FEI Calls For FASB Standards Moratorium

A recent position paper by Financial Executives International asserts that complexity in U. S. accounting standards is damaging competitiveness in capital markets. FEI's "Four" (actually more like five) point program calls for a suspension of new accounting standards, movement to a principle-based standards approach based on FASB's Statements on Financial Accounting Concepts and consistent with IASB standards, mitigating legal liability with special emphasis on class-action lawsuits, balance of investor and outside stakeholder protections with market competitiveness and a "Committee on Complexity as called for by SEC Chair Chris Cox.

A moratorium on new accounting standards would be a welcome relief for almost everybody. I am more skeptical on the balance of market competitiveness/investor protection argument; unless you assume a quite strong degree of market efficiency; FASB and SEC rules do provide some level of protection for smaller investors with limited time and resources to do in-depth research.

House and Senate Find Accord on Small Biz Incentive Part of Minimum Wage Hike

Senate Finance Chair Max Baucus (D-MT) has announced agreement in principle between the House and Senate on tax incentives for small businesses as part of the soon-to-be debated minimum wage increase. The primary provision is an 3.5 year extension of the Work Opportunity Tax Credit; additionally, the limit for Section 179 expensing would be increased to $125,000 and extending the low-income housing credit in the "Gulf Opportunity Zone." Other provisions, many of which raise revenue to offset the cost of the above provisions, include allowing married couples to file a proprietorship return for unincorporated businesses, a new penalty on unreasonable refund claims, an increased tax preparer penalty for understating tax liabilities, extending the "kiddie tax" provisions to under-19 (presently under-18) and making permanent certain IRS user fees.

Given the 2006 results, it is hard to imagine the minimum wage hike losing in Congress or being vetoed by President Bush. The Work Opportunity Credit sounds like a good way to encourage employment of people with marginal skills--the rest seems primarily to add complexity to the already complex IRC.

Deloitte Study: Reasonable Work Hours are Good for your ETHICS

A newly-released survey by Deloitte Touche shows a strong link between work-life balance and strong ethical behavior, with supervisory actions and encouragement also being strongly linked.
Sharon Allen, DT Chair, said that excessive work hours risked having an excessive self-esteem investment in the job. Additionally, inflexible work schedules and workplace stress tended to produce alienation from management and its goals--60% of survey respondents felt that job dissatisfaction was a leading cause of unethical behavior. A somewhat surprising pair of results--increased criminal penalties for unethical behavior and ethics training classes were seen by respondents as having little impact on the level of ethical behavior.

The survey results for the most part were consistent with common sense, with "tone at the top" adherents finding support for their views while supporters of ethical training (such as required continuing education in ethics) getting less aid than expected. The "pressures" point of the fraud triangle also was supported by the results.

Paulsen: Closing "Tax Gap" Not Child's Play

Treasury Secretary Henry Paulsen testified this week before the Senate Finance Committee and emphasized simplification of the tax code and enacting Treasury legislative proposals,which he said included a dozen approaches to reduce the tax gap with minimal pain to taxpayers. Paulson said that a major cut in the tax gap would require draconian rules on all taxpayers and that the tax gap could not be looked at as a spendable "pot of gold." Paulsen was particularly critical of requirements where taxpayers provided 1099s to service providers and eliminating cash transactions for electronic transactions with credit cards having major new reporting requirements. All the same, Chair Max Baucus (D-MT) demanded that the Treasury develop a plan to improve tax compliance from 84% to 90% in the next 10 years, claiming that this would provide an additional $150 billion annually.

I certainly can understand the desire to reduce the tax gap, both from a revenue-raising and a horizonatal equity standpoint. Nevertheless, measures which make Americans feel like they are tax gatherers will meet with resistance and DAMAGE voluntary tax compliance. Paulsen's simplification strategy sounds to me like the strategy with the best chance of cutting the tax gap.

XBRL--Coming Soon to a Client Near You

At the Society of Business, Industry and Economics conference I attended early this week (see Monday's post), Dr. Ernie Capozzoli of Kennesaw State University (an up-and-coming accounting program in the Atlanta area), who is working on the SECs XBRL project in the 0il-and-gas area, updated those attending on the progress. Dr. Capozzoli believes that the SEC will mandate XBRL in the next 1-3 years (presumably meaning for publicly-traded businesses) and that the IRS is also looking at XBRL for corporate and other business returns--tax people are NOT off the hook. He indicated that the SEC (and perhaps American Accounting Association as well) would be doing seminars on XBRL and that Professor Skip White of Delaware had a monograph on the topic. Advantages claimed for XBRL included greater consistency in reporting transactions, reduced error rate and greater timeliness.

I do not foresee mandating of XBRL in a presidential election year, but certainly 2009 could see required use of this language. I strongly encourage all CPA firms with any publicly-traded clients to start preparing for XBRL in earnest now; at the same time, even semi-small CPA firms should have at least one or two people taking CPE on XBRL--the need may be less immediate but eventually XBRL is likely to affect in some form all but the smallest CPA firms.

PCOAB Evaluates Auditors on Internal Controls

The Public Companies Accounting Oversight Board recently produced a report summarizing the findings of inspecting 275 audit reports of internal controls to evaluate how well public accountants were implementing PCAOB Standard 2. Emphasized for critique were four areas: integration of audits, use of a top-down approach to testing IC, level of use of other's work and testing at the account vs. the assertion level. Additional comment: some improvement was noted in the integration and top-down areas (perhaps because of added experience) and some lesser concerns included: better use of testing of management processing in tests of internal controls, greater use of benchmarking strategies for automated application controls and better monitoring of the May 2005 Policy Statement as a means to increase audit efficiency.

The report appears to emphasize a teaching approach rather than a critical approach to improving audit performance on internal controls. Given the relative newness of PCAOB 2, I find the teaching approach appropriate.

Confabbing

I'm 200 yards from the Gulf of Mexico (Orange Beach, AL) attending a conference of the Society of Business, Industry and Economics. Fellow Austin Peay professor Taylor Stevenson and I presented a paper on market ramifications of sports betting. Among other interesting papers that I heard today was one on the immenence of XBRL--and not only for the SEC--the IRS is also considering this for corporate taxes. Much more on this topic Thursday or Friday.

Two additional comments today: [1] congratualtions to all the practicing CPAs who have been working so hard on audits and taxes for the last several months. The worst is virtually over; [2] sympathies to anyone associated with victims of the Virginia Tech murders--the thought of a gunman coming in and killing 3o defenseless students and faculty is TRULY frightening.

Time to Grow the GAO?

Congressional Democrats eager to pursue oversight investigations would like to increase funding for the General Accountability Office by almost 8% and add over 500 new staff during the next six years. Senate Appropriations Committee member Mary Landrieu and House committee chairs John Dingell and Henry Waxman have indicated support--Landrieu says that underfunding is "pennywise and pound foolish" while Waxman, who would have more resources to pursue investigations of drug pricing and Iraq reconstruction, called expansion "worthwhile." However, Debbie Wasserman Schultz of the House Appropriations Committee says that the GAO funding request cannot be reached within budgetary limitations. GAO funding was cut when Republicans were in charge of Congress as many in the GOP believed that GAO had a record of engaging in political agendas.

Long-time questions of economics exist here--is it possible to spend money to save an even greater amount of money as GAO head David Walker implies or would GAO expansion simply be used for Congressional "witch hunts" as some Republicans would suggest? Personal guess--GAO gets some funding increase but has to be more patient than Walker wants to be.

AICPA Finds Expectation Gap on Worker Pensions

A survey of nearly 1000 adults by the American Institute of Certified Public Accountants found that 48% expected to receive a pension when they retire (presumably, a pension other than Social Security). Less than 15% of those surveyed indicated that they included 401[k] or similar defined contribution-based plan as a means of funding retirement. An AICPA savings plan for retirement included: knowing retirement needs, learning what their employer offers for retirement, putting money in an IRA, protecting their savings (except perhaps emergency fund) and finding out where they stand with Social Security.

Once again, the AICPA Financial Literacy program has evidence that the program is desperately needed and that many baby boomers will soon be in for a rude shock. Although evidence of the decline (and probable incipient death) of defined benefit retirement plans abounds, the probable boomer reaction will be to blame the federal government for their financial state and demand additional income security measures. On a happier note, however, the AICPA retirement plan is a very good one.

American Institute of CPAs and National Association of Black Accountants (NABA) Join Forces

A five-module program called Money $ense, designed to improve financial stability among African-Americans, was jointly announced by the AICPA and NABA recently. Modules include debt management, investing, saving, financial planning and budgeting. The program is comparable to the 360 Degrees of Financial Literacy operated by the AICPA. NABA will introduce Money $ense in each of its 50 chapters (37 cities) this year. Its goal is for 3000 participants per year, primarily younger African-Americans.

Best wishes to the NABA on a worthwhile initiative. I hope that NABA and Junior Achievement can work out ways to get Money $ense into middle schools and high schools.

"Win Ben Stein's Money"...but Keep Your Own--Six of Ben's Retirement Tips

Well known humorist and pundit Ben Stein provides some guides to a financially-fulfilling retirement. One of the first guides--expect a long (about 20 years) life after retirement if retiring in your early to mid 60s. Specific principles: [1] Save 10-20% of your income (more toward middle age), [2] start saving early (perhaps even teens or early twenties), [3] allocate assets with care--but don't be overly conservative, even as late as the earlier years of retirement, [4] consider long-term yield--Ben quotes ex-Vanguard head John Bogle's endorsement of index stock funds, [5] minimize stock fees and other costs, particularly in mutual funds, [6] control fund turnover to control tax consequences.

I endorse the use of low-cost mutual funds and would add investing in 401[k]s at work, especially if your employer matches your contribution and use of tax-exempt bond funds in years where you expect to have a marginal tax rate of 20% or more.

Scams and Spams: The IRS Strikes Back

The Internal Revenue Service has announced that taxpayers need to be wary of e-mails purporting to be from the IRS. Many of these engage in "phishing" and attempt to gain access to a respondent's social security number, bank personal identification number or credit card number. The IRS mailbox for e-mail schemes, phishing@irs.gov, has collected over 17,500 e-mails from 240+ different phishing attempts based in over 25 different countries. The IRS promises not to do the following: notify taxpayers of refunds by e-mail; provide detailed personal financial information to receive a refund; distribute lottery winnings or freeze a taxpayer's credit card or bank account based on possible fraud against the taxpayer.

In most cases, stopping phishing is a matter of common sense. However, given the fear that the IRS strikes in some (unfortunately, NOT the ones who SHOULD fear the IRS), this public announcement may keep some well-meaning taxpayer from being duped.

Levity to Start April

For many tax accountants and some auditors, the last two months have seen precious few opportunities for humor. Therefore, I bring forth the "sale" of the Found in the Footnotes watchdog site to a Microsoft PR firm (note the "perks" for Michelle and her dog). Not to be outdone, the SEC announced "regualtions" of employees earning more than the CEO and Motley Fool promoted "legislation" supporting the "rights" of officers of major corporations to privileges and perks--see links in the Found in the Footnotes story linked above.

"Testing, 1.2.3., Testing"

For some reason, Blogger believed last week that Tick Marks was a spam blog and I was unable to make new entries. Blogging will be limited for the next month to six weeks with a lot of school-related responsibilities coming into play.