College Knowledge--A Tax Form for Universities to Complete

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Senator Charles Grassley (R-IA and ranking member of the Senate Finance Committee) has asked the IRS to prepare a separate form for colleges and universities to complete in lieu of the traditional Form 990. The form would require a greater level of disclosure related to student populations, endowments and executive compensation. A spokesman for Independent Colleges and Universities criticized the idea, saying that an unintended consequence might be a increase in tuition. Grassley's proposal may have been influenced by results of a recent Form 990 from Harvard University, which forced the well-known institution to provide greater levels of financial aid to its students.

My initial inclination would be similar to Law professor Jon Forman--"let the sunshine in." Most public universities are having to provide greater levels of disclousure to boards of trustees as is; it should not be greatly incremental more difficult (assuming an IRS form with sufficient clarity, not always a safe assumption) to provide the info to the IRS. Heaven knows that university faculty and administrators have called for greater business disclosure on plenty of occasions.

House Passes Disaster Tax Assistance and AMT "Patch" Bills

The House of Representatives, responding to legislation concurrently under review in the Senate, passed on Wednesday an adjustment to the alternative minimum tax to effectively remove middle-income taxpayers from being at risk and a disaster relief bills which gives taxpayers in declared disaster areas throughout the country similar tax relief and reporting deferral to those traditionally given to hurricane victims. The one-year AMT legislation is often called a "patch" to indicate a short-term solution. Extenders of certain other deductions and credits was under consideration Thursday.

It is good that AMT is getting patched before December this year. Nevertheless, I hope that a long-term solution to AMT is passed in 2009.

NOTE: A previous post about Al Franken has been removed as it appears that the post might have been out of date.

Grant Thorton survey: Plurality of CEOs Give Lukewarm Support to IFRS

A Grant Thornton survey of 250 U. S. chief executive officers indicated that 40% of CEOs favored the SEC's decision to permit use of international financial reporting standards without reconciliation (16% strongly, 24% somewhat); 31% had not decided and 29% disagreed (9% strongly, 20% somewhat) - meaning that only one-quarter of those surveyed had strong opinions. About three-fifths of respondents had some significant experience with IFRS; only about 20% had none. About three-quarters of those surveyed believed that their accounting systems were at least somewhat capable of handling IFRS.

No great enthusiasm for IFRS here; but I guess a lack of fervent resistance will encourage the SEC. I hope that the optimism of CEOs is well-founded regarding the flexibility of their accounting systems.

To Bail or Not to Bail: The $700 Billion Question

Angry Bear from the left--con

Roth CPA, slightly right of center--unenthusiastically pro

Senator Richard Shelby, one-time conservative Democrat, now Republican--con

I have provided three perspectives on the bailout (Angry Bear via AAO and Shelby via Neal Boortz). I am really torn and praying about this extraordinary proposal--I had hoped that such action was done with Chrysler in the 1970s and the Savings and Loans around 1990. Force me to make a decision and I probably would oppose today; though I am not sure that I will oppose the legislation by the time the vote occurs (probably Thursday). Mostly, however, these are the times that one should keep in mind when tempted by the glamour and power of politics.

A Wild Day in Washington (and elsewhere)

The housing crisis hit the broader market about a week ago, with the loss of Lehman Brothers (and just before the Ryder Cup, Tom) and bailout/special loan arrangements/ nationalization for Fannie Mae, Freddie Mac and AIG. Today the accusations and commentary reached "silly season" levels as Fed chair Bernanke and Treasury secretary Paulson considered automaker propups and purchase of junk securities related to home mortgages. Happily for Charles Rangel, an additional scandal related to parking effectively was buried by other events of the day.

The big headlines of the day and associated commentary (guaranteed to be worth at least what you paid for it):

1. The Fed and other central banks throw nearly $200 billion into global capital markets - Milton Friedman would deservedly be proud of Bernanke today; the liquidity infusion was absolutely correct in a market dominated by fear.

2. Joe Biden called on high-income taxpayers to show their "patriotism" by paying higher taxes - Apparently Senator Biden has forgotten that Supreme Court Justice Learned Hand said many years ago that there was no duty to pay more than the amount legally required. Additionally, Senator Biden may wish to contribute more of his personal income to charity before calling on taxpayers to chip in more to the Treasury; a report today indicated that recent tax returns show less than $500 in donations last year.

3. John Mc Cain called for the firing of SEC Chairman Christopher Cox - I should note that Bill O'Reilly has also sharply criticized the SEC chair for not providing investors with sufficient warning in regard to the present crisis. I actually believe that Cox has done a good job on the accounting side (XBRL, added disclosure, etc.) but he has not been part of the Bernanke/Paulson action axis, leading one to wonder if Cox has been the Michael Brown/Kathleen Blanco of this crisis. Not ready to join McCain yet, but Cox may have some explaining to do.

4. George Bush cancels fund raisers to stay as the crisis unfolds - For once, the president's instincts were on point here--unfortunately for him, not only Democrats but increasingly McCain/Palin treat Bush as irrelevant.

5. Bernanke/Paulson meet with Congress tonight--a RUMOR about a Paulson mention of a mortgage securities bailout was enough to spark a late stock rally. Hopefully, we will know more tomorrow.

At this point, I would prefer to loan the automakers $25B for retooling and retraining laid-off workers compared to another financial bailout. Nevertheless, I'm sure that my opinion carries less value in Washington than a Countrywide derivative.

Top 50 Accounting Blogs

A bit late on reporting this, but Christina Laun of www.biz.edu has compiled a list of the top 50 accounting blogs and Tick Marks is included. Categories include General Accounting, For Accountants by Accountants, Professors and Students, Professional Organizations, Tax Blogs and Niche Blogs.

A big thank-you to Ms. Laun and congrats to the other bloggers recognized, many of whom are linked in the blogroll at right. Once again, this item shows that I am struggling to keep the blogroll up to date.

Rangel: I'm Staying as Ways and Means Chair

Note: Prof. Caron has included numerous stories about the controversy.

Powerful House Ways and Means Committee chairman Charles Rangel refuses to step down from the chairman, in spite of criticism of shortcomings in his personal return. At issue include income from overseas rental property and a rent-controlled New York apartment used as a congressional office. In the face of heavy Republican pressure, Speaker Nancy Pelosi is continuing to support Rangel's intent to keep the chairmanship. Rangel has promised to turn over 20 + years of tax returns to a foresnic accountant who will report to the House Ethics Committee.

To minimize the political content of this post, I will assume for now that Rep. Rangel is telling the truth when he characterizes the tax return flaws as honest mistakes. Nevertheless, there is something seriously wrong when one of the most powerful tax writers in Congress cannot get his own return right. Rangel should NOT keep the chairmanship unless he not only is truthful on his tax return problems but also is willing to commit to significant improvements in the understandably and user-friendliness of the Internal Revenue Code, even if these improvements do not work to his ideological preferences.

Multinational Survey of Accountants: IRC Unfair, Too Complex

A survey of six national tax systems (Australia, Canada, Hong Kong, Singapore, United Kingdom and United States) found that the U. S. tax system rated fourth in fairness and simplicity with Canad, Hong Kong and Singapore doing better and Australia (most complex) and United Kingdom (least fair) bringing up the rear. Chas Roy-Choudhury, head of the Association of Chartered Certified Accountants (ACCA)which did the survey, stated that the IRS had an "image problem" with the everyday taxpayer. He believed that this image, combined with excessive complexity, contributed to tax evasion. The ACCA also found that the U. S. and U. K. needed to emulate Hong Kong and Singapore regarding communication to tax professionals.

The ACCA may be onto something here. The old saying that you attract more with carrots than sticks probably fits tax preparers--reducing tax complexity as opposed to increasing tax preparer penalties might just be a more effective way to reduce the "tax gap."

IASB/FASB Convergence by 2011: Appropriate Speed or Rushing In?

The International and (U.S.) Financial Accounting Standards Boards have revised their memo of understanding and pushed the goal of convergence between international financial reporting standards (IFRS) and U. S. generally accepted accounting principles (GAAP) forward to 2011. A catalyst for the revision was an recently-announced SEC roadmap which sets a goal for converting U. S. public company financials to IFRS by 2014. IASB Chairman David Tweedle (remember that name) indicates that the U. S. accounting community is not alone: Canada, India, Japan and Korea are also planning to achieve convergence by 2011. Key issues to address in accomplishing convergence include leases, revenue recognition and preparation (form?) of financial statements.

Probably very scary news for auditors and for financial/accounting executives of publicly traded companies; basically a three-year window exists to get XBRL adopted AND prepare for IFRS. Not sure whether there will be tax implications to convergence, but I certainly would not surprised if there were.

Tax Policy, Employer Style

Small business owners listed federal taxes as the most significant domestic issue facing them (28%), followed by petroleum/fuel prices (24%), housing and credit (15%), inflation (14%) and state/local taxes (11%). Regarding costs associated with employment, the two biggest concerns were health care costs (54%) and social security taxes (25%). Finally, 69% felt that a tax cut for employees would provide more economic stimulus than this year's rebate checks.

Taxes had not attracted much attention in this year's political campaign; although a suddenly-under-pressure Barack Obama did indicate this past weekend that he was reconsidering his plans to partially eliminate the "Bush" tax cuts of earlier this decade. Hopefully, some of the upcoming debates will address issues such as candidate opinions of the fair/flat tax, achieving a better return on Social Security funds, how to handle the 2010/2011 effective tax hike (as presently deductions and credits expire) and the alternative minimum tax for individuals.

ACFE: How Fraud Gets Caught

The Association of Certified Fraud Examiners (ACFE) investigated almost 1000 fraud cases between January 2006 and February 2008. The ACFE found that fraud hotlines were particularly helpful with 216/417 cases (where hotlines existed) being caught via hotline tip. Hotlines were considered particularly useful when top executives were involved, in effect because of the reduced risk of workplace reprisal. ACFE estimated that nearly $1 trillion or 7% of GNP in revenues have been lost to fraud. Other ACFE findings: median fraud was $175,000 with a quarter involving $1 million or more; the average fraud lifespan exceeded one year; accounting departments and top management should not be above suspicion when it comes to fraud; most fraudsters had no previous record; small businesses were particularly susceptible and tips were more effective at detecting frauds than audits or internal controls.

The ACFE report provides extremely sobering news; though probably not surprising to the Sam Antars of the world. Some proposed ideas to improve these results (note: some of these fall in the brainstorming category): install hotlines where employees can be rewarded for catching fraud without fear of workplace reprisal; work to reduce the traditional stigma associated with whistleblowing as long as the whistleblowing is done in good faith; monitor internal control systems to make sure that they are not only in place but in use; insure that an internal audit function is in place (unless the business is too small to afford it) and that IA reports to at least the board of directors (preferably an audit committee of nonmanagement directors) to assure maximum IA independence); ask for external auditors to conduct an review of internal controls for companies where an audit is not required by PCAOB; work with insurance companies (which frequently have experience with fraud in general)for ideas on fraud detection; make sure that external auditors insist on answers for management overrides of internal controls; absolutely insure that all audit program steps associated with internal control and fraud detection have unquestionably been addressed and send external auditors to continuing education on foresnic accounting.

A College Degree: Benefits vs. Costs (Out-of-Pocket PLUS Opportunity)

Noticed this article over the weekend in Money Magazine. The authors talked about the rising cost of eductation and whether the investment remains worthwhile (keep in mind that if the student in question can earn about $30K or more at a full-time job, opportunity costs (cost of foregoing next best option) must also be considered). The article does point that many universities mitigate the "sticker price" through scholarships and low-interest loans.

One focus of the article was the cost of exclusive private liberal-arts schools, which I generally would not recommend UNLESS you received a major scholarship (I briefly taught at DePauw in Indiana, which is a school in this category). I DO tend to prefer mid-sized (6000 to 25000) public universities where the student qualifies for in-state tuition (I have a special bias for students in Tennessee and parts of Southern Kentucky). Large public universities (such as "Big Ten" or "Southeastern Conference" schools) in my opinion are best for graduate studies, though they make sense if the student is an accomplished athlete or wishes to major in an esoteric field (such as marine biology).

As important as the university chosen is the major chosen. From a cost-benefit standpoint, a liberal arts major rarely works unless one plans to go to graduate/professional school (then think English or a common foreign language such as Spanish), has an extraordinary talent (think Melinda Doolittle of American Idol) or goes into the sciences (and even in the sciences you probably should expect graduate or professional studies).

My preferences: engineering or enginereering technology for the facile with hands or electronic devices, information systems/computer science if that is of interest, accounting, finance or marketing in business, secondary education with math or science emphasis or special needs in education. Nursing (or related health professions such as physical therapy) also remains an excellent choice, but beware of strange working hour expectations. Finally, graduate or professional school often is a good investment if one qualifies AND if the opportunity cost of foregoing a good salary in the meantime is viable.