THE HANDWRITING ON THE WALL MAY BE A FORGERY

What do Bernie Madoff, the Stanford Financial Group and Akai Holdings all have in common? Answer; they were all involved in major financial frauds. Almost a day doesn’t go by that the news media isn’t reporting another suspected financial fraud. So, is there an opportunity here? If you are an accountant or an auditor you are in luck. CPAs in today’s business environment are being called upon to apply their professional skills in the legal arena more and more frequently; especially in the area of forensics. The term “forensic” means suitable for use in a court of law.

The AICPA says that there is a growing demand for CPAs skilled as forensic accountants or forensic auditors. The terms forensic accountant or forensic auditor are used interchangeably since both perform the same basic functions. They may also be referred to as investigative auditors.

The forensic auditor will use their understanding of financial reporting systems, accounting and auditing standards and procedures, evidence gathering and investigative techniques to perform their engagements. Quite often the forensic auditor will be required to report his or her findings in a court of law.

Forensic auditors may be called upon to examine financial documents in white collar crimes such as:
· Fraud
· Identity theft
· Embezzlement
· Securities fraud, and
· Insider trading

The forensic auditor may also be asked to:
· Investigate potential financial frauds
· Calculate and quantify losses or damages
· Analyze lifestyles for spousal support purposes
· Determine income available for child support

Forensic auditors may have one of more of the following professional credentials:
· CPA – Certified Public Accountant
· CFE – Certified Financial Fraud Examiner
· CFF – Certified in Financial Forensics

If you would like to know more about forensic accounting or auditing, click here for a list of courses on forensic accounting and auditing.

So what do you think? Should you add forensic accounting or auditing to the list of services you provide?

We’re From the Government and We Need HELP!

You know it seem like a day doesn’t go by that there isn’t a story on the evening news or in the local paper about another governmental entity struggling to address a significant budget short fall. This is a problem that seems as though it should have a very simple solution. The government should simply live within its means and reduce their spending like you or I have to do; but that’s easier said than done. When you consider that 60 to 80% of a governmental entity’s budget usually goes to pay salaries and benefits you realize that solving the problem is not as simple as it first appeared. Where 80% of a governmental entity total budget is expended on salaries and benefits a reduction of 10% of the entity’s total budget is actually a 50% reduction of non- salary related expenses which is usually not a viable option. So what are their options?

The governmental entity basically has three options; raise taxes or reduce expenditures, neither of which is a popular solution, or there is bankruptcy. Chapter 9 of the U.S. Bankruptcy Code specifically addresses municipalities which include cities, counties, townships, school districts, and other special districts, but not states. In the 70-plus years since Chapter 9 has been part of the bankruptcy code, relatively few municipal bankruptcies have been filed. However, recent events and the current economic environment have made municipal bankruptcy a more prominent issue and provided a greater need to address the accounting implication that result from these filings. So in December 2009 the Governmental Accounting Standards Board issued GASB Statement No. 58, Accounting and Financial Reporting for Chapter 9 Bankruptcies, establishing requirements for recognizing and measuring the effects of the bankruptcy process by governments on assets and liabilities and classifying changes in those items and related costs. The Statement applies to all governments that have petitioned for relief under Chapter 9 or have been granted relief under the provisions of Chapter 9, including governments that enter into bankruptcy and are not expected to emerge as a going concern. The Statement does not apply to troubled debt restructurings that occur outside of bankruptcy. The Statement requires governments to re-measure liabilities that are adjusted in bankruptcy when the bankruptcy court approves a new payment plan. For governments that are not expected to come out of bankruptcy as going concerns, assets should be re-measured based on the amount expected to be received. GASB No. 58 is effective for periods beginning after June 15, 2009, with retroactive application required for all periods presented during which a government was in bankruptcy.

Bankruptcy is usually a means of last resort but I have seen at least one other very innovative way in which a government tried to close their revenue gap. They offered to their citizens the opportunity to buy naming rights to street lights and various other governmental infrastructures. So why shouldn’t government sell naming rights to their infrastructures, all of the major sports teams sell the naming rights to their stadiums? I don’t think that I would want my name on the local waste water treatment plant but city hall might be nice. What do you think?

BIG GAAP/LITTLE GAAP

We were once the world leader in a lot of things but it seems here lately we are always the last one to the dance. For example, the accounting profession in the US has been arguing for years about whether we should have two sets of accounting standards; one for public companies and another for private companies. To our chagrin the International Accounting Standards Board (IASB) accomplished in a couple of years what we have been unable to do in decades; establish GAAP for non-public companies.

Late last year, the AICPA and the Financial Accounting Foundation (FAF) announce the formation of a blue-ribbon panel to address how accounting standards in the US can best meet the needs of users of private company financial statements. The formation of this panel represents the latest in a series of developments related to the big GAAP/little GAAP debate.

Also in January the Private Company Financial Reporting Committee (PCFRC) sent the chair of the FAF a letter in which it recommended that the FAF address the issue of private company accounting in the context of the FASB’s mission. The PCFRC also indicated its preference for a separate, stand-alone set of accounting standards for private companies in the US. When announcing the formation of the blue-ribbon panel, the president of the FAF indicated that the FAF had heard from the PCFRC and many others about the need to address the issue of private company GAAP. Although the panel is not yet fully staffed, it’s expected to issue recommendations sometime this year. It shouldn't take a year; they have a complete set of non-public company GAAP standards prepared for them by the IASB. The panel is expected to provide recommendation to the future of accounting standard-setting for private companies, including whether there is a need for separate standalone accounting standards for those companies.

Do you think that if the IASB had not issued their International Financial Reporting Standards for Small to Medium Sized Entities (IFRS for SMEs) that we would have a blue-ribbon panel trying to address the issue? I don't, what do you think?

Sign Me Up, Boys!

In January the IRS announced their tax preparer initiative that will require some 1.2 million (that’s the IRS’s estimate) unenrolled tax preparers to successfully complete competency testing and mandatory continuing professional education. Attorneys, CPAs and enrolled agents will be exempted from the competency testing.

So is such a program really needed? Evidentially the answer is YES. On April 8, 2010 the Feds charged 26 New York tax preparers with allegedly filing some 35,000 suspected fraudulent income tax returns. Generally here is what they are proposing:

1. All paid signing preparers, regardless of their license, must register with the IRS and obtain a preparer tax identification number (PTIN). Note: the IRS will charge a fee for registration and renewal. The amount is yet to be determined. Tentative introduction of the program for registration is September 1, 2010.

2. Unenrolled preparers will be required to complete competency testing and mandatory continuing education. No one will be grandfathered in so an unenrolled preparer’s work experience will not exempt them from taking the tests.

3. There will be at least two tests; one on wages and non-business 1040 preparation and one on wages and small business preparation.

4. Existing preparers will have approximately three years to pass the competency testing requirement. Passing the exam is similar to the CPA exam in that you only need to pass the exam once.

5. Once a preparer passes the exam they will be required to obtain 15 hours of continuing professional education annually. The training must me composed of three hours of federal tax law update, two hours of ethics and 10 hours of other income tax related topics.

6. All tax return preparers will be required to comply with Circular 230 ethics requirements relating to practice standards that every tax professional must follow if they want to represent clients before the IRS.

There are still a lot of unanswered questions that will have to be addressed before we really know what is going to be required by the initiative but it is obvious that the IRS is determined to reduce the amount of fraudulent returns that are filed each year so stay tuned.