Letters

Critical of Special Report

The JofA’s report—“SEC Renews Push for More Oversight of Auditors” (Jul.00, page 16)—is either a careless misrepresentation of the facts or a deliberate slur.

While we in no way condone the independence infractions discovered in a comprehensive, two-year compliance review of all partners and staff at PricewaterhouseCoopers, the vast majority of infractions were, in the words of Chairman Levitt, minor and inadvertent. Under the newly proposed SEC independence rules, they would not constitute independence infractions at all.

Moreover, the author neglected to describe our corrective response: a massive, $25 million overhaul of our entire compliance system and the implementation of a state-of-the-art compliance quality control system that both the SEC and the AICPA have adopted as the model for all other firms.

The SECPS’s refusal to fund the POB’s review of independence compliance at the other large firms, albeit short-lived, was, in our view, nothing more than a transparent attempt to stall the review process and diminish its rigor. We opposed that decision at the time because we believed it was short-sighted and not in the best interests of the profession as a whole.

In fact, the independence compliance reviews of the other large firms, which are now under way, are a substantially diluted version of the compliance review process we undertook, covering far fewer people, a much shorter period and a limited number of independence rules.

On issues as substantive and complex as this, the JofA owes its readers all of the facts, not just those that support a particular point of view.

Kenton J. Sicchitano, CPA
Global Managing Partner
Independence and Regulatory Affairs
PricewaterhouseCoopers, LLP
New York City

On M&E Deductions

In “The High Cost of a Free Lunch,” (JofA, June00, page 61) the author says IRC section 274(n)(2) provides several exceptions to the 50% limitation on meals and entertainment expenses. Among the exceptions listed are “expenses directly related to the business meetings of employees, stockholders or directors.” I am unable to find this exception explicitly noted in section 274(n)(2).

Exceptions noted in 274(n)(2) refer to “(A) such expense…described in paragraph (2), (3), (4), (7), (8), or (9) of subsection (e).” Employee, stockholder, etc., business meetings are described in paragraph (5) of subsection (e) and are therefore not excepted. Likewise, the exceptions (B), (C), (D), and (E) of 274(n)(2) do not refer to employee, stockholder, etc., business meetings.

I think it is important that this be clarified.

Richard D. Cunningham, CPA
Seattle

Author’s reply: I have reviewed the issue and agree that the article erroneously described a second exception to the 50% tax limitation on deductible M&E expenses under IRC section 274(n)(2). M&E expenses directly related to the business meetings of employees, stockholders or directors should have been identified as an exception to the general tax law rule under section 274(a)(1). Specifically, such expenses under section 274(e)(5) are an exception to the general prohibition that “no deduction otherwise allowable under this chapter shall be allowed for any item” of entertainment, amusement or recreation. Such expenses should not have been listed as an exception to the 50% limitation under section 274(n)(2). Provided that such M&E expenses related to business meetings meet the IRC section 162 “ordinary and necessary” requirement, they will be 50% deductible, but not 100% deductible, because section 274(e)(5) is not listed as an exception to the section 274(n)(1) 50% limitation.

Earl B. Johnston, CPA
Chicago

Agrees with Need for Change

The ideas discussed in “Let’s Reassess Accounting Standards” (JofA, May00, page 82) are, I believe, those whose time has come. It is time for the AICPA to reassess its unwavering commitment to the Financial Accounting Standards Board.

In my opinion, in addition to the points presented in the article:

• FASB has never really considered the needs of the owners of the overwhelming majority of businesses in the United States—privately held ones.
• FASB appears to listen only to the viewpoints of financial analysts, sometimes to the point of ignoring common sense.
• FASB appears arrogant in overlooking the international standard setters.

Perhaps it is time to consider a major change in the way accounting standards are set:

• Core standards—those that would apply to all businesses—would once again be set by the AICPA, with the input of the SEC and the international group.
• Standards that would apply only to publicly held entities would be set by the SEC, with input from the AICPA and the international group.

I realize there would be many obstacles to overcome if the suggested changes were implemented. However, I believe we need to do something about our current standard-setting system.

Sherman Rosenfield, CPA
Miami

Votes for Simplicity

“Let’s Reassess Accounting Standards” is on target. It is time to cut out all of the verbiage and keep it simple.

Darrel Tongate, CPA
Nashville

Politics in Academia

I read with interest, “Those Who Can…Teach” (JofA, Jul.00, page 49). However, I found the article long on requirements for entry into the academic world but short on challenges to success.

After several years’ experience in corporate accounting, I devoted nearly 35 years to teaching future professional accountants. I also served as chairman of the department of accounting at two universities accredited by the American Association of Collegiate Schools of Business. In addition, I have written several articles about collegiate education. Consequently, I have some knowledge of the keys to success in the academic world.

The performance of an accounting faculty member is expected to range between satisfactory and excellent in the areas of teaching, research and service. Such performance, however, may not get a faculty member tenured and/or promoted. The primary key to success in academia is, as the chancellor at one university said, “Politics: That’s how you get everything!”

Although I know of many cases where politics was the deciding factor in tenure and promotion decisions, the following case should suffice to illustrate this problem:

A female faculty member was being considered for tenure and promotion to associate professor in a college of business. Her qualifications included a PhD from a leading university, five years of successful teaching experience, an outstanding teacher award from students, publication of relevant articles in several professional and academic journals, performance of valuable service for the university, profession and community and profitable research contracts.

If the primary factor considered had been her performance, she would have been awarded tenure and promotion. However, the college had an academic clique, and the candidate was not a member.

The majority of the faculty and the department chair recommended that she be tenured and promoted. The clique, however, opposed her candidacy, and the dean did not have the courage to disagree. The candidate did not receive the tenure and promotion she deserved and as a result was terminated.

I encourage corporate, government and public accountants to consider switching to academia, but to do so fully aware that politics may be their greatest challenge in the academic world.

Grover L. Porter, CPA, PhD
Professor of Accounting, Emeritus
The University of Alabama
Huntsville, Alabama

About Tax Shelters

As a retired IRS large case branch chief, I read with great interest the comments on corporate tax shelter abuse (“Lifson Testifies on Tax Shelters,” JofA Jan.00, page 81).

I was involved in a related case that was upheld by the Supreme Court as a definite tax shelter. Eight major corporations were involved to the tune of $4.5 billion.

I believe there are many more such abuses being tried by large corporations with major brokerage houses as the creators. Therefore, Fortune 500 companies and promoters should be required to make disclosures.

Bob Selinger, CPA
East Brunswick, New Jersey

Evolution Continues

I found the article on the history of our accounting profession (“‘No One Stands Still in Public Accounting,’” JofA, June00, page 67) very intriguing. It was compelling to read about the profession and its evolution, and interesting to compare the profession from yesterday to today and to the future.

How we all should appreciate our computers, faxes and other conveniences! It’s amazing to think that the things that simplify our life today will be museum pieces in future generations.

Bonnie M. Spanke, CPA
Livonia, Michigan

A Job Well Done

I just finished reading the Technology Q&A column (JofA, July00, page 91).

Great job! Each item was very relevant to everyday computing needs. I have already passed several of them along to co-workers and friends, and I am looking forward to future issues.

Kimberley M. Pedler, CPA
Grand Rapids, Michigan