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AUDITING
A PCAOB progress report on Auditing Standard no. 2 found several key areas in which auditors could improve performance. Based on observations of inspections of
approximately 275 audits conducted in the second year of the standard’s implementation, the board said auditors could increase efficiency by fully integrating the audit of internal control with the financial statement audit; applying a top-down approach to testing controls; assessing the level of risk at the assertion level, rather than only at the account level; and increasing the use of the work of others. The inspectors found that efficiency had increased from the first year of AS2 implementation as auditors became more experienced with the standard and were out from under the initial time constraints. (In May, the PCAOB replaced AS2 with a new standard, AS5. See “Highlights,” page 10.) The progress report is available at www.pcaobus.org/Inspections/Other/2007/04-18_Release_2007-004.pdf.

The AICPA’s Private Companies Practice Section created an online toolkit devoted to Statement on Auditing Standards no. 112, Communication of Internal Control Related Matters Identified in an Audit. SAS 112 is effective for audits of periods ending on or after Dec. 15, 2006. The toolkit includes talking points, sample client letters and a newsletter template. It is available for PCPS member firms at www.pcps.org.

BANKING
The National Credit Union Administration issued a proposed rule that would standardize and clarify the procedures for members to inspect federal credit union books, records and minutes.

The rule would allow a group representing approximately 1% of the membership to petition to inspect and copy the nonconfidential portions of the credit union’s books, records and minutes. The rule would limit the material open for inspection to minutes and “accounting records.” The credit union may charge petitioners reasonable costs of searching for and duplicating the materials.

The request must be made for a proper purpose such as to protect members’ financial interests or to ascertain possible mismanagement. Members would not have a right to inspect nonpublic personal information; certain information about credit union employees or officials; or information that is prohibited from disclosure by other federal laws.

The proposed rule, Member Inspection of Credit Union Books, Records, and Minutes, is available at www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/P-701-3.pdf.

The National Credit Union Administration issued a proposal that would require federally insured credit unions to disclose material increases in senior management compensation in connection with a merger. The rule would require disclosure of the terms of the compensation agreement to members voting on whether to approve the merger. The rule defines a “material increase” in compensation as an increase of 15% or $10,000, whichever is greater.

The proposed rule, Disclosure of Merger Related Compensation Arrangements, is available at www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/P-708b.pdf.

COMPLIANCE
The Financial Accounting Foundation alerted the SEC and law enforcement about an apparent scam involving Sarbanes-Oxley compliance materials. The notice followed reports of parties falsely claiming to be members of the FASB staff promoting the sale of SOX compliance materials.

FINANCIAL REPORTING
The SEC said it anticipates issuing a Proposing Release later this summer that will request comments on proposed changes to its rules that would allow foreign private issuers that list on U.S. exchanges to report in International Financial Reporting Standards (IFRS) without preparing a reconciliation to U.S. GAAP. In addition, the proposed rule would give foreign private issuers a choice between IFRS and U.S. GAAP. Secondly, the SEC plans to publish a Concept Release on the possibility of treating U.S. and foreign private issuers similarly by also providing U.S. issuers the alternative to use IFRS. Comments on both would be due in the fall.

“The next steps that the Commission is announcing today will keep us on course with the Roadmap announced in 2005,” SEC Chairman Christopher Cox said in a press release. Pending public comments on the proposal, “we remain on track to eliminate reconciliation by 2009.”

In a staff position document, FASB modified FASB Interpretation no. 39, Offsetting of Amounts Related to Certain Contracts. FASB Staff Position FIN 39-1 amends paragraph 3 of FIN 39 by replacing the terms “conditional contracts” and “exchange contracts” with the term “derivative instruments” as defined in FASB Statement no. 133, Accounting for Derivative Instruments and Hedging Activities. The staff position also changed language in paragraph 10 of FIN 39 to allow a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement that have been offset in accordance with paragraph 10. The FSP is available at www.fasb.org/fasb_staff_positions/fsp_fin39-1.pdf.

FRAUD
The federal Identity Theft Task Force launched a new Web site at www.idtheft.gov that outlines the Task Force’s Strategic Plan for preventing identity theft, assisting victims of identity theft crimes and prosecuting identity thieves.

The Strategic Plan was developed with input from 17 federal agencies. The Task Force, which was created in May 2006, examined law enforcement’s tools for the prevention, investigation and prosecution of identity theft; surveyed educational efforts by government agencies and the private sector on how individuals and businesses can protect personal data; and determined how the government can better safeguard private data held by it and private businesses. The Web site also lists the actions being taken by several federal agencies to combat identity theft.

GOVERNMENT ACCOUNTING
FASAB has issued Interpretation 7, Items Held for Remanufacture. The interpretation provides guidance for the classification, valuation and reporting of items that are held for remanufacture (including items in the process of inspection, disassembly, evaluation, cleaning, rebuilding, etc.) prior to sale or internal use. It applies the Statement of Federal Financial Accounting Standards 3, Accounting for Inventory and Related Property, and other existing standards. The interpretation is available at www.fasab.gov/codifica.html.

INTERNATIONAL
The SEC, the United Kingdom Financial Services Authority (FSA) and the United Kingdom Financial Reporting Council (FRC) signed a protocol for implementing the work plan between the SEC and the Committee of European Securities Regulators to share information on application of International Financial Reporting Standards (IFRS) by issuers listed in the United Kingdom and the United States. A copy of the protocol is available at www.sec.gov/news/press/2007/2007-73.htm.

The SEC and the German Federal Financial Supervisory Authority (BaFin) signed a comprehensive arrangement to facilitate their supervision of internationally active firms and their oversight of markets. At a meeting in Berlin, SEC Chairman Christopher Cox and BaFin President Jochen Sanio executed a memorandum of understanding (MOU) that provides clear mechanisms for consultation, cooperation and exchanges of information between their agencies. The MOU sets forth the terms and conditions for the sharing of information about regulated entities and financial groups that operate in the United States and Germany and, in view of the growing trend toward cross-border exchange affiliations, outlines a framework for cooperation in the oversight of markets in both countries. To view the MOU, visit www.sec.gov/about/offices/oia/.

The International Accounting Standards Board (IASB) published a preliminary views document on accounting for insurance contracts. Comments, which are due by Nov. 16, will aid the IASB in developing firm proposals for an exposure draft to be published in late 2008. The IASB expects the new standard to take effect in 2010. To view the document, visit www.iasb.org.

MONEY LAUNDERING
The Financial Crimes Enforcement Network (FinCEN) delayed the effective date of revised Suspicious Activity Report (SAR) forms to give the agency time to improve data quality management. The new forms, which were scheduled to go into effect on June 30, apply to depository institutions, casino and card clubs, insurance companies and securities and futures industries.

FinCEN and the IRS recently initiated a joint information-technology modernization strategy that includes a new Bank Secrecy Act (BSA) data quality management program to ensure data is accurate, complete and available in a timely manner to law enforcement agencies and financial regulators. The agencies found problems that could affect how data is loaded into the database. In a press release, FinCEN and IRS officials said the postponement of the effective date for the new forms will allow the agencies to correct those problems and ensure the reliability of BSA data.
This delay does not change the effective dates for revised forms for money services businesses, which became effective March 31 and will become mandatory Oct. 1.

The Treasury, Justice and Homeland Security departments issued a strategy for addressing priority threats and vulnerabilities identified by last year’s Money Laundering Threat Assessment.

The report details the federal government’s continuing efforts to crack down on money laundering and terrorist financing networks. The strategy draws on the 2006 Threat Assessment’s investigation into current and emerging trends and techniques used by criminals to raise, move and launder proceeds. A key component of the strategy involves working with international bodies, including the Financial Action Task Force, to ensure U.S. financial institutions are not disadvantaged by unilateral controls and standards to inhibit the flow of illegal funds.

The complete 2007 National Money Laundering Strategy is available at www.treas.gov/press/releases/docs/nmls.pdf.

FYI
Girard Miller, CFA, and Jan I. Sylvis, CPA, were appointed to five-year terms on the GASB board starting July 1. Miller most recently served as president of Janus Funds and chief operating officer of Janus Capital Group. Sylvis is chief of accounts for Tennessee’s Department of Finance and Administration. They will succeed Cynthia Green and Edward Mazur.