In March, the Public Company Accounting Oversight Board held hearings about whether to require public companies to change — or “rotate” — their external auditor periodically. Meanwhile, the European Union is proposing to require mandatory rotation every six or 12 years, and the lower house of the Dutch Parliament recently voted to require auditor rotation every eight years.
Category Archives: Accounting Policy
Medicare Spending Will Be Exhausted in 2024?
An Intermediate Approach to the Auditor Rotation Issue [Huffington Post]
In March the Public Company Accounting Oversight Board (PCAOB) held hearings about whether to require public companies to change (or “rotate”) their external auditor periodically. Similarly, the European Union has proposed mandatory auditor rotation every six or 12 years.
Public-pension pitfalls: What municipal budget troubles mean for bond investors [Washington Post]
Government workers’ pensions may sound like an obscure topic, but it’s front and center in some of the most rancorous of today’s political discussions. Retirement benefits for public workers are at the heart of the conflict between state and local governments and the unions representing their workers — and how that conflict gets resolved will affect investors in the municipal bonds issued by those states and cities. Let’s take a look at the looming public pension crisis, its effect on municipal finance and how accounting reform might help.
Smoothing Corporate Pension Plan Discount Rates
There’s a controversial cost-offset provision in the highway bill currently being debated in the Senate; it would effectively allow corporations to make smaller contributions to their pension plans. And since a smaller contribution means a smaller tax write-off, tax revenue would increase by $7 billion over ten years. Although the bill itself is certainly not headed for an easy passage, this provision has raised some interesting—and complex—issues related to pension accounting.
Time to tighten rules on US pensions [Financial Times]
Using debt value adjustment to inflate profits
Financial results in large banks have been inflated in the third quarter due to an accounting rule called “debt value adjustment” (DVA). DVA states that banks are allowed to mark their debt to market. In other words, if their debt decreases in price on the market, this is interpreted as a decrease in liabilities and is reported as profit. In the third quarter, this rule created £10 billion in profits in the biggest U.K. banks and $12 billion in profits in the biggest U.S. banks.
Relaxing accounting standards for small businesses
From the New York Times, on possible new, relaxed accounting standards for smaller companies:
The parent organization of the Financial Accounting Standards Board will propose on Tuesday that a new body be set up to modify accounting rules for private companies, some of which have complained that existing rules are too complicated and costly.
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