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Accounting for 2003: The Year in Review Dec. 29, 2003 (SmartPros) Accounting developments in 2003 include major tax law changes, tightened internal controls and cutting-edge best practices. SmartPros highlights the year's top accounting and business headlines and looks to 2004. Choose a topic:
In May, President Bush signed the Jobs and Growth Tax Relief Reconciliation, a $350 billion tax deal that included advance child tax credits for 25 million taxpayers, which were distributed in the summer. The new law also raised the standard deduction for married couples to $9,500 and extended their 15 percent tax rate to $56,800 of taxable income. The tax cut extended the 10 percent rate to cover the first $7,000 of taxable income for single persons, $14,000 for married couples. It also lowered the tax rates above 15 percent to 25, 28, 33 and 35 percent. This is a drop of two percentage points for each rate except the top one, which went down 3.6 points. A note for the 2003 tax filing season: Taxpayers who are not eligible for the advance payment may still qualify for the increased child tax credit of up to $1,000 when they file the 2003 tax return next year. For instance, a taxpayer who did not have a child in 2002, but had one in 2003 may qualify for the full $1,000 credit on the 2003 tax return. The IRS Web site posts a complete list of tax law changes for individuals, including military family tax relief, Social Security increases and standard mileage rates. In addition, is yet another step by the IRS to encourage taxpayers to embrace the paperless e-filing system, the House approved an April 30 tax filing deadline for taxpayers who e-file. The Senate Finance Committee has yet to approve H.R. 1528 - Taxpayer Protection and IRS Accountability Act of 2003. See IRS Presses for E-Everything by TaxingSubjects.com. CCH offers at no cost a Special Report on the Jobs and Growth Tax Relief Reconciliation includes a Quick Tax Facts Card and Tax Briefing.
New Accounting Board Gets Down to Business The Public Company Accounting Oversight Board met for the first time in January and proceeded throughout the year to discuss registration procedures for accounting firms that audit publicly traded companies. In August, the Board announced accounting support fees for about 5,200 publicly traded companies and about 3,300 investment companies. About 62 percent of issuers will pay $1,000 or less in accounting support fees to the PCAOB. The largest 1,000 issuers will pay about 87 percent of the total fees due. More recently, in November, the PCAOB voted unanimously to propose for public comment two auditing standards and an amendment to an interim auditing standard. The first proposed auditing standard, Audit Documentation, would establish general requirements for documentation the auditor should prepare and retain in connection with any public company audit. The second proposed auditing standard requires registered public accounting firms expressly to state in each public company audit report that the audit was conducted in accordance with the standards of the PCAOB. In addition, the Board approved de-registration rules, should a firm choose not to audit publicly traded companies. The rules also give the PCAOB the authority to bar an accounting firm from auditing a public company or prohibit an accountant from participating in audits. Firms will have the opportunity to argue their case before a hearing officer if the board uncovers violations. Addressing the concerns of non-U.S. firms, the PCAOB proposed a framework under which the Board could implement the Sarbanes-Oxley Act's provisions by relying to an appropriate degree on a non-U.S. system. For instance, the proposed rule on inspections would allow the Board to rely on the work of oversight systems in other jurisdictions, based on a sliding scale: The more independent and rigorous the local oversight system, the greater the Board's reliance on that system. Looking to next year, the Board has approved $103 million for the 2004 fiscal year, reflecting planned investments in information technology to support the board's registration, annual reporting, inspections, and enforcement programs, in addition to a more than two-fold increase in personnel. Notable extras: the PCAOB stripped the American Institute of CPAs of its auditing standard-setting responsibility; the SEC selected economist William McDonough to head the Board; and Douglas R. Carmichael, accounting professor and director of the Center for Financial Integrity at Baruch College, was appointed to the Board as chief auditor and director of professional standards.
The Firm of the Future: Eliminating the Billable Hour Can professional services eliminate the billable hour? And why should they? Published earlier this year, The Firm of the Future: A Guide for Accountants, Lawyers and Other Professional Services contends it's very possible -- and very necessary. Co-authored by accounting expert Ron Baker and Accountants' Boot Camp founder Paul Dunn, The Firm of the Future visualizes a revamped profession, more satisfied clients and fulfilled employees. All of this can be achieved, say the authors, by moving away from the billable hour. Though a comfortable and simple system for measuring service costs, the authors argue that the billable hour stymies customer satisfaction, employee creativity and business growth. Clients don't feel as though they are receiving services specific to their needs; accountants are losing the passion for the services they provide and are too concerned about punching the timeclock; and businesses lose clients due to unaccountability and poor performance. For more on this story, click here.
Career Development: Trends and Salaries Though the economy is picking up, the job market will still be selective in 2004, according to Robert Half Finance & Accounting. "Companies faced with increasing workloads are recruiting financial professionals in areas such as internal audit, credit and collections, and general accounting," said CEO Max Messmer. "Employers are hiring selectively, focusing their recruiting efforts on professionals who can provide solid leadership and contribute immediately to critical business operations." The company's 2004 Salary Guide, released in October, forecasts starting salaries to remain consistent with 2003 levels, and predicts strong demand for accounting and finance professionals in the healthcare and real estate industries.
Companies Report Increased Internal Fraud There has been an increase in employee fraud, says a new KPMG survey -- or rather, more companies are finding fraud. Spurred by new government regulations and demands by investors, companies today are aggressively working to uncover and punish those who dare to steal. Today more companies -- 64 percent -- are taking legal action by bringing civil or criminal charges against the culprits, compared with just 37 percent five years ago. According to the survey, 75 percent of respondents report they have uncovered fraud in their organizations in the last year, compared with 62 percent of executives responding to a similar survey in 1998. Employee fraud occurred the most frequently, according to survey respondents, although financial reporting and medical/insurance fraud were much more costly. The survey also found that collusion between employees and outside third parties -- a vendor organization offering kickbacks if a company employee buys its product, for instance -- is a growing problem, with almost half (48 percent) of respondents citing collusion as contributing to fraud, compared with 31 percent in 1998. "This statistic suggests that there is optimism that current anti-fraud measures will be effective. However, it also raises some concerns," said Richard H. Girgenti, partner in charge of KPMG's Forensic practice. "Companies may be lulled into thinking that they now have a handle on the problem. In reality, fraud and misconduct is a pervasive and insidious problem that requires companies to maintain continuous vigilance in assessing and improving their controls and programs to detect, prevent and investigate its occurrence." Girgenti said the survey's findings reiterate the increased demand for forensic skills.
Arthur Andersen Continues Its Fight It seems improbable that Arthur Andersen's 250 employees could ever again grow to its previous workforce of 250,000. When the accounting firm was conviced in 2002 with one count of obstuction of justice for shredding Enron Corp. records wanted in a federal investigation, it effectively ended the firm's audit practice. The judge presiding over the case, U.S. District Judge Melinda Harmon, told the federal jury that they did not have to agree on who at the firm obstructed justice as long as each juror believes someone did. After a brief deadlock -- during which Judge Harmon insisted the jury continue deliberating -- the jury agreed that Nancy Temple, the attorney who sent the Oct. 12 email that reminded executives about the firm's policy on retaining documents, was the "corrupt persuader." Notably, Temple did not testify in the trial, instead invoking her Fifth Amendment right against self-incrimination. More than one year later, Maureen Mahoney, Andersen's lead appellate lawyer, told a three-judge panel of the U.S. 5th Circuit Court of Appeals that Judge Harmon wouldn't let the company show jurors that many more documents were preserved than destroyed. In addition, she argued that prosecutors were allowed to present prejudicial evidence of previous run-ins with the Securities and Exchange Commission. Source This attempt to overturn Andersen's conviction may be a fruitless effort, but the firm continues to fight. It is unknown when the court will issue its decision.
Studies Reveal the Benefits of Outsourcing Several separate studies released in 2003 highlight the various reasons companies -- including accounting firms -- are looking toward outsourcing their services.
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