National Sales Tax? Limited Enthusiasm for Opening that VAT.

Using a value-added tax (similar to Canada's goods and services tax) as a way to decrease the budget deficit generates little excitement from those polled by the national Rasmussen Group. The idea is rejected 68-18% with high skepticism of claims that institution of the tax may permit reduction of income tax rates. The idea fares better as a vehicle for expanding health care coverage, overall VAT is then opposed 49-40% with Democrats actually favoring this approach. An alternate strategy of replacing the income tax with a VAT is favored 43-36%, with Republicans and independents mildly favoring and Democrats mildly opposing but no group hitting 50% either in favor or opposition (this alternative is similar to the FAIR tax favored by Neil Boortz and Mike Huckabee among others).

Reports by the Washington Post this weekend brought up the VAT, which leads me to suspect that the Obama administration was bringing forth the VAT as a trial balloon for future revenue-raising.

Updating the "Subsequent Events" Audit Requirement

The Financial Accounting Standards Board (FASB) just issued FASB Statement 165 which adjusts requirements for subsequent event reporting. A new standard of "available to be issued" sets the final date of required consideration (the balance sheet date starts the "subsequent event" period). This "available" date (or use of the present audit report date) is a required disclosure. As was true prior to FASB Statement 165, some items will get note disclosure while other events will need financial statement recognition. FASB expects minimal impact of the statement, which applies to financials (including interim statements) issued after June 15.

Perhaps there is some value in a brief "subsequent events' review in interim statements (or even financial forecasts as counterintuitive as this sounds) but it is hard to see the need for an FASB statement on annual reports just to disclose end date of subsequent events, especially since the assumed date prior to this statement was the audit report date. In my "for what its worth" opinion, FASB 165 should have gone beyond its present scope and clarified and adjusted what was to be included in subsequent events and how to present these events or been issued as an interpretation.

Okay, I'll Bite--Is Tax Policy Really Based on Women's Magazines?

NOTE: Sorry for last week's light blogging; I had to be out of town to be available for my dad as he experienced a medical procedure last week.

Web CPA Editor-in-Chief Michael Cohn compares the new Geithner/Obama "Greenbook" with articles from the popular women's magazine "Redbook." Comparisons include expanding the Earned Income Credit to praising marriages of the past generation; disaster tax relief to fixing "fashion disasters," limiting availability of itemized deductions to high-income taxpayers to counterproductive diets, using tax credits to increase access to college education to being too busy with the needs of others for self-improvement and a comparison of requiring electronic filing to hot "beach reads."

Some of Mr. Cohn's comparisons seems contrived (NOL carryback to swimsuits) and the column may be overly similar to conservative satire sites such as Scrappleface for the liking of some--nevertheless, I considered it a worthwhile attempt for some light humor for the [usually] less intense summer months.

Starting a Marriage Off on the Wrong Financial Foot

Erin Burt of Money Magazine reports on six ways to go wrong with money early in the marriage. These include hiding information (such as premarital debt) from a spouse, not using a budget (and it probably should be formal), leaving husband or wife out of the loop (though one may indeed be better at budget prep, both should know what is going on), bringing debt into the marriage (have a plan BEFORE the wedding to pay it off), making mountains out of molehills (not complaining about $1 overpayments) and not having a fund for emergencies (they WILL happen).

Ms. Burt's advice is solid and Dave Ramsey-tested. It, however, applies to those in estimated marriages, civil unions and "living together" couples as well as newlyweds.

NOTE: I probably will not post again until at least Saturday.

"Numbers" in Real Life

Trustee Irving Picard and Securities Investors Protection Corporation (SIPC) President Stephen Harbeck are hard at work attempting to get (at least a degree of) restitution to investors damaged by the Bernie Madoff scandal. Picard and Harbeck have approved $61 million in claims and paid about half of the amount approved. Generally speaking, payments have been $500,000, the maximum allowed by law from SIPC funds. Determining who actually was eligible was a challenge by itself because of the large number of fraudulent documents. Picard and Harbeck have set up a "emergency" pool within the SIPC for retirees and others in the most dire straits. Funding will come from a combination of successful suits against Madoff investors with large payouts and an increase in SIPC fees.

For several years, my wife and I have watched the "Numbers" television show about a math professor in California and the aid he gives to his FBI brother. Although the parties involved here are accountants and attorneys rather than mathematicans and police officers, the concept is very similar. Picard and Harbeck illustrate the potential for a relatively new branch of accounting called "forensic accounting." The process is similar to a financial audit, but with a greater emphasis on detecting fraud or similar criminal activity. Lesley Davidson at APSU actually teaches a course on the topic, which appears to have significant growth potential even in tough economic times like these.

Social [In]security--Fine if over 50; otherwise...

Emily Brandon of U.S. News reports that the Social Security Trust Fund is now scheduled to be tapped by 2037; four years faster than estimated the last time that Social Security was (more or less) seriously discussed. Ms. Brandon expects few changes for future recipients who are 50 (possibly even 45) or older, but tax increases, reduced benefits, backdating the age for standard benefits (presently a sliding scale from 65 to 68 depending on birth year), means-testing (reducing benefits for wealthy retirees) or capping maximum benefits may occur for potential recipients born after the early 1960s. One-time Deputy Commissioner Andrew Biggs points out that longer life expectancy in addition to the recession has hurt the system. Additionally, Medicare is on even more precarious footing, with present projections calling for funding to run dry within a decade. Expect to see increased premiums here in the near future, especially if your income is over $170,000 for MFJs and $85 K for others. Ms. Brandon's recommendations: save more now and work later (into your 60s and perhaps even early 70s) if health permits.

I cannot fault Ms. Brandon on her recommendations, though I hope I can retire (or at least semi-retire) by my early 60s. While acknowledging that the past four years (especially the stock crash of late 2008 and early 2009) would not have been kind to partial privatization (a la Bush 2005); the past 100 years suggest that on the overall Social Security would be sounder with some market involvement--average return on the present system (barely above 0) only looks good if in a significant recession. One final alert--I am very skeptical of the CBO projection of little or no COLA for social security recipients through 2012. The odds of significant inflation as early as the middle of next year exceed 50% in my opinion and Congress cannot politically hold off cost of living raises if inflation is 4% annually or greater.

Squealing About Cutting $17 Billion in Pork??

U. S. Congresspeople, while supporting (at least for public consumption) the $17 Billion in proposed budget cuts, have found reasons to stop specific actions. Earl Pomeroy (D-ND) rejects the idea of reducing government to farmers with sales exceeding $500,000 because of its inclusion in a five-year plan several years ago. Jack Kingston of Georgia (R-GA) argues that because cotton did not get an increase in price supports that a provision eliminating payments for cotton stored by the USDA is unfair to cotton farmers. Lisa Murkowski (R-AK) asserted that she would use back door procedures to protect health clinic funds for the "Last Frontier." Finally, Diane Feinstein (D-CA) criticized the cut of federal funding for imprisoned illegal aliens. On the other side, Jeff Flake (R-AZ) called for even greater budget cuts and "Blue Dog" Charlie Melancon praised the cuts as a useful first step toward a "pay as you go" budget.

Flake, and Melancon to a lesser degree, have this one right. $17 Billion is an absolute drop in the bucket (about 0.2% or 1/500th)of a $3.6 TRillion budget. Some cuts may be slightly painful, but inaction increases the already-sizable odds of bruising inflation in the next 18-24 months.

Is IFRS Still on the Way? If So, When?

WebCPA editor-in-chief Micheal Cohn argues that stakeholders in the potential convergence to IFRS are getting antsy and want more certainty in getting to convergence. Having said this, quotes from the article indicate some diversity in views. Strong proponents such as D. J. Gannon of Deloitte and Touche and Aaron Anderson of IBM want to pursue convergence at full speed. Others, such as Samuel DePiazza Jr. of PWC and Talia Griep of Honeywell want to assure that the best possible transparency and quality occur, regardless of what approach that may be. Joyce Joseph-Bell of Standard and Poor's found that IFRS statements appeared to be more transparent.

At this time, I do not oppose IFRS, but I DO believe that the present roadmap is undesirably urgent. (I made a similar argument with co-author Lesley Davidson at a recent SOBIE conference in Florida). Two major issues have to be addressed in my mind before I can endorse IFRS: [1] What are the cost and benefits? Robert Herz of FASB makes an excellent point about the need to determine the impact of IFRS on the U. S. economy, ESPECIALLY in view of the recent recession. By slowing down the roadmap, we get to see the experiences of similar if smaller economies such as Australia, Canada and Mexico. [2] What will reporting standards be for nonpublic private businesses? It is not hard to see a number of reporting bases for accountants: IFRS for the large majority of publicly-traded companies, a slightly simplified U. S. GAAP for larger privately-held businesses, a separately modified U. S. GAAP for nongovernmental not-for-profit organizations and income tax basis/OCBOA for small privately-held business. In this context, IFRS doesn't seem to solve much in the way of standards overload except for the largest of businesses and CPA firms.

Cinco de Mayo

Kay Bell's Tax Carnival 53

[1] Kay Bell published her 53rd Carnival of Taxes with a "Cinco de Mayo" theme. My post on IRS tips for handling an audit from a week ago is included along with the usual many other good posts. The link to the carnival is given above.

[2] The link in the title gives a history of the Mexican victory over French forces in 1862. Cinco de Mayo is somewhat comparable to the American War of 1812--it did not provide independence to Mexico as such (this happened in 1810) but assured that Mexico would remain independent. The article points out that Cinco de Mayo is a bigger deal for American Hispanics than for Mexicans (and probably bigger yet for importers of Mexican beers!).

An Accountant's Perspective on the First 100 Days of Barack Obama

WebCPA's editor-in-chief, Michael Cohn, notes that there have actually been a sizable number of events in the early days of the Obama administration. Among the more significant: the tax provisions in the stimulus bill, a look at the Obama's personal tax return, the dilution of "mark to market" and the $3.6 trillion budget. Cohn also noted that bipartisan goals and executive compensation controls were not working out as well as hoped. For those, Cohn said [tongue-in-cheek] to check in another hundred or perhaps thousand days.

May Flowers?

Joe's Take

Updates (I conaidered stealing The Wandering Tax Pro's "The Buzz", but didn't):

[1] Had my 16th anniversary yesterday (Yeah Pam and I!)

[2] Started finals yesterday (as usual, some did better than others--especially on the Principles exam)

[3] SOBIE co-author and APSU faculty member Lesley Davidson just started her own blog, "APSU Accounting InfoLink." The blog at present is primarily designed to update the APSU accounting department, but hopefully Lesley will venture into broader topics in time. I have linked Lesley's blog in the title.

[4] Joe Kristan of Roth CPA Updates wrote a thought-provoking response to my post about accounting faculty. Obviously, Iowa does not provide good options for active practitioners to enter academia, but Iowa is hardly alone. Non-educators typically are made adjuncts and adjuncts are grossly underpaid. I can also understand Joe's lukewarm reaction to the "Accounting Doctoral Scholars" program. While ADS is a worthy effort, the AICPA plan still places sizable financial hardship on practitioners who are still raising a family when wishing to start transition.
Some universities have "Executive in Residence" programs which may be an answer. Elsewhere, it will be a tough sell as a number of liberal arts faculty already begrudge the salaries paid to accounting, computer science, engineering, etc. faculty WITH Ph.D.s and may mutiny if non-Ph Ds in professional fields, even those with impeccable practice credentials, are paid more to teach than theater and history faculty with Ph.D.s. One final idea--a greater level of summer internships by larger CPA firms to give academics a better idea of how CPA practice works today.