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AUDITING
The Auditing Standards Board (ASB) of the AICPA authorized an interpretation of AU section 330, The Confirmation Process, clarifying whether electronic confirmations can be considered to be reliable audit evidence. The interpretation clarifies that if the auditor is satisfied that the electronic confirmation process is secure and properly controlled and the confirmation is directly from a third party who is a bona fide authorized respondent, electronic confirmations may be considered as sufficient, valid confirmation responses.

The PCAOB for a second time delayed application of Rule 3523, Tax Services for Persons in Financial Reporting Oversight Roles, to situations where firms provide tax services to a client before they become the client’s auditor. The audit independence rule, which forbids firms from providing tax services during an “audit and professional engagement period” to persons who financially oversee an audit client or to members of their immediate families, otherwise took effect in 2006. The board continued to deliberate, however, whether firms were barred from accepting engagements with new clients to whom they had provided tax services during what then would retroactively become an audit period. In April, when the rule was scheduled to take effect in such instances, the PCAOB extended implementation until July 31. The board requested comments through May 18, saying it would consider whether existing standards of auditor independence could allow Rule 3523 to refer simply to engagement periods.

The PCAOB also issued staff opinions on how to determine whether a person oversees financial reporting for an audit client within the meaning of the rule. That document, available at www.pcaobus.org/Standards/, also discusses applications of confidentiality and independence provisions of Rule 3522, Tax Transactions.

The ASB approved a discussion paper, Improving the Clarity of ASB Standards, seeking feedback on four issues including structural and drafting improvements to make Statements on Auditing Standards (SAS) easier to read and understand. Also being considered are revisions to add an objective for each SAS and a glossary of terms in each SAS and to include special considerations in audits of public-sector and small entities in the explanatory material of a SAS. To view a sample of the proposed changes, go to www.aicpa.org/download/auditstd/. Written comments are requested by June 15.

FINANCIAL REPORTING
At an open meeting in April, the SEC endorsed the recommendations of the agency’s professional staff to eliminate waste and duplication in Sarbanes-Oxley section 404 compliance, a move intended to benefit smaller public companies.

The SEC’s direction to its staff will focus on aligning the PCAOB’s new auditing standard (AS-5) with the SEC’s proposed new management guidance under section 404, particularly with regard to prescriptive requirements, definitions and terms; scaling the 404 audit to account for the particular facts and circumstances of companies, especially smaller companies; encouraging auditors to use professional judgment in the 404 process, particularly in using risk-assessment; and following a principles-based approach to determining when and to what extent the auditor can use the work of others.

The Sarbanes-Oxley Act requires PCAOB audit standards to be approved by the SEC. At press time, the PCAOB standard had not yet been submitted for SEC review, but a statement by the commission indicated that it expects the PCAOB to submit the standard by late May or early June—in time for 2007 financial statement audits.

FINANCIAL SERVICES
Eight federal regulatory agencies are seeking comment on a model privacy form that financial institutions can use to satisfy consumer privacy notice requirements of the Gramm-Leach-Bliley Act. The notice of proposed rulemaking (NPR) was drafted jointly by the Federal Reserve, the Commodities Futures Trading Commission, the FDIC, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the SEC.

The privacy notices must describe an institution’s information-sharing practices and the consumer’s right to opt out of certain types of information sharing. The notices must be provided when a consumer first becomes a customer of a financial institution and annually for as long as the customer relationship lasts.

The NPR is available at www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/P-716.pdf. Comments are due May 29.

FRAUD
Colorado has taken what may be a first-in-the-nation approach to combat fraud and ID theft with the creation of the Colorado Fraud Investigators Unit, a division of the Colorado Bureau of Investigation (CBI). While other states have regional fraud units, CBI officials say the new unit is the first of its kind in the nation to be organized statewide. The unit will help train law enforcement agencies in investigating ID theft and financial fraud, and educate banks, merchants and the public.

The law creating the anti-fraud unit, Colorado House Bill 06-1347, was drafted with help from the Colorado Bankers Association. The CBI fraud unit is funded in part by surcharges on Uniform Commercial Code filings, lender licenses and money transmitter licenses. According to the Federal Trade Commission, Colorado is fifth-worst in the nation in fraud and ID theft.

The full text of the enabling statute is available at www.leg.state.co.us.

GOVERNMENT
A proposed statement from GASB would require permanent and term endowments, including permanent funds, to report the fair value of land and other real estate held as investments and the changes in that fair value as investment income. The new standard also would require disclosure of methods and significant assumptions used in determining fair value, as well as other information the entities currently disclose for other investments reported at fair value.

Current accounting standards require endowments to report those investments at historical cost, although other entities that exist for the purpose of generating income—such as pension plans—report them at fair value.

The proposal, titled Land and Other Real Estate Held as Investments by Endowments, would be effective for financial statement periods beginning after June 15, 2008. The exposure draft is available at www.gasb.org. Comments are due June 29.

INTERNAL CONTROLS
Despite making progress in safeguarding sensitive or confidential information, the SEC still lacks consistency in implementing key data controls, the GAO said in its annual audit released in April. Information security control weaknesses identified included 13 that remained unresolved from the previous year’s audit, plus 15 new ones, the GAO said. They included insufficient testing and evaluation of controls for a major data system as required by a certification and accreditation process, as well as inconsistent implementation of policies and procedures, including parts of the SEC’s information-security program.

The SEC had corrected 58 of the 71 weaknesses identified in 2005, the GAO noted, and by the completion of its 2006 audit had taken action on 11 of the newly identified faults. But the commission had not adequately guarded identification and authentication of users of data systems, leaving critical information in some instances vulnerable to hacking or unauthorized use or modification, the GAO said. For instance, requests for new or upgraded access to the EDGAR company financial reporting system weren’t always properly reviewed, and records of user privileges didn’t always reflect current information about users’ roles within the SEC.

INTERNATIONAL
The SEC released new rules that will make it easier for foreign companies to deregister from U.S. exchanges if there is not significant interest in their securities offerings. By eliminating conditions that had been considered a barrier to entry, the SEC says the amended rules will encourage participation in U.S. markets and increase investor choice. The new rules go into effect June 4. To download the new rules, go to www.sec.gov/rules/final/2007/34-55540fr.pdf.

The International Accounting Standards Board (IASB) revised International Accounting Standard (IAS) no. 23, Borrowing Costs. The primary change in the revised standard is the removal of the option to immediately recognize as expenses borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. The revision continues the IASB’s work in its short-term convergence project with FASB to reduce differences between International Financial Reporting Standards and U.S. GAAP. The revised standard applies to borrowing costs relating to qualifying assets for which the commencement date for capitalization is on or after Jan. 1, 2009. Earlier application is permitted. For more information or to purchase the standard, visit www.iasb.org.

PROFESSIONAL ISSUES
A series of free Feed the Pig podcasts was recently launched to educate the public, especially 25- to 34-year-olds, on how to take control of and maintain their finances. “Dealing With Student Loans” was the first of five podcasts featuring Jordan Amin, a young CPA. In this episode, he provides tips and answers questions while speaking with a college graduate about the importance of paying off student loans.

Future podcasts will cover the following topics: Buying Your First Home; Paying Down Debt vs. Saving for the Future; Filing Your Taxes; and Compulsive Spending. Feed the Pig podcast subscriptions are available at www.feedthepig.podomatic.com.

Feed the Pig is an award-winning public-service campaign sponsored by the AICPA and the Ad Council.

SMALL BUSINESS
The Office of Advocacy of the U.S. Small Business Administration (SBA) recently published a State Guide to Regulatory Flexibility for Small Businesses to help states implement regulatory flexibility programs for small businesses. SBA studies have shown that small businesses account for 93% of businesses in every state; yet businesses with fewer than 20 employees spend approximately 45% more per employee than businesses with 500 or more employees to comply with federal regulations and mandates (see “Taking Care of Small Business,” JofA, March 06, page 39).

The Office of Advocacy proposed model legislation in 2002 to help provide alternative solutions to this burden. Thirty-seven state legislatures have since considered and 19 implemented such legislation.

The full report is available at www.sba.gov/advo/laws/rfa_stateguide07.pdf.

XBRL
Three federal banking agencies have launched an improved Web site that allows faster access to banks’ quarterly Reports of Condition and Income (Call Report) data. The Central Data Repository (CDR) at https://cdr.ffiec.gov/public, established by the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency, now makes important Call Report data available in PDF, regular text or XBRL.

The elimination of several manual update processes is expected to make the Web site more cost-efficient. Call Report data also will be available sooner on the CDR Web site. Most banks are required to submit Call Report data within 30 calendar days of the close of each calendar quarter. Call Report data for individual banks will be available soon after banks submit it, starting about 15 days after the close of each calendar quarter.

FYI
The SEC’s Office of the Chief Accountant has selected four professional accounting fellows for two-year terms beginning this summer:

• Robert B. Malhotra, a senior manager in KPMG LLP’s Department of Professional Practice in New York City.
• Muneera Carr, a senior vice president in the Accounting Policy department of Bank of America Corp. in Charlotte, N.C.
• Liza McAndrew Moberg, a senior manager in PricewaterhouseCoopers LLP’s national office in Florham Park, N.J.
• Jeffrey E. Ellis, a senior manager in Deloitte & Touche LLP’s Global Offerings Services group in New York City.