ACCOUNTING
FASB issued Staff Position (FSP) FIN 45-3, Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners, which amends Interpretation no. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (www.fasb.org/fasb_staff_positions/fsp_fin45-3.pdf). The FSP clarifies that guarantee contracts, declaring a business’s revenue for a given period will be at least a specified amount, are within the scope of Interpretation no. 45.

AUDITING
The AICPA Auditing Standards Board (ASB) issued Statement on Auditing Standards (SAS) no. 102, Defining Professional Requirements in Statements on Auditing Standards, and Statement on Standards for Attestation Engagements (SSAE) no. 13, Defining Professional Requirements in Statements on Attestation Engagements, which apply to audit and attestation engagements performed for nonissuers only. They define the degree of responsibility imposed by the standards on auditors or, in attestation engagements, practitioners when imperative terms—such as must, is required and should—are used. SAS no. 102 also amends paragraph 5 of AU section 150, Generally Accepted Auditing Standards, by requiring auditors to document in the working papers their justification for departures from the SASs. The standards, which will appear in the JofAs Official Releases section next month, took effect upon issuance.

The ASB issued SAS no. 103, Audit Documentation, which supersedes SAS no. 96 of the same name. It establishes standards and provides guidance to auditors of nonissuers on audit documentation. In developing the SAS, the ASB considered the documentation requirements of the Public Company Accounting Oversight Board (PCAOB), the International Auditing and Assurance Standards Board, auditing standards issued by the U.S. Comptroller General and suggestions from the National Association of State Boards of Accountancy. The SAS requires the auditor to prepare audit documentation that is sufficiently detailed for an experienced auditor having no previous connection to the audit to understand the audit work performed, evidence obtained and conclusions reached. It requires auditors to assemble the audit documentation to form the final engagement file within 60 days of the report release date.

In addition it provides guidance on what to document; states that oral explanations by themselves are insufficient to support audit work or conclusions although they may be used to clarify audit documentation; and specifies a minimum file retention period of five years.

The SAS also amends paragraphs .01 and .05 of AU section 530, “Dating of the Independent Auditor’s Report,” requiring that the auditor’s report not be dated earlier than the date on which the auditor has obtained sufficient appropriate audit evidence to support the opinion on the financial statements. The SAS (which will appear in the JofAs Official Releases section next month) and amendment are effective for audits of financial statements for periods ending on or after December 15, 2006.

A new ASB exposure draft (ED) proposes revising AT section 501, “Reporting on an Entity’s Internal Control Over Financial Reporting,” of SSAE no. 10, Attestation Standards: Revision and Recodification, for audits of nonissuers only. The ED is based largely on the original draft, dated March 18, 2003, and revised to reflect guidance from PCAOB Auditing Standard no. 2, which the board believes would be applicable and appropriate for examinations of nonissuers. An accompanying document, “A Framework for Assessing Control Exceptions and Deficiencies,” is designed to help practitioners apply the proposed SSAE. Comments are due April 30, 2006.

The PCAOB reported its findings from monitoring auditors’ implementation of Auditing Standard no. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements (www.pcaobus.org/rules/docket_014/2005-11-30_release_2005-023.pdf). The board found that because firms had had inadequate time and experience in this first year of implementing the standard, some audits were not as efficient and effective as they should have been.

Some auditors failed to integrate their audits of internal controls with those of financial statements; to evaluate company-level controls before working down to their transaction-level counterparts; to vary the nature, timing and extent of testing to reflect the level of risk; to test controls thoroughly by tracing a transaction from beginning to end; and to efficiently use the work of others as permitted by Standard no. 2. The board said it was aware that firms have enhanced their audit methodologies and training materials to improve the quality of their internal control audits.

BANKING
The Federal Deposit Insurance Corporation (FDIC) issued advance notice of a proposed rule that would make it easier to ascertain whether FDIC insurance covered deposits in banks with more than 250,000 customer accounts and $2 billion in domestic deposits (www.fdic.gov/news/news/press/2005/pr12205.html).

The last time the FDIC updated its deposit insurance determination process was in 1999. Although the largest number of insurance-status determinations the FDIC had performed at a single failed institution involved approximately 90,000 accounts, because of consolidation in the industry certain larger banks now have more than 40 million accounts. The corporation welcomes suggestions on how to facilitate determinations and resolve bank failures more economically and efficiently; responses are due by March 13, 2006.

EMPLOYEE BENEFITS
The Treasury Department and the IRS released Notice 2005-86, which clarifies that an individual participating in a flexible spending arrangement (FSA) is ineligible to contribute to a health savings account (HSA) during an FSA grace period, which extends the covered expense eligibility time frame up to 2 months into the following plan year (www.treas.gov/press/releases/js3022.htm). The notice also provides guidance on how employers can amend an FSA to eliminate the restriction on HSA contributions.

ETHICS
The AICPA Professional Ethics Executive Committee (PEEC) adopted two ethics rulings that provide guidance on how members’ offer or acceptance of gifts or entertainment to or from clients, customers or vendors of their employer affects the members’ independence and objectivity (www.aicpa.org/download/ethics/). The ethics rulings under Rule 101, “Independence,” and Rule 102, “Integrity and Objectivity,” took effect January 31, 2006 (see Official Releases, JofA, Jan.06, page 99).

INTERNATIONAL
The European Commission (EC) adopted a regulation endorsing the amended International Accounting Standard (IAS) no. 39, Financial Instruments: Recognition and Measurement, also known as the fair value option (http://europa.eu.int/comm/internal_market/accounting/ias_en.htm). The regulation endorses the fair value option, which previously had been carved out of the EC’s endorsement of IAS no. 39 in response to various stakeholders’ concerns. The amendment is retroactively effective to January 1, 2005.

The International Accounting Standards Board (IASB) published Measurement Bases for Financial Reporting—Measurement on Initial Recognition, a discussion paper prepared by Canadian Accounting Standards Board staff. It analyzes possible bases for measuring assets and liabilities on initial recognition. Comments are due May 19, 2006 (www.iasb.org/current/dp_pv.asp).

The International Federation of Accountants (IFAC) released The Roles and Domain of the Professional Accountant in Business, a study that describes corporate CPAs’ responsibilities and qualifications, as well as their important role in ensuring effective corporate governance and control (www.ifac.org/Store/Details.tmpl?SID=).

PRIVACY
The IRS issued proposed regulations on the disclosure and use of tax-return information by return preparers. While a related IRS press release describes how the regulations will affect the offshoring of tax returns or tax-return information, they have broader implications for tax practitioners. Generally, the regulations revise the manner and form of obtaining a taxpayer’s consent to use or disclose tax-return information, adding a requirement that such consent be obtained before a preparer may share the information with a third party. The proposed regulations and other background documents are at www.irs.gov/newsroom/article/0,,id=151368,00.html. Comments are due March 14, 2006.

FYI
Following the resignation of William J. McDonough, the SEC appointed William D. Gradison Jr. acting chair of the PCAOB and adopted new procedures for SEC Chairman Christopher Cox to use in filling the position. Gradison is a founding member of the PCAOB.

The PCAOB selected Thomas Ray to succeed Douglas R. Carmichael, who resigned as chief auditor, effective January 31, 2006. Ray has served as deputy chief auditor since June 2003.

Checking the status of refunds will be easier this year, thanks to a new version of the IRS Web site. The upgraded site has an improved search engine and highlights to help taxpayers find the most-requested forms, publications and online tools (www.irs.gov).