Although there is some evidence that the credit market is loosening, it is clear that the harsh lending environment of the past two years has taken a toll on a wide range of businesses.  There are, however, tools that provide temporary help, including the government’s current policy on “loss carrybacks.”

As part of the original stimulus bill, the loss carryback provision gave qualifying companies that registered a loss on their current income tax return the opportunity to extend that loss into previous, profitable years.  Under the adjusted regulations, the field of qualifiers has been expanded to include most companies, and a loss booked for the 2008 or 2009 calendar year (but not both) can be carried back up to five years through amended returns.

A CNN article on loss carrybacks points out that the provision has resulted in “some giant refunds for big businesses — troubled homebuilder Lennar recently booked a $353 million tax gain from the provision — and a much bigger hit to the nation’s coffers. The Joint Committee on Taxation estimates the carryback change will cost the government $33.2 billion this year, though the 10-year cost of the break is smaller, because companies won’t be carrying 2009 losses forward to reduce their future tax bills. The committee’s estimate of the 10-year cost is $10.4 billion.”

The move isn’t unprecedented.  According to an article in CFO Magazine, the Bush Administration provided a similar opportunity following 9/11, and in 2009 the original amendment was available only to businesses with less than $15 million in revenue.  This time it applies to businesses of all sizes and includes pass-through entities as well as C-corporations.

Anecdotal evidence suggests that companies are finding real benefit - albeit short term - in the carryback provision.  Is it a measure you think will aid small to midsized companies through to a recovery?

One of the most significant tasks introduced in 2009 was presented by new guidelines under the Massachusetts Privacy Law, which requires a slew of changes to administrative and security processes.  Compliance calls for a significant overhaul for many companies, and the deadline is just around the corner: March 1, 2010.  The marketplace has demonstrated an urgent need for a new standard of  information protection, so we do not expect a great deal of leniency for those that fall behind.  Companies need to take the new law seriously, gear up, and put appropriate defenses in place around the personal information of their employees and customers.

This is without question a daunting call to action, however the need for the law remains unquestioned.  In fact, a report published by the Office of Consumer Affairs and Business Regulation [PDF] notes that since 2007, over 1 million Massachusetts residents have been impacted by security breaches.  The report states that 495 incidents were criminal in nature, while 312 “generally demonstrated poor employee handling of residents’ personal information, including transporting sensitive data, either in disregard of company policies, or in an environment without sufficient policies in place to secure such information.”

A few additional findings from the report include:

- The OCABR received 807 notifications of security breaches

- Most breaches (76 percent) were electronic in nature

- It may have been expected that financial services breaches impacted the highest number of individuals (707,305), but it is perhaps a bit surprising to find that the second greatest impact was felt from incidents involving the education sector (130,161)

The law takes aim at improving defenses against the criminal element while shoring up process to reduce risk of negligent handling of data.  And most importantly, it applies to — by the letter of the law — all persons that “own or license” personal information from a resident of the Commonwealth, specifically any individual or company that “Receives, stores, maintains, processes, or otherwise is permitted access to personal information through its provision of goods or services directly to a person that is subject to this regulation.”

That means pretty much everyone.

The most important step to compliance might be the WISP - a Written Information Security Program (WISP) that ensures the security and confidentiality of personal information in both physical and electronic format. The actual scope and complexity of a WISP will vary depending on an organization’s size and scope of business, availability of resources, nature and quantity of data stored, and the need for security and confidentiality of both consumer and employee information.

There is of course much more to understand before diving in. We encourage you to take a look at this 2009 Perspectives article for more detail, including specific action items and consequences for failing to comply.

During MFA’s annual Education Week this summer, we were lucky enough to get some time with Barry Melancon, President and CEO of the AICPA.  Barry shared a fascinating perspective that helped to draw the line between a high level, overarching outlook and the client work we conduct on a daily basis.  It was interesting to see that the discussion centered around issues that we often touch upon here in MFA’s Business Insights.

Much of the bird’s eye view centered around the nature of small and mid-sized enterprises and their role in the U.S.  We’ve seen a great many changes in the small business landscape, and Mr. Melancon was adamant that the focus on this segment continue to get stronger.  He noted that “In our society, small business is really the engine.  It makes up about 50% of our pre-recessionary GDP.  There are about 24 million private businesses (including work-at-home businesses), and about 16-17 thousand public companies.  It’s a huge part of our economy.”

Small businesses often fall out of the spotlight and struggle to have their viewpoints heard over the louder voices of large organizations. Certainly in this economic climate, the challenges encountered by small business owners run a wide berth, but our focus on reporting and compliance gives us a window into the difficulties of complying with regulations that aren’t necessarily written for that audience.  We’ve touched on this before in posts on XBRL, the FASB codification, Massachusetts privacy laws, and International Financial Reporting Standards (IFRS).

The slow momentum towards IFRS was of key importance to Mr. Melancon.  He noted that:

There is a lot of concern around the country about the complexity of accounting standards for private companies, especially FIN48 and FIN46R…We believe it points to a problem that we have an increasing number of private company statements that are not complying with GAAP.  Doesn’t that start to conflict with the concept of generally accepted accounting principles?  Is that what we want, or should we have standards that are more tailored to private companies?

There is a likelihood that we’ll see some process that will create a different set of accounting standards.  IFRS gives us an opportunity to look at this…Just last week the International Accounting Standards Board issued IFRS for SMEs, and maybe that’s the answer for private companies.  Or we have to look at several other options to begin to have a process where appropriate standards are in place for private companies.  There are many different approaches, and this will be a critical issue to work out over the next 18-24 months.

Mr. Melancon also had some great clarifying comments about the ongoing Fair Value debate that centers on whether Fair Value should be adjusted to help correct plummeting company values. We’ve written both on the conflict and on the opportunity provided by the situation, and Mr. Melancon added some texture to the conversation when he said that:

Fair value accounting reports on what has happened but the underlying business decisions are what caused many of the issues we’ve experienced.  But FASB has still come under tremendous pressure to modify Fair Value in order to not exacerbate the situation.  They did modify the rules to some degree, although there’s still lobbying in Congress for FASB to go further.  This lobbying in Congress brought into question whether the government should set accounting standards; we believe completely in the independence of the standard setting process.

Such wide-ranging discussion was invigorating, especially as we work earnestly towards the light at the end of this recessionary tunnel.  It is clear that there will be significant changes in a number of areas, even if the tides take some time to rise.  We believe that out of difficult times will come a stronger, more flexible system that will benefit U.S. businesses and enable us as a country to innovate our way back to a position of leadership.