Updated The Little Paper About Nonprofit Audit Committees (14 pages)

Updated The Little Paper About Nonprofit Audit Committees (14 pages, 9.26.08).

http://davidtate.us/files/The_Little_Paper_About_Nonprofit_Audit_Committees_Dave_Tate_CPA_Esq._9.26.08_.pdf

Updated Audit Committee Responsibilities & Risk Management (42 pages)

Updated paper, Audit Committee Responsibilities & Risk Management (42 pages, 9.26.08)

http://davidtate.us/files/Audit_Committee_Responsibilities_Risk_Management_Dave_Tate_CPA_Esq._9.26.08_.pdf

Needed: mandatory CPE in (1) technical expertise, and (2) responsible decision making!

Some readers are probably aware that as I have shifted some of my focus from discussions about hard technical accounting, auditing and legal issues, to situational and governance discussions analyzing the issue: "how could this have happened?", I have come upon the belief that a significant amount of misfeasance and malfeasance is caused not only by a lack of technical understanding and expertise, but also by the failure of the person to act “responsibly” during the decision making process. To act “responsibly,” or “responsible decision making” in this context means that the person understands his or her duties and responsibilities (and to whom those duties and responsibilities are owed), and then goes about satisfying those duties and responsibilities in good faith to the best of his or her ability through diligent issue spotting, inquiry, investigation, analysis and decision making without self- or conflict of interest.

As I read the news, SEC cases and other materials, there seems to be a significant lack of “responsible” decision making. Now, I do not believe that mandatory CPE will necessarily cure that problem outright, but I do believe that it would help focus attention on the issue, and prompt or help guide many basically honest people to actively advocate for and act in a more responsible manner by using prudent decision making procedures. So . . . I do suggest that a reasonable, not overly burdensome amount of CPE should be mandatory in two broad primary areas for people in certain professions or positions. Those two broad areas are: (1) technical knowledge needed to perform the person’s job or function; and (2) responsible decision making, as discussed above, which would include in-class examples and discussions. How about 16 hours of mandatory annual CPE for officers and directors of public companies, for officers and directors of nonprofit organizations (or at least for officers and directors of nonprofits that exceed a certain threshold amount of annual revenue), and for our federal and state elected representatives in the Legislature? A minimum of 8 hours of annual in-person classroom time in each of the two above-mentioned broad topic areas (technical knowledge; and responsible decision making).

Regards,
Dave Tate
http://davidtate.us
http://auditcommittee.blogspot.com

Link to a discussion about the new Form 990

The following is a link to a short discussion about the new Form 990 for nonprofit tax reporting entities.

http://www.lorman.com/newsletters/article.php?article_id=962&newsletter_id=211&category_id=6

N.Y Times article, '04 SEC rule change allowed investment banks to leverage

Here is one interesting article discussing a 2004 SEC rule change that allowed investment banks to take on considerably more investment debt, in part becoming a contributing factor in the current financial fiasco:

http://www.nytimes.com/2008/10/03/business/03sec.html?pagewanted=1&_r=2&ref=business&adxnnlx=1223098041-uaXDqvAxj3t0Fn9xQX5xmQ

How did this happen--the bailout--its not the first time--accountants weigh in please!

The current bailout isn’t the first time something like this has happened. As I understand the situation (and please correct me if I am wrong), the value of real estate has declined, and there are too many problem or uncollectible mortgages. Didn’t that happen in the 1980s with the savings and loan debacle? On the one hand, on a large or grand scale, it can be difficult to estimate or value when real estate will decline in value, and, for the most part, in general real estate as a whole does not decline in value. However, as I understand the situation, in the late 1990s or the early 2000s Congress eased the Fannie Mae and Freddie Mac loan qualifying requirements allowing for more risky loans to be made (such as with no money down, or without proof of income). That action, if true, was ill-advised. Does anyone view Congress as being prudent when it comes to issues of money or finances? I don’t. It has also been discussed for some number of years that the real estate market is over heated, and that values may drop. Of course, whether values would drop, and the amount of anticipated drop would be difficult to estimate. How should the lenders take those factors, and the amount of reserves, into consideration? How should the regulatory agencies take those factors into consideration? How should the outside auditors take those factors into consideration? I understand that the outside auditor may well be entitled to take the loan/property appraisals at face value. The point of this discussion is not to find fault. The point is to identify the weaknesses in the system, and to correct those weaknesses so as to better prevent a problem of this magnitude from happening again in the future. And, the problem is a very big problem, which will be paid for by the taxpayers. As I see it, not too long ago a similar fiasco occurred. It is way too early for a similar problem to have occurred. This time the weaknesses in the system need to be fixed. What do you think? How do we fix the problems?

Dave Tate, CPA, Esq.
http://auditcommittee.blogspot.com
http://davidtate.us

Corporate climate change disclosures: Xcel Energy settlement with Cuomo

The following is a link discussing corporate climate change disclosures relating to the Xcel Energy settlement with Cuomo.

http://lawprofessors.typepad.com/business_law/2008/09/xcel-energy-set.html

Auditing firm liable for allowing company to go deeper into insolvency

The following link is to the U.S. Court of Appeals, Third Circuit opinion upholding a verdict against PwC for an alleged negligent audit which allowed the insurance company which it was auditing to go deeper into insolvency.


http://www.ca3.uscourts.gov/opinarch/062209p.pdf

Deloitte paper, When CFOs Debate

The following is a somewhat interesting paper published by Deloitte, When CFOs Debate. The paper discusses a few of the issues that CFOs face, and then goes one additional step by providing point and counterpoint discussion. The paper is limited in the "advice" category.

http://www.deloitte.com/dtt/cda/doc/content/us_fintrans_WhenCFOsDebate20088_13.pdf

IFRS coming to an audit committee near you?

On August 27 the SEC voted to publish for public comment a proposed Roadmap that could lead to the use of International Financial Reporting Standards (IFRS) by U.S. issues beginning in 2014, or earlier. The SEC proposes to make a final decision in 2011 whether adoption of the IFRS is in the public interest and would benefit investors. The possible adoption of IFRS by U.S. issuers has been seriously discussed for at least the past couple of years. Based on this latest action by the SEC, and the volume of IFRS guidance published by the large accounting/auditing firms, adoption of the use of IFRS appears likely. What might adoption mean for audit committees? Audit committee member financial literacy would suggest a future need for some additional committee member continuing education about the differences between IFRS and GAAP. Additionally, generally IFRS tends to be less rules and more principles based, requiring the company and the audit committee to exercise (and justify) greater accounting method discretion and judgment. Some current audit committee members might not be interested in making the effort to learn the important aspects of IFRS, or in having to deal with the conversion process, or in the additional effort that may be required to exercise judgment on a greater number of accounting issues.

For your information, the following is a link to an EY paper that summarizes differences between IFRS and GAAP. http://www.ey.com/Global/assets.nsf/US/Assurance_US_GAAP_v_IFRS/$file/us_gaap_v_ifrs.pdf