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AUDITING
The PCAOB identified 11 areas in which auditing or quality control deficiencies were observed during inspections of U.S. firms that audited 100 or fewer public companies.

The findings were based on inspections conducted between 2004 and 2006. The PCAOB released a report on the deficiencies to help firms continue to improve quality control and comply with standards.

Areas in which deficiencies were observed were:

Revenue

Related-party transactions

Equity transactions

Business combinations and impairment of assets

Going-concern considerations

Loans and accounts receivable (including allowance accounts)

Service organizations

Use of other auditors

Use of the work of specialists

Independence, including prohibited non-audit services, indemnification and firm independence policies and procedures and independence confirmation with audit committees

Concurring partner review

The report is available at www.pcaobus.org/Inspections/Other/2007/10-22_4010_Report.pdf.

Current Issues in Auditing, the auditing section of the American Accounting Association’s new journal, is now online. Published papers are available free of charge at www.atypon-link.com/AAA/loi/cia. The AAA’s new manuscript management system is at http://ciia.peerx-press.org. The site will serve as the portal for submissions, reviews, and decision letters.

CIIA has accepted papers including The Sarbanes-Oxley Act of 2002—Restoring Investor Confidence, by former U.S. Rep. Michael G. Oxley, R-Ohio, and Top-Ten Wish List for Audit Research, by Edward Nusbaum, CEO of Grant Thornton LLP.

CIIA’s co-editors are Dana R. Hermanson, of Kennesaw State University, and D. Scott Showalter, of KPMG LLP.

FINANCIAL REPORTING
The SEC staff published Staff Accounting Bulletin (SAB) no. 109, Written Loan Commitments Recorded at Fair Value Through Earnings. The SAB provides the staff’s views on the accounting for written loan commitments recorded at fair value under GAAP.

The SAB revises and rescinds portions of SAB no. 105, Application of Accounting Principles to Loan Commitments. Specifically, the SAB revises the SEC staff’s views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. The SAB retains the staff’s views on incorporating expected net future cash flows related to internally developed intangible assets in the fair value measurement of a written loan commitment. To download the bulletin, visit www.sec.gov/interps/account/sab109.htm.

FASB will provide free online access to its Accounting Standards Codification research system during a one-year verification period expected to begin no later than early 2008.

The codification project’s goal is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters, including FASB, the AICPA, and the Emerging Issues Task Force (EITF). The codification, which does not change GAAP, reorganizes pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure. Relevant SEC guidance also will be included in separate sections and will follow the same topical structure. The codification excludes governmental accounting standards.

During the verification period, the public can review the content and provide comments using a customized electronic feedback feature. FASB expects to approve the codification in early 2009.

FRAUD
The federal financial institution regulatory agencies and the Federal Trade Commission issued final rules on identity theft “red flags” and address discrepancies. The final rules implement sections 114 and 315 of the Fair and Accurate Credit Transactions Act of 2003.

The rules require each financial institution and creditor that holds any consumer account, or other account for which there is a reasonably foreseeable risk of identity theft, to develop and implement an Identity Theft Prevention Program (Program) for combating identity theft in connection with new and existing accounts. The rules also require credit and debit card issuers to develop policies and procedures to assess the validity of a request for a change of address that is followed closely by a request for an additional or replacement card. In addition, the final rules require users of consumer reports to develop reasonable policies and procedures to apply when they receive a notice of address discrepancy from a consumer reporting agency.

The rules were issued by the Federal Reserve, the FDIC, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. The final rules are effective Jan. 1, 2008. Covered financial institutions and creditors must comply by Nov. 1, 2008. The final rules are available at http://edocket.access.gpo.gov/2007/pdf/07-5453.pdf.

GOVERNMENT
GASB released its 2007–2008 Annual Bound Editions, a set of four, updated reference books covering all recent changes made to GASB standards and implementation guidance. It consists of the Codification (one volume), Original Pronouncements (two volumes) and the Comprehensive Implementation Guide (one volume). The Annual Bound Editions can be ordered together or separately at www.gasb.org or by calling 800-748-0659.

INTERNATIONAL
The International Auditing and Assurance Standards Board (IAASB) issued two exposure drafts; one that addresses concerns about the use and reliability of external confirmations as audit evidence and one that proposes stricter requirements when an auditor uses an expert to obtain audit evidence.

Proposed International Standard on Auditing (ISA) 505 (Revised and Redrafted), External Confirmations, is directed at the effective performance of external confirmation procedures when the auditor determines that such procedures are an appropriate response to an assessed risk of material misstatement.

Proposed ISA 620 (Revised and Redrafted), Using the Work of an Auditor’s Expert, deals with the auditor’s use of the work of a person or organization possessing expertise in a field other than accounting or auditing, employed or engaged by the auditor to assist the auditor to obtain sufficient appropriate audit evidence. It places particular emphasis on the need for the auditor to evaluate the expert’s objectivity and to establish a proper understanding with the expert of the expert’s responsibilities for the purposes of the audit.

The IAASB is one of the standard-setting bodies of the International Federation of Accountants. Comments on the EDs are due by Feb. 15. They are available at www.ifac.org/eds.

The International Federation of Accountants (IFAC) Professional Accountants in Business (PAIB) Committee published interviews with 10 leading PAIBs on their experiences and views on internal control in a paper titled, Internal Control From a Risk-Based Perspective. This paper is part of a larger PAIB Committee project on internal control. In 2006, the committee published an overview, Internal Controls–A Review of Current Developments, which reviewed current developments and some of the latest thinking in the area of internal control. These two publications form the groundwork for the development of principles-based good practice guidance on internal control, which the PAIB Committee plans to issue in 2008. To download the paper for free, visit www.ifac.org/Store/Details.tmpl?SID=1187290337488793

MONEY LAUNDERING
The Financial Crimes Enforcement Network (FinCEN) released Issue 12, October 2007, of The SAR Activity Review—Trends, Tips & Issues, which includes many new examples of how law enforcement agencies are using Suspicious Activity Reports (SARs) to discover and disrupt criminal enterprises and protect the financial system. The latest issue also contains guidance on definitions and criminal statutes for the SAR characterizations of suspicious activity.

The expanded descriptions of law enforcement cases are intended to illustrate the importance of Bank Secrecy Act (BSA) data. Many of the cases were initiated by BSA report filings.

The guide can be downloaded at www.fincen.gov/sarreviewissue12.pdf.

FinCEN issued an advisory to U.S. financial institutions to guard against threats of illicit Iranian activity related to money laundering, terrorist financing and weapons of mass destruction proliferating financing. The Financial Advisory Task Force (FATF) cited Iran’s lack of a comprehensive anti-money laundering and combating the finance of terrorism (AML/CFT) program as a significant vulnerability within the international financial system.

The FinCEN advisory is available at www.fincen.gov/guidance_fi_increasing_mlt_iranian.html.

PROFESSIONAL ISSUES
The AICPA’s annual report for the fiscal year Aug. 1, 2006, through July 31, 2007, is now available. Navigating Today and Tomorrow focuses on how the AICPA helps guide CPAs to ensure high-quality services are provided to clients, employers and the capital markets.

The report includes:

A letter to members from outgoing AICPA Chairman Jimmy Williamson and President & CEO Barry Melancon.

A “Year in Review” section on the year’s significant developments regarding technical and professional standards and regulation, recruitment and retention of CPAs, specialized services, and the profession’s public service efforts.

The AICPA’s financial statements.

A pdf version of the report may be downloaded at www.aicpa.org/About+the+AICPA/
Understanding+the+Organization/AICPA+Annual+Report.htm.

Members may obtain a printed copy by sending a 9-by-12 inch, self-addressed envelope affixed with $2.33 in postage to: AICPA, Communications Team, Annual Report 06–07, 1211 Avenue of the Americas, New York, NY 10036-8775 (available while supplies last).

Results from the 2007 AICPA Top MAP Issues Survey reveal that finding all levels of qualified staff is a critical concern for firms with multiple professionals in the U.S. Practitioners from firms of various sizes and ranges were surveyed to determine the most important challenges currently facing Private Companies Practice Section (PCPS) members. The results are listed according to firm size. As firm size increases, retention becomes an increasingly important issue, apart from finding qualified staff. For sole practitioners, tax complexity and concerns about standards and technology rank high on the list.

“CPAs can use these [results] to benchmark their own experiences,” says Jim Metzler, AICPA vice president–Small Firm Interests. “They can confirm that similar practices are facing the same challenges and identify trends that will affect their own firms as they grow.”

Other survey results include:

Succession planning is a major concern for all firms with six or more professionals.

Developing new partners is an issue for firms with 11 or more professionals.

Human capital concerns are a chief issue for practices with 21 or more professionals.

The complete survey results are available at http://pcps.aicpa.org.

The AICPA’s Business Valuation and Forensic & Litigation Services (BVFLS) Membership Section has been renamed Forensic and Valuation Services (FVS) and its executive committee has been designated a senior committee. As a senior committee, it will now report directly to the AICPA Board of Directors and can set standards and make public statements without prior clearance of the Board or governing Council. The FVS will continue to serve the growing group of CPAs practicing in these areas.

FYI
The PCAOB announced new appointments to its Standing Advisory Group for 2008.
The appointees begin two-year terms this month. They are:

Elizabeth A. Fender, corporate governance adviser, Governance for Owners

Margaret M. Foran, senior vice president, corporate governance, associate general counsel and corporate secretary, Pfizer Inc.

Elizabeth S. Gantnier, director of quality control, Stegman & Co.

Patricia J. Harned, president, Ethics Resource Center

Gregory J. Jonas, managing director, Moody’s Investors Service

Gary R. Kabureck, vice president and chief accounting officer, Xerox Corp.

Jeffrey P. Mahoney, general counsel, Council of Institutional Investors

Warren E. Malmquist, vice president, global internal audit and ethics, Molson Coors Brewing Co.

William P. Miller II, senior investment officer, fund management, Ohio Public Employees Retirement System

Lawrence J. Salva, senior vice president, chief accounting officer and controller, Comcast Corp.

Kurt N. Schacht, executive director, Centre for Financial Market Integrity, Chartered Financial Analysts Institute

The complete list of the Standing Advisory Group members is available at www.pcaobus.org/Standards/Standing_Advisory_Group/2008_SAG_Member_List.aspx.

CORRECTION
An article in November, “Tools for Financial Analysis,” should have reported that ProfitCents, by Sageworks, compiles private industry data directly from accountants using the system for analysis. According to Sageworks, it does not use other private sources of industry data. The JofA regrets the error.