2006 - Publisher Lou Grumet’s April 2006 column, “Professional
Ethics and the CPA in Industry,” caught my attention.
I have to assume that the rules for CPAs in industry cannot
be very different from those for CPAs in public practice.
I also think that those ethical issues should be no different
than those confronting any corporate officer, whatever his
background. Presumably, the CPA in industry has more expertise
in accounting issues than the non-CPA. Therefore, it is his
responsibility to make clear to his colleagues what is wrong
with what they propose to do, if it is really wrong. If it
is a gray area, however, he should be able to explain that
as well. This is no different than the responsibility that
a medical doctor working for a pharmaceutical company has
when he sees something awry in his company’s research
(think Merck); or the responsibility that an engineer working
for a construction company has when he sees inadequate construction
methods on a bridge, where peoples lives would be at stake
are ethics, and it is perfectly proper for different members
of a management team to bring different skills to the table,
first for discussion and then for action. The poor fellow
in the hypothetical situation described in Lou Grumet’s
column, who might have to quit his job because what he perceives
as a gross violation of accounting principles is not viewed
in the same way by his own management, should have no trouble
getting another job. Of course, that presumes that he did
try to explain the problem as he saw it and that he was
totally unable to persuade his peers or bosses that what
they were doing was clearly wrong. As most accountants know,
many accounting choices and judgments made in good faith
and with proper backup are not universally accepted.
writer is a senior vice president in charge of portfolio
management services for high-net-worth clients at a large
financial services firm.
Sale Gain Exclusion’
and the Home Sale Gain Exclusion,” by Tom Moore (The
CPA Journal, August 2006), was an interesting and informative
article on the aspects of tax savings with respect to an
inherited principal residence. I noted the citation of Hahn
v. Commissioner [110TC140 (1998)] and wondered why
the author did not cite the Gallenstein case, a
Sixth Circuit Court of Appeals decision from 1992 that established
the rule Hahn followed. Many have successfully
used Gallenstein in our estate planning for the
past 14 years. Indeed, if I am not mistaken the Tax Court
in Hahn cited Gallenstein.
New York, N.Y.
writer is correct that Gallenstein [70 AFTR 2d
92-6228 (1992)] established that for a joint tenancy established
before 1977 for married couples, if one spouse has furnished
all the consideration for the purchase, then the entire
interest will be included in the estate of that spouse,
allowing the surviving spouse to receive a full step-up
in basis. Six years later, in Hahn, the IRS Commissioner
unsuccessfully relitigated the issue using new and additional
arguments that had not been tried in Gallenstein.
Frequently, the Commissioner will continue to refine arguments
and relitigate similar issues in later cases in attempts
to overturn adverse opinions. For example, in litigation
involving family limited partnerships, the IRS Commissioner
had a long losing record before successfully attacking many
family limited partnerships using IRC section 2036.
Moore, PhD, JD
Georgia College and State University, Milledgeville, Ga.
on ‘Relevant Information’
Editor-in-Chief Mary-Jo Kranacher stated in her June 2006
editorial, “The GAAP Between Public and Private Companies,”
has a lot of credence.
and foremost, I was always led to believe that financial
statements and the information presented therein are the
primary responsibility of management. That said, at what
point does the responsibility shift to the CPA? Certainly,
in going-concern issues, the CPA must make sure that informative
presentations are included in the company’s financial
Kranacher stated that ours is a litigious society, and that
is quite true!
the buck doesn’t stop there. The people themselves
are the major problem in this society. Few people want to
take responsibility for their own actions. Society as a
whole is riddled with this false way of thinking, and unfortunately
too few people are willing to buck this trend. The
younger generations, now growing up, believe they should
be able to get whatever they want—immediately, no
less. If something goes wrong, someone else is to blame.
This is the message being pushed in our society. If a child
falls off a high chair, or falls down from a playground
slide, it is not their fault. The “victims”
go looking for someone else to blame—the manufacturer,
the contractor, and so on. This
idea is propagated by the continuous rise in “slip-and-fall”
and other litigation attorney specialists. Fault should
really be put right back onto the attorneys, the courts,
and the governments for not limiting such lawsuits and court
awards, and for even allowing such ridiculousness to fester.
Also too, society as a whole must get back to a more correct
way of thinking and rearing our children with good common
sense and upstanding morals and taking responsibility for
their own actions.
user of financial statements, such as a bank, will not lend
to any company based solely on the presentation of their
financial statements. There is always a sit-down with plenty
of questions and additional information requested. As an
investor, I welcome additional information. However, I also
have questions about the company and its operations that
can never be asked and answered completely. This is part
of the “speculative” aspect of owning stock
in a company. The money paid for a security is always subject
to the whim of the market; whether it goes up or down, one
hopes the good companies will always continue to rise. Investors,
although the first to complain (and I will count myself
among them), receive very little, if any, money in any class-action
suit. To receive two or five cents on a dollar when most
of a class-action award goes to pay attorneys fees is ludicrous.
“relevancy” for some might be nearly consistent,
Kranacher’s examples leave questions unanswered and
might actually create more havoc than necessary. If at statement
date the financial information states that the company lost
its most productive scientist, does that create good information
or misinformation when the investor sees it in writing by
the CPA? The company may have already replaced the scientist
with someone better by the time the financial report is
disseminated. Confusion may readily take place as investors
sell off their stock based on one-sided information “provided
by the CPA,” which will actually hurt the company
and its stock. So, is it the CPA’s responsibility
to amend its additional relevant/financial information to
include the hiring of a replacement? What if the replacement
was one of the best minds in the field? Is it really the
CPA’s responsibility to keep the public informed as
to management’s decisions?
plays an extremely important role in getting information
out. Unfortunately, bad information is generally slower
to get out. I wish that I had more timely relevant information
before some of my investments tanked, as did so many other
investors who have lost great amounts of money, and many
employees who lost their jobs and their pension and profit-sharing
back to Mary-Jo Kranacher’s first premise of relevant
information: Is it the CPA’s responsibility? Certainly
it would be for not reporting something that the CPA knew
to be a detriment to the investing public. But—how
do you measure financially the impact of such happenings?
What would the loss of a scientist or a board member or
officer be worth? What would it equate to in real dollars?
How could one even begin to measure the financial impact
of the loss of personnel without creating mayhem in the
is another thought: Maybe we CPAs have just become the fall
guys for someone to blame for “natural” occurrences.
J. Oftring, CPA