: Regulating the Profession As Practiced

The concept of an interstate compact can set consistent multistate or US's accounting standards. An interstate compact is a contract between states that allows them to solve multistate, regional, and national problems through voluntary agreement. Compacts carry the force of law, and compacting states are bound to observe the terms even if they are inconsistent with other state laws. The compact concept can address problems in areas such as practicing across state lines, substantial equivalenc...

In Focus

The European Union's Role in International Standards Setting

The move toward accounting harmonization centers around the standards being developed by the International Accounting Standards Board (IASB). Presently, 65 countries require their listed companies to use the IASB's International Financial Reporting Standards (IFRS). The harmonization movement received a significant boost in 2002 when the European Union (EU) adopted a regulation requiring public companies to convert to IFRSs beginning in 2005. The EU's participation in the IASB's standards-set...

Taxation: Federal Taxation

Navigating the Depreciation Decoupling Maze

Ever since the accelerated cost recovery system was introduced in 1982, and the modified accelerated cost recovery system was introduced four years later, states have decoupled and recoupled their tax codes with the IRC. New York State accepts all 30%-bonus depreciation for all assets placed in service prior to Jun 1, 2003, and all 50%-bonus depreciation for all assets placed in service on or after May 6, 2003, but before Jun 1, 2003. New York City decoupled from both the 30% bonus deprecatio...

Recent Reform and Simplifications for S Corporations

Subchapter S of the IRC became a tax fact in the lives of small business owners and tax professionals when Congress enacted the Technical Amendments Act of 1958. In 1982, Congress decided to change the tax regime of S corporations and to treat them as pass-through entities, although under rules different from partnership taxation rules. By reducing the tax rate on qualified dividends to 15%, the Jobs and Growth Tax Relief Reconciliation Act of 2003 lessened (but did not eliminate) double tax ...

Finance: Corporate Finance

Issues in the Deductibility of Trade Promotion Expenditures

This article discusses the outlook for deducting expenditures for coop advertising, slotting and stock-lifting fees, and channel of distribution development. Coop advertising agreements are usually included on the reseller's order form when goods are purchased from the manufacturer. The question is whether the filing of the claim form or the performance of the advertising services is the act that fixes the fact of the liability under the all-events test [IRC section 461(h) and Treasury Regula...

Technology: What To Bookmark

Website of the Month: Practitioners Publishing Company

Practitioners Publishing Co (PPC), part of the Thomson family of companies, provides a variety of accounting practitioner materials. While its Website, ppc.thomson.com, is geared toward marketing the company's products and communicating with customers, many excellent free resources are of interest to professionals and students. PPC's Website is organized around its product lines and quick links to related companies. The PPC homepage features free resources, providing text boxes highlighting o...

Book Review

Wheel, Deal, and Steal: Deceptive Accounting, Deceitful Ceos, and Ineffective Reforms

Wheel, Deal, and Steal: Deceptive Accounting, Deceitful CEOs, and Ineffective Reforms, by D. Quinn Mills, is reviewed.

Accounting & Auditing

Earnings Quality: It's Time to Measure and Report

Earning's quality is an important aspect of evaluating an entity's financial health, yet investors, creditors, and other financial statement users often overlook it. Earnings quality refers to the ability of reported earnings to reflect the company's true earnings, as well as the usefulness of reported earnings to predict future earnings. The SEC and the investing public are demanding greater assurance about the quality of earnings. There is significant need for the development of a uniform d...

Reporting Employee Stock Option Expenses: Is the Debate Over?

In 1993, FASB issued an exposure draft that would have required companies to report the value of stock option grants issued to employees as compensation expense in the year the grant was made. This exposure draft met with immense opposition. Objections included the substantial hit to net income, the current availability of the information, the inability to reliably value employee stock options, the claim that at the money options have no value, and the uncertainty as to whether options would ...

Finance: Personal Financial Planning

Tax Planning for Military Personnel

While military personnel generally face the same tax filing and payment obligations as other US citizens, Congress has enacted several specific provisions including income exclusions, filing and payment extensions, and tax liability forgiveness. The first step in analyzing the special tax treatment afforded to military personnel is understanding military compensation, which can be broadly separated into two categories: pay and allowances. While military pay is included in an individual's gros...

New Tax Law Changes the Rules for Donations of Automobiles

Due to the increasing number of programs that allow for the donation of used automobiles to charitable organizations, the IRS has become concerned about the misuse of this method of charitable giving. To address this concern, the IRS issued Publications 4302 and 4303, for the charity-donee and taxpayer-donor respectively. IRC section 170(a)(1) allows for taxpayers to deduct contributions to IRS-recognized charitable organizations. Treasury Regulations section 1.170A-1(c)(1) states that if a c...

Technology Trends

Optimizing the Use of E-Mail

Consultant and author Janis Fisher Chan recognizes that business relationships based largely or entirely on e-mail are increasingly common. Used inappropriately or inefficiently, e-mail can create serious problems for individuals and organizations such as: 1. loss of credibility, due to messages with poor grammar, punctuation, and spelling, 2. loss of confidentiality, and 3. misunderstandings that occur because the body language, facial expressions, and tone of voice help people interpret a m...

Responsibilities & Leadership: Education

Bridging the Gap Between Professors and Practitioners: 'Quasi-'Case Studies

Young students in intermediate accounting courses can begin to develop an accounting experiential background with quasi-cases, which have definite solutions. A classic case, as defined by Clarke and Gardner, requires students to make decisions that should result in diverse conclusions standardized only by their professional presentation. Quasi case studies can include reviewing basic lessons on the accounting cycle and showing how other more-advanced lessons (like multinational issues) fit wi...

Personal Financial Planning

Measuring Volatility and the Cost of Retirement

Few investors know whether they will be able to retire with any level of comfort, and studies indicate that most Americans choose to ignore the subject. The amount of investment capital required to replace preretirement income is more than most people think. The highest risk factor a retiree faces, and the only decision directly under his control, is the withdrawal rate. A tool called the Monte Carlo simulation is enough to start focusing on solutions. A Monte Carlo simulation uses random dra...

Using Special Needs Trusts

As more developmentally disabled individuals have been deinstitutionalized and become active residents in their communities, estate planning for parents of these individuals has received greater focus. A special needs trust (SNT) may be an effective planning tool for the devolution of parents' assets when they have one or more beneficiaries deemed to have a permanent disability. The SNT is unlike other commonly used trusts. SNT is established to provide a secondary source of funds to pay for ...

Maximum Tax Relief From Soaring Gas Prices

Businesses can mitigate the impact of soaring gas prices in the aftermath of hurricanes Katrina and Rita by taking the maximum allowable car deductions on 2005 tax returns. According to the IRC, a taxpayer who used his car for business or employment purposes can deduct car expenses. Taxpayers should keep an accurate written log of travel activities, costs, and expenses, and purchase gas and pay for repairs with a check or credit card that provides a document trail to describe and substantiate...

Emerging Trends

Rebalancing Internal Audit in the Sarbanes-Oxley Era

As companies have sought to meet new compliance standards under the Sarbanes-Oxley Act of 2002 (SOA), internal auditing has provided companies with vital business process analysis, control testing, risk management, and forensic accounting. Internal auditing has the potential to deliver even further value to organizations, but only if corporate management and boards readdress and rebalance the roles and responsibilities of internal auditors. Key recommendations outlined in the report include r...

Editorial: Guest Editorial

Junking the Tax Code Isn't the Solution

Early this year, the NYSSCPA convened a blue-ribbon panel of tax experts that developed a proposal for fundamental tax reform by creating a simple, exact and transparent tax system: the SET tax. The SET tax is a single-rate, progressive system. By eliminating fuzzy math that too often transforms individual tax provisions deploying logical tax policy into uncertain practical use and comprehensibility in an overly complex code, the SET tax transforms the code into a manageable, understandable, ...

Management: Practice Management

Growth and Succession in Small to Midsize Accounting Practices

Accounting firm partners between the ages of 50 and 65 are faced with passing the torch to professionals with less experience. This problem is particularly acute in small and medium-size firms. The first alternative to solve the shortage of staff is internal: promote from within. If that fails to meet the needs, the firm must hire outside talent to ensure its survival, growth, and ability to pay out retiring partners. If neither method is satisfactory, then it is necessary to use external sol...

Audit & Nonaudit Fees

The Nature and Disclosure of Fees Paid to Auditors

The issues surrounding auditor independence and investor confidence in the financial statements of public companies have been widely debated. Much of the discussion has been fueled by the dramatic changes in the accounting profession since the 1990s. In the wake of accounting firms' transformation, regulators became increasingly concerned about the interplay between auditor independence and the provision of nonaudit services to audit clients. The analysis of this paper focuses on the market f...

Internal Controls

A Conversation with Coso Chairman Larry Rittenberg

In an interview, Larry Rittenberg, chairman of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), discussed his work, the organization's contributions to corporate governance, and its future projects. When asked how are COSO's activities financed, he said that in many ways, COSO has been a "virtual" organization. Its initial activities were financed by contributions from the five sponsoring organizations. His selection to chair COSO reflects an accumulation of work a...

Professional Oversight

Auditors' Reactions to Sarbanes-Oxley and the Pcaob

On Jul 30, 2002, Pres Bush signed into law the Sarbanes-Oxley Act of 2002 (SOA) to improve corporate governance and oversight of the accounting profession. When auditors had worked under SOA for two years, the authors surveyed 1,200 CPAs, which included seniors, managers, and partnerships from large, medium, and small firms, and received 336 responses. Perhaps the most controversial aspects of SOA are the change from industry self-promulgation and self-enforcement of standards relating to aud...

Standards Setting

Should Sarbanes-Oxley Reforms Extend to Nonpublic Companies?

The Sarbanes-Oxley Act of 2002 (SOA) applies only to CPA firms that audit companies registered with the SEC. The legislation was written with public companies in mind; Congress was not expressing an opinion about what reforms, if any, might be needed for privately held companies. Some arguments against applying SOA rules to nonpublic companies apply only to the smallest of companies. Other arguments may be true in some cases but lack broad applicability. SOA also addresses some threats to aud...

Auditing Marketplace

An Inside Look at Auditor Changes

Auditor changes have been an object of scrutiny recently as the profession and regulators seek to understand the reasons behind such changes and what they might portend about a company's health. A study of auditor changes over the last two years yielded interesting results that should be of both interest and concern to investors and regulators. Over 2,500 companies have changed auditors in just the last two years (2003 and 2004). The reported reasons for changes in auditors sometimes provide ...

Perspective On Certification

The Sarbanes-Oxley Certification Requirement: Analyzing the Comments

The provision of the Sarbanes-Oxley Act (SOA) that chief executive officers and chief financial officers make certain certifications regarding financial and other information in their companies' annual and quarterly reports has changed the management of both public companies and their auditors. On Aug 30, 2002, the SEC issued the Final Rule implementing the provisions of SOA section 302, adding Rule 13a-14 and Rule 15d-14. The SEC invited comments to these new requirements. The authors examin...