SEC Wants XBRL Tags to become GAAP

SEC Chairman Christopher Cox announced the completion of the XBRL taxonomy and advocated use of XBRL in publicly-traded company financial reports. AICPA Chairman Barry Melancon praised the development as a step forward in financial transparency. At the moment, use of XBRL in financial reporting to the SEC is optional but next spring the SEC is considering whether XBRL should be required for publicly-traded businesses. A download of the taxonomy will be able by early December and the SEC plans to convert its Edgar database to XBRL in the near future. Other countries, such as South Korea, Spain and Canada, are also considering XBRL adoption.

Congratulations to those whose hard work has cumulminated in the XBRL taxonomy. By the way, tax readers, do NOT overlook this development; the IRS is considering implementation of XBRL for corporate tax reporting.

Federal Government Accounting, Though Still Flawed, Is Moving in Right Direction

For many years after passage of the Chief Financial Officers Act, meeting guidelines looked to be a forlorn hope with less than 10% of federal agencies approaching compliance. Today, 19 federal agencies and departments have received "clean" audits during the past two fiscal years and 12 (up from one in 2001) now meet a broader test of five management areas. Long-time financial management specialist Linda Combs says that all this is evidence of progress in federal financial reporting. Two benefits: a 20% or $9 billion drop in improper payments and $4.5 billion from sales of surplus real estate. Even the traditionally lagging Defense Department is showing signs of improvement--the Army Corps of Engineers is having its first outside audit this year and the Marines will be ready next year.

Certainly, improved financial management will fall well behind Iraq, homeland security, tax cuts and even domestic economic performance as a legacy of the Bush administration. Nevertheless, it is encouraging for U.S. taxpayers everywhere to hear that the federal bookkeepers are making progress in upgrading federal financial reporting.

FEI Adopts New Web Address

As of last Friday, Financial Executives International has a new address. My links will be updated soon.

Update: The FEI Blog (link also updated) is indicating that the SEC has completed the XBRL taxonomy and will be adopting rules related to XBRL next spring. More comprehensive material on this later.

IRS Develops Home Foreclosure Web Page

IRS Foreclosure Web Page and FAQs

The Internal Revenue Service upgraded their home page information about the tax consequences of mortgage foreclosure--at once reminding participants in foreclosures that the foreclosure could be a taxable event while noting that there are some circumstances that may keep the taxpayer from tax liability. A worksheet on the new IRS page allows the taxpayer to estimate tax impact--but also indicates availability of deferred payment options and offers in compromise. Additional, insolvent taxpayers (those with liabilities in excess of assets) avoid tax liability to the extent that insolvency exceeds the amount of net debt forgiveness (debt avoided less market value of house lost). The IRS announcement also emphasizes the importance of lenders providing accurate 1099-Cs to former homeowners.

While greed of both lenders and borrowers helped create the "subprime" mess, the fallout has potential ramifications for the U.S. economy as a whole. The IRS has done a good job in clarifying the responsibilities of both foreclosure participants and lenders here.

Bad Accounting Habits (Hobbits?) in Film Royalty Suit

A judge recently fined New Life Cinema $125,000 for failing to protect documents and e-mails related to a lawsuit between the moviemaker and producer Peter Jackson on royalties from the first episode of the Lord of the Rings film series (Fellowship of the Ring). An external document company has been called in--Jackson stands to receive multiple $millions from DVD sales and foreign receipts. A prequel, "The Hobbit," is being delayed while legal proceedings continue.

Accounting in the entertainment industry has long had a reputation of being somewhat less forthcoming than the average SEC publicly-traded corporation. The New Life-Jackson brouhaha appears to be burnishing the industry's reputation for less-than-inspired "creative" accounting.

Accountants on Audit Committees? A No-Brainer? Maybe Not

A sample of 670 audit committee members on 164 public companies found that only 12% of audit committee members (23% of chairs, 22% of "financial experts) were professional accountants--about one professional accountant per TWO audit committees. To buttress this, 40% of audit committees had at least one accounting professional in 2006--and that was almost double the 21% who had an accounting professional in 2002. Even including the more prevalent finance professionals, only two-thirds of audit committees had a person with a strong accounting OR finance background as their "financial expert." The report, published by Huron Consulting, did note that backgrounds of audit committee members lacked full disclosure in some cases and that SEC rules did not require a financial expert to be an accounting or finance professional.

It would seem obvious that publicly-traded corporations would want at least part of their audit committee membership to be accountants to help interpret the financials, notes, audit reports and tax returns and other members to be financial professionals with their statistical and financial forecasting skills. The only conceivable shortcomings--impact on the independence of present or potential auditors and inability to compensate accounting and finance professional members for the opportunity cost of serving on the audit committee.

25,000 Views in Sight

Looks like about Wednesday, slightly less than four months since the 20,000 mark (May 23). Many thanks again to all readers and the bloggers who link to Tick Marks.

Congress and GAO Call on SEC to Investigate Complaints Better

A study by the General Accountability Office for Congress criticizes the SEC for poor management of investigations of investor complaints and also calls on the commission to be more efficient at returning money received in complaint settlements to injured investors. On the second point, GAO found that only $1.8 of settlements since 2002, less than a quarter, have been sent on to investors. More unsettling was a GAO probe for Charles Grassley (R-IA) and Arlen Specter (R-PA) last year found that some investigations had been all but tabled by the enforcement division while some in the SEC claimed the investigations to be active.

On the overall, I have been satisfied with Chairman Cox. The GAO, however, has found legitimate concerns. While it is encouraging that the SEC is taking the GAO complaints seriously, the SEC is far from out of the woods on both the distribution of settlement funds issue and the vigor of enforcement issue.

Viewing Some Blogs Less Visited

I feel that all the blogs listed at right are worthy of your attention, but will acknowledge that I reference some blogs more than others. A small sampling of blogs which I have not referenced in many months:

David Rachford's CPA Marketing Center blog makes the case for writing newsletters [9/12] at CPA Blog: Marketing for Accountants.

Kevin LaCroix at D and O Diary reports that insider trading still matters to the SEC [9/1].

Jim at Blueprint for Prosperity explains how Fed interest rate changes impact stock markets [9/13].

The "unknown professor" at Financial Rounds studies how much CEOs should be paid [9/14].

Milt Baker at CPA Sense points us to IRS Publication 970 to review all the tax incentives available to students at colleges and universities [9/11].

Last but far from least is Texas Tech law professor Gerry Beyer at Wills, Trusts and Estates Professor Blog provides two useful posts about handling of digital property after death {9/11, 9/13].

Couponing on e-Bay

It has been a while since I had a pure personal finance post, but my wife has done some experiments with buying coupons on e-Bay. Some suggestions if you are considering this:

[1] Know what you are doing: My wife has bought and sold on e-Bay and knows her way around. Me, not too much.

[2] Consider opportunity cost of coupons: If you are a college student with a part-time job earning $8/hour, aggressive couponing makes sense. If you are a harried professional working 50 hours per week and raising two kids; even the best coupon-hunting on e-Bay isn't worth it.

[3] Consider frequency of use: One of the great traps in seeking bargains is buying something that you won't use just because it is on at a good price.

[4] Consider span of coupon and perishability of item purchased: Related to [2], if the coupon expires before or shortly after you get it from e-Bay, you may not be able to fully benefit from coupons, especially if your preferred store limits the number of coupons you can use in one trip. Additionally, buying large quantities of coupons for a perishable product only makes sense if you have a large freezer or you plan a donation to a charity with a large freezer.

[5] Take shipping into account: If you are buying 20 coupons $2 off coupons for Tide; the auction price is $8.60 and the postage is $3.40, your cost per coupon is not $0.43 but $0.60 [(8.60 PLUS 3.40)/20].

Feel free to add additional points, I may have overlooked something important here.

Chief Lobbyist Named for AICPA

32-year-old Mat Young has been named Director of the newly-created Congressional and Political Affairs department of the American Institute of CPAs. Mr. Young previously served Senator Debbie Stabenow (D-MI) as director of economic policy and has served as part of Democratic staff on banking and housing in the past. Among Mat's responsibilities will be advocacy for the AICPA on Sarbanes-Oxley and tax policy issues.

I wish Mr. Young success in his role with the AICPA, though it is sad that accounting now believes that it needs a well-connected lobbyist in Washington.

U S House of Representatives: No Tax Strategy Patents

In passing patent protection law for technology companies, the House, by a 220-175 vote, included a provision which protected accounting firms from suits related to "tax planning methods." Congress took the position that patented tax strategies were inconsistent with revenue raising and also would decrease competition in the tax preparation industry. AICPA President Barry Melancon praised the legislation for protecting equity in the tax system. He noted that over 50 patents were already in place.

As stated here on other occasions, along with most other bloggers, I believe that tax strategy patents definitely were not in the best interest of tax preparation customers and the large majority of CPA firms and other tax preparers. I commend the House for its decision.

KPMG Running Afoul of Canadian Labor Law?

CPA firm KPMG has been targeted in a class-action suit in Ontario for insufficient or nonexistent overtime pay for employees working over 44 hours. Jonathan Ricci, plantiff's lawyer, said that employees, including lawyers and non-CA staff, were not exempt under Ontario regulations and said that the outcome probably would not come quickly. KPMG representatives quickly pointed out that US operations of the firm were not directly affected.

I only know enough U. S. law to be dangerous--I certainly do not know Canadian labor law. Within the U. S., KPMG actually has a reputation as an enlightened employer and has been found on more than one "best places to work" list. One possible ramification for U. S. CPA firms thinking about going international--get advice on international law before starting operations; tax season practices that are well established in the U. S. may not fit in other countries or cultures.

RAIN!!

We are getting our first significant rain today since mid-July, a glorious sight though too late to save the corn crop (many area farmers have already harvested) and it probably will only green up lawns slightly.

More to the point, Kay Bell's Labor Day Carnival of Taxes (Don't Mess with Taxes--Tuesday) included my article late last month on Congressional defeat of legislation allowing a federal agency to prepare tax returns in rural communities.

Background on Labor Day

Mark Lewis of Forbes provides an interesting read on the history of Labor Day and why the U.S. version is more tame than that of most of Europe (which celebrates on May Day--shudder, my anniversary). The roles of AFL founder Samuel Gompers and President Grover Cleveland were emphasized.

Until the 60s counter-culture and subsequent descendants (including the present-day netroots) even the liberal wing of American politics was pretty tame by international standards. It is interesting to see how Labor Day played a role in leading American unions to emphasize financial benefits and job security for union members as opposed to broad social change.