Tax Break

An ambitious reform agenda at the main U.S. auditor watchdog — already under fire from the accounting industry — has now drawn the ire of members of Congress.

At a hearing on Wednesday, members of a House Financial Services subcommittee took aim at the Public Company Accounting Oversight Board, saying some of the items on its agenda, including term limits for audit firms and making its disciplinary proceedings public, would amount to regulatory overreach.

Investor advocates had expected for some time that PCAOB chairman James Doty would be called before Congress to defend his activist agenda. The rotation idea, still in its early stages, would upset some of the accounting industry’s longest-standing client relationships, and the business lobby has pressed Congress to intervene.

Likewise, accounting firms are nervous about the PCAOB’s push to publicize disciplinary proceedings before all appeals are exhausted. The PCAOB is forbidden by law from doing that now, a restriction that allows misconduct to remain secret for years while firms litigate.

Speaking on the sidelines of Wednesday’s hearing, Doty told Reuters reporter Sarah Lynch he expected questions from Congress about making disciplinary proceedings public sooner.

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Top watchdog, U.S. Chamber clash on auditor rotation. Dean Aubin – Reuters. At a forum on whether corporations should be required by regulation to switch auditors every few years, Public Company Accounting Oversight Board Chairman James Doty clashed with the U.S. Chamber of Commerce. The chamber had written the PCAOB urging it to withdraw a white paper that it issued asking for public comment on auditor rotation. Doty said that the PCAOB has been looking at other ways of improving audit quality at the two-day forum. He suggested it was important for the PCAOB to look into rotation so it could have input on an issue being considered in other countries. Link

* IRS audit rate jumps for U.S. millionaires. Reuters. U.S. tax officials are looking more closely at the tax filings of multimillionaire earners, with the audit rate for those making more than $10 million a year jumping in 2011, according to newly released documents. The Internal Revenue Service audited about 30 percent of the returns of those with adjusted gross income of $10 million or more in 2011, according to statistics released on Thursday. By contrast, in 2010, the agency audited about 18 percent of that group. Link

* UK’s Osborne takes heat over budget’s ‘Granny Tax.’ Cassell Bryan-Low and Nicholas Winning – The Wall Street Journal. UK Chancellor of the Exchequer George Osborne faced a public backlash on Thursday as his budget — pitched as a determined move to fix the economy through austerity — instead was assailed as pandering to the rich while hitting pensioners with what was quickly dubbed a “granny tax.” The budget spat began Wednesday, when Osborne included a provision dropping the country’s top personal income-tax rate to 45 percent from 50 percent for those who earn more than 150,000 pounds ($198,600) annually. At the same time, the budget included a measure freezing a threshold above which people pay income taxes, which will result in slightly higher payments for some pensioners over time. Link

Tomorrow is day one of the Public Company Accounting Oversight Board’s high-profile gathering of accounting and financial luminaries debating the topic of auditor rotation.

Among the marquee names who will join the discussion: heads of each of the Big Four audit firms, three former SEC chiefs, former Fed Chairman Paul Volcker, and founder of The Vanguard Group John Bogle. On Thursday, a second day will feature top finance executives and audit board chairs from many of the largest U.S. public companies.

Fireworks are likely.

Following an August announcement that the auditor overseer would delve into whether or not to require companies periodically switch their audit firm, the PCAOB has been barraged with over six hundred comment letters on the idea and has extended the time for public comment until April 22.

Tuesday, March 20  

·         The Senate Finance Committee hearing, “Tax Fraud by Identity Theft, Part 2: Status, Progress, and Potential Solutions” will start at  10 a.m. in Room 215 of the Dirksen Senate Office Building. Testifying will be Steven T. Miller, IRS deputy commissioner for services and enforcement, Ronald A. Cimino, Justice Department deputy assistant attorney general for criminal matters, and National Taxpayer Advocate Nina Olson.

 ·         The House Financial Services Committee has scheduled a hearing on the state of the international financial system that will also begin at  10 a.m. but in Room 2128 of the Rayburn House Office Building. Treasury Secretary Timothy F. Geithner will testify.

German Chancellor Angela Merkel REUTERS/Thomas Peter Welcome to the top tax and accounting headlines from Reuters and other sources.

* Opposition presses Merkel on transaction tax. Quentin Peel – The Financial Times. Angela Merkel, the German chancellor, is facing growing pressure to accelerate the introduction of a financial transaction tax in Europe, in order to win approval for the eurozone’s new treaty on fiscal discipline in her parliament. Both leading German opposition parties – the Social Democratic party and the Greens – are calling for action on the FTT as the price of their support for the new treaty, signed last week by 25 of the 27 European Union member states. Merkel’s legal advisers say she needs a two-thirds majority in both the German Bundestag, the directly elected parliament, and the Bundesrat, the chamber representing Germany’s 16 federal states, in order to ratify the treaty. That means relying on both the SPD and Greens to back it in both houses of parliament. Merkel and Wolfgang Schäuble, German finance minister, have both said that if an EU tax is not possible, they would be prepared to back it for the 17 eurozone countries. Link

* Swiss amend U.S. tax treaty. Laura Saunders and Goran Mijuk – The Wall Street Journal. The Swiss parliament on Monday amended a tax treaty with the U.S., allowing Washington to more easily identify U.S. taxpayers with undeclared Swiss accounts. The lower house’s approval following the Swiss senate’s backing in December paves the way for the ratification of a tax-information-sharing agreement between the two countries. Lawmakers hope the change also will help end a years-long tax battle and lessen U.S. pressure on some Swiss banks. Under the new treaty, U.S. authorities will be able to ask the Swiss to disclose names of U.S. taxpayers at a bank who exhibit certain “behavioral patterns” indicating tax evasion under U.S. law, such as trying to conceal the ownership of the account through a trust. The U.S. also will be able to request information even from small cantonal banks that, unlike UBS and Credit Suisse Group, don’t do business in the U.S. Link

* U.S. watchdog finds deficiencies in BDO audits. Dena Aubin – Reuters. The U.S. auditing industry watchdog faulted major accounting firm BDO USA LLP on Monday for numerous deficiencies found in some 2010 audit inspections, the latest of several negative reports on U.S. accounting firms. BDO’s auditors failed to identify or address financial misstatements and in some cases failed to get enough evidence to support audit opinions, the Public Company Accounting Oversight Board said in an inspection report. The PCAOB said that in one case, BDO auditors did not properly test fair-value measurements for mortgage-backed securities and other hard-to-value securities. Link

A worker arranges a saree drying after dyeing in a village south of Kolkata REUTERS/Rupak De Chowdhuri

Some events in the week ahead:

Monday, February 27 – Tuesday, February 28
The Practicing Law Institute will sponsor a two-day program in New York featuring speakers from Treasury and the IRS on a number of topics including investment adjustments, accounting issues, Treasury Department developments, inter-company transactions, and tax attributes and consolidation.

Tuesday, February 28

* The Public Company Accounting Oversight Board will hold an open board meeting at its offices at 1666 K Street NW in Washington DC and via web conference to consider proposed standards on related parties, significant unusual transactions and other matters. Starting at 9:30 AM.

John Biggs, a key figure in a 2002 Congressional debate over term limits for public company auditors has thrown his support behind the idea again.

Breathing some life into an idea auditors are trying feverishly to snuff out, retired TIAA-CREF chairman John Biggs has told auditor regulators that public companies should be required to change auditors after 10 years.

His remarks, in a recently posted letter to the Public Company Accounting Oversight Board, are among the few comments the board has received advocating audit firm rotation, a controversial idea vehemently opposed by the accounting and business groups.