Editorial Staff

Publisher/Editor-in-Chief
Colleen Katz

Managing Editor
Elizabeth Uva

Senior Editors
Katharine W. Coveleski
Laura Fischer
Peter D. Fleming
Michael Hayes
Robert Tie
Cynthia Waller Vallario
Stanley Zarowin

Assistant Editors
Sarah Cobb,Vincent Nolan

Contributing Editors
Anita Dennis, Nicholas J. Fiore,
Lesli S. Laffie, Barbara J. Shildneck

Production Director
Peter M. Tuohy 

Art Director
Jeryl A. Costello

Production Manager
Gene Cioffi

Senior Manager—
Production Services—
Publishing Technology
Robert DiCorcia

Production Editor
D. Hillel Lofaso

Senior Production Associates
Valrie Mason, Ingrid Medina

Art Assistant
Patricia L. Arrington

Associate Publisher
Thomas R. Greve

Advertising Team Manager
Karin DeMarco

Advertising Representatives
Gwenn M. Paness
Joseph Torres 

Advertising Coordinator
John Weinberg

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Highlights

NEW OVERSIGHT BODY LOOMS ON PROFESSION'S HORIZON
The SEC proposed rules in June to address widespread concerns about the nation’s financial reporting system and the profession’s role in ensuring its effectiveness.

The proposal, “Framework for Enhancing the Quality of Financial Information Through Improvement of Oversight of the Auditing Process” (www.sec.gov/rules/proposed/33-8109.htm), is the commission’s response to corporate earnings restatements and accounting “irregularities” that have chilled the capital markets and shaken investors’ faith in the accuracy and completeness of financial reporting.

The rules call for the establishment of a “public accountability board” to oversee the formulation of auditing and ethics standards, as well as public company auditors’ application of them. It would replace the defunct Public Oversight Board.

Some members of the profession are concerned the proposed body’s powers may be too broad. AICPA Senior Vice-President John E. Hunnicutt said, “The most troubling issue is the extent to which a new board would have the authority to set professional standards, including auditing standards. It’s one thing to oversee standard setting and create an agenda; it’s quite another to set standards or overrule them.”

The SEC plan resembles provisions in two bills pending in the House and Senate, both of which call for closer supervision of public company auditors. In July Democrats and Republicans were to begin working on a compromise bill the White House would endorse. Comments on the proposal are due September 3.

FASB PROPOSAL ADDRESSES REPORTING ON SPEs
With its July draft interpretation of Accounting Research Bulletin (ARB) no. 51, Consolidated Financial Statements, FASB seeks to clarify existing accounting literature on financial reporting for special-purpose entities (SPEs).

The proposed interpretation, Consolidation of Certain Special-Purpose Entities (www.fasb.org/draft/ed_prop_interp_spe.pdf), applies to public and private companies—but not nonprofit organizations—with an ownership interest in, or a contract or other business relationship with, an SPE. The proposal aims not to restrict businesses’ use of SPEs but to improve the financial reporting on them.

Current accounting standards require businesses to report, in their consolidated financial statements, on subsidiaries in which they have a controlling financial interest. But ARB no. 51 focuses on parent-subsidiary relationships based on voting ownership interests, which has led businesses to use the existence of such interests as the criterion for determining whether they must report on certain SPEs.

There is, however, another way to test for the presence of a controlling financial interest. If a company does not control an SPE through a voting ownership interest, the FASB interpretation would require it to determine whether it supports the SPE through a variable interest (which may arise from financial instruments, service contracts, nonvoting ownership interests or other arrangements). If the company has most or a significant portion of such interests in the SPE, the interpretation would require that enterprise to include in its consolidated financial statements the results of the SPE’s activities as well as its assets and liabilities.

Later this year FASB expects to make the interpretation final, which would be effective immediately for SPEs established after its release. Businesses with existing SPEs would have to apply the interpretation at the beginning of the first fiscal period after March 15, 2003; for companies reporting on a calendar-year basis, the effective date would be April 1, 2003. Comments are due August 30.

Editorial Advisers

Kenneth D. Askelson, James Bean, Robert C. Beheler, Phyllis Bernstein, John C. Boma, Jacob R. Brandzel, Steven J. Brown, Jolene C. Brucks, Thomas F. Burrage, Linda Burt, J. Gregory Bushong, R. Patrick Cargill, Benson J. Chapman, Susan M. Comeau, Rosemarie T. Dunn, Thomas Emmerling, Elizabeth Fender, Penny A. Flugger, Barton C. Francis, Robert J. Freeman, John S. Gibbons, Alan Glazer, Randi K. Grant, Patrick T. Hanratty, James E. Hunton, Frank J. Kopczynski, Jeffrey B. Kraut, Dennis B. Kremer, William F. Laurie, Alan Levin, John Lewison, Joseph P. Liotta, Mano Mahadeva, Benjamin F. Mathews, Patrick Michael McDonough, Anita Meola, Debra Mitchell, Roger H. Molvar, Brenda Morris, Bea L. Nahon, Lyne P. Noella, Edward T. Odmark, Stanley Person, Mary P. Ricciardello, Mark L. Richardson, Wesley Riemer, Marshall B. Romney, David Satava, Peggy Scott, Carolyn Sechler, Gary Shamis, Ivan J. Sotomayor, Alan Steiger, Paul C. Sullivan, Keith Tobias, Gary R. Trugman, Robert Willens, Jon Arthur Wise, Mark A. Yahoudy