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Archive for the ‘Reporting standards’ Category

Don’t Ignore the HIRE Act: Tangible Tax Benefits Await Employers

June 15th, 2010 by Julie Viola

Through many of my conversations with CFOs, controllers and owners of mid-market and smaller companies, I’ve noticed a running theme that more emphasis should be placed on the tremendous opportunities afforded by the Hiring Incentives to Restore Employment (HIRE) Act (see this March 2010 MFA Perspectives for more detail on the HIRE Act). While most are vaguely aware that the Act was signed into law back in March of this year, there is less understanding of the tangible tax benefits this Act offers for private sector employers – for profit and nonprofit organizations – as well as state colleges and universities.

As companies once again look to expand their workforce, the HIRE Act tax incentives provide a boost of urgency for businesses to hire new workers. The payroll tax exemption puts money into a company’s cash flow immediately, since the tax is simply not collected in the first place. Also worth mentioning is that the threshold to qualify for the full new hire retention tax credit is relatively low – $16,129 in wages will be required to earn the full $1,000 credit ($16,129 x 6.2 percent = $1,000).

Below is an outline of the new hiring and retention incentives, including important qualification criteria and details on how to claim the tax benefits. Execution, or a company’s ability to quickly recruit and hire, will be key to taking maximum advantage of these incentives. Hiring qualifying workers sooner rather than later will draw the most out of the Act, as the tax credits diminish over time and disappear completely by January 1, 2011.

Details of the New Tax Benefits

Payroll Tax Exemption

Gives a qualified employer an exemption from paying the employer share of Social Security employment taxes (6.2 percent of the first $106,800 of wages) for wages paid in 2010. (more…)

Financial reform: panacea or paper tiger?

June 8th, 2010 by Mike Piessens

On May 20, 2010, the Senate approved an extensive financial regulatory bill, while a similar bill had passed the House back in December. The bills must now be reconciled and approved by the full Congress, a process which is expected to take several weeks. Overall, the bills are broadly similar, with some important differences nonetheless. Once a single piece of legislation is crafted and agreed upon, it will be sent to the President for final approval.

The general goal of the pending legislation is to prevent a situation similar to the 2008 crisis from recurring, and to instead ensure responsibility and accountability. Authors of the legislation believe that this would be accomplished by reshaping the roles of several federal agencies and greatly augmenting the powers of the Federal Reserve so that future debacles could be pro-actively predicted and contained. The concern is that various loopholes, dependencies and watered down terms will weaken the impact of the legislation once it is finally passed. Simply put, will it have enough teeth to do the job?

For example, to address the perceived weak regulation of banks and other financial firms, the legislation would eliminate the Office of Thrift Supervision as regulator, and it would tighten oversight of large financial institutions viewed as potential threats to the system through establishment of an Office of National Insurance. A potential shortfall with this proposal is that smaller banks could still select their own regulator, which would likely be the one with the most lenient oversight.

Regarding the “too-big-to-fail” institutions (such as Lehman Brothers of the past), the government had infused billions of dollars into the largest banks to try to keep them afloat. The legislation would enable regulators to close banks whose collapse might threaten the system. The Senate bill allows regulators to decide whether to protect failed banks’ creditors. If creditors feel that they have nothing to lose in continuing to lend to weak banks, they could exacerbate the problem through over-aggressive lending and augment the costs of eventually having to shut them down. In addition, the legislation does very little to preclude big banks from growing even larger, since an amendment to the bill to limit bank size was rejected as a result of bank lobbying. As a result, the taxpayers could end up needing to foot the bill for failure again in the future.

Other hot button issues that are addressed in the financial regulatory bill include (also, see this breakdown from the Senate Committee on Banking, Housing, and Urban Affairs).

- Subjecting more “exotic” instruments such as derivatives to regulations by requiring that trading take place on stock exchanges. The bill does, however, exempt companies that use derivatives to reduce the risk of fluctuations in interest rates and commodity prices. This could serve as a loophole for companies to exploit, by combining traditional business activities with purely financial investment through using derivatives.

- In order to stem risky lending to homeowners, the legislation would create a new consumer protection agency to monitor banking products and ban risky ones. However, the legislation would confine the consumer watchdog’s authority to firms with at least $10 billion in assets, leaving thousands of community banks and non-banks unsupervised.

- As far as credit rating agencies, many gave safe ratings to high-risk mortgage investments that later tanked. To try to address this weakness, the Senate bill would require an independent board, appointed by regulators, to choose rating firms, and would end the banks’ ability to select those agencies themselves. The issue is that the large ratings firms would still end up being paid by banks whose products they rate, which could influence the resulting ratings. Also, since regulators missed the warning signs leading up to the original crisis, why should we give them the keys to choose which agencies rate which financial products?

The bottom line is that even though this monumental legislation is expected to be finally completed and signed by the President very soon (possibly July 4th), it appears that the grandiose new financial rules might not be more than a paper tiger with too many loopholes to prevent another financial crisis – all bark, but no actual bite. We shall see…

View from the top, with insight from AICPA President and CEO Barry Melancon

August 6th, 2009 by Matthew Boyle

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.