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Week of January 27, 2012

SEC Seeking Public Comment on Dodd-Frank Financial Literacy Study
January 25, 2012 – The Securities and Exchange Commission is requesting public comments on financial literacy and investor disclosure issues that it is studying as part of a review mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Cluttered Desk, Cluttered Mind
January 25, 2012 – A cluttered desk is not a sign of genius. It's a big flashing indicator of messiness. "Desk space is the highest value real estate in your office and should not be used as a storage station," says Paul Burton, who frequently speaks to accountants and lawyers about the productivity challenges they face.

Review of the PCAOB's Enforcement and Investigations Program
January 26, 2012 – In his January 2012 letter to Mary Schapiro, chairman, SEC, James Doty, Chairman, PCAOB, stated, "I am pleased to transmit to you a summary of the PCAOB's most recent performance review, Review of the Public Company Accounting Oversight Board's Enforcement and Investigations Program."

States Change Audit Positions without Authority: WHAT??
January 25, 2012 – Throughout my career I have faced several instances where states have made audit assessments or taken positions under audit that contradict the position the state has taken in the past when it has audited the company.

Efficient Tests of Balances Series – 9: How to Audit Cash Efficiently
January 20, 2012 – Learning “how” to audit cash is mainly learning “when” to audit cash and to “what extent” cash auditing procedures should be applied.

State Tax Provision Time - Who Cares?
January 22, 2012 – It's that time of year again - Tax Provision Time. Yeah!!! Is your company currently calculating its 2011 tax provision? If so, how is your state income tax provision going? Did you calculate your effective state tax rate? Did you take into account your company's significant state tax add-back and deductions?

SEC Seeking Public Comment on Dodd-Frank Financial Literacy Study
By AccountingWEB Staff
January 25, 2012 – The Securities and Exchange Commission is requesting public comments on financial literacy and investor disclosure issues that it is studying as part of a review mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Section 917 of the Dodd-Frank Act directs the SEC to conduct a study of retail investors’ financial literacy and submit its findings to Congress by July 21, 2012. The SEC is using qualitative and quantitative research, including investor testing, to help inform the study. To supplement its research, the SEC also is seeking public comment on financial literacy and investor disclosure issues.

Consistent with the Dodd-Frank Act’s specifications for the study, the SEC is seeking comment on methods to improve the timing, content, and format of disclosures to investors regarding financial intermediaries, investment products, and investment services. It also requests comment on information that retail investors need to make informed financial decisions on hiring a financial intermediary or purchasing an investment product or service typically sold to retail investors, including mutual funds. In addition, the SEC seeks comment on how to make investment expenses and conflicts of interest in investment transactions more transparent to investors.

“Many of the issues that the Dodd-Frank Act identified for Commission study directly affect individual investors. As a result, we are especially interested in receiving comments from individual retail investors,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. The public comment period will remain open for 60 days, following publication of the request in the Federal Register.

Comments can be submitted on the SEC website. Previously submitted comments are available for review.

Cluttered Desk, Cluttered Mind
By Alexandra DeFelice
January 25, 2012 - A cluttered desk is not a sign of genius. It's a big flashing indicator of messiness.

"Desk space is the highest value real estate in your office and should not be used as a storage station," says Paul Burton, who frequently speaks to accountants and lawyers about the productivity challenges they face.

Burton gave a presentation at the Moore Stephens Managing Partners Conference this past fall in Las Vegas and distributed copies of one of his books, Focus Pocus: 24 Tricks for Regaining Command of Your Day. It's a really quick read (I'm talking hours, not days) with tips you can use right now. One of those tips is to "Create a Designated Workspace."

This means creating actual space.

"Most people have their desks stacked with files, strewn with pictures, covered by inboxes and outboxes," he wrote in his book. "[They] leave only a small space on their desks . . . on which to actually work."

I've seen some accountants' desks – especially during tax season – and often, I can barely see the desk, or any area surrounding the desk, for that matter.

"Why are the piles on the desk?" he asked me when I broached the subject with him during a recent phone call. "Because people have allowed it."

So what are they supposed to do with all those client files?

Put them on the floor.

People have 120-degree peripheral vision, so even if they're looking at their monitor or focusing on a particular file, they can still see the other files on the desk, which most likely will take up valuable real estate in their minds when they should be focusing their full attention on that one file or task at hand.

Burton has gone so far as to take people's files and place them on the floor. That didn't bode so well, so now when he's coaching them, he instructs them to do so themselves while he's in their office and then observes the results, which point toward better focus.

Could there be order in clutter? Certainly. Especially if you've developed a well-oiled filing system that works for you, no matter how chaotic it may seem or look to others. But try storing that clutter somewhere you can't constantly see it.

Out of site, temporarily out of mind.

Focus Pocus also provides several easily implementable tips about responding to employee and client requests based on your existing schedule, as opposed to "ASAP."

But what about those clients who have grown accustomed to immediate responses?

"You have a choice as a professional with any client at any time. Do you want to be enslaved to this or in command of it? It's the passive allowance that creates the enslaving environment. If you want to command, you have to act," Burton said.

Call up your clients and tell them you want to change the way you do business to be more efficient this season. After all, won't they want you to make the best use of the time you're charging them for? (This is assuming you're billing by the hour, but that's a topic for another article.)

"What clients want is a responsive, efficient, and effective professional," Burton said. "If you're running your business in such a way that you're going to die ten years early of an aneurism, should you make a change? Yes. How? Do it and communicate it effectively. Let's change the rules."

Start out on the right foot with new clients, too. Set up short conferences to ask them what their expectations are in terms of interacting with you and share your expectations as well.

Both inside and outside the office, try managing others better.

"Understand the dynamic of your work environment," Burton says. "If you send someone an e-mail three times and they don't answer, try calling them, call their assistant. Find another way."

Alexandra DeFelice is senior manager of communication and program development for Moore Stephens North America, and a regional member of Moore Stephens International, a network of more than 360 accounting and consulting firms with nearly 650 offices in almost 100 countries. She can be reached at adefelice@msnainc.org.

Review of the PCAOB's Enforcement and Investigations Program
By AccountingWEB Staff
January 26, 2012 – In his January letter to Mary Schapiro, chairman, U.S. Securities and Exchange Commission (SEC), James Doty, chairman, Public Company Accounting Oversight Board (PCAOB), stated, "I am pleased to transmit to you a summary of the PCAOB's most recent performance review, Review of the Public Company Accounting Oversight Board's Enforcement and Investigations Program." Doty explained that the board's office of Internal Oversight and Performance Assurance (IOPA) conducted the review to provide the board, the SEC, and others assurance that the PCAOB “is achieving the objectives of Title I of the Sarbanes-Oxley Act (SOX) in an effective manner."

The review determined that the PCAOB's Division of Enforcement and Investigations (DEI) did have a program in place to "enforce audit-related laws and rules consistent with the board's strategic goals." However, IOPA found that the DEI faces challenges in carrying out its enforcement responsibilities, including constraints imposed on the board by the Act itself. In that regard, the director expressed his view “that the most significant issue facing the board’s enforcement program and its ability to effectively protect investors was the statute-mandated nonpublic nature of disciplinary proceedings.” In the director’s opinion, nonpublic proceedings:

• Deny the public access to important information regarding PCAOB cases;
• Incentivize firms and individuals to litigate cases regardless of merit, needlessly consuming valuable board resources;
• Deprive interested parties of the transparency needed to evaluate the effectiveness of the board’s enforcement program; and
• Limit the board’s ability to use its enforcement authority as a tool to improve audit quality and deter violations of Board rules.

SOX also provides that “if final board sanctions are appealed to the SEC, the imposition and public reporting of those sanctions [are] stayed unless and until the SEC lifts the stay. The potential for this further delay adds even more incentive, in the director’s view, for firms to litigate as long as possible regardless of whether they believe they will ultimately prevail.”

The review also led to the conclusion that a number of opportunities existed “to improve internal processes and, potentially, case timeliness.“ Those opportunities include:

• Tracking, evaluating, and reporting case status and timelines more effectively;
• Determining whether document reviews and other case-related workflows could be streamlined;
• Determining whether additional responsibilities could be delegated to the associate director level;
• Developing additional strategies for intra-DEI communication as cases progress and for leveraging lessons learned once cases are completed; and
• Conducting additional training for DEI staff.

In addition IOPA made several recommendations with the intent to further facilitate “DEI’s efforts to maximize its effectiveness and timeliness, and to further leverage the skills and experience of its staff members.” The director agreed with each recommendation.

States Change Audit Positions without Authority: WHAT??
By Brian Strahle
January 25, 2012 – Throughout my career I have faced several instances where states have made audit assessments or taken positions under audit that contradict the position the state has taken in the past when it has audited the company. This change in position by the state has occurred even when there has been NO CHANGE in the state's statutes, rulings and court cases since the last audit.

Should the state be able to change their position without any change in authority? In most cases I would say no. Unfortunately, when you challenge the position within the audit, you may not get anywhere. You may have to go to appeals or even court to resolve. My experience is that resolution is highly likely at the appeals level (this obviously depends on the facts of each case).

With that said, getting back to my original question, should a state be able to change its position without any change in authority? Allowing states to do so causes a taxpayer to incur time and money to challenge the change in position, when there is no reasonable basis for the change.

Why would a state make an assessment when there is no change or basis for the assessment? Well, the answer may be that the state has changed its policy or interpretation of a statute or regulation. The state may believe that this change in interpretation is enough. It may or may not be, depending on the facts of the case.

Overall, if you run into this situation don't just accept it. Question it. Challenge it. Just remember, you may have to go to appeals to resolve the matter.

DISCLAIMER: Each case is different and states may have justification for their change in position. This is a reminder to not just accept the change, but to seek to clearly understand the state's position so you can determine if you should challenge it.

Efficient Tests of Balances Series – 9: How to Audit Cash Efficiently
By Larry Perry
January 20, 2012 – Learning “how” to audit cash is mainly learning “when” to audit cash and to “what extent” cash auditing procedures should be applied. The cause of much over-auditing on many engagements, the amount of audit work necessary depends on risk of material misstatement (RMM) evaluations at both the financial statement and classification (assertion) levels. For example, when RMM is low at the financial statement and assertions level for cash, few substantive procedures may be necessary. Substantive procedures may, in these circumstances, consist almost entirely of analytical procedures.

COMMON YEAREND SUBSTANTIVE PROCEDURES FOR CASH

Analytical Procedures

Reading the General Ledger:

One of the most pervasive analytical procedures is reading, or scanning, the general ledger account activity. Whether done manually, or with the assistance of data extraction software, this analytical procedure is discussed for the first time in professional standards in SAS Nos. 106 and 109.

Many auditors customarily perform this procedure but fail to consider its effect on their audit strategy. After any errors are corrected by proposed journal entries, the auditor has obtained significant, substantive evidence that relevant assertions for many account balances are reasonable. The evidence obtained from this risk assessment procedure should enable the auditor to reduce the assessed level of risk of material misstatement and, therefore, the extent of evidence desired from detailed tests of balances.

This procedure is usually performed by looking for (1) unusual amounts or postings, (2) transactions or general journal entries greater than the lower limit for individually significant items, (3) checks or disbursements to be used in support tests, and (4) other unusual matters. Documentation of the procedure should include the parameters of the test, the exceptions the test revealed and the resolution of the exceptions in a spreadsheet, memo or other working paper.

Other Analytical Procedures:

For all levels of risk of material misstatement, other analytical procedures normally performed for cash would include:

• Compare account balances with the preceding year or years. Investigate significant changes in amounts or deviations from trends.
• Investigate accounts opened or closed during the year.
• Investigate credit balances to determine if they represent actual bank overdrafts.
• Compute quick current ratio (cash and net receivables to current liabilities) and compare to prior year or years.

Other Substantive Tests of Balances Procedures for Cash:

The nature, extent and timing of detailed tests of balances procedures should be determined based on the assessed level of misstatements for each financial statement classification (assertion level). The assessed level of risk should be determined based on the documentation of the auditor’s risk assessment procedures. The following illustration demonstrates the effects of the assessed level of risk of material misstatement on cash tests of balances procedures.

High assessed risk:

Prove all major bank reconciliations at the engagement date. Trace most reconciling items to cutoff statements. Confirm all accounts. Perform extensive search for unrecorded transfers.

Slightly less-than high assessed risk:

Prove all major bank reconciliations at the engagement date. Reduce the number of reconciling items traced to subsequent month’s statements. No cutoff statements may be necessary; next month’s statements may be used. Reduce the extent of the search for unrecorded transfers. Confirm all accounts.

Moderate to low assessed risk:

Prove only major reconciliations at engagement date; review others for reasonableness. No cutoff statements; use next month’s statements. Review records for only larger unrecorded transfers. Confirm all accounts.

My live and on-demand webcasts entitled, Basic Staff Training Series, contain detailed training on how to audit cash and other account classifications. You can download syllabuses and register by clicking the applicable box on the left side of my home page, www.cpafirmsupport.com.

State Tax Provision Time - Who Cares?
By Brian Strahle
January 22, 2012 – It's that time of year again - Tax Provision Time. Yeah!!!

Is your company currently calculating its 2011 tax provision? If so, how is your state income tax provision going? Did you calculate your effective state tax rate? Did you take into account your company's significant state tax add-back and deductions? How about changes in apportionment? Law changes? Rate changes?

How about everyone's favorite - state uncertain tax positions or UTPs. Is your company taking those into consideration correctly? Is your reserve growing year after year? Did your company conduct the appropriate level of analysis (a thorough one) to determine what, if any reserve needs to be recorded for FIN 48 purposes?

What items could you possibly need to set-up a reserve for?

1. Nexus

2. Intercompany transactions

3. Combined reporting vs. Separate company return filing

4. Apportionment factor issues (measurement and sourcing)

5. Restructuring challenges (forced combination, etc.)

6. Business vs. Nonbusiness income characterization