Financial Daily from THE HINDU group of publications
Thursday, Mar 18, 2004
Will accountants enter the GAAR den?
After that `stunt', as TaxZone puts it, there are fears that there would soon be a `disclosure requirement' that could, under threat of penalty, force advisers to discuss with the Inland Revenue before marketing avoidance schemes to clients.
Such a move could be in sync with the disclosure regime that the US adopts, and is planning to make `tougher'.
So, they are talking not so much about GAAP but GAAR, that is "general anti-avoidance rule", something that would allow the Revenue "to ban any avoidance scheme it didn't like".
GAAR needs more people to police, say critics, but manpower could flow in when there are large-scale redundancies consequent to the rumoured merger between the Revenue and Customs.
Rectification of errors
It cites numbers from Reuters Research (that in 60 cases companies made earnings revisions or clarified financial reports at the request of regulators), and Huron Consulting (that in the first quarter of 2003, 70 companies restated earnings, up from 56 for the same period in the previous two years).
Culprit is not `creative' accounting but `overly aggressive accounting'; overzealous executives stretch accrual accounting "to include revenue even if it may not be booked until sometime in the future."
Interestingly, it is not only the SEC that is breathing down the necks of accountants, but also the internal auditors.
They are "asking more questions".
Ads to worry
Thus, licensed professionals, including accountants, can be sued for false claims made in their advertising. Other professionals covered by the Bill are architects, doctors, lawyers, morticians, veterinarians and social workers, reports AccountingWeb.
A trigger for the new move is a recent ruling by the state's Supreme Court that "consumers can't sue doctors for false claims they make in ads because the Consumer Fraud Act did not apply to `learned professionals'," where the case was a class action suit against an eye doctor "who was performing laser eye surgery on sports players even though his licence was suspended for numerous violations."
IRS data reveals that among taxpayers whose AGIs were $100,000 or more, 1 in 94 filers (or 1.06 per cent) were audited in 2003.
That's a 24 per cent increase over 2002." Audits are usually of two types, correspondence audit (a milder form of audit, conducted by mail) and the field audit (the dreaded face-to-face audit).
It could be comforting that the ascent is seen in the first category. The IRS Commissioner is said to be bullish:
"We need to do more and continue to increase it, particularly on the big income area."
The Association for Investment Management and Research (a trade organisation for stock research analysts and investment managers) and the National Investor Relations Institute (a group of corporate financial representatives) have thrashed out the "first-ever set of `best practices' guidelines."
Last year, ten large Wall Street firms settled with regulators for $1.4 billion, and the issue was "allegedly biased stock research". Tailored research may result from pressure exerted by investment bankers on their firms' analysts; and also because of companies denying analysts access to information.
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